<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 333-50247
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INKTOMI CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7379 94-3238130
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
OFINCORPORATION OR CODE NUMBER)
ORGANIZATION) ---------------
1900 S. NORFOLK STREET, SUITE 310
SAN MATEO, CA 94403
(650) 653-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JERRY M. KENNELLY
CHIEF FINANCIAL OFFICER
1900 S. NORFOLK STREET, SUITE 310
SAN MATEO, CA 94403
(650) 653-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
DOUGLAS H. COLLOM DONALD M. KELLER, JR.
ROGER E. GEORGE MARK L. SILVERMAN
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 854-4488
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value........... $36,386,000 $10,744
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) Includes $10,450 previously paid by the Registrant in connection with the
filing of the Registration Statement on April 16, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 1, 1998
2,260,000 SHARES
[LOGO OF INKTOMI]
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
-----------
Of the 2,260,000 shares of Common Stock offered hereby, 2,000,000 are being
sold by Inktomi Corporation ("Inktomi" or the "Company") and 260,000 are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders". The
Company will not receive any of the proceeds from the sale of the shares being
sold by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "INKT".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $700,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 339,000 shares of Common Stock at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1998, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1998.
<PAGE>
INSIDE FRONT COVER
Short description of the Company with the "Inktomi" logo. Background to
include names of partners: Intel, Sun, Nippon Telegraph and Telephone, Digex,
Digital, America Online, Microsoft and Wired.
Text:
- ----
"Inktomi developed and markets scalable software applications designed for use
by the world's largest Internet infrastructure and media companies. The
Company's innovative software delivers high performance and scalability at a
significant cost savings by leveraging Inktomi's coupled cluster and dataflow
technologies. Inktomi's applications include carrier-class network cache
systems and the world's largest search engines."
[ART WORK]
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
LEFT PAGE: "SEARCH PRODUCT FAMILY" WITH TEXT AND GRAPHICS APPEARING IN THREE
COLUMNS.
Centered heading: "Search Product Family."
- -----------------
Caption: "Inktomi's award-winning Internet search engine technology enables
customers to provide a variety of on-line search services to end users. The
Company provides information search services based on its Internet search engine
to its customers who in turn incoporate these services into on-line offerings to
end users."
First column
One-line descriptions with lines to each screen graphic:
- --------------------------------------------------------
"The goo search engine, operated by Nippon Telegraph and Telephone, is one of
the most successful web sites in Japan."
"Microsoft Start, once launched, is intended to be a comprehensive web portal
site for consumers."
"Wired's HotBot service, recipient of numerous industry awards, provides search
access to over 110 million web pages."
Across second and third columns
Graphics of goo, msn and Wired screen shots of search page. Goo site is in
Japanese script.
<PAGE>
RIGHT PAGE: "TRAFFIC SERVER PRODUCT FAMILY" WITH TEXT AND GRAPHICS APPEARING IN
THREE COLUMNS.
Centered heading: "Traffic Server Product Family"
- -----------------
Caption:
- --------
"Inktomi's Traffic Server is a large-scale, high-performance network cache
specifically designed to reduce Internet congestion and increase overall network
efficiency. Traffic Server alleviates network congestion and increases network
performance by storing frequently requested information in proximity to users,
thereby greatly reducing the transmission of redundant Internet data."
First column
Heading: "Traffic Server Partners"
- --------
Caption:
- --------
"Inktomi has licensed Traffic Server to America Online, Inc., Digex, Inc., an
Intermedia Communications Company that is a leading national Internet carrier
exclusively serving business customers, Knology Holdings, Inc., a cable
broadband provider in the United States, and Nippon Telegraph and Telephone."
Logos of America Online, Digex, Knology and NTT appear below caption.
Second column
Heading: "Traffic Server Platform Partners"
- --------
Caption:
- --------
"Inktomi's Traffic Server currently operates on the Sun Solaris operating system
and on the Digital UNIX operating system. Inktomi is collaborating with Intel to
port Traffic Server to run on the Windows NT operating system."
Logos of Digital, Intel and Sun appear below caption.
Third column
Graphic of Traffic Server CD, jewel case and user documentation
Caption to graphic:
- -------------------
"Traffic Server is designed to be highly scalable, enabling very large cache
sizes. The ability to incrementally expand cache size on a "pay-as-you-go" basis
enables Traffic Server customers to respond rapidly to changes in network
traffic patterns and increases in the number of users without losing performance
or efficiency."
Across second and third column on bottom of page
Graphic of Traffic Server scalability.
Heading: "Traffic Server Scalability"
- --------
Three bars on graph that show:
175 million Web users by year 2000*
232 million Web devices by year 2001*
300 million hits a day handled by Inktomi's Traffic Server
*Source: International Data Corp.
Caption to bar graph:
- ---------------------
"In an audited benchmark study jointly conducted by Inktomi and Sun
Microsystems, Traffic Server configured with 16 nodes, 1/2 terabyte of cache and
a 40% cache hit rate achieved 3,488 operations per second. This performance
metric implies that Traffic Server can support more than 300 million hits per
day."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the information discussed under "Risk Factors". This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Inktomi develops and markets scalable software applications designed to
significantly enhance the performance and intelligence of large-scale networks.
The Company has pioneered the commercial use of parallel processing-based
coupled cluster technology, a software architecture that enables true
scalability, high system availability and fault tolerance, and superior
price/performance compared to traditional mainframe or symmetric multi-
processing-based systems. This architecture and associated core technologies,
which enable multiple workstations collaborating via high-speed connections to
function as one extremely powerful computer, have been designed and developed
specifically to address the challenges of distributed data management posed by
a global information network that consists of millions of users accessing
millions of documents.
In recent years, the dramatic growth in the number of Internet users and the
availability of powerful new tools for the development and distribution of
Internet content have led to a proliferation of richer information and services
on the Internet, including on-line magazines, e-mail services, specialized news
feeds, interactive games, educational and entertainment applications and
electronic commerce. The availability of richer content and services is
attracting greater numbers of Internet users, fueling a cycle of tremendous
growth wherein more users demand more information, and more information
attracts more users. To accommodate and manage increasing data traffic, network
providers must continually expand and upgrade their networks as well as improve
connectivity to other regional networks. Similarly, providers of services such
as search, e-mail and chat must scale and enhance their services to keep pace
with the tremendous growth in user demand and available information. Continued
increases in the volume, variety and richness of this information will magnify
these challenges.
Inktomi believes that in order for the Internet to scale cost-effectively,
network and service providers must deploy a new layer of high-performance
software throughout the network infrastructure. This software must efficiently
leverage the Internet's existing and future network hardware infrastructure to
intelligently locate, retrieve, manage and distribute increasingly richer
content.
Inktomi has developed two scalable network applications based on its software
architecture: a large-scale network cache and an Internet search engine. The
Company's initial application is its powerful, award-winning Internet search
engine. The Company believes that its search engine covers the largest number
of full text and embedded multimedia documents on the Internet, offering
customers fast, scalable and customizable Internet search services. Inktomi
currently provides the search technology underlying services provided by Wired
Digital, Inc., OzEmail, Ltd., Nippon Telegraph and Telephone and Universo On-
Line S/A. In addition, the Company has entered into contracts to provide
services based on its Internet search engine to Microsoft Corporation, Southam,
Inc. and N/2/H/2/, Inc.
Inktomi's second application, Traffic Server, is a large-scale network cache
designed to address capacity constraints in high-traffic network routes.
Traffic Server alleviates network congestion and increases network performance
by storing frequently requested information in proximity to users, thereby
eliminating or greatly reducing the transmission of redundant Internet data,
which the Company believes comprises a significant portion of network traffic.
Traffic Server is initially being targeted at telecommunications carriers and
large Internet Service Providers, which are currently addressing the explosive
growth in the demand for data bandwidth primarily through significant capital
expenditures on network equipment and infrastructure. To date, the Company has
licensed Traffic Server to America Online, Inc., Digex, Inc., Knology Holdings,
Inc. and Nippon Telegraph and Telephone.
The Company's objective is to establish itself as the leading provider of
scalable software applications specifically designed to address the distributed
data management challenges posed by rapidly growing global information
networks. The key elements of the Company's strategy are to: (i) leverage the
Company's core coupled-cluster and dataflow technology to develop multiple
applications; (ii) market Traffic Server to telecommunications carriers and
Internet Service Providers; (iii) establish Traffic Server as the de facto
standard for network cache; (iv) establish the Company as the Internet search
engine vendor of choice; and (v) develop direct and indirect distribution
channels for Inktomi's search services and Traffic Server.
The Company was incorporated in California in February 1996 and was
reincorporated in Delaware in February 1998. Unless the context otherwise
requires, references in this Prospectus to "Inktomi" and the "Company" refer to
Inktomi Corporation, a Delaware corporation, its predecessor, Inktomi
Corporation, a California corporation, and Inktomi Limited, its wholly owned
subsidiary located in the United Kingdom. The Company's principal executive
offices are located at 1900 S. Norfolk Street, Suite 310, San Mateo, California
94403, and its telephone number is (650) 653-2800.
Information contained on the Company's Web site does not constitute part of
this Prospectus.
Inktomi(TM), Traffic Server(TM) and the Inktomi logo are trademarks of the
Company. This Prospectus also contains trademarks of other companies.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 260,000 shares
Common Stock to be outstanding after the
offering................................ 20,531,813 shares(1)
Use of proceeds.......................... For general corporate purposes
including working capital and capital
expenditures
Proposed Nasdaq National Market symbol... "INKT"
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, ------------------
1996 1997 1997 1998
---------------- ------------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.............. $ 530 $ 5,785 $ 2,282 $ 5,876
Gross profit................ 291 4,273 1,816 4,181
Operating loss ............. (3,431) (8,466) (3,112) (7,793)
Net loss.................... (3,534) (8,662) (3,191) (7,877)
Pro forma basic and diluted
net loss per share(2)...... $ (0.72) $ (0.46)
Shares used in computing pro
forma basic and diluted net
loss per share(2).......... 12,030 17,135
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
-----------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $17,133 $17,406 $40,385
Working capital............................ 11,980 12,252 35,731
Total assets............................... 25,294 25,567 49,046
Debt and capital lease obligations, less
current portion........................... 5,191 5,191 5,191
Total stockholders' equity................. 13,261 13,534 37,013
</TABLE>
- -------
(1) Based on shares outstanding as of March 31, 1998. Includes 562,446 shares
of Common Stock expected to be issued upon the exercise of certain
outstanding warrants prior to completion of this offering. Excludes
3,323,320 shares of Common Stock reserved for issuance under the Company's
stock option and stock purchase plans, of which 2,023,320 shares were
subject to outstanding options as of March 31, 1998, and 813,826 shares of
Common Stock issuable upon exercise of outstanding warrants. See
"Capitalization", "Management--Incentive Stock Plans", "Description of
Capital Stock" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share
data. The pro forma data is unaudited.
(3) Pro forma reflects the conversion of all outstanding shares of Preferred
Stock to Common Stock and the exercise of certain outstanding warrants to
purchase 562,446 shares of Common Stock prior to or upon the closing of
this offering.
(4) As adjusted reflects the application of the net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby by the Company and
after deducting the underwriting discount and estimated offering expenses.
--------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting". Except
as otherwise noted, all information in this Prospectus has been adjusted to
give effect to a two-for-three reverse split of the Company's outstanding
Common Stock approved by the Board of Directors of the Company in April 1998,
for the automatic conversion of the Preferred Stock into Common Stock, for the
exercise of certain outstanding warrants to purchase 562,446 shares of Common
Stock, and for certain changes to the authorized capital stock of the Company
to be effected upon completion of this offering. See "Capitalization",
"Description of Capital Stock" and Note 8 of Notes to Consolidated Financial
Statements.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
The Company was founded in February 1996 and has a limited operating history
upon which it can be evaluated. Any investment in the Company must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development in new and rapidly
evolving markets. These risks include the Company's substantial dependence on
two products with only limited market acceptance, need to expand its sales and
support organizations, competition, need to manage changing operations,
customer concentration, reliance on strategic relationships and dependence
upon key personnel, as well as dependence upon the Internet and general
economic conditions. There can be no assurance that the Company will be
successful in addressing such risks. The Company incurred a net loss of $3.5
million for the period from inception through September 30, 1996, $8.6 million
for the year ended September 30, 1997, and $7.9 million for the six months
ended March 31, 1998. As of March 31, 1998, the Company had an accumulated
deficit of $20.1 million. The Company has not achieved profitability on a
quarterly or annual basis, and the Company anticipates that it will incur net
losses for at least the next several quarters. The Company expects to continue
to incur significant product development, sales and marketing, and
administrative expenses and, as a result, will need to generate significant
quarterly revenues to achieve and maintain profitability. There can be no
assurance that any of the Company's business strategies will be successful or
that significant revenues or profitability will ever be achieved or, if they
are achieved, that they can be consistently sustained or increased on a
quarterly or annual basis in the future. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
SUBSTANTIAL DEPENDENCE ON TRAFFIC SERVER; UNCERTAINTY OF MARKET ACCEPTANCE;
LENGTHY SALES CYCLE
The Company's future growth substantially depends on the commercial success
of its Traffic Server network cache product, which the Company first licensed
in December 1997 and has licensed to four customers to date. The Company is
initially targeting large telecommunications carriers and Internet Service
Providers ("ISPs") for its Traffic Server product. There can be no assurance
that these potential customers will adopt and implement caching technology
throughout their networks. Even if caching technology is adopted, Traffic
Server may not be accepted and implemented on a timely basis or at all. To
date, Traffic Server has not been installed in a large-scale, commercial
deployment, and there can be no assurance that the product will perform
desired functions, offer sufficient price/performance benefits or meet the
technical or other requirements of customers. Despite testing of the Traffic
Server product prior to its initial commercial release, there can be no
assurance that all performance errors or deficiencies have been discovered and
remedied, that additional errors or deficiencies will not occur, or that if
they occur, the Company will be able to correct such errors and deficiencies.
The Company believes that license of Traffic Server will involve an
enterprise-wide decision-making process and that the Company or its
distribution partners will need to provide a significant level of education
and information to prospective customers regarding the use and benefits of
Traffic Server. In addition, the Company believes that the time required to
deploy Traffic Server will vary significantly depending on a number of
factors, including the needs and skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, the quantity
of hardware and degree of hardware configuration necessary to deploy Traffic
Server, and the customer's
5
<PAGE>
installation schedule. For these and other reasons, the license and deployment
of Traffic Server may be characterized by lengthy sales and implementation
cycles. Failure of Traffic Server to achieve market acceptance for these or
any other reasons would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background", "--Products and Customers" and "--Sales and Marketing".
NEED TO EXPAND SALES AND SUPPORT ORGANIZATIONS
To date, the Company has sold its products exclusively through its direct
sales organization, which as of March 31, 1998 consisted of 15 individuals.
The Company believes that its future success is dependent upon substantially
increasing the size of its direct sales force, both domestically and
internationally. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to attract, assimilate or retain
additional qualified sales personnel on a timely basis in the future, or at
all. In addition, the Company believes that its future success is dependent
upon establishing relationships with a variety of distribution partners,
including original equipment manufacturers ("OEMs"), systems integrators,
value added resellers ("VARs") and joint marketing partners. The Company has
had discussions with only a limited number of such distribution partners and
has entered into a written agreement with only one such distributor covering
the territory of Japan. There can be no assurance that the Company will be
able to enter into agreements or establish relationships with desired
distribution partners on a timely basis or at all, or that such distributors
will devote adequate resources to selling the Company's products. Failure of
the Company to successfully expand the size of its sales organization or
establish appropriate distribution channels for its products would have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company believes that the complexity of
its products and the large-scale deployments anticipated by its customers will
require a number of highly trained customer service and support personnel. The
Company currently has a small customer service and support organization, which
as of March 31, 1998 consisted of four individuals, and only has limited
experience supporting Traffic Server in commercial deployment. There can be no
assurance that the Company will be able to increase the size of its customer
service and support organization on a timely basis or at all, or that the
Company will be able to provide the high level of support required by its
customers. Failure in either of these regards could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Need to Manage Changing Operations; Dependence
upon Key Personnel", "Business--Strategy", "--Sales and Marketing" and "--
Customer Service and Support".
RISKS ASSOCIATED WITH INTERNET SEARCH ENGINE SERVICE
The Company's search services revenues are primarily based upon the volume
of end-user search queries that are processed by the Inktomi search engine and
the level of advertising revenue generated by customers. The Company's
contracts do not require the customer to direct its users to the Company's
search services or to use the search service at all. Accordingly, the Company
is highly dependent upon the willingness of customers to promote and use the
search services provided by the Company, the ability of customers to attract
users to their on-line services, the volume of end-user search queries that
are processed by the Inktomi search engine, and the ability and willingness of
customers to sell advertisements on Internet pages viewed by end users.
Failure of customers to promote and use the Company's services, a low volume
of end-user search queries processed by the Inktomi search engine and lower
than expected levels of advertising revenues will result in lower levels of
revenue generated by the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's contracts require the Company to provide services in accordance with
certain specifications as to the functionality and performance of the search
experience, the size of the Internet database maintained, the frequency of
refreshing the search database, reliability of the service and search response
speeds. Failure of the Company to
6
<PAGE>
perform in accordance with these specifications could result in the
cancellation of one or more customer contracts. The Company will be required
to expand the capacity of its existing data center and/or build out additional
data centers to adequately provide service. These activities require highly
specialized personnel and involve many difficult installation, tuning and
optimization tasks, and will require the Company to expend substantial
financial and management resources. The Company has in the past experienced
difficulties and delays in expanding and stabilizing the cluster of
workstations in its existing data center. As a result, there can be no
assurance that the Company will be able to expand its infrastructure to meet
increased customer demand on a timely basis. The Company houses its data
centers at hosting facilities operated by independent third parties who take
certain precautions to protect the Company's equipment against damage from
fire, earthquakes, floods, power and telecommunications failures, sabotage,
intentional acts of vandalism and similar events. Despite such precautions,
the occurrence of a natural disaster or other unanticipated problems at
current and future data centers of the Company could result in interruptions
in the search services provided by the Company. Such interruptions could
result in reductions in, or terminations of, service provided to the Company's
customers, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background" and "--Products and Customers".
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Traffic Server, demand for
commercial search services powered by the Company's search technology, lengthy
sales cycles, changes in the growth rate of Internet usage, customers' capital
expenditures and other costs relating to the expansion of their respective
operations, demand for Internet advertising, seasonal trends in advertising
sales, introduction of new products or services by the Company or its
competitors, delays in the introduction or enhancement of products and
services by the Company or its competitors, customer order deferrals in
anticipation of upgrades and new products, changes in the Company's pricing
policies or those of its competitors, the Company's ability to anticipate and
effectively adapt to developing markets and rapidly changing technologies,
changes in the mix of international and U.S. revenues, changes in foreign
currency exchange rates, mix of products and services sold and the channels
through which those products and services are sold, general economic
conditions and specific economic conditions in Internet and related
industries. Additionally, as a strategic response to a changing competitive
environment, the Company may elect from time to time to make certain pricing,
service, marketing or acquisition decisions that could have a material adverse
effect on the Company's quarterly financial performance.
Quarterly sales and operating results generated by the Company's search
engine application generally depend on per-query fees and advertising revenues
received from the Company's search engine customers within the quarter, which
are difficult to forecast. Advertising revenues generated by the Company's
search engine customers are all pursuant to short-term contracts and are
subject to seasonal trends in advertising sales. Revenues from per-query fees
depend on the volume of end-user search queries processed by the Inktomi
search engine. The Company does not have any substantial historical basis for
predicting the volume of search queries that may be generated by end users of
on-line services provided by many of its customers. Moreover, the Company's
customers are generally under no obligation to direct its users to the
Company's search engine service or use the search service at all. Accordingly,
a low level of usage by end users or the cancellation or deferral of any
customer contract could have a material adverse effect on the Company's
quarterly financial performance.
The Company expects that a significant portion of its future revenues will
be generated by licenses of Traffic Server and further expects that such
revenues will be derived from orders placed by a limited number of customers.
The Company expects that the volume and timing of such orders and their
fulfillment, all of which are difficult to forecast, will cause material
fluctuations in the Company's
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operating results, particularly on a quarterly basis. The Company expects that
revenues from Traffic Server will also be difficult to forecast because the
Company's sales cycle, from initial evaluation to product shipment, is
expected to vary substantially from customer to customer. Accordingly, the
cancellation or deferral of even a small number of licenses of Traffic Server
could have a material adverse effect on the Company's quarterly financial
performance. Conversely, to the extent significant sales occur earlier than
expected, operating results for subsequent quarters may not compare favorably
with those of earlier quarters.
The Company plans to significantly increase its operating expenses to expand
its sales and marketing operations, broaden its customer support capabilities,
develop new distribution channels, fund greater levels of research and
development, and establish strategic alliances. Because the Company's
operating expenses are based on anticipated revenue trends and because a high
percentage of the Company's expenses are fixed, a delay in generating or
recognizing revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in operating losses. To the extent that such expenses are not
subsequently followed by increased revenues, this could have a material
adverse effect on the Company's business, financial condition and results of
operations. As a result of these and other factors, the Company believes that
period to period comparisons of its operating results may not be meaningful
and should not be relied upon as an indication of future performance. Due to
all of the foregoing factors, it is likely that in some future quarter, the
Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. See "Risk Factors--Substantial
Dependence on Traffic Server; Uncertainty of Market Acceptance; Lengthy Sales
Cycle", "--Risks Associated with Internet Search Engine Service" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
SUBSTANTIAL COMPETITION
The markets in which the Company competes are new, intensely competitive,
highly fragmented and characterized by rapidly changing technology and
evolving standards. The Company faces competition in the overall network
computing software market as well as each of the market segments in which its
products and services compete. The Company has experienced and expects to
continue to experience increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than the Company.
In the market for network cache solutions, the Company competes with
companies including CacheFlow, Inc., Cisco Systems, Inc. ("Cisco"), Microsoft
Corporation ("Microsoft"), Netscape Communications Corp. ("Netscape"), Network
Appliance, Inc., Novell, Inc., and Spyglass, Inc. among others, as well as
against freeware caching solutions including CERN, Harvest and Squid. In
addition, other companies may embed competing technology into other products
such as server or firewall software. The Company is aware of numerous other
major software developers as well as smaller entrepreneurial companies that
are focusing significant resources on developing and marketing software
products and services that will compete with Traffic Server. The Company
believes that its software may face competition from other providers of
hardware and software claiming to offer competing solutions to network
infrastructure problems, including networking hardware and companion software
manufacturers such as Ascend Communications, Inc., Bay Networks, Inc., Ciena
Corporation and IBM Corporation; hardware manufacturers such as Digital
Equipment Corporation ("Digital"), Hewlett-Packard Company, Intel Corporation
("Intel"), Motorola, Inc. and Sun Microsystems, Inc. ("Sun");
telecommunications providers such as AT&T, Inc., MCI Telecommunications
Corporation, and regional Bell operating companies; cable TV/communications
providers such as @Home Corporation, Continental Cablevision, Inc.,
TimeWarner, Inc. and regional cable operators; software database companies
such as Informix Corporation, Oracle Corporation and Sybase, Inc.; and large
diversified software and technology companies including Microsoft, Netscape
and others. Cisco, Microsoft and
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Netscape provide or have announced their intentions to provide a range of
software and hardware products based on Internet protocols and to compete in
the broad Internet/intranet software market as well as in specific market
segments in which the Company competes. Cisco, Microsoft and Netscape have
often acquired technology and products from other companies to augment their
product lines, in addition to developing their own technology and products.
The Company competes with a number of companies to provide Internet search
services, many of whom have operated services in the market for a longer
period, have greater financial resources, have established marketing
relationships with leading on-line services and advertisers, and have secured
greater presence in distribution channels. Competitors who offer search
services to on-line service providers include Digital (Alta Vista), Excite,
Inc. ("Excite"), Infoseek Corporation ("Infoseek"), Lycos Corporation
("Lycos"), Northern Light, Inc. and Open Text Corporation, among others.
Increased use and visibility of the Company's search engine services depends
on the Company's ability to maintain highly available and reliable services
across multiple data centers and to maintain the freshness of the search
database.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Certain of the Company's current and potential competitors may bundle
their products with other software or hardware, including operating systems
and browsers, in a manner that may discourage users from purchasing products
offered by the Company. Also, certain current and potential competitors have
greater name recognition or more extensive customer bases that could be
leveraged, thereby gaining market share to the Company's detriment. Inktomi
expects additional competition as other established and emerging companies
enter the network computing software market and new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future channel partners may establish cooperative relationships
with current or potential competitors of the Company, thereby limiting the
Company's ability to sell its products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect the Company's
ability to obtain new contracts and maintenance and support renewals for
existing contracts on terms favorable to the Company. Further, competitive
pressures could require the Company to reduce the prices of its products and
services, which could materially adversely affect the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect
upon the Company's business, financial condition and results of operations.
See "Business--Competition".
NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL
The ability of the Company to successfully offer products and services and
implement its business plan in a rapidly evolving market requires an effective
planning and management process. The Company has recently increased the scope
of its operations domestically, established a subsidiary in the United Kingdom
to support European operations, and has grown from 33 employees as of
March 31, 1997 to 88 employees as of March 31, 1998. This growth has placed,
and the Company's anticipated future operations will continue to place, a
significant strain on the Company's management systems and resources. The
Company expects that it will be required to continue to improve its
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financial and managerial controls and reporting systems and procedures, and
will need to expand, train and manage its work force worldwide. Furthermore,
the Company expects that it will be required to manage multiple relationships
with various customers and other third parties. There can be no assurance that
the Company will be able to effectively manage these tasks, and the failure to
do so could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company intends to hire a
significant number of additional sales, support, marketing, and research and
development personnel in 1998 and beyond. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to
attract, assimilate or retain additional highly qualified personnel in the
future. If the Company is unable to hire and retain such personnel,
particularly those in key positions, the Company's business, financial
condition and results of operations may be materially adversely affected. The
Company's future success also depends in significant part upon the continued
service of its executive officers and other key sales, marketing and support
personnel. In addition, the Company's products and technologies are complex
and the Company is substantially dependent upon the continued service of its
existing engineering personnel, and especially the founders of the Company,
many of whom have advanced degrees. None of the Company's officers or
employees are bound by an employment agreement for any specific term and the
relationships of such officers and employees with the Company is, therefore,
at will. The Company does not have "key person" life insurance policies
covering any of its employees. The loss of the services of any of its
executive officers, engineering personnel or other key employees would have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Business--Employees" and "Management".
CUSTOMER CONCENTRATION
The Company has only recently commercially released Traffic Server and, to
date, the Company has generated a substantial portion of its revenues from
contracts with five search engine customers. Of these customers, Wired
Digital, Inc. ("Wired") and Nippon Telegraph and Telephone Corporation ("NTT")
accounted for approximately 79% and 13%, respectively, of total revenues
generated by the Company for the year ended September 30, 1997. For the six
months ended March 31, 1998, Wired, NTT and Microsoft accounted for 59%, 6%
and 20% of total revenues, respectively. The Company expects that a small
number of customers will continue to account for a substantial portion of
revenues for the foreseeable future. As a result, the loss of a major customer
or, in the case of the Company's search engine customers, a decline in the
usage of any such customer's search service, could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that customers that have
accounted for significant revenues in past periods, individually or as a
group, will continue to generate revenues in any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RISKS OF INFRINGEMENT AND PROPRIETARY RIGHTS
Because materials may be downloaded by the search services operated or
facilitated by the Company, or may be copied and stored by customers that have
deployed the Company's Traffic Server product, and, in either case, may be
subsequently distributed to others, there is a potential that claims will be
made against the Company (directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature and
content of such materials. Such claims have been brought, and sometimes
successfully pressed, against on-line services in the past. It is also
possible that if any information provided through the search services operated
or facilitated by the Company or information that is copied and stored by
customers that have deployed Traffic Server, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the Company for losses incurred in reliance on such
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may
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not be adequate to indemnify the Company for all liability that may be
imposed. Any imposition of liability or legal defense expenses that are not
covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's success and ability to compete are substantially dependent
upon its internally developed technology. While the Company relies on
copyright, trade secret and trademark law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements and
reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The Company generally enters into confidentiality or
license agreements with its employees, consultants and corporate partners, and
generally controls access to and distribution of its software, documentation
and other proprietary information. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use the Company's products or technology. Policing unauthorized use
of the Company's products is difficult, and there can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology,
particularly in foreign countries where the laws may not protect the Company's
proprietary rights as fully as do the laws of the United States. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segments grows and the functionality of products in
different industry segments grows. There can be no assurance that third
parties will not claim infringement by the Company with respect to its
software or enhancements thereto. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. A successful claim of product infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Proprietary Rights".
DEPENDENCE ON STRATEGIC RELATIONSHIPS
The Company believes that its success in penetrating markets for its Traffic
Server product and search engine application depends in part on its ability to
develop and maintain strategic relationships with key hardware and software
vendors, distribution partners and customers. The Company further believes
that such relationships are important in order to validate the Company's
technology, facilitate broad market acceptance of the Company's products, and
enhance the Company's sales, marketing and distribution capabilities. The
Company's inability to attract or retain strategic relationships, or the
termination of one or more successful relationships could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has from time to time licensed certain
minor components from third parties such as reporting functions and security
features and incorporated them into the Company's products. Failure of such
third parties to maintain or enhance their products could impair the
functionality of the Company's products and could require the Company to
obtain alternative products from other sources or to develop such software
internally, either of which could involve costs and delays as well as
diversion of engineering resources. See "Business--Sales and Marketing".
RISKS ASSOCIATED WITH NEW VERSIONS OF SOFTWARE AND NEW PRODUCTS; RAPID
TECHNOLOGICAL CHANGE
The Company's future growth depends on its successful and timely
introduction of new products and services in markets that do not currently
exist or are rapidly evolving. The markets for the
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Company's products are characterized by rapid technological change, frequent
new product introductions, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
address the increasingly sophisticated needs of its customers by developing
and introducing enhancements to its software on a timely basis that keep pace
with technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to its software that respond to
technological change, evolving industry standards or customer requirements,
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and sale of such enhancements or that
such enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. The Company has in the
past experienced delays in the release dates of new products and product
enhancements. Any material delay in the release dates of future products or
enhancements or any failure of such future products or enhancements to achieve
market acceptance when released, could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the introduction or announcement of new product offerings
by the Company or the Company's competitors will not cause customers to defer
or forego purchases of current versions of the Company's software, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company markets and sells its products in the United States and
internationally. The Company recently established a subsidiary located in the
United Kingdom to market and sell the Company's products in Europe and plans
to establish additional facilities in other parts of the world. The Company's
expansion of its existing international operations and entry into additional
international markets will require significant management attention and
financial resources. If international revenues generated by the Company are
not adequate to offset the expense of establishing and maintaining foreign
operations, the Company's business, financial condition and results of
operations would be materially adversely affected. To date, the Company has
only limited experience in developing localized versions of its products and
marketing and distributing its products internationally. There can be no
assurance that the Company will be able to successfully market, sell and
deliver its products in these international markets. International operations
are subject to inherent risks, including the impact of possible recessionary
environments in economies outside the United States, costs of localizing
products for foreign markets, longer receivables collection periods and
greater difficulty in accounts receivable collection, unexpected changes in
regulatory requirements, difficulties and costs of staffing and managing
foreign operations, reduced protection for intellectual property rights in
some countries, potentially adverse tax consequences and political and
economic instability. There can be no assurance that the Company or its
distribution partners will be able to sustain or increase international
revenues, or that the foregoing factors will not have a material adverse
effect on the Company's future international revenues and, consequently, on
the Company's business, financial condition and results of operations. The
Company's international revenues are generally denominated in local
currencies. The Company does not currently engage in currency hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency
exchange rates in the future will not have a material adverse impact on
revenues from international sales and thus the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales and
Marketing".
YEAR 2000 RISKS
The potential for software failures due to processing errors arising from
calculations using the year 2000 date is a known risk. The Company recognizes
the need to ensure that its operations, products
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and services will not be adversely impacted by Year 2000 software failures.
The Company has established procedures for evaluating and managing the risks
and costs associated with this problem and believes that its internal computer
systems, including its accounting, sales and technical support automation
systems, are currently Year 2000 compliant. However, there can be no guarantee
that the systems of other companies on which the Company's systems and
operations rely will be able to handle all Year 2000 problems.
In addition, although the Company believes that its search engine
application and Traffic Server are Year 2000 compliant, there can be no
assurance that the Company's software products contain all necessary date code
changes. Furthermore, many of the Company's customers use Internet protocols
and maintain their Internet operations on servers that may be impacted by Year
2000 complications. Reliance on such Internet protocols or the failure of the
Company's customers to ensure that their servers are Year 2000 compliant could
have a material adverse effect on the Company's customers and the Company's
products and search services, which in turn could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company may in the future pursue acquisitions of complementary products,
technologies or businesses. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities and the incurrence of
additional debt and amortization expenses related to goodwill and other
intangible assets, which could adversely affect the Company's results of
operations. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, products and personnel of
the acquired company, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no
direct prior experience, and the potential loss of key employees of the
acquired company. There can be no assurance that the Company will ever
successfully complete an acquisition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that a number of laws and regulations may be
adopted at the local, state, national or international levels with respect to
the Internet, covering issues such as user privacy, pricing, taxation,
advertising, intellectual property rights, information security or the
convergence of traditional communications services with Internet
communications. The Telecommunications Reform Act of 1996 imposes criminal
penalties (via the Communications Decency Act) on anyone who distributes
obscene communications on the Internet knowing that the recipient of the
communications is under 18 years of age. Other nations, including Germany,
have taken actions to restrict the free flow of material deemed to be
objectionable on the Internet. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws or adoption of additional laws or regulations intended to address
these issues, including some recently proposed changes, could create
uncertainty in the marketplace which could reduce demand for the Company's
products and services, could increase the Company's cost of doing business as
a result of compliance, could result in litigation or could in some other
manner have a material adverse effect on the Company's business, financial
condition and results of operations.
DISCRETION AS TO USE OF PROCEEDS
The Company's management will have discretion to allocate a large percentage
of the proceeds from this offering to uses which the stockholders may not deem
desirable, and there can be no
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assurance that the proceeds can or will be invested to yield a significant
return. See "Use of Proceeds".
NO PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or, if one does develop, that it will be maintained. The initial
public offering price, which will be determined through negotiations between
the Company and the Underwriters, may not be indicative of prices that will
prevail in the trading market. In addition, the securities markets have from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The market
prices of the common stock of many publicly held Internet companies have in
the past been, and can in the future be expected to be, especially volatile.
The market price of the Company's Common Stock is likely to be highly volatile
and may be subject to wide fluctuations in response to announcements of
technological innovations or new products by the Company or its competitors,
release of reports by securities analysts, developments or disputes concerning
patents or proprietary rights, economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results. See
"Underwriting".
CONTROL BY OFFICERS AND DIRECTORS
The Company anticipates that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
45% of the Company's outstanding Common Stock following the completion of this
offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by the stockholders of
the Company, including the election of directors and the approval of mergers
or other business combination transactions. See "Principal and Selling
Stockholders".
EFFECT OF CERTAIN CHARTER PROVISIONS; LIMITATION OF LIABILITY OF DIRECTORS;
ANTITAKEOVER EFFECTS OF DELAWARE LAW
Effective upon completion of this offering, the Company will be authorized
to issue 10,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of the Common Stock and the voting and other rights of the holders of Common
Stock. The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. The Company has no current plans to
issue any shares of Preferred Stock.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
eliminate the right of stockholders to act by written consent without a
meeting, eliminate the right of stockholders to vote cumulatively in the
election of directors (subject to compliance with California corporate law),
provide for a classified Board of Directors and specify certain procedures for
nominating directors and submitting proposals for consideration at stockholder
meetings. Such provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of
the Company. Such provisions are designed
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to reduce the vulnerability of the Company to an unsolicited acquisition
proposal and, accordingly, could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions
are also intended to discourage certain tactics that may be used in proxy
fights but could, however, have the effect of discouraging others from making
tender offers for the Company's Common Stock and, consequently, may also
inhibit fluctuations in the market price of the Company's Common Stock that
could result from actual or rumored takeover attempts. These provisions may
also have the effect of preventing changes in the management of the Company.
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Antitakeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested stockholder and the
sale of more than 10% of the Company's assets. In general, the Antitakeover
Law defines an "interested stockholder" as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the Company and any
entity or person affiliated with or controlling or controlled by such entity
or person. A Delaware corporation may "opt out" of the Antitakeover Law with
an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the company's
outstanding voting shares. The Company has not opted out of the provisions of
the Antitakeover Law. See "Description of Capital Stock".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following this offering could adversely affect the market price of the
Common Stock. Such sales also might make it more difficult for the Company to
sell equity or equity-related securities in the future at a time and price
that the Company deems appropriate. In addition to the 2,260,000 shares of
Common Stock offered hereby (assuming no exercise of the Underwriters' over-
allotment option), as of the date of this Prospectus, there will be 18,315,147
shares of Common Stock outstanding, all of which are restricted shares (the
"Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). As of such date, no Restricted Shares will be eligible for
sale in the public market. Following the expiration of the 180-day lock-up
agreements with the representatives of the Underwriters, the Restricted Shares
will be eligible for sale from time to time thereafter upon expiration of
applicable holding periods under Rule 144 under the Securities Act. In
addition, as of March 31, 1998, there were options outstanding to purchase
2,023,320 shares of Common Stock (of which options for 43,334 shares are
expected to be exercised on or before the closing of this offering), and
warrants outstanding to purchase 1,376,272 shares of Common Stock (of which
approximately 562,446 shares are expected to be issued prior to the closing of
the offering upon the exercise of warrants), and all of such options and
warrants are subject to lock-up agreements. Goldman, Sachs & Co. may, in their
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. In addition, the holders of
13,295,144 Restricted Shares are entitled to certain rights with respect to
registration of such shares for sale in the public market. If such holders
sell in the public market, such sales could have a material adverse effect on
the market price of the Company's Common Stock. See "Description of Capital
Stock--Registration Rights", "Shares Eligible for Future Sale" and
"Underwriting".
Immediately after this offering, the Company intends to register
approximately 3,279,986 shares of Common Stock subject to outstanding options
and reserved for issuance under its stock option and purchase plans. See
"Management--Incentive Stock Plans" and "Shares Eligible for Future Sale".
15
<PAGE>
NO INTENTION TO PAY DIVIDENDS; DILUTION
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any dividends in the
foreseeable future. See "Dividend Policy". The initial public offering price
will be substantially higher than the net tangible book value per share of
Common Stock. Investors purchasing shares of Common Stock in this offering
will therefore incur immediate and substantial net tangible book value
dilution. See "Dilution".
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be $23,480,000 at an
assumed initial public offering price of $13.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company ($27,469,700 if the over-allotment option is
exercised in full).
The principal purposes of the offering made hereby are to create a public
market for the Common Stock, to facilitate future access to public capital
markets and to improve the Company's financial position. The Company expects
to use the balance of the net proceeds for working capital and general
corporate purposes. In addition, the Company may use a portion of the net
proceeds to acquire complementary products, technologies or businesses;
however, it currently has no commitments or agreements and is not involved in
any negotiations with respect to any such transactions. Pending use of the net
proceeds of this offering, the Company intends to invest the net proceeds in
interest-bearing, investment-grade securities. The Company will not receive
any proceeds from the sale of the shares being sold by the Selling
Stockholders. See "Principal and Selling Stockholders".
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future. The covenants made by the Company
under its existing line of credit prohibit the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis, (ii) on a pro forma basis to reflect the
automatic conversion of all outstanding shares of Preferred Stock into Common
Stock upon the closing of this offering and 562,446 shares of Common Stock
expected to be issued upon the exercise of certain outstanding warrants prior
to completion of the offering, and (iii) on an as adjusted basis to give
effect to the receipt by the Company of the estimated net proceeds from the
sale of 2,000,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $13.00 per share:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
(UNAUDITED)
AS
ACTUAL PRO FORMA ADJUSTED
-------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 5,191 $ 5,191 $ 5,191
Stockholders' equity:
Preferred Stock: $.001 par value, 20,680,000
shares authorized, 19,460,485 issued and
outstanding, actual; 10,000,000 shares
authorized, pro forma and as adjusted, none
issued and outstanding....................... 13 -- --
Common Stock: $.001 par value, 50,000,000
shares authorized, 4,931,468 issued and
outstanding, actual; 100,000,000 shares
authorized, 18,531,813 shares issued and
outstanding, pro forma; 20,531,813 shares
issued and outstanding, as adjusted(1)....... 5 19 21
Additional paid-in capital.................... 32,730 34,994 56,479
Other......................................... 587 587 587
Accumulated deficit........................... (20,074) (20,074) (20,074)
-------- -------- --------
Total stockholders' equity.................... 13,261 15,526 37,013
-------- -------- --------
Total capitalization.......................... $ 18,452 $ 20,717 $ 42,204
======== ======== ========
</TABLE>
- --------
(1) Includes 562,446 shares of Common Stock expected to be issued upon the
exercise of certain outstanding warrants prior to completion of this
offering. Excludes 3,323,320 shares of Common Stock reserved for issuance
under the Company's stock option and stock purchase plans, of which
2,023,320 shares were subject to outstanding options as of March 31, 1998,
and 813,826 shares of Common Stock issuable upon exercise of outstanding
warrants. See "Management--Incentive Stock Plans", "Description of Capital
Stock" and Notes 10 and 11 of Notes to Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was $13,308,000 or approximately $0.72 per share. Pro forma net tangible book
value per share represents the amount of the Company's pro forma total
tangible assets less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the offering made hereby and the net
tangible book value per share of Common Stock immediately after the completion
of this offering. After giving effect to the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $13.00 per share and after deducting the estimated
underwriting discounts and offering expenses payable by the Company, the pro
forma net tangible book value of the Company at March 31, 1998 would have been
$37,013,000 or approximately $1.79 per share. This represents an immediate
increase in pro forma net tangible book value of $1.07 per share to existing
stockholders and an immediate dilution in net tangible book value of $11.21
per share to new investors of Common Stock in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $13.00
Pro forma net tangible book value per share as of March 31, 1998.. $0.72
Increase per share attributable to new investors(1)............... 1.07
-----
Pro forma net tangible book value per share after the offering(1). 1.79
------
Dilution in net tangible book value per share to new investors(1). $11.21
======
</TABLE>
- --------
(1) The foregoing table includes 562,446 shares of Common Stock expected to be
issued upon the exercise of certain outstanding warrants prior to
completion of this offering. The foregoing table excludes 3,323,320 shares
of Common Stock reserved for issuance under the Company's stock option and
stock purchase plans, of which 2,023,320 shares were subject to
outstanding options as of March 31, 1998, and 813,826 shares of Common
Stock were issuable upon exercise of outstanding warrants. See
"Capitalization", "Management--Incentive Stock Plans", "Description of
Capital Stock" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
The following table sets forth, on a pro forma basis as of March 31, 1998,
the differences between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by existing holders of Common Stock and by the new investors, before deducting
the underwriting discount and offering expenses payable by the Company, at an
assumed public offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 18,532 90.3% $ 35,013 57.4% $ 1.89
New investors(1)............. 2,000 9.7 26,000 42.6 13.00
-------- ------- ---------- --------
Total...................... 20,532 100.0% $ 61,013 100.0%
======== ======= ========== ========
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 18,271,813 or
approximately 89.0% (approximately 87.5%, if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of
Common Stock outstanding upon the closing of this offering, and the number
of shares held by new public investors will be 2,260,000 or approximately
11.0% (2,599,000 shares, or approximately 12.5%, if the Underwriters'
over-allotment option is exercised in full) of the total number of shares
of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders".
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto of the Company included elsewhere in this Prospectus. The
statement of operations data set forth below for the period from February 2,
1996 (inception) to September 30, 1996 and for the fiscal year ended September
30, 1997 have been derived from the audited financial statements of the
Company included elsewhere in this Prospectus, which have been audited by
Coopers & Lybrand L.L.P., Independent Accountants. The selected consolidated
financial data for the six months ended March 31, 1997 and 1998 have been
derived from unaudited consolidated financial statements prepared by the
Company on a basis consistent with the Company's audited Consolidated
Financial Statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results of such periods. The historical results are
not necessarily indicative of results to be expected for any future period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, ------------------
1996 1997 1997 1998
---------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues:
Network applications...... $ -- $ 60 $ -- $ 691
Search services........... 530 5,725 2,282 5,185
------- ------- -------- --------
Total revenues.......... 530 5,785 2,282 5,876
Cost of revenues........... 239 1,512 466 1,695
------- ------- -------- --------
Gross profit.............. 291 4,273 1,816 4,181
Operating expenses:
Sales and marketing....... 898 7,043 2,661 6,521
Research and development.. 1,483 4,210 1,665 3,814
General and
administrative........... 1,341 1,486 602 1,639
------- ------- -------- --------
Total operating
expenses............... 3,722 12,739 4,928 11,974
------- ------- -------- --------
Operating loss............. (3,431) (8,466) (3,112) (7,793)
Interest expense, net...... 102 194 78 83
------- ------- -------- --------
Loss before income taxes... (3,533) (8,660) (3,190) (7,876)
Provision for income taxes. 1 2 1 1
------- ------- -------- --------
Net loss................... $(3,534) $(8,662) $ (3,191) $ (7,877)
======= ======= ======== ========
Pro forma basic and diluted
net loss per share(1)..... $ (0.72) $ (0.46)
======= ========
Weighted average shares
outstanding used in pro
forma per share
calculation(1)............ 12,030 17,135
======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents...................................... $17,133
Working capital................................................ 11,980
Total assets................................................... 25,294
Debt and capital lease obligations, less current portion....... 5,191
Total stockholders' equity..................................... 13,261
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the weighted average common and common
equivalent shares used to compute net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon
current expectations that involve risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Inktomi was incorporated in February 1996 to develop and market scalable
software applications designed to significantly enhance the performance and
intelligence of large-scale networks. From February 1996 to May 1996, the
Company's operations consisted primarily of start-up activities, including
research and development of the Company's core coupled cluster software
architecture and dataflow technology, personnel recruiting and capital
raising. In May 1996, the Company released the first commercial application
based on its core technology, a search engine that enables customers to
provide a variety of Internet search services to end users. In December 1997,
the Company first licensed Traffic Server, the Company's second application, a
large-scale network cache designed to address capacity constraints in high-
traffic network routes.
Inktomi generates search services revenues through a variety of contractual
arrangements, which include per-query search fees, search service hosting
fees, advertising revenue, license fees and/or maintenance fees. Per-query,
hosting and maintenance fees revenues are recognized in the period earned, and
advertising revenues are recognized in the period that the advertisement is
displayed.
Network applications revenues are composed of Traffic Server license,
consulting, support and maintenance fees. Traffic Server license fees are
recognized upon shipment of the software. Consulting, support and maintenance
fees are recognized ratably over the service period.
The Company has only recently commercially released Traffic Server and has
generated only limited revenues from licenses of the product. To date, the
Company has generated substantially all of its revenues from contracts with
five search engine customers. Of these customers, Wired and NTT accounted for
approximately 79% and 13%, respectively, of total revenues generated by the
Company for the fiscal year ended September 30, 1997. For the six months ended
March 31, 1998, Wired, NTT and Microsoft accounted for 59%, 6% and 20% of
total revenues, respectively. The Company expects that a small number of
customers will continue to account for a substantial portion of revenues for
the foreseeable future. As a result, the loss of a major customer or, in the
case of the Company's search engine customers, a decline in the usage of any
such customer's search service, could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, there can be no assurance that customers that have accounted for
significant revenues in past periods, individually or as a group, will
continue to generate revenues in any future period.
The Company has a limited operating history upon which it may be evaluated.
Any investment in the Company must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early
stage of development in new and rapidly evolving markets. These risks include
the Company's substantial dependence on two products with only limited market
acceptance, need to expand its sales and support organizations, competition,
need to manage changing operations, customer concentration, reliance on
strategic personnel and dependence upon key personnel, as well as dependence
upon the Internet, general economic conditions and other factors. There can be
no assurance that the Company will be successful in addressing such risks. The
Company incurred a net
21
<PAGE>
loss of $3.5 million for the period from inception through September 30, 1996,
$8.7 million for the fiscal year ended September 30, 1997, and $7.9 million
for the six months ended March 31, 1998. As of March 31, 1998, the Company had
an accumulated deficit of $20.1 million. The Company has not achieved
profitability on a quarterly or annual basis and the Company anticipates that
it will incur net losses for at least the next several quarters. The Company
expects to continue to incur significant product development, sales and
marketing, and administrative expenses and, as a result, will need to generate
significant quarterly revenues to achieve and maintain profitability. There
can be no assurance that any of the Company's business strategies will be
successful or that significant revenues or profitability will ever be achieved
or, if they are achieved, that they can be consistently sustained or increased
on a quarterly or annual basis in the future.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the Company
expressed as a percentage of revenues. The Company's historical operating
results are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, -------------
1996 1997 1997 1998
---------------- ------------- ----- -----
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Network applications............ 0% 1% 0% 12%
Search services................. 100 99 100 88
---- ---- ----- -----
Total revenues................ 100 100 100 100
Cost of revenues................. 45 26 20 29
---- ---- ----- -----
Gross profit.................... 55 74 80 71
---- ---- ----- -----
Operating expenses:
Sales and marketing............. 169 122 117 111
Research and development........ 280 73 73 65
General and administrative...... 253 26 27 28
---- ---- ----- -----
Total operating expenses...... 702 221 217 204
---- ---- ----- -----
Operating loss................... (647) (147) (137) (133)
Interest expense, net............ 20 3 3 1
---- ---- ----- -----
Loss before income taxes......... (667) (150) (140) (134)
Provision for income taxes....... 0 0 0 0
---- ---- ----- -----
Net loss......................... (667)% (150)% (140)% (134)%
==== ==== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES
Search services revenues comprise search advertising, licensing and
maintenance fees. A significant portion of advertising revenues are derived
from the HotBot search service maintained by the Company and marketed by
Wired.
Total revenues increased to $5.9 million for the six months ended March 31,
1998 from $2.3 million for the same period of 1997. This increase was due to
increased revenues from its HotBot search service, as well as revenues
generated through additional contract signings and search service launches and
revenues generated from the Company's Traffic Server product first licensed in
early
22
<PAGE>
fiscal year 1998. Traffic Server revenues comprised 12% of total revenues in
the six months ended March 31, 1998. Search services revenues represented 88%
of total revenues during the same period. In the six months ended March 31,
1997, substantially all revenues were generated by the Company's search
services. A portion of the advertising on the HotBot site is exchanged for
advertisements on the Internet sites of other companies. The value of these
advertisements is recognized as barter revenue by the Company. Barter revenues
represented 15% and 32% of total revenues for the six-month periods ended
March 31, 1998 and 1997, respectively. The Company anticipates that barter
revenue will comprise a decreasing percentage of total revenues in future
years.
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation of
the Company's search services, which comprise depreciation and network
charges. Cost of revenues increased to $1.7 million for the six months ended
March 31, 1998 from $0.5 million for the six months ended March 31, 1997. The
increase was due primarily to increased depreciation and network charges
resulting from an expansion of the Company's data center in California during
fiscal year 1997. The Company expects cost of revenues to increase
substantially in absolute dollars in fiscal year 1998 as a result of a full
year of expanded cluster operation costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for the
Company's direct sales force and marketing staff and marketing programs,
including trade shows and advertising. Sales and marketing expenses also
include marketing costs related to the Company's support of the HotBot search
site. Sales and marketing expenses increased to $6.5 million for the six
months ended March 31, 1998 from $2.7 million for the six months ended March
31, 1997. The increase was primarily due to an increase in the number of sales
and marketing personnel, increased HotBot marketing expenses, and expenses
incurred in connection with attendance at trade shows and marketing programs.
The Company expects that sales and marketing expenses will increase
substantially in absolute dollars over the next 12 months as the Company hires
additional sales and marketing personnel, initiates additional marketing
programs to support its Traffic Server product and establishes sales offices
in additional domestic and international locations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and related
costs for the Company's development and technical support efforts. Research
and development expenses increased to $3.8 million for the six months ended
March 31, 1998 from $1.7 million for the same period in 1997. The increase was
primarily due to an increase in the number of research and development
personnel to support expansion of the Company's search engine business,
creation of the Company's Traffic Server product, and increases in quality
assurance and technical publications personnel. The Company believes
significant investment in research and development is essential to its future
success and expects that research and development expenses will increase in
absolute dollars in future periods. The Company has not capitalized any
software development expenses to date.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
human resources, facilities and legal. General and administrative expenses
increased to $1.6 million for the six months ended March 31, 1998 from $0.6
million for the same period of 1997. This increase was due primarily to an
increase in the number of general and administrative personnel and increased
legal and accounting costs incurred in connection with business and financing
activities.
23
<PAGE>
INTEREST EXPENSE, NET
Interest expense, net includes income from the Company's cash and
investments, and expenses related to the Company's financing obligations.
Interest expense was $0.1 million for the six months ended March 31, 1998,
consistent with the prior year.
YEAR AND PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
The Company's fiscal year runs from October 1 through September 30. The
Company was incorporated in February 1996 and, accordingly, fiscal year 1996
includes only eight months of financial results. Consequently, all revenue and
expense categories for fiscal year 1997 have increased due to a full year of
revenues and expenses incurred in fiscal year 1997 compared to a partial year
in fiscal year 1996.
REVENUES
Total revenues increased to $5.8 million for the year ended September 30,
1997 from $0.5 million for the eight months ended September 30, 1996. This
increase was due primarily to increased search services revenues generated by
Wired through a higher volume of activity on the HotBot search service, as
well as revenues generated through additional contract signings and search
service launches during fiscal year 1997. Advertising revenues represented 89%
and 90% of total revenues for the year ended September 30, 1997 and the eight
months ended September 30, 1996, respectively. Barter revenues represented 27%
and 25% of total revenues for the year ended September 30, 1997 and the eight
months ended September 30, 1996, respectively. All barter revenues were
generated from the Company's agreement with Wired. The Company anticipates
that advertising revenues will comprise a decreasing percentage of total
revenues in future years.
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation of
the Company's search services, which comprise depreciation and network
charges. To date, cost of revenues related to the Company's Traffic Server
product has been immaterial. Cost of revenues increased to $1.5 million for
the year ended September 30, 1997 from $0.2 million for the eight months ended
September 30, 1996. The increase was due primarily to increased depreciation
and network charges resulting from an expansion of the Company's California
data center during fiscal year 1997, and expenses incurred in connection with
the relocation of the master cluster from the Company's former premises
located in Berkeley, California to a third-party hosting site located in Santa
Clara, California. The Company expects cost of revenues to increase
substantially in absolute dollars in fiscal year 1998 as a result of a full
year of expanded cluster operation costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for the
Company's direct sales force and marketing staff and marketing programs. Sales
and marketing expenses also include marketing costs related to the Company's
support of the HotBot search site. Sales and marketing expenses increased to
$7.0 million for the year ended September 30, 1997 from $0.9 million for the
eight months ended September 30, 1996. The increase was primarily due to an
increase in the number of sales and marketing personnel, increased HotBot
marketing expenses and expenses incurred in connection with attendance at
trade shows and marketing programs. The Company expects that sales and
marketing expenses will increase substantially in absolute dollars in fiscal
year 1998 as the Company hires additional sales and marketing personnel,
initiates additional marketing programs to support its Traffic Server product
and establishes sales offices in additional domestic and international
locations.
24
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and related
costs for the Company's development and technical support efforts. Research
and development expenses increased to $4.2 million for the year ended
September 30, 1997 from $1.5 million for the eight months ended September 30,
1996. The increase was primarily due to an increase in the number of research
and development personnel to support expansion of the Company's search engine
business, creation of the Company's Traffic Server product, and increases in
quality assurance and technical publications personnel. The Company believes
that significant investment in research and development is essential to its
future success and expects that research and development expenses will
increase in absolute dollars in future periods. The Company has not
capitalized any software development expenses to date.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
human resources, facilities and legal. General and administrative expenses
increased to $1.5 million for fiscal year 1997 from $1.3 million for fiscal
year 1996. This increase was due primarily to an increase in the number of
general and administrative personnel and increased legal and accounting costs
incurred in connection with business and financing activities.
INTEREST EXPENSE, NET
Interest expense, net includes income from the Company's cash and
investments, and expenses related to the Company's financing obligations.
Interest expense, net increased to $0.2 million for the year ended September
30, 1997 from $0.1 million for the eight months ended September 30, 1996. The
increase was due primarily to higher interest charges incurred by the Company
resulting from larger debt balances maintained during the year ended September
30, 1997.
INCOME TAXES
As of September 30, 1997, the Company had approximately $9.9 million of
federal net operating loss carryforwards for tax reporting purposes available
to offset future taxable income. Such net operating loss carryforwards expire
through 2012.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's operating results for each of the
six quarters in the period ended March 31, 1998. The information for each of
these quarters is unaudited and has been prepared on the same basis as the
audited financial statements appearing elsewhere in this Prospectus. In the
opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
quarterly results when read in conjunction with the audited Consolidated
Financial Statements of the Company and the Notes thereto appearing elsewhere
in this Prospectus. These operating results are not necessarily indicative of
the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
-------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Network applications... $ -- $ -- $ -- $ 60 $ 70 $ 621
Search services........ 1,138 1,144 1,521 1,922 2,351 2,834
------- ------- ------- ------- ------- -------
Total revenues........ 1,138 1,144 1,521 1,982 2,421 3,455
Cost of revenues........ 186 280 358 688 794 901
------- ------- ------- ------- ------- -------
Gross profit........... 952 864 1,163 1,294 1,627 2,554
Operating expenses:
Sales and marketing.... 1,529 1,132 1,792 2,590 2,816 3,705
Research and develop-
ment.................. 744 921 1,100 1,445 1,814 2,000
General and administra-
tive.................. 231 371 383 501 795 844
------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 2,504 2,424 3,275 4,536 5,425 6,549
------- ------- ------- ------- ------- -------
Operating loss.......... (1,552) (1,560) (2,112) (3,242) (3,798) (3,995)
Interest expense, net... 19 59 28 88 54 29
------- ------- ------- ------- ------- -------
Loss before income tax-
es..................... (1,571) (1,619) (2,140) (3,330) (3,852) (4,024)
Provision for income
taxes.................. -- 1 1 -- 1 --
------- ------- ------- ------- ------- -------
Net loss................ $(1,571) $(1,620) $(2,141) $(3,330) $(3,853) $(4,024)
======= ======= ======= ======= ======= =======
</TABLE>
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Traffic Server, demand for
commercial search services powered by the Company's search technology, lengthy
sales cycles, changes in the growth rate of Internet usage, customers' capital
expenditures and other costs relating to the expansion of their respective
operations, demand for Internet advertising, seasonal trends in advertising
sales, introduction of new products or services by the Company or its
competitors, delays in the introduction or enhancement of products and
services by the Company or its competitors, customer order deferrals in
anticipation of upgrades and new products, changes in the Company's pricing
policies or those of its competitors, the Company's ability to anticipate and
effectively adapt to developing markets and rapidly changing technologies,
changes in the mix of international and U.S. revenues, changes in foreign
currency exchange rates, mix of products and services sold and the channels
through which those products and services are sold, general economic
conditions and specific economic conditions in Internet and related
industries. Additionally, as a strategic response to a changing competitive
environment, the Company may elect from time to time to make certain pricing,
service, marketing or acquisition decisions that could have a material adverse
effect on the Company's quarterly financial performance.
Quarterly sales and operating results generated by the Company's search
engine application generally depend on per-query fees and advertising revenues
received from the Company's search
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engine customers within the quarter, which are difficult to forecast.
Advertising revenues generated by the Company's search engine customers are
all pursuant to short-term contracts and are subject to seasonal trends in
advertising sales. Revenues from per-query fees depend on the volume of end-
user search queries processed by the Inktomi search engine. The Company does
not have any substantial historical basis for predicting the volume of search
queries that may be generated by end users of on-line services provided by
many of its customers. Moreover, the Company's customers are generally under
no obligation to direct their users to the Company's search engine service or
use the search service at all. Accordingly, a low level of usage by end users
or the cancellation or deferral of any customer contract could have a material
adverse effect on the Company's quarterly financial performance.
The Company expects that a significant portion of its future revenues will
be generated by licenses of Traffic Server and further expects that such
revenues will be derived from orders placed by a limited number of customers.
The Company expects that the volume and timing of such orders and their
fulfillment, all of which are difficult to forecast, will cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. The Company expects that revenues from Traffic Server will also be
difficult to forecast because the Company's sales cycle, from initial
evaluation to product shipment, is expected to vary substantially from
customer to customer. Accordingly, the cancellation or deferral of even a
small number of licenses of Traffic Server could have a material adverse
effect on the Company's quarterly financial performance. Conversely, to the
extent significant sales occur earlier than expected, operating results for
subsequent quarters may not compare favorably with those of earlier quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through the
private placement of its equity securities, equipment lease financing, and
bank and investor borrowings. As of March 31, 1998, the Company had
approximately $17.1 million of cash and cash equivalents. Cash used in
operating activities increased from $2.2 million in the eight months ended
September 30, 1996 to $6.6 million in the year ended September 30, 1997,
reflecting increasing net losses principally related to increased research and
development, and sales and marketing expenditures. Cash used in operations for
the six months ended March 31, 1998 was $5.8 million, compared to $1.6 million
in the six months ended March 31, 1997.
In May 1997, the Company obtained a bank line of credit and used the
proceeds to pay down existing debt and finance the Company's operations. As of
March 31, 1998, the total amount outstanding under the loan, representing
equipment loan and term loan advances, was $3.3 million. In addition, the
Company has provided a letter of credit, drawn against the Company's bank line
of credit, in the amount of $500,000 to the lessor of the Company's
facilities. The loans are collateralized by substantially all of the Company's
assets, except for those assets purchased with the proceeds from loans
provided by Microsoft. The bank loans include certain covenants requiring
minimum liquidity, tangible net worth and profitability over time. The term
portion of the bank loan had $1.5 million outstanding at March 31, 1998 and
equal principal payments are made monthly with the final payment due in June
1999. The equipment loan portion had $1.8 million outstanding at March 31,
1998. Under the equipment loan, the Company paid interest only on a monthly
basis until February 1998, at which time the Company began to make equal
monthly principal payments of $48,611 plus interest through February 2001.
In July 1997, the Company and Microsoft entered into a series of agreements
whereby Microsoft selected the Company's technology as the basis for Internet
search services to be provided by Microsoft. Under the agreements, Inktomi is
responsible for developing and adding certain features to its core search
engine technology and providing search results to Microsoft using the
customized search engine technology. In addition, the Company is responsible
for hosting the search engine
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software and purchasing and operating the cluster on which the software runs.
Among other matters, Microsoft is obligated to loan the price of new
workstations and related hardware and software purchased to service
Microsoft's capacity needs. The loans are collateralized by the purchased
equipment, repayable in equal monthly payments over 36 months from the date of
the loan and bear interest at the lowest applicable federal rate. Microsoft
pays an amount equal to the loan burden on a monthly basis to the Company as
partial compensation for the hosting services provided by the Company. As of
March 31, 1998, loans totaling $3.0 million were outstanding.
The Company had $1.3 million of other leveraged lease agreements outstanding
at March 31, 1998 and may expand the use of such leases in the future. The
Company also had other notes payable totaling $0.4 million at March 31, 1998.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's products, the resources the Company devotes
to developing, marketing, selling and supporting its products, the timing and
extent of establishing international operations, and other factors. The
Company expects to devote substantial capital resources to hire and expand its
sales, support, marketing and product development organizations, to expand
marketing programs, to establish additional facilities worldwide and for other
general corporate activities. Although the Company believes that the net
proceeds from this offering together with existing cash and cash equivalents
will be sufficient to fund its operations for at least the next 12 months,
there can be no assurance that the Company will not require additional
financing within this time frame or that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all. Any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. See "Risk
Factors--Limited Operating History; History of Losses and Expectation of
Future Losses" and "--Substantial Dependence Upon Traffic Server; Uncertainty
of Market Acceptance; Lengthy Sales Cycle".
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BUSINESS
THE COMPANY
Inktomi develops and markets scalable software applications designed to
significantly enhance the performance and intelligence of large-scale
networks. The Company has pioneered the commercial use of parallel processing-
based coupled cluster technology, a software architecture that provides true
scalability, high system availability and fault tolerance, and superior
price/performance compared to traditional mainframe or symmetric multi-
processing ("SMP") based systems. This architecture enables multiple
workstations collaborating via high-speed connections to function as one
extremely powerful computer. Inktomi has designed and developed this
architecture and associated applications specifically to address the
challenges of distributed data management posed by a global information
network that consists of millions of users accessing millions of documents.
To date, Inktomi has developed two scalable network applications based on
its software architecture: a large-scale network cache and an Internet search
engine. The Company's initial application is a powerful, award-winning
Internet search engine that enables Inktomi's customers to provide a variety
of Internet search services to end users. Wired, NTT, OzEmail Ltd. ("OzEmail")
and Universo On-Line S/A ("UOL") currently provide on-line services that
utilize the Company's Internet search engine, and the Company has entered into
contracts to provide services based on its Internet search engine to
Microsoft, Southam, Inc. ("Southam") and N/2/H/2/, Inc. ("N/2/H/2/"). Wired
launched its HotBot service in May 1996, utilizing an Inktomi-hosted cluster
of five dedicated workstations that has grown to 66 dedicated workstations
today. The Company has established a data center in California consisting of a
cluster of 166 workstations to provide search services to existing customers
and is in the process of establishing a data center in Virginia consisting of
90 workstations to service future customers.
Inktomi's second application, Traffic Server, is a large-scale network cache
designed to address capacity constraints in high-traffic network routes.
Traffic Server alleviates network congestion and increases network performance
by storing frequently requested information in proximity to users, thereby
eliminating or greatly reducing the transmission of redundant Internet data,
which the Company believes comprises a significant portion of network traffic.
Traffic Server is initially being targeted at telecommunications carriers and
large ISPs, which are currently addressing the explosive growth in the demand
for data bandwidth primarily through significant capital expenditures on
network equipment and infrastructure. To date, the Company has licensed
Traffic Server to America Online, Inc. ("AOL"), Digex, Inc. ("Digex"), Knology
Holdings, Inc. ("Knology") and NTT.
INDUSTRY BACKGROUND
The Internet, a network of hundreds of interconnected, separately-
administered public and private networks, has emerged as a global
communications medium enabling millions of people to share information and
conduct business electronically. International Data Corporation estimates that
there were approximately 69 million users of the Internet at the end of 1997
and that the number of users will grow to 320 million by the end of 2002. The
dramatic growth in the number of Internet users and the availability of
powerful new tools for the development and distribution of Internet content
have led to a proliferation of useful information and services on the
Internet, including on-line magazines, e-mail services, specialized news
feeds, interactive games, educational and entertainment applications and
electronic commerce. Although primarily text and graphics-based today,
information and services available on the Internet are increasingly
incorporating multimedia components such as video and audio clips. The
availability of richer content and services is attracting greater numbers of
Internet users, fueling a cycle of tremendous growth wherein more users demand
more information, and more information attracts more users.
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The network architecture underlying the Internet is based on a centralized
data model in which information is stored once at a single location and
accessed multiple times from that location. A user interested in particular
information must first locate the computer on the network where that
information is stored and then establish contact with that computer. Once
contact is established with the source computer, the information is compiled
and sent over the network to the user's computer. This process is repeated
each time a new user requests that same information, resulting in a large
amount of redundant data traversing the network. As the number of contacts and
the amount of information transmitted increase, information delivery
bottlenecks are created, significantly decreasing network performance. This
problem is exacerbated during peak periods of network usage and bursts in
traffic volumes driven by news and other significant events.
Information delivery bottlenecks are particularly acute internationally,
where public networks are not well-developed or well-connected to other
regional networks. This lack of infrastructure internationally, together with
the high concentration of information on servers located in the United States,
has resulted in a substantial and growing amount of traffic congestion on
international routes.
To accommodate and manage increasing traffic, network providers must
continually expand and upgrade their networks as well as improve connectivity
to other regional networks. Similarly, providers of services such as search,
e-mail and chat must scale and enhance their services to keep pace with the
tremendous growth in user demand and available information. Continued
increases in the volume, variety and richness of this information will magnify
these challenges.
To date, network providers have attempted to meet increasing demand by
installing additional telephone lines, fiber optic cable, routers and
switches, and by deploying data compression and multiplexing technologies.
These equipment-based approaches focus exclusively on expanding bandwidth
capacity by increasing the number of lines over which data can be transmitted
or increasing the volume of data that can be transported over existing lines.
However, these approaches do not address the fundamental architectural
shortcomings of these networks. As a result, they have not generated and
cannot generate sufficient bandwidth to keep pace with the anticipated growth
in traffic. Moreover, these approaches are labor-intensive, slow and costly to
implement.
Other approaches employed by network providers, such as client and proxy
server-based caching, are designed to enhance the efficiency of data
distribution by reducing the amount of redundant network traffic. Web browsers
and proxy servers each contain caches that store data, thereby eliminating the
need to traverse the entire network to reacquire data. Browser-based caches,
however, are small and only address the needs of individual users. Proxy
server-based caches can serve large workgroups, but generally are not scalable
beyond several hundred users and can themselves become network bottlenecks.
Service providers have primarily addressed the tremendous growth in user
demand and available information by deploying larger computing systems to run
their services. At times, this growth has substantially outpaced their ability
to deploy these systems, forcing service providers to limit the availability
or functionality of their services or to reduce the number of users utilizing
the service. Deploying larger computing systems is expensive and difficult to
accomplish on an incremental basis. Limiting the availability or functionality
of the service and reducing the number of users can result in lost revenue and
can alienate end users.
Inktomi believes that in order for the Internet to scale cost-effectively,
network and service providers must deploy a new layer of high-performance
software throughout the network infrastructure. This software must efficiently
leverage the Internet's existing and future network hardware infrastructure to
intelligently manage and distribute increasingly more and richer content.
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THE INKTOMI SOLUTION
Inktomi develops, markets and supports scalable software applications
designed to significantly enhance the performance, intelligence and
manageability of large-scale networks. Utilizing the Company's parallel
processing-based coupled cluster architecture and dataflow technology,
Inktomi's applications are specifically designed to address the challenges
posed by explosive growth in the number of network users, documents and
services, and the resultant increase in traffic volume. Inktomi's architecture
and technology enable the Company to develop network applications that provide
the following benefits:
SCALABILITY. Inktomi's coupled cluster software architecture enables
multiple workstations collaborating via high-speed connections to function as
one extremely powerful computer. The architecture is designed to scale without
limit and without significant deterioration in performance as additional
workstations are added to the cluster. Furthermore, the architecture
facilitates the "hot" addition of incremental workstations, without any
negative impact on existing cluster operations.
EFFICIENCY. Inktomi's dataflow technology enables a single workstation to
efficiently process up to thousands of operations simultaneously, as compared
to traditional software architectures that can only process up to tens or
hundreds of operations simultaneously before experiencing significant
performance degradation. This technology greatly improves the performance of
each workstation within the cluster, thereby increasing the efficiency of data
throughput.
HIGH SYSTEM AVAILABILITY. Inktomi's coupled cluster software architecture
enables its applications to be fault-tolerant. If any workstation within the
cluster fails, the cluster management software reassigns the task load among
the remaining workstations running the application. When the failed
workstation is restored, tasks are intelligently reassigned to the newly
functioning workstation. Since each workstation has its own buses, power
supply and disk drives, the failure of an individual workstation generally
does not cause the failure of the entire cluster, thereby maintaining high
system availability.
PRICE/PERFORMANCE. Clusters consist of relatively inexpensive, commodity
workstations and require a significantly smaller initial hardware investment
than mainframe or SMP-based systems of comparable computing power. When a
coupled cluster system requires additional capacity, the customer can add one
or more workstations on an incremental, "pay-as-you-go" basis. In contrast,
when a mainframe or SMP-based system reaches full capacity, the customer must
replace the existing system with a larger system or add an additional system
with similar capabilities. Each of these alternatives, however, requires a
substantial capital outlay and still may not achieve the same performance
capabilities as a cluster-based system.
INTEROPERABILITY. Inktomi's software architecture is designed to
interoperate with standard central processing unit ("CPU") architectures and
operating systems. The Company's search application crawler operates on Intel-
based workstations and its search engine servers operate on Sun SPARC
workstations, in both cases running the Solaris operating system. The
Company's Traffic Server application operates on Sun SPARC workstations
running the Solaris operating system and Digital Alpha workstations running
the Digital UNIX operating system. The Company is collaborating with Intel to
port its applications to Intel-based workstations running Windows NT by mid-
1999. The Company's approach to network caching is distinguished from that of
hardware vendors that may seek to preserve the market for their network
equipment by supporting only their proprietary operating systems or closed CPU
architectures. Inktomi's architecture also seamlessly supports different
generations of workstations in any given cluster, thereby extending the useful
life of customer hardware investments.
MANAGEABILITY. Inktomi's coupled cluster software architecture was designed
from the outset to manage large clusters of workstations easily from a single
management station. The architecture enables cluster managers to monitor and
configure the entire system, either on-site or remotely, through a standard
Web browser interface.
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STRATEGY
The Company's strategy is to establish itself as the leading provider of
scalable network applications specifically designed to address the distributed
data management challenges posed by rapidly growing global information
networks. Key elements of this strategy are:
LEVERAGE CORE TECHNOLOGY TO DEVELOP MULTIPLE APPLICATIONS. The core of
Inktomi's clustering technology was initially developed by key employees of
the Company at the University of California at Berkeley in 1994, and has been
designed from the start to serve as the foundation for a variety of scalable
network applications. The Company has substantially modified and enhanced this
technology. In addition, Inktomi has invested significant time and resources
in creating a structured product development process and has successfully
recruited computer scientists, engineers and software developers with
expertise and advanced degrees in the areas of massively parallel computing,
coupled cluster computing and software dataflow operations. The Company
believes that its technology, personnel and development process will enable it
to enhance its existing products and to develop new scalable network
applications offering distinct advantages over alternative solutions.
TARGET TRAFFIC SERVER AT LARGE NETWORK PROVIDERS. The Company is initially
targeting telecommunications carriers and ISPs for Traffic Server. Traffic
Server is a high-performance caching solution that is designed to be
sufficiently scalable to handle massive and growing network traffic volumes.
Network providers are spending billions of dollars domestically and
internationally to increase bandwidth through the deployment of expensive
network hardware intended to speed data transfer and increase capacity.
Despite this investment, demand for bandwidth continues to outpace the ability
of network providers to increase capacity. Inktomi believes that Traffic
Server provides a more compelling value proposition for these customers
because it reduces redundant traffic, thereby increasing available bandwidth
at a substantially lower cost.
ESTABLISH TRAFFIC SERVER AS THE DE FACTO STANDARD. Inktomi intends to
establish and maintain Traffic Server as the leading cache solution for large-
scale networks. The Company has initially targeted network providers that
operate the largest and most complex networks, and has designed Traffic Server
to easily integrate into their existing network infrastructures. The Company
believes that adoption of Traffic Server by these leading providers will
validate the Company's technology and facilitate broad market acceptance, as
well as aiding the Company's objective of establishing Traffic Server in the
corporate marketplace. In addition, Inktomi believes that, in the absence of
standardized approaches to network caching, the opportunity currently exists
for the Company to establish Traffic Server as the de facto standard through
its adoption and implementation by high profile network providers. The Company
believes that achieving such status would provide it with a significant
competitive advantage and intends to continue to pursue aggressively those
customers Inktomi believes will enable Traffic Server to be recognized as the
standard network caching solution.
BECOME THE INTERNET SEARCH ENGINE VENDOR OF CHOICE. Inktomi believes it can
leverage its powerful Internet search engine technology to become the search
engine vendor of choice for third-party on-line service providers. As the
Internet has continued to develop, the service offerings of these companies
have also evolved so that search capabilities, while remaining integral, are
no longer the sole sources of direct or indirect revenue generation. At the
same time, the significant increase in the size and complexity of the Internet
requires substantial on-going investments in order to maintain and upgrade
these search capabilities. Inktomi believes that these factors will lead many
companies to choose to outsource their search capabilities rather than develop
and maintain them in-house. Already, companies such as Wired, NTT and
Microsoft have elected to use Inktomi's search technology not only because of
the performance and scalability advantages it provides, but also because they
retain the critical flexibility to customize the user interface to meet their
specific requirements. As the Company continues to develop and enhance its
search technology, Inktomi believes that the incentives will increase for
companies to outsource these services to the Company.
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DEVELOP DIRECT AND INDIRECT DISTRIBUTION CHANNELS. The Company's sales
strategy is to pursue opportunities with large accounts through its direct
sales force, and to penetrate various targeted market segments through
multiple indirect distribution channels. The Company has established a direct
sales force covering the United States and Canada as well as a direct sales
force in the United Kingdom to address the European market. The Company
intends to increase the size of its direct sales force and to establish
additional sales offices domestically and internationally. The Company plans
to complement its direct sales force by establishing multiple indirect
distribution channels including OEMs, systems integrators, VARs and joint
marketing partners. These channels are intended to increase geographic sales
coverage and to address mid-tier ISPs and, eventually, large corporate
customers.
PRODUCTS AND CUSTOMERS
Inktomi develops, markets and supports scalable software applications
designed to significantly enhance the performance, intelligence and
manageability of large-scale networks. Inktomi has developed two scalable
network applications to date: Traffic Server, a large-scale network cache, and
an Internet search engine.
TRAFFIC SERVER
Inktomi's Traffic Server application is a scalable, high-performance network
cache designed to reduce Internet congestion and increase overall network
efficiency. Traffic Server is initially being targeted for use by
telecommunications carriers and large ISPs, both domestically and
internationally. To date, the Company has licensed Traffic Server to AOL,
Digex, Knology and NTT.
Information available on traditional data networks is stored in a single
source location. An end user interested in particular information establishes
contact with the source computer on the network and initiates a request for
the information. Once contact is established with the source computer, the
information is compiled and sent over the network to the end user's computer.
Multiple end users initiating multiple requests leads to redundant
transmission of the same information over the network, resulting in network
congestion and data access and information delivery bottlenecks.
[DIAGRAM OF NETWORK WITHOUT CACHING]
Redundant traffic strains the network and consumes bandwidth. Providing
additional bandwidth and infrastructure requires costly investments by
telecommunications carriers and ISPs. Integrating Traffic Server into the
network leverages the existing network infrastructure. As a result, Traffic
Server increases available bandwidth at a substantially lower cost than
expanding existing infrastructure.
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Traffic Server is based on the premise that it is cheaper to store
information than to move it. Traffic Server stores or "caches" locally copies
of frequently accessed information in dedicated storage systems in proximity
to the user. Requests for information are managed by Traffic Server, which
determines if the requested information is located in the cache. If so, the
information is accessed directly from the cache, thereby avoiding the need to
traverse the entire network. If the information is not located in the cache,
the information is accessed and retrieved from the source computer. The
information is then stored in the cache and is thus made available to
subsequent users. In this way, Traffic Server intelligently eliminates
redundant traffic and smooths traffic patterns, thereby leveraging and
enhancing existing bandwidth within the network. In addition, Traffic Server
is designed to be particularly effective in alleviating information delivery
bottlenecks during peak periods of network usage and bursts in traffic volume
driven by news and other significant events, thereby significantly enhancing
the on-line experience for the end user.
[DIAGRAM OF NETWORK WITH CACHING]
Traffic Server offers several key benefits to customers:
PERFORMANCE. Traffic Server is the first large-scale, high performance
network cache specifically designed to improve network efficiency in high-
traffic network routes. In an audited benchmark study jointly conducted by
Inktomi and Sun, Traffic Server configured with 16 nodes, 1/2 terabyte of
cache and a 40% cache hit rate achieved 3,488 operations per second. This
performance metric implies that Traffic Server can support more than 300
million hits per day, a level of performance that Inktomi believes is capable
of addressing the demands of today's most congested Internet traffic routes.
INTELLIGENCE. Traffic Server enables the intelligent management of data.
Traffic Server is designed so that end users determine the composition of the
content included within the cache through their information requests. Traffic
Server's algorithms are designed to automatically maintain the freshness of
this information and to discard information that is no longer needed. This
feature enables Traffic Server to manage the time or event-driven spikes of
network usage that typify Internet traffic patterns. In addition, through its
logging capabilities, Traffic Server tracks cumulative and current information
regarding all transactions in the cache, enabling advertising statistics to be
accurately reported.
SCALABILITY. Traffic Server is designed to be highly scalable, enabling very
large cache sizes. Larger cache size generally increases the probability of
the requested data being present in the cache, thereby reducing the need to
traverse the network to retrieve the data from the source computer and
enhancing the on-line experience for the end user. The ability to
incrementally expand cache size on
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a "pay-as-you-go" basis enables Traffic Server customers to respond rapidly to
changes in network traffic patterns and increases in the number of users
without losing performance or efficiency.
MANAGEABILITY. Traffic Server is designed to be easily configured and
monitored by network administrators. Traffic Server offers a graphical control
panel accessible from anywhere on the network through a standard Web browser.
Through the "dashboard" control panel, an administrator can configure Traffic
Server to pre-load the cache with certain content, avoid caching certain
content, and change logging and security features. In addition, an
administrator can monitor Traffic Server to determine the status and
performance of single or multiple caches spread across a network, and make any
adjustments necessary to enhance overall performance.
ADAPTABILITY. Traffic Server is designed and architected to run on standard
off-the-shelf hardware servers that today include those made by Sun and
Digital. Each of these server platforms operates with standard, open operating
systems. This open platform approach permits Inktomi or third parties to
extend or add new Traffic Server functions or services. Examples include
manipulating the stored or cached information according to user-specific
profiles or supporting new data protocols. Moreover, future versions of
Traffic Server will support audio and video streaming technologies.
EASE OF INTEGRATION. Traffic Server has been designed to integrate quickly
and easily into existing network infrastructures. It interoperates with
standard Internet network equipment, is compatible with standard Web browsers
and supports the HTTP and FTP protocols.
Traffic Server currently operates on Sun SPARC workstations running the
Solaris operating system and Digital Alpha workstations running the Digital
UNIX operating system. Inktomi is collaborating with Intel to port Traffic
Server to operate on Intel-based workstations running Windows NT by mid-1999.
Inktomi intends to port Traffic Server to other systems consistent with market
demand and partner opportunity. Inktomi licenses Traffic Server based on the
number of CPUs running the software. Upgrade subscriptions and support and
maintenance services are priced separately. Inktomi's future growth
substantially depends on the commercial success of Traffic Server. Traffic
Server has only recently been launched commercially and has been licensed by
four customers. Traffic Server has not been installed in a large-scale,
commercial deployment, and there can be no assurance that the product will
perform desired functions, offer sufficient price/performance benefits or meet
the technical or other requirements of target customers. Failure of Traffic
Server to achieve market acceptance for these or other reasons could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Substantial Dependence on Traffic
Server; Uncertainty of Market Acceptance; Lengthy Sales Cycle".
SEARCH ENGINE
The Company entered the Internet search engine market in May 1996 with the
launch of HotBot, a search service powered by Inktomi's search engine and
marketed by Wired. HotBot has garnered broad media acclaim, including an
"Editor's Choice" designation in the "Search Engine Shootout" sponsored by
c/net (January 1998) and in PC Magazine (December 1997) and a "Most Valuable
Product" designation in the search category from PC Computing (November 1997).
HotBot also won the "Internet Search Engine Shootout" sponsored by PC
Computing (September 1997) and received the highest rating among Internet
search engines by Internet World (September 1997). Inktomi's search engine
technology also underlies search services provided by NTT (goo), OzEmail
(Anzwers) and UOL (Radar). In addition, the Company has entered into contracts
to provide services based on its Internet search engine to Microsoft, Southam
and N/2/H/2/.
Inktomi's Internet search engine technology enables customers to provide a
variety of on-line search services to end users. The Company generally
provides information search services based on its Internet search engine to
its customers, who in turn incorporate these services into on-line offerings
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to end users. Inktomi provides and manages all hardware, software and
operational aspects of its search engine and the associated database of
Internet content. Inktomi also provides the customer with a programming
interface and software tools to enable the customer to custom design its
search service user interface. The user interface communicates with the
Inktomi search engine via a communication protocol (the "Inktomi Data
Protocol"). Separating the user interface enables this portion of the service
to reside in a different physical location from the Inktomi search engine and
to run on the customer's choice of computing equipment. In addition, the
customer can customize the user interface as to look and feel and
functionality and can change the user interface at any time without affecting
the operation of the Inktomi search engine. This turn-key model allows the
Company to serve multiple customers while continuing to concentrate on
developing its search engine technology.
[DIAGRAM OF INKTOMI SEARCH ENGINE]
The Company's search engine application consists of a crawler, an indexer
and search engine servers. The crawler and indexer are software programs that
collect and organize information, and store that information on the cluster of
search engine servers. The search engine servers are a collection of
workstations that are linked together as a coupled cluster through the use of
Inktomi's software. The search engine servers provide powerful full-text query
operations, including full Boolean support, phrase and adjacency searching,
date restrictions and the recognition of multimedia files and other embedded
objects. Search results are relevance-ranked using state-of-the-art text
indexing methods.
Inktomi's search engine technology offers several key benefits to customers:
SERVICE FOCUS. By offering turn-key search engine services, Inktomi enables
customers to outsource search services rather than develop and manage these
services in-house. Inktomi enables its customers to provide powerful search
capabilities to end users of their on-line services without incurring the on-
going development, support and maintenance obligations associated therewith.
This approach enables Inktomi's customers to concentrate on administering key
aspects of their on-line business, including branding, advertising sales, end-
user marketing and publicity, and business development. In addition, the ease
of developing and modifying the user interface to the Inktomi search engine
allows the customer to remain flexible in the face of changing user
requirements.
SCALABILITY AND SPEED. The growth in the number of users and documents on
the Internet places a premium on delivering search services that respond to
end-user queries quickly and with results that are compiled from the largest
available database. The Company's coupled cluster
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technology enables the Company to scale its search engine incrementally as the
Internet grows to maintain speed of response and increase the size of the
database. Although search query speeds depend upon the complexity of the
search, Inktomi has maintained search response times on average of below one
second, and has grown its search database to in excess of 110 million
documents, which the Company believes is the largest database of full text and
embedded multimedia documents of all commercially available Internet search
services.
HIGH AVAILABILITY AND FRESHNESS. High availability of any on-line service is
critical to the success of the service, and the ability to constantly replace
outdated and changed information in an Internet database is important to the
popularity of a search service. Inktomi's coupled clustered technology enables
the Company to provide a highly reliable search service 24 hours a day, seven
days a week, with minimal downtime, and its dataflow technology enables its
crawling software to collect, sort, classify and index a large number of
documents quickly and efficiently. These attributes in turn enable Inktomi's
customers to provide highly reliable services and fresh information to their
end users.
TECHNOLOGY AND SERVICE ENHANCEMENTS. Inktomi expends substantial time and
resources enhancing its core search engine technology and developing new
functionality and service offerings for its customers. In addition to its core
search services, the Company has developed and offers premium private searches
involving the crawling, indexing and hosting of specific sets of content
specified by the customer, and advanced searching features allow end users to
specify the number and types of responses to a search query and to submit
specific documents not currently indexed to the Inktomi database. The Company
is also in the process of developing automated directory capabilities to its
search engine technology which will automatically categorize Internet
information based upon a customer specified taxonomy.
Inktomi generates search service revenues through a variety of contractual
arrangements, which include per-query search fees, search service hosting
fees, advertising revenue sharing plans, license fees and maintenance fees.
The Company's search service revenues are primarily based on the volume of
end-user queries processed by the Inktomi search engine and the level of
advertising revenue generated by customers. The Company's contracts do not
typically require the customer to direct its end users to the Company's search
service or to use the search service at all. Accordingly, the Company is
highly dependent on the willingness of customers to promote and use the search
services provided by the Company, the ability of customers to attract users to
their on-line services, the number of end-user search queries processed by the
Inktomi search engine, and the ability and willingness of customers to sell
advertisements on Internet pages viewed by end users. Failure of customers to
promote and use the Company's services, low volumes of end-user search queries
processed by the Inktomi search engine and lower than expected levels of
advertising revenues will result in low levels of revenues generated by the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Risks
Associated with Internet Search Engine Service".
TECHNOLOGY
Inktomi's coupled cluster software architecture and dataflow technology have
been designed to serve as the foundation for a variety of scalable network
applications. Inktomi's coupled cluster software architecture enables multiple
workstations to function together as one extremely powerful computer and its
dataflow technology enhances the operating efficiency of individual
workstations within the cluster. Certain key employees of Inktomi initiated
their work on cluster computing at the University of California at Berkeley in
1994 under a grant from the U.S. Department of Defense Advanced Research
Projects Agency to develop networks of workstations with the performance
capabilities of supercomputers, but at substantially lower cost. Inktomi has
licensed aspects of this
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early work, which the Company has significantly modified and enhanced. The
Company developed its dataflow technology internally.
The Company's coupled cluster software architecture provides the foundation
for the scalability, high availability, fault tolerance and high
price/performance characteristics of Inktomi's network applications. Inktomi's
coupled cluster architecture is based on sophisticated parallel processing
techniques that disaggregate tasks and assign them to individual workstations
(or nodes) within the cluster. In order to maximize performance, nodes within
a cluster are connected to each other through a high-speed local area network.
Inktomi has developed complementary proprietary software that enables the
cluster to be managed as if it were a single node, ensuring consistent
configurations and reducing both administrative costs and the possibility of
error. The management software also enables centralized monitoring (via a
standard Web browser) of the full cluster through any individual node. In the
event of a node failure, that node's responsibilities and IP address are
automatically reassigned to other nodes. In addition, nodes may be added or
swapped without interrupting the operations of the cluster and any changes are
automatically recognized and incorporated by the management software. These
two features contribute to enhanced scalability, significantly greater system
availability and reduced administrative costs.
Inktomi's dataflow technology provides a framework for building applications
that focus on input/output ("I/O") and data movement. It bypasses the
operating system to directly handle management tasks such as CPU scheduling,
network I/O and memory allocation. The Company has designed its dataflow
technology from the ground up to address the unique problems of accessing data
over variable-speed Internet connections. This technology is capable of
supporting thousands of simultaneous operations per node, thus maintaining
high CPU and memory utilization despite hundreds of slow network connections.
This capability greatly improves the performance of individual nodes as they
are able to process several operations while waiting for responses to earlier
commands or queries, thereby substantially eliminating idle time.
In addition to the coupled cluster architecture and dataflow technology that
comprise Inktomi's core technologies, the Company has developed technologies
in several important related areas, including information retrieval, secure
remote cluster management and object databases for network caches. The Company
intends to continue to develop new technologies, as well as enhance and extend
its core technology, in order to bring to market new scalable network
applications.
SALES AND MARKETING
The Company's sales strategy is to pursue opportunities with large accounts
through its direct sales force, and to penetrate various targeted market
segments through multiple indirect distribution channels.
Inktomi's worldwide direct sales organization consisted of 15 individuals as
of March 31, 1998, ten of whom are located at the Company's San Mateo,
California headquarters and five of whom are located at the Company's
subsidiary office in the United Kingdom. The direct sales force is organized
into individual account teams, each consisting of a sales representative and a
systems engineer. The Company generates leads from contacts made through
seminars, conferences, trade shows, customers and an ongoing public relations
program. Inktomi qualifies the leads and assigns an account team to major
prospective customers. The account team then initiates the sales process,
which generally involves multiple presentations to information technology and
business professionals within the prospective customer's organization. In
addition, Inktomi expects that sales of the Traffic Server application will
generally include a pilot implementation, successful completion and testing of
which will be a pre-requisite to full-scale deployment. The Company intends to
increase the size of its direct sales force and to establish additional sales
offices domestically and internationally. Competition for sales
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personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain additional qualified personnel in the
future.
In order to achieve broad distribution of the Company's products and
services, Inktomi intends to complement its direct sales force by establishing
multiple indirect distribution channels, including OEMs, systems integrators,
VARs and joint marketing partners. These channels are intended to increase
geographic sales coverage and to address mid-tier ISPs and, eventually, large
corporate customers. Inktomi is in the early stages of building these channels
and currently has entered into a written agreement with one such distributor
covering the territory of Japan. There can be no assurance that the Company
will be able to enter into agreements or establish relationships with desired
distribution partners on a timely basis, or at all, or that such distribution
partners will devote adequate resources to selling the Company's products.
The Company believes it is important to have a strong international presence
and intends to translate and localize its products to address international
markets. The Company intends to employ a mix of channels similar to its U.S.
model through the use of OEMs, system integrators and VARs. In October 1997,
the Company established a subsidiary in the United Kingdom to address the
European market. Inktomi has hired a general manager to run the subsidiary and
intends to hire additional sales and marketing personnel.
The Company's marketing group consisted of 11 individuals at March 31, 1998,
all of whom are located at the Company's San Mateo, California headquarters.
Inktomi conducts a variety of programs worldwide to stimulate market demand
for its products, including public relations activities, advertising, trade
shows and collateral development. These programs are focused on Inktomi's
target markets and are designed to create awareness and generate sales leads.
The Company believes that strategic relationships will assist Inktomi's
products and technology in gaining broad market acceptance as well as
enhancing the Company's marketing, sales and distribution capabilities. The
Company has informally collaborated with Sun since early 1997 regarding a
range of marketing and sales activities relating to Traffic Server. Inktomi's
sales force and Sun's sales force have worked together and participated in
joint sales calls to several large ISPs and other network providers. The
companies have also worked together to conduct joint marketing activities,
including public relations, sales seminars and field marketing. In August
1997, Inktomi and Digital entered into a software porting agreement in which
Digital provided funds and loaned equipment to Inktomi to enable Inktomi to
port its Traffic Server application to run on Digital equipment. Inktomi and
Digital are also informally collaborating on joint market development
activities. In September 1997, Inktomi and Intel entered into a strategic
development agreement in which Inktomi agreed to port its Traffic Server
application to run on Intel architecture and Intel agreed to provide Inktomi
with porting assistance and access to Intel's tuning and optimization lab. At
the same time, Intel made an equity investment in Inktomi. Intel has the right
to distribute the ported application as an OEM and as a VAR, and Intel has
agreed to use reasonable efforts to introduce Inktomi to other OEMs. Inktomi
intends to pursue other strategic relationships. See "Risk Factors--Dependence
on Strategic Relationships".
CUSTOMER SERVICE AND SUPPORT
The Company believes that a high level of customer service and support is
critical to the successful marketing and sale of its products. The Company is
developing a comprehensive service and support organization to manage customer
accounts and expects to provide an increasing level of support as its Traffic
Server and search engine applications are deployed across a range of
customers. The Company's service and support organization consisted of four
individuals at March 31, 1998, all of whom are located at Inktomi's San Mateo,
California headquarters. The Company plans to establish additional service and
support sites internationally commensurate with customer needs.
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Inktomi provides a base level of technical support to its customers through
maintenance and support agreements. The base level of support includes
assistance with installation, configuration and initial set-up of the
application, run-time support, and software maintenance releases. For an
additional fee, a customer may choose to receive software upgrades, training
and support during extended hours. Inktomi generally provides its base level
of support via e-mail, the Internet, fax and telephone.
Inktomi also provides a variety of value-added services to its customers.
These services include customer network evaluation and implementation
guidance, assistance with installation, configuration and initial set-up of
the application at the customer's facility, and cluster growth and other
scaling recommendations.
The Company believes that the complexity of its products and the large-scale
deployments anticipated by customers will require a number of highly trained
customer service and support personnel. The Company currently has a small
customer service and support organization, and only limited experience
supporting Traffic Server in a commercial deployment. There can be no
assurance that the Company will be able to increase the size of its customer
service and support organization on a timely basis or at all, or that the
Company will be able to provide the high level of support required by its
customers. See "Risk Factors--Need to Expand Sales and Support Organizations".
RESEARCH AND DEVELOPMENT
Inktomi believes that strong product development capabilities are essential
to its strategy of enhancing its core technology, developing additional
applications incorporating that technology, and maintaining the
competitiveness of its product and service offerings. Inktomi has invested
significant time and resources in creating a structured process for
undertaking all product development projects. This process involves all
functional groups and all levels within the Company and is designed to provide
the framework for defining and addressing the steps, tasks and activities
required to bring product concepts and development projects to market
successfully. In addition, Inktomi has actively recruited key computer
scientists, engineers and software developers with expertise and degrees in
the areas of massively parallel computing, coupled cluster computing, and
software dataflow operations to work for the Company, and has complemented
these individuals by hiring senior management with extensive backgrounds in
the network infrastructure, enterprise software and Internet industries.
Through this mix of personnel, the Company strives to create and maintain an
environment of rapid innovation and product release.
Since inception, the Company has focused its research and development
efforts on developing and enhancing its coupled cluster software architecture
and dataflow technology and on applying these technologies to its search
engine and network cache products. The Company is currently working to add
features and new functionality to its existing products, port its products to
operate on Intel-based workstations running Windows NT, and develop new
Internet products and services. The Company's research and development
expenses totaled $3.8 million, $4.2 million and $1.5 million for the six
months ended March 31, 1998, for the fiscal year ended September 30, 1997 and
for the period from February 2, 1996 (inception) to September 30, 1996,
respectively. As of March 31, 1998, the Company had 45 individuals engaged in
research and development.
COMPETITION
The markets in which the Company competes are new, intensely competitive,
highly fragmented and characterized by rapidly changing technology and
evolving standards. The Company faces competition in the overall network
computing software market as well as in each of the market segments in which
its products and services compete. The Company has experienced and expects to
continue to experience increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than the Company.
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In the market for network cache solutions, the Company competes on the basis
of performance, scalability, data throughput, ease of integration and
manageability. The Company competes primarily against companies including
CacheFlow, Inc., Cisco, Microsoft, Netscape, Network Appliance, Inc., Novell,
Inc. and Spyglass, Inc. among others, as well as against freeware caching
solutions including CERN, Harvest and Squid. In addition, other companies may
embed competing technology into other products such as server or firewall
software. The Company is aware of numerous other major software developers as
well as smaller entrepreneurial companies that are focusing significant
resources on developing and marketing software products and services that will
compete with Traffic Server. The Company believes that its software may face
competition from other providers of hardware and software claiming to offer
competing solutions to network infrastructure problems, including networking
hardware and companion software manufacturers such as Ascend Communications,
Inc., Bay Networks, Inc., Ciena Corporation and IBM Corporation; hardware
manufacturers such as Digital, Hewlett-Packard Company, Intel, Motorola, Inc.
and Sun; telecommunications providers such as AT&T, Inc., MCI
Telecommunications Corporation, and regional Bell operating companies; cable
TV/communications providers such as @Home Corporation, Continental
Cablevision, Inc., TimeWarner, Inc. and regional cable operators; software
database companies such as Informix Corporation, Oracle Corporation and
Sybase, Inc.; and large diversified software and technology companies
including Microsoft, Netscape and others. Cisco, Microsoft and Netscape
provide or have announced their intentions to provide a range of software and
hardware products based on Internet protocols and to compete in the broad
Internet/intranet software market as well as in specific market segments in
which the Company competes. Cisco, Microsoft and Netscape have often acquired
technology and products from other companies to augment their product lines,
in addition to developing their own technology and products.
In the market for providing turn-key search services, the Company competes
on the basis of performance, scalability, price, relevance of results and user
response time. The Company competes with a number of companies to provide
Internet search services, many of whom have operated services in the market
for a longer period, have greater financial resources, have established
marketing relationships with leading on-line services and advertisers, and
have secured greater presence in distribution channels. Competitors who offer
search services to on-line service providers include Digital (Alta Vista),
Excite, Infoseek, Lycos, Northern Light, Inc. and Open Text Corporation, among
others. Increased use and visibility of the Company's search engine services
depends on the Company's ability to maintain highly available and reliable
services across multiple data centers and to maintain the freshness of the
search database.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Certain of the Company's current and potential competitors may bundle
their products with other software or hardware, including operating systems
and browsers, in a manner that may discourage users from purchasing products
offered by the Company. Also, certain current and potential competitors have
greater name recognition or more extensive customer bases that could be
leveraged, thereby gaining market share to the Company's detriment. Inktomi
expects additional competition as other established and emerging companies
enter the network computing software market and new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future channel partners may establish cooperative relationships
with current or potential competitors of the Company, thereby limiting the
Company's ability to sell its products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition
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could materially adversely affect the Company's ability to obtain new
contracts and maintenance and support renewals for existing contracts on terms
favorable to the Company. Further, competitive pressures could require the
Company to reduce the prices of its products and services, which could
materially adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so would have a material adverse effect upon the Company's
business, financial condition and results of operations.
PROPRIETARY RIGHTS
Because materials may be downloaded by the search services operated or
facilitated by the Company, or may be copied and stored by customers that have
deployed the Company's Traffic Server product, and, in either case, may be
subsequently distributed to others, there is a potential that claims will be
made against the Company (directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature and
content of such materials. Such claims have been brought, and sometimes
successfully pressed, against on-line services in the past. It is also
possible that if any information provided through the search services operated
or facilitated by the Company or information that is copied and stored by
customers that have deployed Traffic Server, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the Company for losses incurred in reliance on such
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability or legal defense expenses that are not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's success and ability to compete are substantially dependent
upon its internally developed technology. While the Company relies on
copyright, trade secret and trademark law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements and
reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The Company generally enters into confidentiality or
license agreements with its employees, consultants and corporate partners, and
generally controls access to and distribution of its software, documentation
and other proprietary information. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use the Company's products or technology. Policing unauthorized use
of the Company's products is difficult, and there can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology,
particularly in foreign countries where the laws may not protect the Company's
proprietary rights as fully as do the laws of the United States. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segments grows and the functionality of products in
different industry segments overlaps. There can be no assurance that third
parties will not claim infringement by the Company with respect to its
software or enhancements thereto. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. A successful claim of product infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Company's
business, financial condition and results of operations.
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EMPLOYEES
As of March 31, 1998, Inktomi had 88 full-time employees, 45 of whom were
engaged in research and development, 26 in sales and marketing, four in
customer support, and 13 in finance, administration and operations. The
Company's future performance depends in significant part upon the continued
service of its key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's future success
also depends on its continuing ability to attract, train and retain highly
qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can
retain its key personnel in the future. None of the Company's employees is
represented by a labor union. The Company has not experienced any work
stoppages and considers its relations with its employees to be good.
TECHNICAL ADVISORY BOARD
The Company has assembled a Technical Advisory Board comprised of experts in
the fields of clustering and networking technology. The Technical Advisory
Board meets quarterly to review Inktomi design plans and products and provide
specific feedback on technology applications and business market focus. The
Technical Advisory Board is chaired by Dr. Eric A. Brewer, Chief Scientist of
the Company, and includes as members Dr. David Black, a technology partner at
Oak Investment Partners and Chief Technology Officer of PaySys International,
Inc.; Dr. David E. Culler, associate professor of Electrical Engineering and
Computer Science at the University of California, Berkeley; Dr. Greg
Papadopolous, Chief Technology Officer at Sun; Dr. Lawrence A. Rowe, professor
of Electrical Engineering and Computer Science at the University of
California, Berkeley; and Justin Rattner, senior fellow at Intel.
FACILITIES
Inktomi leases approximately 32,000 square feet of office space in a single
office building located in San Mateo, California. Approximately 16,400 square
feet of space is leased pursuant to a sublease agreement which expires in
February 2000 and approximately 15,600 square feet of space is leased pursuant
to a lease agreement which expires in October 2002. The Company has secured an
extension from the master landlord for the subleased office space. The term of
this extension is from the expiration of the sublease through September 2001.
The Company believes its current facilities will be adequate through calendar
1998 and is currently searching for additional space. The Company also
subleases approximately 1,300 square feet of office space in the United
Kingdom. The sublease expires in October 1999.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C. Peterschmidt(1)....... 50 Chairman of the Board, President and
Chief Executive Officer
Dr. Eric A. Brewer............. 31 Chief Scientist and Director
Paul Gauthier.................. 25 Chief Technology Officer
Jerry M. Kennelly.............. 47 Vice President of Finance, Chief Financial
Officer and Secretary
Dennis L. McEvoy............... 50 Vice President of Development and Support
Richard B. Pierce.............. 39 Vice President of Marketing
Timothy Stevens................ 31 Vice President of Corporate and Legal
Affairs, General Counsel and Assistant
Secretary
Vince Vannelli................. 39 Vice President of Worldwide Field Operations
Fredric W. Harman(1)(2)(3)..... 37 Director
John A. Porter(1)(2)(3)........ 54 Director
Alan F. Shugart(2)(3).......... 67 Director
</TABLE>
- --------
(1) Member of Nominating Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
DAVID C. PETERSCHMIDT has served as President, Chief Executive Officer and a
Director of Inktomi since July 1996. He was appointed Chairman of the Board in
December 1997. From 1991 until joining Inktomi, he served as Chief Operating
Officer and Executive Vice President of Sybase, Inc., a database company. From
1988 to 1991, Mr. Peterschmidt was a consultant with The Kappa Group, a
management consulting firm, where he provided senior level sales and marketing
training to a variety of companies. From 1987 to 1988, he served as Vice
President of Sales and Marketing for System Industries, Inc., a manufacturer
of storage subsystems for Digital Equipment Corporation computers. From 1984
to 1987, Mr. Peterschmidt was Vice President of Sales and Marketing for LEX
Computer Systems. Mr. Peterschmidt also served as a Captain in the United
States Air Force for nine years, where he was Lead Contract Negotiator on the
B1 Bomber Program at Rockwell International, Inc. Mr. Peterschmidt holds a
Bachelor of Arts degree in Political Science from the University of Missouri
and a Masters of Business Administration from Chapman College.
DR. ERIC A. BREWER has served as a Director of the Company since its
inception in February 1996. From February 1996 to December 1997, Dr. Brewer
was Chief Technology Officer of the Company and was appointed Chief Scientist
in December 1997. From May 1996 to July 1996, he served as interim President
and Chief Executive Officer of the Company. Dr. Brewer has been an Assistant
Professor in the Computer Science Division at the University of California,
Berkeley since July 1994, and a consultant to the Idea Group since August
1990. Dr. Brewer served as a research assistant at the Massachusetts Institute
of Technology from September 1989 to August 1994. From June 1986 to November
1992, Dr. Brewer was a software engineer at CADAM, Inc. Dr. Brewer holds a
Bachelor of
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Science degree in Computer Science from the University of California, Berkeley
and a doctorate degree in Computer Science from the Massachusetts Institute of
Technology.
PAUL GAUTHIER served as Vice President of Research and Development of the
Company from February 1996 until his appointment as Chief Technology Officer
in December 1997. From May 1995 to August 1995, Mr. Gauthier served as an
intern at Digital Equipment Corporation's Systems Research Center. Mr.
Gauthier served as a programmer analyst for Seimac Limited from May 1994 to
July 1994. From July 1989 to April 1994, Mr. Gauthier served as Technical
Director for Worthington Software Company. Mr. Gauthier served as a programmer
at Dymaxion Research from June 1987 to July 1989. Mr. Gauthier holds a
Bachelor of Science degree, with honors, in Computer Science from Dallhousie
University.
JERRY M. KENNELLY joined the Company as Vice President of Finance and Chief
Financial Officer in October 1996. From June 1990 until joining Inktomi, Mr.
Kennelly worked for Sybase, Inc. in a number of senior financial positions.
Most recently, he served as Vice President of Corporate Finance. From November
1988 to May 1990, Mr. Kennelly served as the Controller for U.S. Operations at
Oracle Corporation. From December 1980 to October 1988, he served as World
Wide Sales and Marketing Controller at Tandem Computers, Inc. Mr. Kennelly
holds a Bachelor of Arts degree in Political Economy from Williams College and
a Masters degree in Accounting from the New York University Graduate School of
Business Administration. He is also a Certified Public Accountant.
DENNIS L. MCEVOY joined the Company as a consultant in March 1997 and as
Vice President of Development and Support in June 1997. From October 1996 to
February 1997, Mr. McEvoy served as Executive Vice President of Products and
Services at Verity, Inc., a provider of information search, retrieval and push
software for corporate intranets and the Internet. From October 1994 to
September 1996, he served in several executive management positions at Sybase,
Inc., most recently as President, Enterprise Business Group. Prior to joining
Sybase, in January 1989, Mr. McEvoy co-founded and served as President and
Chief Executive Officer of Cooperative Solutions, Inc., a client/server
software company focused on development tools and production software for
mission-critical applications. Cooperative Solutions was acquired by Bachman
Information Services, Inc. in August 1993, whereupon Mr. McEvoy joined Bachman
as a Vice President and served in such capacity until August 1994. From
December 1974 to June 1988, Mr. McEvoy worked at Tandem Computers, Inc., most
recently as Vice President, Software Division. Mr. McEvoy holds a Bachelor of
Science in Mathematics from Carnegie-Mellon University.
RICHARD B. PIERCE joined Inktomi as its Vice President of Marketing in
November 1996. From December 1981 until joining Inktomi, Mr. Pierce worked at
Intel Corporation where he held a variety of marketing, strategic planning and
operations management positions. Most recently, he was marketing director of
Intel's mobile and handheld products group. Mr. Pierce holds a Bachelor of
Science degree in Electrical Engineering from Purdue University.
TIMOTHY STEVENS joined Inktomi as its Vice President of Corporate and Legal
Affairs and General Counsel in July 1997. Prior to joining Inktomi, Mr.
Stevens was an attorney with Wilson Sonsini Goodrich & Rosati, where he served
as primary outside counsel for more than thirty private and public companies,
specifically in the areas of venture capital and corporate financing, public
offerings, mergers and acquisitions, and securities and intellectual property
law. Mr. Stevens holds Bachelor of Science degrees in Finance and Management
from the University of Oregon and a Juris Doctor degree from the University of
California, Davis.
VINCE VANNELLI joined Inktomi as Vice President of Worldwide Field
Operations in January 1998. Prior to joining Inktomi, Mr. Vannelli was most
recently the Vice President and General Manager for U.S. Operations for
Hitachi Data Systems, Inc., a computer services and equipment company. Mr.
Vannelli worked for Hitachi for eight years, first as a District Sales Manager
in Northern California, then as the
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Regional Manager of the Mid-Atlantic states, then as the Eastern Division
Manager. Following these assignments, Mr. Vannelli returned to the West Coast
to assist the Chief Executive Officer of Hitachi in re-engineering worldwide
sales and marketing, then after a brief period running the Western Division,
was named Vice President and General Manager for U.S. Operations. Prior to
working for Hitachi, Mr. Vannelli was employed by IBM Corporation for eight
years in a variety of sales and sales management roles. Mr. Vannelli holds a
Bachelor of Science and a Masters degree in Industrial Engineering from
Stanford University.
FREDRIC W. HARMAN joined the Company as a Director in April 1997. Since July
1994, Mr. Harman has served as a Managing Member of the General Partners of
venture capital funds affiliated with Oak Investment Partners. From April 1991
to June 1994, he served as a General Partner of Morgan Stanley Venture
Capital, L.P. Mr. Harman is a director of ILOG, S.A., SPSS, Inc. and
International Manufacturing Services, Inc. and several privately held
companies. Mr. Harman holds a Bachelor of Science and Masters degree in
Electrical Engineering from Stanford University and a Masters of Business
Administration from Harvard University.
JOHN A. PORTER joined the Company as a Director in March 1997. Mr. Porter is
currently actively involved in a variety of private investment and business
ventures. He is a director of WorldCom, Inc., a full-service
telecommunications provider and, through its wholly owned subsidiary UUNet,
Inc., the largest Internet Service Provider in the United States. Mr. Porter
has served on the Board of Directors of WorldCom since 1989, serving as
Chairman of the Board from 1989 to 1993 and as Vice Chairman from 1993 to
1996. Mr. Porter also serves as Chairman of the Board and Chief Executive
Officer of Industrial Electric Manufacturing, Inc., a switch gear
manufacturer, which he joined in 1995, and Chairman of the Board and Chief
Executive Officer of Phillips & Brooks Gladwin, Inc., a full-service provider
of public communications equipment and national outsourced services, which he
joined in 1989. He is also a director of Uniroyal Technologies, Inc. and
XLConnect, Inc.
ALAN F. SHUGART joined the Company as a Director in December 1997. Since
1979, Mr. Shugart has been Chief Executive Officer of Seagate Technology,
Inc., a manufacturer of disk drives and other computer equipment. From 1979
until September 1991 and since October 1992, Mr. Shugart has also served as
Chairman of the Board of Seagate. He also served as President of Seagate from
September 1991 until September 1997 and Chief Operating Officer of Seagate
from September 1991 until March 1995. Mr. Shugart is currently a director of
Valence Technology, Inc., SanDisk Corporation and Seagate Software, Inc., a
subsidiary of Seagate.
BOARD COMPOSITION
The Company's Board of Directors currently consists of five members. In
addition, both Intel and Microsoft have observation rights to attend Board
meetings. In accordance with the terms of the Company's Certificate of
Incorporation, effective upon the closing of this offering, the terms of
office of the Board of Directors will be divided into three classes: Class I
directors, whose terms will expire at the annual meeting of stockholders to be
held in 1999; Class II directors, whose terms will expire at the annual
meeting of stockholders to be held in 2000; and Class III directors, whose
terms will expire at the annual meeting of stockholders to be held in 2001.
The Class I directors will be , the Class II directors will be ,
and the Class III directors will be . At each annual meeting of
stockholders held after the initial classification, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election. The Company's Bylaws provide that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.
46
<PAGE>
Executive officers are elected by the Board of Directors on an annual basis
and serve until their successors have been duly elected and qualified. There
are no family relationships among any of the directors, officers or key
employees of the Company.
BOARD COMMITTEES
The Company has established an Audit Committee, a Compensation Committee and
a Nominating Committee. The Audit Committee reviews the internal accounting
procedures of the Company and consults with and reviews the services provided
by the Company's independent accountants. The Compensation Committee reviews
and recommends to the Board of Directors the compensation and benefits of all
officers of the Company and establishes and reviews general policies relating
to compensation and benefits of employees of the Company. The Nominating
Committee is responsible for establishing general qualification guidelines
applicable to nominees to the Board of Directors, and for identifying,
interviewing and recommending persons meeting such guidelines to serve as
members of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established its Compensation Committee in December
1997. Prior to establishing the Compensation Committee, the Board of Directors
as a whole performed the functions delegated to the Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. Under the Company's 1998 Stock Plan, nonemployee directors
are eligible to receive stock option grants at the discretion of the Board of
Directors or other administrator of the plan. See "--Incentive Stock Plans".
In January 1997, the Board of Directors granted an option to purchase 66,667
shares of Common Stock at $1.95 per share to John Porter in connection with
his appointment as a member of the Company's Board of Directors. This option
was subsequently repriced to $0.45 per share in connection with the stock
option repricing program approved by the Board of Directors in May 1997. In
December 1997, the Board of Directors granted an option to purchase 50,000
shares of Common Stock at $3.33 per share to Alan F. Shugart in connection
with his appointment as a member of the Company's Board of Directors.
47
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned for services rendered to the Company in all capacities for the fiscal
year ended September 30, 1997 by the Company's Chief Executive Officer and the
Company's four next most highly compensated executive officers who earned more
than $100,000 during the fiscal year ended September 30, 1997 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($) OPTIONS(#)(1)
---------------------------- ---------- --------- -------------
<S> <C> <C> <C>
David C. Peterschmidt.................... $ 150,000 $ 280,000(2) --
President and Chief Executive Officer
Paul Gauthier............................ 105,000 14,977 --
Chief Technology Officer
Jerry M. Kennelly(3)..................... 184,102 37,045 200,001
Vice President of Finance and Chief
Financial Officer
Dennis L. McEvoy(4)...................... 66,667 92,210 268,801
Vice President of Development and
Support
Richard B. Pierce(5)..................... 150,016 333,776 233,334
Vice President of Marketing
</TABLE>
- --------
(1) Shares subject to options granted under the Company's 1996 Equity
Incentive Plan. Excludes 133,334 shares and 233,334 shares issuable upon
exercise of options granted during the fiscal year under the 1996 Equity
Incentive Plan to Mr. Kennelly and Mr. Pierce, respectively. Such options
were cancelled during the fiscal year.
(2) Bonus earned and accrued during the fiscal year ended September 30, 1997.
Bonus to be paid over fiscal 1998.
(3) Mr. Kennelly joined the Company in October 1996.
(4) Mr. McEvoy joined the Company in June 1997.
(5) Mr. Pierce joined the Company in November 1996.
48
<PAGE>
OPTION GRANTS. The following table sets forth certain information with
respect to stock options granted to each of the Named Executive Officers
during the fiscal year ended September 30, 1997. In accordance with the rules
of the Securities and Exchange Commission, also shown below is the potential
realizable value over the term of the option (the period from the grant date
to the expiration date) based on assumed rates of stock appreciation of 5% and
10%, compounded annually. These amounts are based on certain assumed rates of
appreciation and do not represent the Company's estimate of future stock
price. Actual gains, if any, on stock option exercises will be dependent on
the future performance of the Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
------------------------------------------------------ ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) DURING PERIOD(1) ($/SHARE)(2) DATE 5% 10%
---- ---------- ---------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt... -- -- -- -- -- --
Paul Gauthier........... -- -- -- -- -- --
Jerry M. Kennelly....... 133,334 (4) 6.0%(5) $1.95 (4) $ 163,513 $ 414,375
133,334 (6) 6.4 0.45 05/15/07 37,734 95,625
66,667 (6) 3.2 0.45 06/30/07 18,867 47,813
Dennis L. McEvoy........ 2,134 (7) 0.1 0.45 06/30/07 604 1,530
266,667 (8) 12.8 0.45 06/30/07 75,467 191,249
Richard B. Pierce....... 166,667 (4) 7.4 (5) 1.95 (4) 204,391 517,967
66,667 (4) 3.1 (5) 1.95 (4) 81,757 207,188
166,667 (9) 8.0 0.45 05/15/07 47,167 119,531
66,667(10) 3.2 0.45 05/15/07 18,867 47,813
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Based on an aggregate of 2,078,052 options granted by the Company during
the fiscal year ended September 30, 1997 to employees of and consultants
to the Company, including the Named Executive Officers.
(2) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price.
(4) Options were granted in November 1996 and cancelled and regranted in
connection with a stock option repricing program in May 1997.
(5) Percentage calculated as if options granted and subsequently cancelled
remained outstanding as of the end of the fiscal year.
(6) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter,
provided however that all shares become vested in the event of an
acquisition of the Company. Mr. Kennelly exercised and purchased all
shares under this option in July 1997.
(7) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable and fully vested. Mr.
McEvoy exercised and purchased all shares under this option in July 1997.
(8) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter,
provided however that 25% of the shares become vested upon consummation
of this offering and all shares become vested in the event of an
acquisition of the Company. Mr. McEvoy exercised and purchased all shares
under this option in July 1997.
(9) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter. Mr.
Pierce exercised and purchased all shares under this option in July 1997.
(10) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 50% of the
shares become vested one year following the date of commencement of
employment and the remaining 50% of the shares become vested two years
following the date of commencement of employment. Mr. Pierce exercised
and purchased all shares under this option in July 1997.
49
<PAGE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES. The following table sets forth
information with respect to the Named Executive Officers concerning option
exercises for the fiscal year ended September 30, 1997 and exercisable and
unexercisable options held as of September 30, 1997:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED SEPTEMBER 30, 1997(#) SEPTEMBER 30, 1997($)(2)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt
(3).................... 266,667 $768,001 716,867 -- $2,064,577 --
Paul Gauthier........... -- -- -- -- -- --
Jerry M. Kennelly (4)... 200,001 576,003 -- -- -- --
Dennis L. McEvoy (5).... 268,801 774,147 -- -- -- --
Richard B. Pierce (6)... 233,334 672,002 -- -- -- --
</TABLE>
- --------
(1) Based on a value of $3.33 per share, the deemed fair market value at
September 30, 1997, minus the per share exercise price, multiplied by the
number of shares issued upon exercise of the option.
(2) Based on a value of $3.33 per share, the deemed fair market value at
September 30, 1997, minus the per share exercise price, multiplied by the
number of shares underlying the option.
(3) All shares subject to unexercised options held by Mr. Peterschmidt become
fully vested and exercisable upon consummation of the offering, and are
therefore included in the Exercisable column above.
(4) As of March 31, 1998, 142,667 of the shares acquired by Mr. Kennelly were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
at the rate of 4,000 shares per month, provided however that the
repurchase option lapses in full in the event of an acquisition of the
Company.
(5) As of March 31, 1998, 213,334 of the shares acquired by Mr. McEvoy were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
as to 66,667 shares upon consummation of the offering and at the rate of
approximately 3,667 additional shares per month thereafter, provided
however that the repurchase option lapses in full in the event of an
acquisition of the Company.
(6) As of March 31, 1998, 146,668 of the shares acquired by Mr. Pierce were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
as to 3,333 shares per month and as to an additional 33,333 shares on
November 18, 1998.
INCENTIVE STOCK PLANS
1996 EQUITY INCENTIVE PLAN. The Company's 1996 Equity Incentive Plan (the
"Incentive Plan") provides for the grant of incentive stock options to
employees and nonstatutory stock options, stock purchase rights and stock
bonus rights to employees, directors and consultants. As of March 31, 1998,
options to purchase 1,947,763 shares of Common Stock were outstanding and
2,143,355 shares had been issued upon exercise of outstanding options. Options
granted under the Incentive Plan are exercisable in full when granted; however
to the extent unvested the shares issuable upon exercise of an option are
subject to a right of repurchase in favor of the Company at the exercise
price. For employees, the stock options typically vest or the right of
repurchase generally lapses as to 12% of the granted shares six months
following the first date of employment and as to an additional 2% of the
granted shares at the end of each full month thereafter, subject to continued
employment with the Company. For consultants and directors, the right of
repurchase generally lapses over the term of service. Prior to adopting the
Incentive Plan, the Company granted nonstatutory stock options to
50
<PAGE>
purchase Common Stock to certain employees and consultants. As of March 31,
1998, options to purchase 75,557 shares were outstanding and options to
purchase 317,676 shares had been issued upon exercise of options. These
options carry substantially the same provisions as the options granted under
the Incentive Plan. Options granted under the Incentive Plan will remain
outstanding in accordance with their terms, but the Board of Directors has
determined that no further options or other awards will be granted under the
Incentive Plan.
1998 STOCK PLAN. The Company's 1998 Stock Plan (the "Stock Plan") provides
for the grant of incentive stock options to employees and nonstatutory stock
options and stock purchase rights to employees, directors and consultants. A
total of 1,000,000 shares of Common Stock has been reserved for issuance under
the Stock Plan, all of which are currently available for grant. The number of
shares reserved for issuance under the Stock Plan will be subject to an annual
increase every April equal to that number of shares necessary to ensure that
1,000,000 shares are available for issuance thereunder. The Stock Plan is
currently administered by the Board of Directors, although the Board may
designate certain committees to administer the Stock Plan with respect to
different groups of service providers. Options and stock purchase rights
granted under the Stock Plan will vest as determined by the relevant
administrator, and if not assumed or substituted by a successor corporation
will accelerate and become fully vested in the event of an acquisition of the
Company. The exercise price of options and stock purchase rights granted under
the Stock Plan will be as determined by the relevant administrator, although
the exercise price of incentive stock options must be at least equal to the
fair market value of the Company's Common Stock on the date of grant. The
Board of Directors may amend, modify or terminate the Stock Plan at any time
as long as such amendment, modification or termination does not impair vesting
rights of plan participants. The Stock Plan will terminate in April 2008,
unless terminated earlier by the Board of Directors.
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") provides employees of the Company with an
opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. A total of 300,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan, none of which have been issued.
The number of shares reserved for issuance under the Purchase Plan will be
subject to an annual increase every April equal to that number of shares
necessary to ensure that 300,000 shares are available for issuance thereunder.
The Purchase Plan will be administered by the Board of Directors of the
Company or by a committee appointed by the Board. The Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions of up
to 20% of an employee's compensation for the first offering period, and up to
15% of an employee's compensation for subsequent offering periods, up to a
maximum of $25,000 for all purchases ending within the same calendar year.
Employees are eligible to participate if they are customarily employed by the
Company for at least 20 hours per week and more than five months in any
calendar year. Unless the Board of Directors or its committee determine
otherwise, each offering period with run for 24 months and will be divided
into four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period commence on the date of this
Prospectus, and new 24 month offering periods will commence every six months
thereafter. In the event of an acquisition of the Company, offering and
purchase periods then in progress will be shortened and all options
automatically exercised. The price at which Common Stock will be purchased
under the Purchase Plan is equal to 85% of the fair market value of the Common
Stock on the first day of the applicable offering period or the last day of
the applicable purchase period, whichever is lower. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment. The Board may amend, modify
or terminate the Purchase Plan at any time as long as such amendment,
modification or termination does not impair vesting rights of plan
participants. The Purchase Plan will terminate in April 2008, unless
terminated earlier in accordance with its provisions.
51
<PAGE>
401(k) PLAN
In 1996, the Company adopted a Retirement Savings and Investment Plan (the
"401(k) Plan") covering the Company's full-time employees located in the
United States. The 401(k) Plan is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended (the "Code"), so that
contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit ($10,000 in 1998) and to have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions to the 401(k) Plan by the
Company on behalf of all participants in the 401(k) Plan. To date, the Company
has not made any contributions to the 401(k) Plan.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with David C. Peterschmidt, its
President and Chief Executive Officer. The agreement provides for an initial
annual salary of $150,000. The agreement is for no specified length of term,
and either party has the right to terminate the agreement at any time with or
without cause. The agreement does not provide for any mandatory severance,
although the Company has the right to continue to pay Mr. Peterschmidt his
then current salary for up to 12 months following termination of employment,
in which case Mr. Peterschmidt may not compete against the Company for such
time period.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions, or (iv) any transaction from
which the director derived an improper personal benefit. Such limitation of
liability does not apply to liabilities arising under the federal securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its directors and executive officers and may indemnify
its other officers and employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. The Company's Bylaws also permit it to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the
Company's Bylaws. These agreements, among other things, provide for
indemnification of the Company's directors and executive officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action
by or in the right of the Company, arising out of such person's services as a
director or executive officer of the Company, any subsidiary of the Company or
any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
52
<PAGE>
CERTAIN TRANSACTIONS
In February 1996, the Company issued 751,815, 751,815 and 283,038 shares of
Common Stock to Dr. Eric A. Brewer, Paul Gauthier and David A. Brewer,
respectively, at a cash price of $0.000075 per share. In March 1996, the
Company issued 1,683,168, 1,683,168, and 633,664 shares of Series A Preferred
Stock to Dr. Brewer, Mr. Gauthier and Mr. Brewer, respectively, at a cash
price of $0.00075 per share. Dr. Brewer and Mr. Gauthier are each executive
officers of the Company, and Dr. Brewer is a Director of the Company. Mr.
Brewer is a 5% stockholder of the Company.
In March 1996, Inktomi LLC, a California limited liability company whose
members consist of Dr. Brewer, Mr. Gauthier and Mr. Brewer, and Dr. Brewer,
Mr. Gauthier and Mr. Brewer as individuals, transferred to the Company all of
their right, title and interest in certain technology in exchange for $100,000
cash and a promissory note of the Company in the principal amount of
$3,132,759. The assigned technology included all technology developed by any
of them directly or indirectly related to scalable web servers built out of
commodity workstations and the Myrinet network, a search engine utilizing
these scalable Web servers, a "crawler" that scans the Web to locate Web pages
for indexing into the search engine database, and any other applications of
parallel processing to Web servers, search engines, "crawlers", and related
products which have been conceived by any of them. In April 1997, Inktomi LLC
and the Company entered into an agreement in which Inktomi LLC converted
approximately $43,800 of the outstanding principal of the promissory note into
a warrant to purchase 417,701 shares of the Company's Common Stock at an
exercise price of $0.33 per share and forgave all other indebtedness under the
promissory note.
In July 1996, the Company entered into an employment agreement with David C.
Peterschmidt, the Company's President and Chief Executive Officer. The
agreement provides for an initial annual salary of $150,000. The agreement is
for no specified length of term, and either party has the right to terminate
the agreement at any time with or without cause. The agreement does not
provide for any mandatory severance, although the Company has the right to
continue to pay Mr. Peterschmidt his then current salary for up to twelve
months following termination of employment, in which case Mr. Peterschmidt may
not compete against the Company for such time period.
In January 1997, the Board of Directors granted an option to purchase 66,667
shares of Common Stock at $1.95 per share to John A. Porter in connection with
his appointment as a member of the Company's Board of Directors. This option
was subsequently repriced to $0.45 per share in connection with the stock
option repricing program approved by the Board of Directors in May 1997.
From March 1997 to June 1997, Dennis L. McEvoy worked as a part-time
consultant to the Company. In exchange for consulting services, the Company
issued to Mr. McEvoy a stock option to purchase 2,134 shares of Common Stock
at $0.45 per share. Mr. McEvoy exercised the stock option in full in July
1997. Mr. McEvoy joined the Company full time as Vice President of Development
and Support in June 1997.
In April 1997, the Company issued and sold to entities affiliated with Oak
Investment Partners ("Oak Partners") 2,405,653 shares of Series D Preferred
Stock at $3.3255 per share and warrants to purchase 801,884 shares of Series
D1 Preferred Stock at $4.98825 per share. Oak Partners exercised its warrants
in full in March 1998 (after assigning warrants to purchase 10,024 shares to a
technology partner of Oak Partners, which warrants were subsequently
exercised). Each outstanding share of Series D Preferred Stock and Series D1
Preferred Stock will convert into one share of Common Stock upon consummation
of the offering. Oak Partners is a 5% stockholder of the Company. Fredric W.
Harman is a Managing Partner of the General Partners of the Oak Partners
entities and is a director of the Company.
In December 1997, the Board of Directors granted an option to purchase
50,000 shares of Common Stock at $3.33 per share to Alan F. Shugart in
connection with his appointment as a member of the Company's Board of
Directors.
53
<PAGE>
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by
a majority of the Board of Directors, including a majority of the independent
and disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered hereby by (i) each
stockholder known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Named Executive Officers, (iii) each director
of the Company, (iv) all directors and executive officers as a group, and (v)
all other Selling Stockholders. As of March 31, 1998, there were 18,531,813
shares of Common Stock outstanding, as adjusted to reflect the conversion of
all outstanding shares of Preferred Stock upon closing of this offering and
the issuance of 562,446 shares of Common Stock upon the exercise of warrants
held by certain stockholders on or before the closing of this offering.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
----------------------- BEING -----------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with 3,197,514 17.3% -- 3,197,514 15.6%
Oak Investment
Partners(3)............
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Fredric W. Harman(4).... 3,197,514 17.3 -- 3,197,514 15.6
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Dr. Eric A. Brewer(5)... 2,347,983 12.6 -- 2,347,983 11.3
1900 S. Norfolk St.,
Suite 310
San Mateo, CA 94403
Paul Gauthier(6)........ 2,147,429 11.5 -- 2,147,429 10.4
1900 S. Norfolk St.,
Suite 310
San Mateo, CA 94403
David A. Brewer(7)...... 956,871 5.1 50,000 906,871 4.4
941 West Moana Lane
Reno, NV 89509
David C. 856,867 4.5 -- 856,867 4.0
Peterschmidt(8)........
Jerry M. Kennelly(9).... 276,926 1.5 276,926 1.3
Dennis L. McEvoy(10).... 268,801 1.5 -- 268,801 1.3
Richard B. Pierce(11)... 335,898 1.8 -- 335,898 1.6
John A. Porter(12)...... 66,667 * -- 66,667 *
Alan F. Shugart(13)..... 50,000 * -- 50,000 *
All directors and 9,817,960 49.6 -- 9,817,960 45.1
executive officers as a
group (11 persons)(14).
United Capital Group 848,294 4.6 100,000 748,294 3.6
L.P. ..................
c/o Mattei Motorsports
LLC
6007 Victory Lane
Harrisburg, NC 28075
Thomas Lamar............ 129,830 * 35,936 93,894 *
100 S. Ellsworth
Avenue, Suite 900
San Mateo, CA 94401
Adam Sah................ 55,468 * 5,000 50,468 *
2224 Grant Street, Apt.
B
Berkeley, CA 94704
Pittiglio Rabin Todd & 43,334 * 43,334 -- --
McGrath(15)............
1503 Grant Road, Suite
200
Mountain View, CA 94040
Michael Denton Jr....... 20,001 * 666 19,335 *
3450 Westminster
Dallas, TX 75205
Templar Corporation..... 18,994 * 16,666 2,328 *
c/o Patriot Advisor,
Inc.
43 Deshon Avenue
Bronxville, NY 10708
Carl Lindell, Jr........ 5,065 * 5,065 -- --
3900 W. Kennedy Blvd.
Tampa, FL 33609
David Bernstein......... 4,459 * 1,333 3,126 *
129 Lauren Circle
Scotts Valley, CA 95066
Christopher R. Hoehn- 4,000 * 2,000 2,000 *
Saric..................
622 Magothy Road, Box
74
Gibson Island, MD 21056
</TABLE>
- -------
* Less than 1%
55
<PAGE>
(1) Assumes no exercise of Underwriters' over-allotment option.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or will become exercisable
within 60 days after March 31, 1998 are deemed outstanding, while such
shares are not deemed outstanding for purposes of computing percentage
ownership of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. Unless
otherwise indicated in the table above, the address of each of the
individuals listed in the table is Inktomi Corporation, 1900 South
Norfolk Street, Suite 310, San Mateo, California 94403.
(3) Includes 3,119,174 shares held by Oak Investment Partners VII, Limited
Partnership, and 78,340 shares held by Oak VII Affiliates Fund, Limited
Partnership.
(4) Includes 3,119,174 shares held by Oak Investment Partners VII, Limited
Partnership, and 78,340 shares held by Oak VII Affiliates Fund, Limited
Partnership. Mr. Harman is a Managing Partner of the General Partners of
the Oak Partners entities and is a director of the Company. He disclaims
beneficial ownership of the shares held by the Oak Partners entities
except to the extent of his proportionate partnership interest therein.
(5) Includes 2,172,549 shares held by Dr. Brewer and his wife, Lisa M.
Sardegna. Also includes Dr. Brewer's pro rata interest in a warrant held
by Inktomi LLC, which pro rata interest equals 175,434 shares. All such
shares and warrants are fully vested and are not subject to repurchase by
the Company.
(6) Includes 1,971,995 shares held by Mr. Gauthier. Also includes Mr.
Gauthier's pro rata interest in a warrant held by Inktomi LLC, which pro
rata interest equals 175,434 shares. All such shares and warrants are
fully vested and are not subject to repurchase by the Company.
(7) Includes 890,038 shares held by Mr. Brewer. Also includes Mr. Brewer's
pro rata interest in a warrant held by Inktomi LLC, which pro rata
interest equals 66,833 shares.
(8) Includes 206,667 shares held by David C. Peterschmidt and Roxanne N.
Peterschmidt, Trustees of the Peterschmidt Family Trust U/D/T Dtd
12/30/91. Also includes 650,200 shares issuable upon exercise of stock
options that vest in full upon completion of the offering.
(9) Includes 667 shares held by William Kennelly, Dorothy Kennelly and Jerry
Kennelly, as joint tenants, 6,667 shares held by Jerry Kennelly, as
trustee for Christopher Kennelly, 6,667 shares held by Jerry Kennelly, as
trustee for Michael Kennelly, and 262,925 shares held by Mr. Kennelly. As
of March 31, 1998, 142,667 of the shares held by Mr. Kennelly were
subject to a right of repurchase by the Company at cost in the event Mr.
Kennelly ceases to be an employee of the Company. The right of repurchase
lapses at the rate of 4,000 shares per month and lapses in full upon
consummation of an acquisition of the Company.
(10) All shares are held by Mr. McEvoy and his wife, Kim Worsencroft. At March
31, 1998, 213,334 of the shares held by Mr. McEvoy and Ms. Worsencroft
were subject to a right of repurchase by the Company at cost in the event
Mr. McEvoy ceases to be an employee of the Company. The right of
repurchase lapses as to 66,667 shares upon completion of the offering, as
to the remaining shares at the rate of approximately 3,667 shares per
month, and as to all shares upon consummation of an acquisition of the
Company.
(11) Includes 44,444 shares held by UTMA: Richard B. Pierce Custodian for
Garrett Dean Pierce, 44,444 shares held by UTMA: Audrey Jean Brandt
Custodian for Adrianna Jean Brandt Pierce, and 247,010 shares held by The
Richard Pierce and Audrey Brandt-Pierce Family Trust. As of March 31,
1998, 146,668 of the shares held by the Pierce Family Trust were subject
to a right of repurchase by the Company at cost in the event Mr. Pierce
ceases to be an employee of the Company. The right of repurchase lapses
at the rate of 3,333 shares per month and as to an additional 33,333
shares on November 18, 1998.
(12) All shares are held by Integra Holdings, L.P. As of March 31, 1998,
33,334 of the shares held by Integra Holdings were subject to a right of
repurchase by the Company at cost in the event Mr. Porter ceases to be a
director of the Company. The right of repurchase lapses at the rate of
2,778 shares per month.
(13) Consists of an option held by Mr. Shugart to purchase 50,000 shares of
Common Stock. The option is fully exercisable although as of March 31,
1998, 33,332 of the shares issuable upon exercise of the option are
subject to a right of repurchase by the Company at cost in the event Mr.
Shugart ceases to be a director of the Company. The right of repurchase
lapses at the rate of 2,778 shares per month.
(14) Includes 350,868 shares issuable upon exercise of warrants and options to
purchase 900,200 shares, which options are immediately exercisable as of
March 31, 1998.
(15) Includes 43,334 shares of Common Stock issuable upon exercise of options.
These options are expected to be exercised prior to the closing of this
offering.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 100,000,000 shares of Common Stock, $0.001 par value, and 10,000,000
shares of undesignated Preferred Stock, $0.001 par value. The following
description of the Company's capital stock does not purport to be complete and
is subject to and qualified in its entirety by the Company's Certificate of
Incorporation and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.
COMMON STOCK
As of March 31, 1998, there were 18,531,813 shares of Common Stock
outstanding which were held of record by approximately 250 stockholders, as
adjusted to reflect the conversion of all outstanding shares of Preferred
Stock upon closing of this offering and the issuance of 562,446 shares of
Common Stock upon the exercise of warrants held by certain stockholders on or
before the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy". In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and the shares of Common Stock to be issued upon
the closing of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not
possible to state the actual effect of the issuance of any shares of Preferred
Stock upon the rights of holders of the Common Stock until the Board of
Directors determines the specific rights of the holders of such Preferred
Stock. However, the effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
impairing the liquidation rights of the Common Stock and delaying or
preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any shares of
Preferred Stock.
WARRANTS
At March 31, 1998, there were warrants outstanding to purchase a total of
1,376,272 shares of Common Stock. The Company anticipates that warrants to
purchase 562,446 shares at a weighted average exercise price of $0.48 per
share will be exercised on or before completion of this offering. Warrants to
purchase 200,472 shares at $4.99 per share will expire in April 1999, warrants
to purchase 170,667 shares at $11.25 per share will expire in October 1999,
warrants to purchase 3,334 shares at $7.50 per share will expire in August
2001, warrants to purchase 417,701 shares at $0.33 per share will expire in
April 2002 and warrants to purchase 21,652 shares at $3.33 per share will
expire in February 2007.
57
<PAGE>
REGISTRATION RIGHTS
The holders of 13,295,144 shares of Common Stock (the "registrable
securities") or their permitted transferees are entitled to certain rights
with respect to registration of such shares under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of registrable securities. Under these registration rights,
beginning 180 days following the date of this Prospectus, holders of at least
a majority of the then outstanding registrable securities may require on one
occasion that the Company register their shares for public resale. The Company
is obligated to register these shares if the holders of a majority of such
shares request registration and only if the shares to be registered constitute
at least 50% of the then outstanding registrable securities or have an
anticipated public offering price of at least $2,000,000. In addition, holders
of registrable securities may require on five separate occasions that the
Company register their shares for public resale on Form S-3 or similar short-
form registration, provided the Company is eligible to use Form S-3 or similar
short-form registration and provided further that the value of the securities
to be registered is at least $500,000. Furthermore, in the event the Company
elects to register any of its shares of Common Stock for purposes of effecting
any public offering, the holders of registrable securities are entitled to
include their shares of Common Stock in the registration, subject however to
the right of the Company to reduce the number of shares proposed to be
registered in view of market conditions. All expenses in connection with any
registration (other than underwriting discounts and commissions) will be borne
by the Company. All registration rights will terminate four years following
the consummation of this offering, or, with respect to each holder of
registrable securities, at such time as the Company's shares are publicly
traded and the holder is entitled to sell all of its shares in any three month
period under Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and Bylaws could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise and the
removal of incumbent officers and directors. These provisions, summarized
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of the Company to first negotiate with the Company. The Company
believes that the benefits of increased protection of the Company's potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure the Company outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
The Company is subject to Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless (with certain exceptions) the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected
to have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of Common Stock held
by stockholders.
The Company's Certificate of Incorporation provides that, upon the closing
of the offering, the Board of Directors will be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party
58
<PAGE>
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as the
classification of a board of directors generally increases the difficulty of
replacing a majority of the directors. The Company's Certificate of
Incorporation eliminates the right of stockholders to act by written consent
without a meeting. The Certificate of Incorporation and Bylaws do not provide
for cumulative voting in the election of directors. The authorization of
undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. These and
other provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of the Company. The amendment of any
of these provisions would require approval by holders of at least 66 2/3% of
the outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Shareowner
Services, South St. Paul, Minnesota.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after this offering. Future
sales of substantial amounts of Common Stock (including shares issued upon
exercise of outstanding options and warrants) in the public market following
this offering could adversely affect market prices prevailing from time to
time and could impair the Company's ability to raise capital through sale of
its equity securities. As described below, no shares currently outstanding
will be available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
20,575,147 shares of Common Stock (based upon shares outstanding as of March
31, 1998 and assuming the exercise of warrants to purchase 562,446 shares by
certain stockholders and the exercise of options to purchase 43,334 shares by
a certain Selling Stockholder), assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options or warrants that
do not expire upon the closing. Of these shares, the 2,260,000 shares sold in
this offering will be freely tradable without restriction under the Securities
Act except for any shares purchased by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act. The remaining 18,315,147
shares of Common Stock held by existing stockholders are "Restricted Shares"
as that term is defined in Rule 144. All such Restricted Shares are subject to
lock-up agreements providing that, with certain limited exceptions, the
stockholder will not offer, sell, contract to sell or otherwise dispose of any
securities of the Company that are substantially similar to the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Common Stock or any
such substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of the lock-up agreement)
for a period of 180 days after the date of this Prospectus without the prior
written consent of Goldman, Sachs & Co. As a result of these lock-up
agreements, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, none of these shares will be salable
until 181 days after the date of this Prospectus. Beginning 181 days after the
date of this Prospectus, approximately 14,547,553 Restricted Shares will be
eligible for sale in the public market, all of which are subject to volume
limitations under Rule 144, except 4,319,459 shares. Thereafter, approximately
3,305,148 Restricted Shares will become eligible for sale between the end
59
<PAGE>
of the lock-up period and March 31, 1999 and the remaining 462,446 Restricted
Shares will become eligible for sale one year from the date of this
Prospectus. In addition, as of March 31, 1998, there were outstanding
2,023,320 options (of which options for 43,334 shares are expected to be
exercised on or before the closing of this offering) and 1,376,272 warrants to
purchase Common Stock (of which warrants for 562,446 shares are expected to be
exercised on or before the closing of this offering). All such options and
warrants are subject to lock-up agreements. Goldman, Sachs & Co. may, in their
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 2,000,000 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to the Company who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all Rule 701 shares are
subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or no sooner than
90 days after the offering upon obtaining the prior written consent of
Goldman, Sachs & Co.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1996 Equity Incentive Plan, the 1998 Stock Plan
and the 1998 Employee Stock Purchase Plan (collectively the "Incentive Stock
Plans"). See "Management--Incentive Stock Plans". Based on the number of
shares subject to outstanding options as of March 31, 1998 and currently
reserved for issuance under the Incentive Stock Plans, such registration
statement would cover approximately 3,279,986 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire.
Also beginning six months after the date of this offering, holders of
13,295,144 Restricted Shares will be entitled to certain rights with respect
to registration of such shares for sale in the public market. See "Description
of Capital Stock--Registration Rights". Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
affiliates) immediately upon the effectiveness of such registration.
60
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
fees. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the
Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California. As of the date of this prospectus, WS Investment Company 97A, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, beneficially owns an aggregate of 12,829 shares of the Company's
Common Stock.
EXPERTS
The consolidated balance sheets as of September 30, 1996 and 1997 and the
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the period from February 2, 1996 (date of incorporation)
through September 30, 1996 and the year ended September 30, 1997 included in
this Prospectus have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., Independent Accountants, which report is given on the
authority of that firm as experts in auditing and accounting.
61
<PAGE>
INKTOMI CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Changes in Stockholders' (Deficiency) Equity..... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Inktomi Corporation:
We have audited the accompanying balance sheets of Inktomi Corporation as of
September 30, 1996 and 1997, and the related statements of operations, changes
in stockholders' (deficiency) equity, and cash flows for the period from
February 2, 1996 (date of inception) through September 30, 1996 and the year
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Inktomi Corporation as of
September 30, 1996 and 1997, and the results of its operations and its cash
flows for the period from February 2, 1996 (date of inception) through
September 30, 1996 and the year ended September 30, 1997, in conformity with
generally accepted accounting principles.
San Francisco, California
November 3, 1997
- --------
The foregoing report is in the form that will be signed upon the completion of
the 2:3 reverse stock split as described in Note 1 to the Consolidated
Financial Statements.
San Francisco, California
April 15, 1998
F-2
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, 1998
1996 1997 1998 PRO FORMA
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 415,847 $ 6,323,895 $ 17,133,295 $17,405,519
Accounts receivable,
net of allowances of
$50,000, $80,519 and
$174,458,
respectively.......... 127,798 829,427 1,186,365 1,186,365
Prepaid expenses....... 37,574 142,255 477,274 477,274
Other current assets... -- 20,431 25,155 25,155
----------- ------------ ------------ ------------
Total current assets... 581,219 7,316,008 18,822,089 19,094,313
Property and equipment,
net.................... 1,890,717 6,808,469 6,414,178 6,414,178
Other assets............ 48,860 192,320 58,126 58,126
----------- ------------ ------------ ------------
Total assets........... $ 2,520,796 $ 14,316,797 $ 25,294,393 $ 25,566,617
=========== ============ ============ ============
LIABILITIES AND
STOCKHOLDERS'
(DEFICIENCY) EQUITY
Current liabilities:
Current portion of
notes payable......... $ 3,332,759 $ 2,449,601 $ 2,514,764 $ 2,514,764
Current portion of
capital lease
obligations........... -- -- 331,228 331,228
Accounts payable....... 388,665 927,044 1,266,311 1,266,311
Accrued liabilities.... 458,295 1,147,217 1,935,753 1,935,753
Deferred revenue....... -- 714,822 794,309 794,309
----------- ------------ ------------ ------------
Total current
liabilities........... 4,179,719 5,238,684 6,842,365 6,842,365
Notes payable........... -- 5,029,411 4,189,042 4,189,042
Capital lease
obligations, less
current portion........ -- -- 1,001,546 1,001,546
----------- ------------ ------------ ------------
Total liabilities...... 4,179,719 10,268,095 12,032,953 12,032,953
----------- ------------ ------------ ------------
Commitments (Note 4)
Stockholders'
(deficiency) equity:
Series A through E
convertible Preferred
Stock, $.001 par
value:
Authorized: 14,000,000
shares in 1996,
17,080,000 shares in
1997, 20,630,000
shares at March 31,
1998 (unaudited) and
no pro forma shares
(unaudited); Issued
and outstanding:
10,072,468 shares in
1996, 14,938,121
shares in 1997,
19,460,486 shares at
March 31, 1998
(unaudited) and no pro
forma shares
(unaudited);
(liquidation value:
$21,408,156 at March
31,1998).............. 10,073 14,938 19,461 --
Common Stock, $.001 par
value:
Authorized: 33,333,333
shares in 1996 and
1997, 33,666,667
shares at March 31,
1998 (unaudited) and
33,666,667 shares pro
forma (unaudited);
Issued and
outstanding: 2,467,137
shares in 1996,
4,632,208 shares in
1997, 4,931,468 shares
at March 31, 1998
(unaudited) and
18,531,813 shares pro
forma (unaudited)..... 2,467 4,632 4,931 18,532
Additional paid-in
capital............... 4,404,725 15,635,127 32,724,110 33,002,194
Other.................. (2,541,757) 590,662 586,711 586,711
Accumulated deficit.... (3,534,431) (12,196,657) (20,073,773) (20,073,773)
----------- ------------ ------------ ------------
Total stockholders'
(deficiency) equity... (1,658,923) 4,048,702 13,261,440 13,533,664
----------- ------------ ------------ ------------
Total liabilities and
stockholders'
(deficiency) equity.. $ 2,520,796 $ 14,316,797 $ 25,294,393 $ 25,566,617
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 2, 1996 FOR THE SIX
(DATE OF INCEPTION) FOR THE YEAR MONTHS ENDED
THROUGH ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------
1996 1997 1997 1998
------------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Network applications... -- $ 60,000 -- $ 690,688
Search services........ $ 530,088 5,725,120 $2,282,341 5,185,215
---------- ---------- ---------- ----------
Total revenues...... 530,088 5,785,120 2,282,341 5,875,903
Cost of revenues........ 238,756 1,511,933 466,103 1,694,849
---------- ---------- ---------- ----------
Gross profit........ 291,332 4,273,187 1,816,238 4,181,054
Operating expenses:
Sales and marketing.... 898,227 7,043,494 2,661,186 6,521,317
Research and
development........... 1,482,406 4,210,482 1,665,203 3,813,823
General and
administrative........ 1,341,244 1,485,539 601,957 1,638,480
---------- ---------- ---------- ----------
Operating loss...... 3,430,545 8,466,328 3,112,108 7,792,566
Interest income......... (6,841) (175,108) (14,523) (148,589)
Interest expense........ 109,927 369,356 92,218 232,339
---------- ---------- ---------- ----------
Loss before income
taxes.............. 3,533,631 8,660,576 3,189,803 7,876,316
Provision for income
taxes.................. 800 1,650 850 800
---------- ---------- ---------- ----------
Net loss............ $3,534,431 $8,662,226 $3,190,653 $7,877,116
========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (1.88) $ (2.96) $ (1.29) $ (1.65)
========== ========== ========== ==========
Weighted average shares
outstanding used in per
share calculation...... 1,883,701 2,927,318 2,477,045 4,765,532
========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share.................. $ (0.72) $ (0.46)
========== ==========
Weighted average shares
outstanding used in pro
forma per share
calculation............ 12,029,713 17,135,058
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
FOR THE PERIOD FROM FEBRUARY 2, 1996 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1996, THE YEAR ENDED SEPTEMBER 30, 1997
AND THE SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER DEFICIT TOTAL
---------- ------- --------- ------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transfer of technology.. $(3,132,759) $(3,132,759)
Issuance of Common
Stock................... 2,186,470 $2,186 $ 42,948 45,134
Issuance of Preferred
Stock................... 10,072,468 $10,073 4,011,513 4,021,586
Issuance of Common Stock
warrants................ 910,000 910,000
Conversion of warrants
to Common Stock......... 280,667 281 350,264 (318,998) 31,547
Net loss................ $ (3,534,431) (3,534,431)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, September 30,
1996.................... 10,072,468 10,073 2,467,137 2,467 4,404,725 (2,541,757) (3,534,431) (1,658,923)
Exercise of stock
options................. 1,956,904 1,957 775,056 777,013
Issuance of Preferred
Stock, net of issuance
costs of $109,471....... 4,865,653 4,865 10,361,879 10,366,744
Forgiveness of note
payable related to
transfer of technology.. 3,132,759 3,132,759
Issuance of Preferred
Stock warrants.......... 160 160
Stock options granted to
consultants............. 93,175 93,175
Exercise of stock
options in exchange for
note receivable......... 208,167 208 93,467 (93,675) --
Net loss................ (8,662,226) (8,662,226)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, September 30,
1997.................... 14,938,121 14,938 4,632,208 4,632 15,635,127 590,662 (12,196,657) 4,048,702
Exercise of stock
options................. 295,927 296 201,396 201,692
Exercise of Common Stock
warrants................ 3,333 3 24,997 25,000
Exercise of Preferred
Stock warrants.......... 1,224,545 1,225 4,070,994 4,072,219
Issuance of Preferred
Stock, net of issuance
costs of $1,220,847..... 3,297,820 3,298 12,791,596 12,794,894
Foreign currency
translation............. (3,951) (3,951)
Net loss................ (7,877,116) (7,877,116)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, March 31, 1998
(unaudited)............. 19,460,486 $19,461 4,931,468 $4,931 $32,724,110 $ 586,711 $(20,073,773) $13,261,440
========== ======= ========= ====== =========== =========== ============ ===========
</TABLE>
F-5
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 2, 1996 FOR THE YEAR FOR THE SIX MONTHS
(DATE OF INCEPTION) ENDED ENDED MARCH 31,
THROUGH SEPTEMBER 30, ------------------------
SEPTEMBER 30, 1996 1997 1997 1998
------------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(3,534,431) $(8,662,226) $(3,190,653) $(7,877,116)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 336,115 1,384,570 445,541 1,387,276
Noncash consulting
services............. 390,000 93,175 93,175 --
Other................. -- -- -- (3,951)
Change in assets and
liabilities:
Increase in accounts
receivable.......... (127,798) (701,629) (88,998) (356,938)
Increase in prepaid
expenses and other
assets.............. (86,434) (268,572) (9,362) (205,549)
Increase in accounts
payable............. 388,665 124,980 698,266 339,267
Increase in accrued
liabilities......... 458,295 688,922 205,593 788,536
Increase in deferred
revenue............. -- 714,822 215,562 79,487
----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (2,175,588) (6,625,958) (1,630,876) (5,848,988)
----------- ----------- ----------- -----------
Cash flows used in
(provided by)
investing activities:
Purchase of property
and equipment........ (2,226,832) (5,888,923) (464,466) (468,072)
Proceeds from sale of
equipment............ -- -- -- 927,627
----------- ----------- ----------- -----------
Net cash used in
(provided by)
investing
activities......... (2,226,832) (5,888,923) (464,466) 459,555
Cash flows from
financing activities:
Proceeds from note
payable.............. 500,000 7,746,424 2,600,000 156,893
Repayments on notes
payable.............. -- (267,412) (223,846) (932,099)
Payments on
obligations under
capital lease........ -- -- -- (119,766)
Proceeds from issuance
of unsecured
promissory note...... -- 2,000,000 -- --
Repayments of
unsecured promissory
note................. -- (2,000,000) -- --
Payments of
convertible notes
payable.............. (300,000) -- -- --
Proceeds from issuance
of Preferred Stock,
net of issuance
costs................ 3,631,586 10,166,744 233,235 12,794,894
Proceeds from exercise
of stock options and
warrants............. 31,547 777,013 12,000 4,298,911
Proceeds from issuance
of Common Stock...... 45,134 -- -- --
Proceeds from issuance
of Common and
Preferred Stock
warrants............. 910,000 160 -- --
----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 4,818,267 18,422,929 2,621,389 16,198,833
----------- ----------- ----------- -----------
Increase in cash and
cash equivalents...... 415,847 5,908,048 526,047 10,809,400
Cash and cash
equivalents at
beginning of period... -- 415,847 415,847 6,323,895
----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 415,847 $ 6,323,895 $ 941,894 $17,133,295
=========== =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............. $ -- $ 380,487 $ -- $ 202,665
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE
OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Technology acquired for
notes payable......... $ 3,132,759 $ -- $ -- $ --
=========== =========== =========== ===========
Accounts payable
related to purchase of
PP&E.................. $ -- $ 413,399 $ 398,910 $ 126,160
=========== =========== =========== ===========
Forgiveness of note
payable related to
technology acquired... $ -- $ 3,132,759 $ -- $ --
=========== =========== =========== ===========
Series B Preferred
Stock issued as
compensation for
services received..... $ 390,000 $ -- $ -- $ --
=========== =========== =========== ===========
Exercise of Common
Stock options in
exchange for note
receivable............ $ -- $ 93,675 $ -- $ --
=========== =========== =========== ===========
Stock options issued as
compensation for
services rendered..... $ -- $ 93,175 $ -- $ --
=========== =========== =========== ===========
Conversion of note
payable into Preferred
Stock................. $ -- $ 200,000 $ 200,000 $ --
=========== =========== =========== ===========
Assets acquired under
capital lease......... $ -- $ -- $ -- $ 524,913
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(1) SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
Inktomi was formed in February 1996 to develop and market scalable software
applications designed to significantly enhance the performance and
intelligence of large-scale networks. In May 1996, the Company released the
first commercial application based on its core technology, a search engine
that enables customers to provide a variety of Internet search services to end
users. In December 1997, the Company first licensed Traffic Server, the
Company's second application, which is a network cache product designed to
address capacity constraints in high-traffic network routes.
REVERSE STOCK SPLIT:
In April 1998, the Board of Directors approved a 2:3 reverse stock split of
the Company's Common Stock which is subject to stockholder approval. All share
and per share information in the accompanying consolidated financial
statements and notes thereto have been restated for such stock split.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Inktomi Limited, which was formed in October
1997. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
REVENUE RECOGNITION:
Search service revenues are comprised of search advertising, licensing, and
maintenance fees. Advertising revenues are recognized in the period that the
advertisement is displayed and comprised 90%, 89%, 82% and 69% of total
revenues for the period from February 2, 1996 (date of inception) through
September 30, 1996, for the year ended September 30, 1997 and for the six
months ended March 31, 1997 and 1998, respectively. A significant portion of
the Company's advertising revenues are from a search service which is
maintained by the Company and marketed by Wired Digital, Inc. ("Wired").
Revenues from this agreement are recorded in full and amounts allocable to the
partner for marketing costs are included in sales and marketing expenses.
Search license revenues are recognized as amounts are earned under the terms
of applicable agreements, provided no significant Company obligations exist
and collection of the resulting receivable is probable. Fees for maintenance
and support services are deferred and recognized ratably over the service
period.
A portion of the advertising on the Wired search site is exchanged for
advertisements on the Internet sites of other companies. These revenues and
marketing expenses are recorded at the fair value of services provided or
received, whichever is more determinable in the circumstances. Revenue from
barter transactions is recognized as income when advertisements are delivered
on the Wired site,
F-7
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
and expense from barter transactions is recognized when advertisements are
delivered on the other companies' Internet sites. Barter revenues and expenses
were approximately $133,000, $1,580,000, $738,801 and $864,961 for the period
from February 2, 1996 (date of inception) through September 30, 1996, for the
year ended September 30, 1997 and for the six months ended March 31, 1997 and
1998, respectively.
Network application revenues for the year ended September 30, 1997
represented fees for the modification of the Company's Traffic Server product
to run on a hardware partner's platform. Revenue is recognized as contractual
and developmental milestones are achieved.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER
SHARE:
Basic and diluted net loss per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares, comprising the incremental common shares issuable
upon the exercise of stock options and warrants and upon conversion of
convertible Preferred Stock, have not been included, except as provided below,
as such shares are anti-dilutive.
Pro forma net loss per share for the period from February 2, 1996 through
September 30, 1996, the year ended September 30, 1997 and the six months ended
March 31, 1998 assumes that the common shares issuable upon conversion of the
outstanding convertible Preferred Stock and certain warrants had been
outstanding during such period.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are stated at cost, which approximates fair value.
The Company includes in cash equivalents all highly liquid investments which
mature within three months of their purchase date. Cash equivalents consist
primarily of commercial paper and other debt instruments, money market funds
and U.S. Treasury bills.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally three years.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
SOFTWARE DEVELOPMENT COSTS:
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to be Sold, Leased or
F-8
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
Otherwise Marketed. Under the standard, capitalization of software development
costs begins upon the establishment of technological feasibility which, for
the Company, is upon completion of a working model. To date, all such amounts
have been insignificant, and accordingly, the Company has charged all such
costs to research and development expenses.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK:
The Company operates in the Internet industry, which is new, rapidly
evolving and intensely competitive.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts). The Company places its temporary cash
investments with two major financial institutions.
The Company performs ongoing credit evaluations, does not require
collateral, and maintains reserves for potential credit losses on customer
accounts when deemed necessary. For the period from February 2, 1996 (date of
inception) through September 30, 1996, one customer accounted for 90% of
revenues, and at September 30, 1996, this customer accounted for 100% of
accounts receivable. For the year ended September 30, 1997, three customers
accounted for approximately 79%, 6% and 13%, respectively, of all revenue
generated by the Company, and 62%, 37% and 0% of accounts receivable at
September 30, 1997, respectively. For the six months ended March 31, 1997 the
same customers accounted for approximately 77%, 22% and 0%, respectively, of
all revenues generated by the Company. For the six months ended March 31,
1998, the same customers accounted for 59%, 6% and 20%, respectively, of all
revenues generated by the Company, and 26%, 1% and 8% of accounts receivable
at March 31, 1998, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
During 1997, the Financial Accounting Standards Board released Statements of
Financial Accounting Standards No. 128, No. 129, Disclosure of Information
About Capital Structure, No. 130, Reporting Comprehensive Income, and No. 131,
Disclosure About Segments of an Enterprise and Related Information, all
effective for the year ended September 30, 1999. The Company is currently
determining the disclosures which may be required under these pronouncements.
(2) PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- ----------
<S> <C> <C> <C>
Computer equipment................... $2,047,029 $7,956,960 $8,601,101
Office equipment, furniture and fix-
tures............................... 99,779 448,512 739,302
Leasehold improvements............... 80,024 43,225 101,279
---------- ---------- ----------
2,226,832 8,448,697 9,441,682
Less accumulated depreciation and am-
ortization.......................... 336,115 1,640,228 3,027,504
---------- ---------- ----------
Property and equipment, net.......... $1,890,717 $6,808,469 $6,414,178
========== ========== ==========
</TABLE>
F-9
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
In May 1997, the Company recognized a loss for the abandonment of leasehold
improvements with a cost of $80,457 and accumulated amortization of $34,542
due to a corporate relocation. Assets acquired under capitalized lease
obligations are included in computer equipment and office equipment and
totaled $0, $0 and $1,452,540 (including equipment previously purchased), with
related amortization of $0, $0 and $119,766, as of September 30, 1996 and 1997
and March 31, 1998, respectively.
(3) INCOME TAXES:
Net deferred tax assets comprise:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Net operating loss carryforwards -- federal and
state......................................... $ 1,586,755 $ 4,005,740
Research and experimentation credit
carryforwards................................. 56,740 132,168
Other liabilities and reserves................. 36,453 83,548
Property and equipment......................... 21,127 (209,967)
Acquired technology............................ 1,012,977 593,215
Deferred revenue............................... -- 356,513
Valuation allowance............................ (2,714,052) (4,961,217)
----------- -----------
Net deferred tax asset..................... -- --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets. Differences
between the federal statutory and effective tax rates were primarily due to
the nonrealizability of net operating losses.
At September 30, 1997, the Company had the following carryforwards available
to reduce future taxable income and income taxes:
<TABLE>
<CAPTION>
1997
---------------------
FEDERAL STATE
---------- ----------
<S> <C> <C>
Net operating loss carryforwards....................... $9,885,167 $9,927,603
Research and experimentation credit carryforwards...... 83,636 48,532
</TABLE>
The federal and state net operating loss carryforwards expire through 2012
and 2005, respectively, and the research and experimentation credits expire in
2002.
For federal and state tax purposes, the Company's net operating loss and
research and experimentation credit carryforwards could be subject to certain
limitations on annual utilization if certain changes in ownership were to
occur, as defined by federal and state tax laws.
F-10
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(4) COMMITMENTS:
The Company has entered into noncancellable operating leases for office
space and equipment and capital leases for equipment with original terms
ranging from six to 60 months. The future minimum lease payments under these
leases at March 31, 1998, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Six months ending September 30, 1998................ $ 477,157 $293,807
Years ending:
September 30, 1999................................. 1,246,068 587,613
September 30, 2000................................. 1,130,417 587,613
September 30, 2001................................. 782,662 373,062
September 30, 2002................................. 778,662 --
and thereafter..................................... 64,889 --
---------- ----------
Total minimum lease payments.......................... $4,479,855 1,842,095
==========
Less amount representing interest..................... (509,321)
----------
Present value of minimum lease payments............... 1,332,774
Less current portion.................................. (331,228)
----------
$1,001,546
==========
</TABLE>
Rent expense for the period from inception through September 30, 1996 was
$83,886, and for the year ended September 30, 1997 was $312,660 and for the
six months ended March 31, 1997 and 1998 was $134,636 and $680,126,
respectively.
F-11
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(5) NOTES PAYABLE AND LINE OF CREDIT:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- -----------
<S> <C> <C> <C>
Note payable to stockholders (1)... $ 3,332,759 $ -- $ --
Line of credit (2)................. -- -- --
Bank equipment note (3)............ -- 1,750,000 1,750,000
Bank term note (4)................. -- 1,833,334 1,500,000
Notes payable (5).................. -- 3,396,423 3,031,459
Other notes payable (6)............ -- 499,255 422,347
----------- ----------- -----------
3,332,759 7,479,012 6,703,806
Less current portion............... (3,332,759) (2,449,601) (2,514,764)
----------- ----------- -----------
$ -- $ 5,029,411 $ 4,189,042
=========== =========== ===========
</TABLE>
- --------
(1) In February 1996, the Company issued a $500,000 unsecured promissory note
for cash, due on or before January 31, 1997, with a stated interest rate
of 6.0% per annum, convertible (principal and accrued interest) into
Series B Preferred Stock, to certain stockholders of the Company. At
September 30, 1996, $200,000 of principal and $59,935 of accrued interest
was outstanding. In October 1996, the note was converted into 80,000
shares of Series B Preferred Stock.
In connection with the formation of the Company, the founders transferred
certain technology to the Company in exchange for a promissory note in the
amount of $3,132,759. The technology was not assigned any value, and the
face amount of the note was charged to reduction in capital. The note had a
stated interest rate of 6.0% per annum and was collateralized by
substantially all of the intellectual property of the Company. In April
1997, the founders forgave the note payable in exchange for warrants to
purchase 417,701 shares of Common Stock exercisable at $0.33 per share. Due
to the related party nature of the transaction, no accounting recognition
was given.
(2) The Company has a $2,500,000 revolving line of credit collateralized by
substantially all assets. The line requires monthly payments of interest
only at prime (8.5% at March 31, 1998) and any unpaid principal and
interest will be due on May 2, 1998. At March 31, 1998, the Company had a
letter of credit of $500,000 outstanding against the line and future draw
downs are contingent upon the Company raising additional financing of at
least $4,000,000. At March 31, 1998 the Company had no borrowings
outstanding. The bank credit agreement requires the Company to comply with
certain financial covenants related to tangible net worth, a ratio of debt
to net worth, debt service coverage, liquidity coverage and quarterly
profitability. Pursuant to the agreement, the Company may not distribute
cash dividends. As of March 31, 1998, the Company was in compliance with
the covenants.
(3) The bank equipment note was interest only until February 1998 and then
payable in equal monthly payments of $48,611 plus interest at 0.5% over
prime (a total of 9.0% at March 31, 1998) through February 2001. The note
has collateralization and covenant requirements consistent with the bank
line of credit as described above.
(4) The bank term note is payable in equal monthly payments of $83,333 plus
interest at 0.5% over prime (9.0% at March 31, 1998) through June 1999.
The note has collateralization and covenant requirements consistent with
the bank line of credit as described above.
(5) The two notes payable are payable in equal monthly payments of $102,895
and $4,741 which includes interest of 5.7% and 5.6% through September 2000
and November 2000, respectively. The notes are collateralized by all
equipment purchased with the notes.
(6) Other notes payable are payable in equal monthly payments totaling $19,680
through March 2000, with a final balloon payment of $60,000. The notes
payments include interest of 18.0%. The notes are collateralized by all
equipment purchased with the notes.
F-12
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
Scheduled maturities of long-term debt at March 31,1998 are as follows:
<TABLE>
<S> <C>
Six months ending September 30, 1998............................ $ 1,274,680
Years ending:
September 30, 1999............................................ 2,622,929
September 30, 2000............................................ 2,484,322
September 30, 2001............................................ 321,875
-----------
$ 6,703,806
===========
</TABLE>
The book value of notes payable approximated fair value as such debt
agreements were recently negotiated.
(6) ACCRUED LIABILITIES:
Accrued liabilities comprise:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- ----------
<S> <C> <C> <C>
Accrued payroll, vacation and
bonuses............................ $117,394 $1,078,938 $1,265,633
Other accrued liabilities........... 340,901 68,279 670,120
-------- ---------- ----------
Total accrued liabilities....... $458,295 $1,147,217 $1,935,753
======== ========== ==========
</TABLE>
(7) OTHER RELATED PARTY TRANSACTIONS:
In April 1996, the Company entered into a consulting agreement for
management services with certain stockholders in conjunction with a securities
purchase agreement. While no direct compensation was required under the
agreement, the Company made fixed monthly payments through November 1996 of
$17,500 to cover expenses.
F-13
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(8) EARNINGS PER SHARE:
The following is a reconciliation of the numerator and denominator of basic
and diluted EPS (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
---------------- ------------------
1996 1997 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Numerator--Basic and Diluted EPS
Net loss............................ $(3,534) $(8,662) $ (3,191) $ (7,877)
======= ======= ======== ========
Denominator--Basic and Diluted EPS
Weighted average Common Stock
outstanding........................ 1,884 2,927 2,477 4,766
======= ======= ======== ========
Basic and diluted loss per share...... $ (1.88) $ (2.96) $ (1.29) $ (1.65)
======= ======= ======== ========
Pro forma:
Denominator--Basic and Diluted EPS
Weighted average Common Stock
outstanding........................ 2,927 4,766
Conversion of Preferred Stock and
warrants........................... 9,103 12,369
------- --------
Total weighted average Common Stock
outstanding pro forma.............. 12,030 17,135
======= ========
Basic and diluted pro forma loss per
share................................ $(0.72) $ (0.46)
======= ========
</TABLE>
(9) STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
As of March 31, 1998, the Company had six series of convertible Preferred
Stock authorized and outstanding. The holders of the various Preferred Stock
generally have the same rights unless specified.
Dividends:
The holders of the outstanding Common and Preferred Stock are entitled to
receive in any fiscal year, when and if declared by the Board of Directors,
out of any funds legally available, cash dividends at the same rate per share
for all classes of stock. The right to dividends is not cumulative, and no
dividends have been declared through March 31, 1998.
Conversion Rights:
At the option of the holder, each share of Series D, D1 and E Preferred
Stock is convertible, at any time, into shares of Common Stock. On or after
February 2, 1998, at the option of the holder, each share of Series A, B and C
Preferred Stock is convertible, at any time, into shares of Common Stock.
Series C Preferred Stock is convertible into Common Stock on a .76-for-one
basis. All other preferred shares are convertible into Common Stock on a .67-
for-one basis, subject to adjustment resulting from future capital
transactions.
In addition, each share of Series A, B and C Preferred Stock automatically
converts into Common Stock: (i) immediately prior to the closing of a firm
commitment underwritten public offering, provided
F-14
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
the net proceeds to the Company are at least $7,500,000 and the public
offering price per share is at least $3.75 per share; (ii) upon consolidation
or merger of the Company with or into another corporation in which the holders
of the outstanding shares do not retain stock representing a majority of the
voting power of the surviving corporation; or (iii) upon a sale of all or
substantially all of the assets of the Company. Each share of Series D, D1 and
E Preferred Stock automatically converts into Common Stock immediately prior
to the closing of a firm commitment underwritten public offering, provided the
net proceeds to the Company are at least $15,000,000 and the public offering
price per share is at least $9.57 share.
Liquidation Preference:
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of the Series C, D, D1 and E
Preferred Stock retain liquidation preference over Series A and B Preferred
Stock equal to the original issue price of each series of stock ($5.00,
$2.217, $3.3255 and $4.25 per share, respectively) plus any declared but
unpaid dividends. Series A and B Preferred Stock retain liquidation preference
over Common Stock equal to the original issuance price ($0.0005 per share) for
each series plus declared but unpaid dividends. If there are any available
funds and assets remaining after payments or distributions are made to the
holders of Preferred Stock for their full preferential amounts, then all such
remaining funds and assets will be distributed pro rata among the holders of
the then outstanding Common Stock and Series D, D1 and E Preferred Stock,
until holders of Series D, D1 and E Preferred Stock have received an aggregate
amount equal to $6.651, $9.9765 and $12.75 per share, respectively, after
which the remaining available funds and assets shall be distributed pro rata
among holders of Common Stock.
Voting Rights:
The holders of Series A, D, D1 and E Preferred Stock and the holders of
Common Stock are entitled to notice of any stockholders' meeting and to vote
as a single class upon any matter submitted to the stockholders for a vote, as
follows: (i) each holder of Series A, D, D1 and E Preferred Stock have one
vote for each full share of Common Stock into which their respective shares of
Preferred Stock would be convertible on the record date for the vote, and (ii)
each holder of Common Stock has one vote per share of Common Stock. Except as
otherwise required by law, the holders of shares of Series B and C Preferred
Stock have no voting rights.
(10) WARRANTS:
In 1996 and 1997, the Company issued warrants to purchase Common and
Preferred Stock to investors and an equipment lease provider. At March 31,
1998 such warrants were as follows:
<TABLE>
<CAPTION>
AGGREGATE
SHARES EXERCISE PRICE EXPIRATION DATES
------- -------------- --------------------------
<C> <C> <C> <S>
Common Stock.............. 3,333 $ 25,000 August 2001
Common Stock.............. 519,586 $ 58,453 Upon closing of an initial
public offering
Common Stock.............. 417,701 $ 137,841 April 2001
Common Stock.............. 170,667 $1,920,000 October 1999
Series D Preferred Stock.. 32,477 $ 71,999 February 2007
Series D1 Preferred Stock. 64,290 $ 213,771 Upon the closing of an
initial public offering or
April 1998, if earlier.
Series D1 Preferred Stock. 300,707 $1,000,000 April 1999
</TABLE>
F-15
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
The fair value of warrants issued in connection with the various financing
and purchase transactions does not have a material effect on the financial
statements.
The Company has reserved 19,345,462 shares of Common Stock for the exercise
of Common Stock warrants and conversion and/or exercise of Preferred Stock and
Preferred Stock warrants.
(11) STOCK OPTIONS:
Pursuant to the Inktomi Corporation 1996 Equity Incentive Plan (the "Plan")
as amended, employees, directors and consultants of the Company may be granted
options to purchase shares of Common Stock. At March 31, 1998, 4,333,333
shares of Common Stock were reserved for issuance pursuant to the Plan.
Options granted under the Plan include incentive stock options and
nonqualified stock options. All stock options granted under the Plan are
exercisable but subject to repurchase at cost in the event that the individual
ceases to be an employee or provide services to the Company. Repurchase rights
lapse according to various vesting schedules (generally over 50 months). Prior
to adopting the Plan, the Company granted nonqualified stock options to
purchase Common Stock to certain employees and consultants.
A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE AVERAGE
EXERCISE PRICE EXERCISE EXERCISE
SHARES PER SHARE PRICE PRICE
---------- -------------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at February 2,
1996....................... -- -- -- --
Granted..................... 2,450,693 $0.11-$0.45 $ 939,408 $0.384
Canceled.................... (180,000) $0.11-$0.45 $ (69,750) $0.387
---------- ----------- ---------- ------
Outstanding at September 30,
1996....................... 2,270,693 $0.11-$0.45 $ 869,658 $0.384
Granted..................... 1,988,680 $0.33-$1.95 $1,126,906 $0.567
Exercised................... (2,165,071) $0.11-$0.45 $ (870,668) $0.402
Canceled.................... (174,227) $0.45 $ (78,402) $0.45
---------- ----------- ---------- ------
Outstanding and exercisable
at September 30, 1997...... 1,920,075 $0.11-$1.95 $1,047,494 $0.546
========== =========== ========== ======
</TABLE>
At September 30, 1997, 1,333,326 shares were no longer subject to
repurchase. Of the stock options exercised, 459,399 shares were no longer
subject to repurchase.
The following table summarizes information with respect to stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 9/30/97 LIFE (YEARS) PRICE AT 9/30/97 PRICE
-------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.11 143,823 8.62 $0.11 143,823 $0.11
$0.33-$0.45 1,613,587 9.15 $0.44 1,613,587 $0.44
$1.95 162,665 9.94 $1.95 162,667 $1.95
</TABLE>
F-16
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
The following information concerning the Plan is provided in accordance with
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123). The Company accounts for the Plan in accordance
with Accounting Principles Board (APB) Opinion No. 25 and related
Interpretations.
The fair value of each employee and director stock option grant has been
estimated on the date of grant using the minimum value method with the
following weighted average assumptions used for grants in September 30, 1996
and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Risk-free interest rates......................... 6.48%-6.60% 6.00%-6.47%
Expected life.................................... 5 5
Dividends........................................ $0 $0
</TABLE>
The weighted average fair value per option for employee and director stock
options granted in 1996 and 1997 were $0.105 and $0.15, respectively.
The following comprises the pro forma income information pursuant to the
provisions of SFAS 123:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Net loss--Historical............................. $3,534,431 $8,662,226
Net loss--Pro Forma.............................. $3,576,847 $9,021,251
</TABLE>
These pro forma amounts may not be representative of the effects on pro
forma net income (loss) for future years as options vest over several years
and additional awards are generally made each year.
(12) 401(k) PROFIT SHARING PLAN:
In May 1996, the Company established a 401(k) Profit Sharing Plan (the
"401(k) Plan") which covers substantially all employees. Under the 401(k)
Plan, employees are permitted to contribute up to 20% of gross compensation
not to exceed the annual 402(g) limitation for any plan year. Discretionary
contributions may be made by the Company. No contributions have been made by
the Company during the period ended September 30, 1997.
(13) SUBSEQUENT EVENT:
In April 1998, the Board of Directors authorized management of the Company
to file a Registration Statement with the Securities Exchange Commission
covering the proposed sale of shares of its Common Stock to the public. Upon
completion of this proposed sale, all outstanding shares of the Company's
convertible Preferred Stock will automatically convert into Common Stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the convertible Preferred Stock and exercise of certain warrants
that would otherwise expire upon the Company's initial public offering, is
disclosed in the accompanying unaudited pro forma balance sheet.
The Board also adopted, subject to stockholder approval, a 1998 Stock Plan
and 1998 Employee Stock Purchase Plan and reserved a total of 1,300,000 shares
of Common Stock for issuance thereunder.
F-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), for whom Goldman, Sachs & Co.,
BT Alex. Brown Incorporated and Hambrecht & Quist LLC are acting as
representatives (the "Representatives"), and each Underwriter has severally
agreed to purchase from the Company and the Selling Stockholders, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co...............................................
BT Alex. Brown Incorporated.......................................
Hambrecht & Quist LLC.............................................
---------
Total......................................................... 2,260,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 339,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the total number of option
shares of Common Stock offered.
At the request of the Company, the Underwriters have reserved up to 115,000
shares of Common Stock for sale, at the initial public offering price, to
directors, officers, employees and friends of the Company through a directed
share program. The number of shares of Common Stock available for sale to the
general public in the public offering will be reduced to the extent such
persons purchase such reserved shares.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which they exercise discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.
The Company and the Selling Stockholders have agreed that, during the period
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any securities of the Company (other than
pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Common Stock
or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered
in connection with the offering.
U-1
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
In connection with the offering, the Underwriters may purchase and sell
shares of the Company's Common Stock in the open market. These transactions
may include over-allotment and stabilizing transactions, and purchases to
cover syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Common Stock;
and syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Common Stock than they are required to purchase
from the Company and the Selling Stockholders in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the offering for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market in the over-the-counter market
or otherwise.
Prior to this offering, there has been no public market for the shares. The
initial public offering price was negotiated among the Company, the Selling
Stockholders and the representatives. Among the factors considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-2
<PAGE>
[LOGO OF INKTOMI APPEARS HERE]
Heading: "Inktomi: Scaling the Internet"
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Management................................................................ 44
Certain Transactions...................................................... 53
Principal and Selling Stockholders........................................ 55
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 59
Additional Information.................................................... 61
Legal Matters............................................................. 61
Experts................................................................... 61
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,260,000 SHARES
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
----------------
[LOGO OF INKTOMI]
----------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $10,744
NASD filing fee..................................................... 4,139
Nasdaq National Market listing fee.................................. 90,000
Printing and engraving costs........................................ 150,000
Legal fees and expenses............................................. 200,000
Accounting fees and expenses........................................ 200,000
Blue Sky fees and expenses.......................................... 5,000
Transfer Agent and Registrar fees................................... 10,000
Miscellaneous expenses.............................................. 30,117
-------
Total............................................................. 700,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article X of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant and its predecessor, Inktomi
Corporation, a California corporation ("Predecessor") have issued unregistered
securities to a limited number of persons as described below. The share
information presented has been adjusted to give effect to the two-for-three
reverse stock split of the Registrant's Common Stock approved by the Board of
Directors of the Registrant in April 1998.
(a) In February 1996, the Predecessor issued and sold an aggregate of
1,786,668 shares of Common Stock to three employees for an aggregate
purchase price of $134.
(b) In February 1996, the Predecessor issued and sold an aggregate of
6,000,000 shares of Series A Preferred Stock convertible into 4,000,001
shares of Common Stock to three employees for an aggregate purchase price
of $3,000.
II-1
<PAGE>
(c) In March 1996, the Predecessor issued and sold an aggregate of
700,000 shares of Series B Preferred Stock convertible into 466,667 shares
of Common Stock to an employee and two consultants for an aggregate
purchase price of $350.
(d) From March 1996 to October 1996, the Predecessor issued and sold an
aggregate of 489,502 shares of Series C Preferred Stock convertible into
371,868 shares of Common Stock to 25 investors for an aggregate purchase
price of $2,864,763.
(e) In April 1996, the Predecessor issued an aggregate of 1,400,000
shares of Series B Preferred Stock convertible into 933,334 shares of
Common Stock to one employee and two consultants in a voluntary share
exchange transaction. In the transaction, the Predecessor issued such
shares of Series B Preferred Stock in exchange for all shares of a
privately held California corporation held by the employee and the
consultants.
(f) In April 1996, the Predecessor issued and sold 400,000 shares of
Common Stock, warrants to purchase 800,000 shares of Common Stock and
200,000 shares of Series C Preferred Stock convertible into 151,938 shares
of Common Stock to two investors for an aggregate purchase price of
$1,955,000.
(g) In May 1996, the Predecessor issued and sold 280,415 shares of Common
Stock to two investors upon exercise of warrants for an aggregate purchase
price of $31,547.
(h) In August 1996, the Predecessor issued warrants to purchase an
aggregate of 6,667 shares of Common Stock to the Regents of the University
of California in partial consideration for the execution of a software
license agreement. The aggregate exercise price for these warrants is
$50,000.
(i) In September 1996, the Company issued and sold 1,300,000 shares of
Series B Preferred Stock convertible into 866,667 shares of Common Stock to
three consultants in exchange for services rendered having an aggregate
value of $390,000.
(j) In October 1996, the Company issued and sold 80,000 shares of Series
B Preferred Stock convertible into 53,334 shares of Common Stock to six
investors upon conversion of a promissory note having a principal balance
of $200,000.
(k) In October 1996, the Predecessor issued warrants to purchase an
aggregate of 170,667 shares of Common Stock to a consultant in
consideration for sales representative services rendered. The aggregate
exercise price for these warrants is $1,920,000.
(l) In February 1997, the Predecessor issued warrants to purchase an
aggregate of 32,476 shares of Series D Preferred Stock convertible into
21,562 shares of Common Stock to two equipment lessors in partial
consideration of the execution of equipment lease agreements. The aggregate
exercise price for these warrants is $71,999.
(m) In April 1997, the Predecessor issued warrants to purchase an
aggregate of 417,701 shares of Common Stock to Inktomi LLC in consideration
of the cancellation of approximately $43,800 of the then outstanding
principal of a promissory note held by Inktomi LLC. The aggregate exercise
price for these warrants is $137,841.
(n) In April and May 1997, the Predecessor issued and sold an aggregate
of (i) 3,866,499 shares of Series D Preferred Stock convertible into
2,577,666 shares of Common Stock and (ii) warrants to purchase an aggregate
of 1,288,826 shares of Series D1 Preferred Stock convertible into 85,922
shares of Common Stock to Oak Investment Partners VII, Limited Partnership,
Oak VII Affiliates Fund, Limited Partnership and 15 other investors for an
aggregate purchase price of $8,572,228. The aggregate exercise price for
the warrants is $4,285,991. The Predecessor paid a commission of $428,611
to the placement agent in such transaction.
(o) In September 1997, the Predecessor issued and sold an aggregate of
(i) 902,120shares of Series D Preferred Stock convertible into 601,413
shares of Common Stock and (ii) warrants to purchase an aggregate of
300,707 shares of Series D1 Preferred Stock convertible into 200,471
II-2
<PAGE>
shares of Common Stock to Intel Corporation for an aggregate purchase price
of $2,000,000. The aggregate exercise price for the warrants is $1,000,001.
(p) In December 1997, the Registrant issued and sold 1,000 shares of
Common Stock to the Predecessor for an aggregate purchase price of $100.
(q) In February 1998, the Registrant issued shares of its capital stock
to the shareholders of the Predecessor in connection with the
reincorporation merger of the Predecessor with and into the Registrant. The
Registrant believes this transaction was exempt from registration under
Section 2(3) on the basis that such transaction did not involve a "sale" of
securities.
(r) In February 1998, the Registrant issued an aggregate of 3,297,820
shares of Series E Preferred Stock convertible into 2,198,547 shares of
Common Stock for an aggregate purchase price of $14,015,735. The Registrant
paid a commission of $840,944 to the placement agent in such transaction.
(s) In March 1998, the Registrant issued and sold 1,224,544 shares of
Series D1 Preferred Stock convertible into 816,365 shares of Common Stock
to eight investors upon exercise of warrants for an aggregate purchase
price of $4,072,221.
(t) As of March 31, 1998, an aggregate of 2,461,031 shares of Common
Stock had been issued upon exercise of options under the Registrant's 1996
Equity Incentive Plan and granted prior to adoption of such plan.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and the Registrant believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant and the Predecessor, to information about the Registrant
and the Predecessor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
3.2** Amended and Restated Certificate of Incorporation of the Registrant to
be filed after the closing of the offering made under this
Registration Statement.
3.3** Amended and Restated Bylaws of the Registrant, as currently in effect.
3.4** Bylaws of the Registrant to be in effect after the closing of the
offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** 1998 Stock Plan and form of agreements thereunder.
10.3** 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1996 Equity Incentive Plan and form of agreement thereunder.
10.5** Fifth Amended and Restated Investors' Rights Agreement dated as of
February 13, 1998 among the Registrant and certain of the Registrant's
securityholders named therein.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.6** Executive Employment Agreement dated as of July 1, 1996 between the
Registrant and David C. Peterschmidt.
10.7** Loan and Security Agreement dated as of May 2, 1997 between the
Registrant and Silicon Valley Bank, together with the First Amendment,
Second Amendment, Third Amendment and Fourth Amendment to such
agreement.
10.8** Sublease Agreement dated November 27, 1996 between the Registrant and
Macromedia, Inc.
10.9** Office Lease dated July 31, 1997 between the Registrant and Norfolk
Atrium, a California limited partnership.
10.10** Underlease Agreement (undated) between Inktomi Limited and Technomic
Research Associates Limited.
10.11+ Information Services Agreement dated as of April 1, 1998 between the
Registrant and Wired Digital, Inc.
10.12+ Information Services Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.13+ Software Development Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.14+ Software Hosting Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.15+ Loan Agreement dated as of July 27, 1997 between the Registrant and
Microsoft Corporation.
10.16 Security Agreement dated as of July 27, 1997 between the Registrant
and Microsoft Corporation.
10.17+ Escrow Agreement dated as of July 29, 1997 among the Registrant, Data
Base, Inc., and Microsoft Corporation.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-6).
27.1** Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment
** Previously filed.
+ Confidential treatment requested as to a portion of this exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
II-4
<PAGE>
securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN MATEO, STATE OF CALIFORNIA, ON THE 30TH DAY OF APRIL, 1998.
Inktomi Corporation
By /s/ David C. Peterschmidt
_________________________________
DAVID C. PETERSCHMIDT,
PRESIDENTAND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ David C. Peterschmidt President, Chief
- ------------------------------------- Executive Officer April 30, 1998
(DAVID C. PETERSCHMIDT) and Director
(Principal
Executive Officer)
/s/ Jerry M. Kennelly Vice President of
- ------------------------------------- Finance and Chief April 30, 1998
(JERRY M. KENNELLY) Financial Officer
(Principal
Financial Officer)
Director
* April 30, 1998
- -------------------------------------
(ERIC A. BREWER)
Director
* April 30, 1998
- -------------------------------------
(FREDRIC W. HARMAN)
Director
* April 30, 1998
- -------------------------------------
(JOHN A. PORTER)
Director
* April 30, 1998
- -------------------------------------
(ALAN F. SHUGART)
</TABLE>
*Power of Attorney
By: /s/ David C. Peterschmidt
_______________________________
DAVID C. PETERSCHMIDT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
3.2** Amended and Restated Certificate of Incorporation of the
Registrant to be filed after the closing of the offering made
under this Registration Statement.
3.3** Amended and Restated Bylaws of the Registrant, as currently in
effect.
3.4** Bylaws of the Registrant to be in effect after the closing of
the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2** 1998 Stock Plan and form of agreements thereunder.
10.3** 1998 Employee Stock Purchase Plan and form of agreements
thereunder.
10.4** 1996 Equity Incentive Plan and form of agreement thereunder.
10.5** Fifth Amended and Restated Investors' Rights Agreement dated as
of February 13, 1998 among the Registrant and certain of the
Registrant's securityholders named therein.
10.6** Executive Employment Agreement dated as of July 1, 1996 between
the Registrant and David C. Peterschmidt.
10.7** Loan and Security Agreement dated as of May 2, 1997 between the
Registrant and Silicon Valley Bank, together with the First
Amendment, Second Amendment, Third Amendment and Fourth
Amendment to such agreement.
10.8** Sublease Agreement dated November 27, 1996 between the
Registrant and Macromedia, Inc.
10.9** Office Lease dated July 31, 1997 between the Registrant and
Norfolk Atrium, a California limited partnership.
10.10** Underlease Agreement (undated) between Inktomi Limited and
Technomic Research Associates Limited.
10.11+ Information Services Agreement dated as of April 1, 1998
between the Registrant and Wired Digital, Inc.
10.12+ Information Services Agreement dated as of July 27, 1997
between the Registrant and Microsoft Corporation.
10.13+ Software Development Agreement dated as of July 27, 1997
between the Registrant and Microsoft Corporation.
10.14+ Software Hosting Agreement dated as of July 27, 1997 between
the Registrant and Microsoft Corporation.
10.15+ Loan Agreement dated as of July 27, 1997 between the Registrant
and Microsoft Corporation.
10.16 Security Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.17+ Escrow Agreement dated as of July 29, 1997 among the
Registrant, Data Base, Inc., and Microsoft Corporation.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-6).
27.1** Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment
** Previously filed.
+ Confidential treatment requested as to a portion of this exhibit.
<PAGE>
EXHIBIT 10.11
INFORMATION SERVICES AGREEMENT
This Information Services Agreement ("Agreement") is entered into as of
April 1, 1998 (the "Effective Date"), by and between Inktomi Corporation, a
Delaware corporation with its principal place of business at 1900 South Norfolk
Street, Suite 310, San Mateo, California, 94403 ("Inktomi") and Wired Digital,
Inc., a Delaware corporation with its principal place of business at 660 Third
Street, 4th Floor, San Francisco, CA 94107 ("Customer").
RECITALS
A. Inktomi provides services utilizing certain technology for searching
and indexing the Internet (the "Inktomi Search Engine," as more fully defined
below).
B. Customer wishes Inktomi to provide search engine services using the
Inktomi Search Engine in accordance with the terms and conditions of this
Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms will
-----------
have the indicated meanings:
1.1. "Customer Service(s)" means any online search service utilizing
-------------------
the Inktomi Technology, whether branded HotBot or otherwise and whether
displayed as a separate Web site or the relevant portion of a Web page, that is
operated, assembled, developed or marketed by Customer alone or in conjunction
with third parties, including the commercial Internet search service currently
operated by Customer and located on the Web at www.hotbot.com ("HotBot").
1.2. "Database" means Inktomi's full text index database of Web pages
--------
accessible by end users of the Customer Services at any given time.
1.3. "Inktomi Data Protocol" means the written specification on how
---------------------
an Interface communicates and interacts with the Inktomi Search Engine.
1.4. "Inktomi Search Engine" means Inktomi's current Search Engine as
---------------------
of the Effective Date, inclusive of the Database, as the same may be upgraded,
modified, changed, or enhanced by Inktomi at its sole discretion, subject to the
terms of this Agreement. The Inktomi Search Engine does not and will not include
features, options and modules developed and
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
customized specifically for third parties and provided to such third parties on
an exclusive basis, or features, options, modules and future products which
Inktomi licenses or provides separately.
1.5. "Inktomi Technology" means the Inktomi Search Engine, the
------------------
Inktomi Data Protocol, the Interface Construction Tools and all other computer
software, technology and/or documentation which is supplied by Inktomi for use
in or in connection with delivery of the Services, including without limitation
all source code and object code therefor and all algorithms, ideas and
Intellectual Property Rights therein.
1.6. "Intellectual Property Rights" means any and all rights existing
----------------------------
from time to time under patent law, copyright law, semiconductor chip protection
law, moral rights law, trade secret law, trademark law, unfair competition law,
publicity rights law, privacy rights law, and any and all other proprietary
rights, and any and all applications, renewals, extensions and restorations
thereof, now or hereafter in force and effect worldwide.
1.7. "Interface" means the editorial and graphical content and design
---------
of the Web pages served to end users of Customer Services, including without
limitation the Search Page, all Results Pages, instruction pages, frequently
asked questions pages and any Customer Service end user terms and guidelines.
1.8. "Interface Construction Tools" means all software tools, if any,
----------------------------
in object code form, provided by Inktomi to assist Customer to build Interfaces
to the Inktomi Search Engine, including without limitation Inktomi's application
server currently known as Forge.
1.9. "Net Revenues" are gross advertising and sponsorship revenues
------------
booked by Customer attributable to (a) all [*] and (b) all other [*] within
the [*] that [*] to the [*] of [*] provided by Inktomi, including without
[*] and [*], but [*] all [*], [*]: [*] by [*] for the applicable
month, subject to [*] to [*].
1.10. "Results Pages" means all Web pages displaying search results
-------------
presented to end-users directly as a result of accessing the query mechanisms of
the Inktomi Search Engine or indirectly though a cache controlled or influenced
by Customer.
1.11. "Results Set" means a set of results consisting of between [*]
-----------
and [*] records presented to an end-user of the Customer Service (either
directly from the Inktomi Search Engine or indirectly through a cache controlled
or influenced by Customer) in response to a search query.
1.12. "Search Engine" means computer software which crawls the
-------------
Internet, downloads and analyzes text and other data, sorts and organizes the
data, creates an index of accessible data, and, after receiving a particular
search request (in the form of a word query), locates material accessible in the
database, and presents the results of the search.
2
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.13. "Search Page" means the Web page on a Customer Service through
-----------
which end users may access the Inktomi Search Engine and run searches against
the Database.
1.14. "Services" means the Internet search engine services to be
--------
provided by Inktomi for Customer under this Agreement, as more fully described
on Exhibit A.
1.15. "Term" shall have the meaning indicated in Section 10.
----
1.16. "Usage Data" means the demographic, psychographic, statistical
----------
and other end user data generated by operation of the Inktomi Search Engine in
connection with the Customer Services, excluding Web usage data generated by the
Database.
1.17. "Web" means the so-called World Wide Web, containing, inter
--- -----
alia, pages written in hypertext markup language (HTML) and/or any similar
- ----
successor technology.
1.18. "Web page" means a document on the Internet which may be viewed
--------
in its entirety without leaving the applicable distinct URL address.
1.19. "Web site" means a collection of inter-related Web pages.
--------
2. Provision of Services; Implementation.
-------------------------------------
2.1. Services and Implementation. Subject to the terms and
---------------------------
conditions of this Agreement, Inktomi shall provide the Services to Customer for
use as part of the Customer Services, such services to be provided substantially
in accordance with the functionality specifications, performance criteria and
limitations specified on Exhibit A. Inktomi, at its own expense, shall provide
all data transmission capacity (bandwidth), disk storage, server capacity and
other hardware and software required to run the Inktomi Search Engine and
maintain the Database. Customer, at its own expense, shall create the Interfaces
to the Inktomi Search Engine for the Customer Services, and shall provide all
disk storage, server capacity and other hardware and software required to run
and maintain the Customer Services and the Interfaces, and to modify and serve
advertisements on the Interfaces. Inktomi shall provide reasonable assistance
(through telephone, e-mail, the Web, or fax) to Customer during regular business
hours regarding development of the Interfaces and integration of the same with
the Inktomi Search Engine. Customer, at its own expense, shall provide all data
transmission capacity (bandwidth) required to connect to and receive information
from the Inktomi Search Engine. Customer may only provide search services based
on the Services to end users of the Customer Services, and shall have no right
to distribute or resell or provide services based on the Services to other
service providers. Inktomi shall keep Customer reasonably informed of any
modifications or changes to the Inktomi Search Engine and will not make any such
modifications or changes if the same would preclude Inktomi from performing the
Services substantially in accordance with the functionality specifications,
performance criteria and limitations specified on Exhibit A.
2.2. Test Cluster. During the development period for any new
------------
Interface or modification period for any existing Interface, Customer shall only
have access through the
3
<PAGE>
Inktomi Data Protocol to a non-production version of the Inktomi Search Engine
(the "Test Cluster"). Upon completion of the new or modified Interface and all
desired testing against the Test Cluster, Customer shall present the Interface
to Inktomi for technical review and testing against the production version of
the Inktomi Search Engine. Inktomi shall promptly notify Customer of any
technical problems or issues discovered by Inktomi regarding the Interface. Once
accepted by Inktomi, Inktomi shall provide access to Customer to the production
version of the Inktomi Search Engine. Customer may run reasonable tests against
the Test Cluster and the production version of the Inktomi Search Engine,
provided however that Customer may not conduct any load testing (prior to
commercial launch of its search service) without the prior consent of Inktomi.
Load testing as used herein means the generation and delivery of more than five
queries per second.
2.3. Inktomi Data Protocol. Inktomi has previously provided the
---------------------
Inktomi Data Protocol and the Interface Construction Tools to Customer. Inktomi
grants to Customer a nontransferable, nonexclusive license during the Term to
use the Inktomi Data Protocol and the Interface Construction Tools solely to
create and maintain the Interfaces to the Inktomi Search Engine for the Customer
Services. Inktomi will provide all future releases of the Inktomi Data Protocol
and Interface Construction Tools to Customer at the same time Inktomi makes such
releases available to its general customer base.
2.4. Other Services and Support. Upon request, and provided that
--------------------------
Customer is current with service fees due under this Agreement, Inktomi may
provide additional services and support beyond the services and support set
forth herein. Any such service or support shall be provided at Inktomi's then
applicable consulting rates and charges.
2.5. Inktomi Technology. As between Customer and Inktomi, Customer
------------------
acknowledges that Inktomi owns all right, title and interest in and to the
Inktomi Technology (except for any software licensed by third parties to
Inktomi), and that Customer shall not acquire any right, title, and interest in
or to the Inktomi Technology, except as expressly set forth in this Agreement.
Customer shall not modify, adapt, translate, prepare derivative works from,
decompile, reverse engineer, disassemble or otherwise attempt to derive source
code from any Inktomi software or documentation. Customer will not remove,
obscure, or alter Inktomi's copyright notice, trademarks, or other proprietary
rights notices affixed to or contained within any Inktomi software or
documentation.
2.6. Interface. As between Inktomi and Customer, Inktomi
---------
acknowledges that Customer owns all right, title and interest, including without
limitation all Intellectual Property Rights, in and to the Interfaces (except
for any software licensed by third parties to Customer and except for editorial
content regarding the use and functionality of the Inktomi Search Engine
provided by Inktomi to Customer for incorporation into the Customer Services,
which content shall be and remain Inktomi Technology), and that Inktomi shall
not acquire any right, title or interest in or to the Interfaces, except as
expressly set forth in this Agreement.
2.7. Nonexclusive Services. Customer understands that Inktomi will
---------------------
provide the Services on a nonexclusive basis. Customer acknowledges that Inktomi
has customized and
4
<PAGE>
provided, and will continue to customize and provide, its software and
technology to other parties for use in connection with a variety of
applications, including search engine applications. Nothing in this Agreement
will be deemed to limit or restrict Inktomi from customizing and providing its
software and technology to other parties for any purpose, including in
connection with search engine applications, or in any way affect the rights
granted to such other parties.
3. Publicity; Branding and Attribution; Trademark License; House Ads.
-----------------------------------------------------------------
3.1. Publicity. Except as provided in the Inktomi Attribution and
---------
Publicity Guidelines attached hereto as Exhibit C, Customer shall not mention
Inktomi, SmartCrawl or any other Inktomi product, technology or service in any
press release or marketing materials or Web site without Inktomi's prior written
consent, which shall not be unreasonably withheld or delayed. Except as provided
in the Customer Publicity Guidelines attached hereto as Exhibit D, Inktomi shall
not mention Customer (or its affiliates), Customer Services or any Customer
product incorporating Inktomi Technology or the Database in any press release or
marketing materials or Web site without Customer's prior written consent, which
shall not be unreasonably withheld or delayed. Inktomi agrees not to contact
end-users of Customer Services without Customer's prior consent, except where
such end-users are engaging in conduct that is adversely affecting the
performance or usage of the Inktomi Search Engine.
3.2. Branding and Attribution. Customer shall have sole control and
------------------------
discretion over branding of Customer Services. Without limiting the foregoing,
Customer may place proper proprietary notices for its copyright and trademark
interests in the Interface and on its trademarks and marketing materials.
Inktomi will receive appropriate, subsidiary attribution on all Results Pages as
the provider of Services and will be invited to participate in certain Customer
marketing and promotional opportunities, in accordance with the Inktomi
Attribution and Publicity Guidelines set forth on Exhibit C and will receive
attribution in Customer Service marketing materials to the extent Customer's
other information service providers receive attribution therein.
3.3. Trademark License. Inktomi hereby grants Customer a
-----------------
nontransferable, nonexclusive license under Inktomi's trademarks during the Term
for the purpose of fulfilling Customer's obligations, and exercising its rights,
hereunder. Customer hereby grants to Inktomi a nontransferable, nonexclusive
license under Customer's trademarks during the Term for the purpose of
fulfilling Inktomi's obligations, and exercising its rights, hereunder. Each
party will submit advertising materials containing the other party's trademarks
to the other party before release to the public for inspection, and such other
party will have the right to modify any such advertisements. All use of Inktomi
trademarks by Customer shall inure to the benefit of Inktomi, and all use of
Customer trademarks by Inktomi shall inure to the benefit of Customer. Except as
set forth in this Section, nothing in this Agreement shall grant or shall be
deemed to grant to one party any right, title or interest in or to the other
party's trademarks. At no time during or after the term of this Agreement shall
one party challenge or assist others to challenge the trademarks of the other
party (except to the extent such restriction is prohibited by applicable law) or
the registration thereof or attempt to register any trademarks, marks or trade
names confusingly similar to those of the other party.
5
<PAGE>
3.4. House Ads. To the extent there is unsold advertising inventory
---------
on the Customer Services during the Term, Inktomi may run advertisements on the
Customer Services on a rotating basis (or, if available, based on key words),
provided however that (a) Inktomi may not use more than [*] ([*]) of the
unsold Customer Service inventory in any one month without Customer's prior
approval, (b) Inktomi's ads shall not be counted toward the computation of
[*] as set forth on [*], and (c) Inktomi may not place
advertisements for competitors of Customer on Customer Services. Any such unpaid
house ads delivered to Customer on behalf of Inktomi shall be subject to
Customer's standard online advertising terms and conditions.
4. Warranties and Disclaimer.
-------------------------
4.1. Inktomi Warranties. Inktomi warrants that (i) it has full power
------------------
and authority to enter into this Agreement, (ii) it has not previously and will
not grant any rights in the Inktomi Technology to any third party that are
inconsistent with the rights granted to Customer hereunder, (iii) throughout the
Term, the Inktomi Technology and the Services provided for Customer shall be [*]
and shall [*] with the [*] on [*], and (iv) the Inktomi Technology [*],
and Inktomi shall [*] in connection with the Customer Services, any [*]
or other programs containing [*] which are [*] or [*] to [*] with an
[*]. Inktomi does [*] warrant that the Services [*] of [*] or that [*] of the
Services will be [*]. INKTOMI MAKES NO OTHER WARRANTY OF ANY KIND, WHETHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING [*] OF [*], [*] FOR A
[*], AND [*].
4.2. Customer Warranties. Customer warrants that it has full power
-------------------
and authority to enter into this Agreement. Customer further warrants that it
will seek all necessary governmental approvals required to effectuate this
Agreement. CUSTOMER MAKES NO OTHER WARRANTY OF ANY KIND, WHETHER EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMENT.
5. End-User Support. Customer, at its own expense shall provide first
----------------
level customer support services to end users of the Customer Services. Inktomi,
at its own expense, shall provide second level technical support services to
Customer regarding the operation of the Inktomi Search Engine. Such support
services will be provided during regular business hours Pacific time via
telephone, e-mail, the Web, or fax. Responses will be provided within the same
business day where possible and in any event within one business day following
receipt.
6
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
6. Payments.
--------
6.1. Service Fees. Customer shall pay Inktomi service fees in the
------------
amount and on terms specified on Exhibit B attached hereto.
6.2. Records. Customer shall keep complete and accurate records
-------
pertaining to the Net Revenue it generates in connection with Customer Services
attributable to the Inktomi Search Engine, and the number of Results Sets served
from a cache controlled or maintained by Customer. Such records shall be
maintained for a two-year period following the year in which any payments
pertaining to such revenue were due. Inktomi shall have the right to examine
Customer's records from time to time but no more than once every six (6) months
to determine the correctness of any payment made under this Agreement. Such
examination shall be conducted at reasonable times during Customer's normal
business hours and upon at least ten (10) business days' advance notice and in a
manner so as not to interfere unreasonably with the conduct of Customer's
business. If any such examination indicates that Customer has underpaid by more
than [*] ([*]) of the aggregate payments due for the period subject to such
examination, Customer shall reimburse Inktomi for reasonable costs of such
examination.
6.3. Taxes. Customer shall be responsible for all sales taxes and
-----
other similar taxes imposed by any federal, state or local governmental entity
on the transactions contemplated by this Agreement, excluding taxes based upon
Inktomi's net income. When Inktomi has the legal obligation to pay or collect
such taxes, the appropriate amount shall be invoiced to and paid by Customer
unless Customer provides Inktomi with a valid tax exemption certificate
authorized by the appropriate taxing authority.
6.4. Payment. All fees quoted and payments made hereunder shall be
-------
in U.S. Dollars. Customer shall pay all amounts due under this Agreement to
Inktomi at the address indicated at the beginning of this Agreement or such
other location as Inktomi designated in writing.
7. Confidentiality.
---------------
7.1. Definition of Confidential Information. All information and
--------------------------------------
documents disclosed or produced by either party in the course of this Agreement
which are disclosed in written form and identified by a marking thereon as
proprietary, or oral information which is defined at the time of disclosure and
confirmed in writing within ten (10) business days of its disclosure, shall be
deemed the "Confidential Information" of the disclosing party. Notwithstanding
the above, the parties agree that any information (in any form, whether in
tangible or intangible) relating to the Inktomi Search Engine, the Inktomi
Technology, the Inktomi Data Protocol, the Interface Construction Tools is
considered Confidential Information. In addition, the parties agree that Usage
Data shall constitute Confidential Information of the parties hereunder,
provided that Customer may provide advertiser-specific Usage Data to advertising
clients, and provided further that Inktomi may provide aggregated usage data
that includes but does not separately identify Customer Service Usage Data to
its other search engine
7
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
customers under nondisclosure agreements for purposes of their hardware and
other search engine traffic-related resource planning.
7.2. Treatment of Confidential Information. Each party agrees to
-------------------------------------
protect the other party's Confidential Information in the same manner as such
party protects its own Confidential Information of substantially similar
proprietary value, but in no case less than reasonable care. Each party agrees
that it will use the Confidential Information of the other party only for the
purposes of this Agreement and that it will not divulge, transfer, sell,
license, lease, or otherwise disclose or release any such information or
documents to third parties, with the exception of (i) its employees or
subcontractors who require access to such for purposes of carrying out such
party's obligation hereunder and (ii) persons who are employed as auditors by a
public accounting firm or by a federal or state agency. Each party will use
reasonable efforts to advise any person obtaining Confidential Information that
such information is proprietary and to obtain a written agreement obligating
such person to maintain the confidentiality of any Confidential Information
belonging to the party or its suppliers.
7.3. No Other Confidential Information. Neither party shall have any
---------------------------------
obligation under this Section 7 for information of the other party which the
receiving party can substantiate with documentary evidence that has been or is
(i) developed by the receiving party independently and without the benefit of
information disclosed hereunder by the disclosing party; (ii) lawfully obtained
by the receiving party from a third party without restriction and without breach
of this Agreement; (iii) publicly available without breach of this Agreement;
(iv) disclosed without restriction by the disclosing party to a third party; or
(v) known to the receiving party prior to its receipt from the disclosing party.
7.4. Terms of Agreement. Neither party shall make any public
------------------
disclosure of the specific terms of this Agreement, except with the prior
written consent of the other party or to potential investors or merger partners.
Without limiting the foregoing, the parties shall cooperate in good faith to
obtain confidential treatment for mutually agreed terms in the event that this
Agreement will be filed with the Securities and Exchange Commission.
8. Indemnification.
---------------
8.1. Inktomi Indemnification. Inktomi shall [*] Customer and
-----------------------
[*] and [*] them [*] from and against any and all [*] and [*], including
[*], which Customer [*] may incur as a result of: (a) any claims which, [*],
would constitute a [*] or [*] made by Inktomi under this Agreement, (b) any
claims relating to the [*], [*] or any [*] therein ([*] any [*] by [*], [*]
or other [*] contained in the [*]), including [*] a claim that the [*], [*] or
[*] a [*] of any [*], or (c) Inktomi's other [*], [*] or [*] hereunder
(including [*]
8
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
made to [*] regarding the [*] or [*] of the [*]).
8.2. Customer Indemnification. Customer shall indemnify Inktomi
------------------------
[*] and [*] them [*] from and against any and all [*] and [*] including
[*], which Inktomi [*] may incur as a result of: (a) any claims which, [*],
would constitute a [*] or [*] made by Customer under this Agreement, (b) any
claims relating to any [*] or any [*] therein, including [*] a claim that
any [*] or [*] a [*] of any [*], or (c) Customer's other [*] or [*]
hereunder or in [*] with the [*].
8.3. Conditions. Neither party shall have any obligation to
----------
indemnify the other party for a claim unless the indemnified party (a) gives
prompt written notice of the claim, (b) allows the [*] to [*] control the [*] of
such claim, and (c) provides the indemnifying party with the [*] and [*]
necessary for the [*] of such claim. The indemnified party shall have the right
to [*] in the [*] at [*].
9. Limitation of Liability.
-----------------------
9.1. Maximum Liability. EXCEPT FOR [*] OUT OF OR [*] TO [*] OF THE
-----------------
[*] OR [*] HEREIN, EACH PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL BE [*]
TO AMOUNTS [*] TO INKTOMI FOR THE [*] (UNDER THIS AGREEMENT AND ALL PRECEEDING
AGREEMENTS) DURING THE [*] PRIOR TO THE [*] OF THE [*] TO [*].
9.2. Waiver of Consequential Damages. EXCEPT FOR [*] OUT OF OR [*]
-------------------------------
TO [*] OF THE [*] OR [*] HEREIN, [*] WILL BE LIABLE FOR [*] OR [*] OR
[*], OR FOR [*] OR [*], INCLUDING [*] FOR [*], HOWEVER [*] AND UNDER ANY
[*], INCLUDING BUT NOT LIMITED TO [*], [*] AND [*], AND WHETHER OR NOT IT [*] OR
[*] OR [*] OF THE [*] OF SUCH [*].
9.3. Removal of Materials. Inktomi shall use commercially reasonable
--------------------
efforts as promptly as practicable following delivery of a request from Customer
to remove any materials or URLs from the Database that Customer reasonably
believes may lead to liability for
9
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Customer or Inktomi, and Inktomi may remove any materials or URLs from the
Database that it reasonably believes may create liability for Customer or
Inktomi, in each case with notice to the other party.
10. Term and Termination.
--------------------
10.1. Term. The term of this Agreement (the "Term") shall commence on
----
the Effective Date and shall continue in force for a period of three years
thereafter, unless earlier terminated as provided herein.
10.2. Termination for Convenience. Either party may terminate this
---------------------------
Agreement for convenience at any time following the Effective Date by giving
[*] ([*]) months' written notice to the other party.
10.3. Termination for Low Usage. Either party may terminate this
-------------------------
Agreement by giving [*] ([*]) days' written notice to the other party in the
event the average number of daily Results Sets served during any consecutive
[*] ([*])-[*] period is less than [*] per day.
10.4. Termination for Breach. Either party may suspend performance
----------------------
and/or terminate this Agreement if the other party materially breaches any term
or condition of this Agreement and fails to cure that breach within [*] ([*])
days after receiving written notice of the breach.
10.5. Termination due to Insolvency. Either party may suspend
-----------------------------
performance and/or terminate this Agreement if the other party becomes insolvent
or makes any assignment for the benefit of creditors or similar transfer
evidencing insolvency, or suffers or permits the commencement of any form of
insolvency or receivership proceeding, or has any petition under bankruptcy law
filed against it, which petition is not dismissed within sixty (60) days of such
filing, or has a trustee or receiver appointed for its business or assets or any
party thereof.
10.6. Modification Right. At any time during the Term, [*] may
------------------
[*] to the [*] of the [*] of [*] to Inktomi as set forth in [*] (but not the
[*] set forth therein) and/or the [*] of [*] as set forth in Section [*] above.
[*] may [*] such [*] by giving notice to Inktomi, whereupon the parties will [*]
to discuss such [*]. If the parties are [*] to [*] with respect to the [*]
within [*] ([*]) days, then [*] shall have the [*] to [*] this Agreement by
giving [*] ([*]) [*] written notice to Inktomi.
10.7. Effect of Termination. Upon the termination of this Agreement
---------------------
for any reason (i) all license rights granted herein shall terminate, (ii)
Customer shall immediately pay to Inktomi all amounts due and outstanding as of
the date of such termination and (iii) each party shall return to the other
party, or destroy and certify the destruction of, all Confidential Information
of the other party. Following expiration or termination of this Agreement, each
10
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
party shall cooperate and use reasonable efforts to seek to remove or modify, as
requested, any representations of or references to the Customer Services from
publicly available caches, indexes, archives or search engines.
10.8. Purchase Right Upon Abandonment. During the Term of this
-------------------------------
Agreement and for [*] thereafter, if Customer ceases operating its HotBot search
engine business in the ordinary course and Customer does not sell or otherwise
dispose of all the assets relating to and used exclusively by Customer's HotBot
business (including without limitation the Interface and the HotBot specific
trademarks, service marks and trade names) within [*] ([*]) days following the
occurrence of such abandonment of the HotBot business, then for [*] ([*]) days
Inktomi shall have the right to purchase all or part of Customer's remaining
assets relating to the HotBot business on [*] and [*] terms and conditions.
10.9. Survival. In the event of any termination or expiration of this
--------
Agreement for any reason, Sections 1, 2.5, 2.6, 4, 6, 7, 8, 9, 10 and 11 shall
survive termination. Neither party shall be liable to the other party for
damages of any sort resulting solely from terminating this Agreement in
accordance with its terms.
10.10. Remedies. Each party acknowledges that its breach of the
--------
confidentiality or service/license restrictions contained herein may cause
irreparable harm to the other party, the extent of which would be difficult to
ascertain. Accordingly, each party agrees that, in addition to any other
remedies to which the other party may be legally entitled, such party shall have
the right to seek immediately injunctive relief in the event of a breach of such
sections by the other party or any of its officers, employees, consultants or
other agents.
11. Miscellaneous.
-------------
11.1. Capacity. Each party warrants that it has full power to enter
--------
into and perform this Agreement, and the person signing this Agreement on either
party's behalf has been duly authorized and empowered to enter in such
agreement. Each party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it. Each party acknowledges that such
party has not been induced to enter into such agreements by any representations
or statements, oral or written, not expressly contained herein or expressly
incorporated by reference.
11.2. Notice. Any notice required for or permitted by this Agreement
------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally, (ii) by
overnight courier upon written verification of receipt, (iii) by telecopy or
facsimile transmission when confirmed by telecopier or facsimile transmission
report, or (iv) by certified or registered mail, return receipt requested, upon
verification of receipt. All notices must be sent to the addresses first
described above or to such other address that the receiving party may have
provided for the purpose of notice in accordance with this Section.
11
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
11.3. Assignment. Neither party may assign its rights or delegate
----------
its obligations under this Agreement without the other party's prior written
consent, except to the surviving entity in a merger or consolidation in which it
participates or to a purchaser of all or substantially all of its assets, so
long as such surviving entity or purchaser shall expressly assume in writing the
performance of all of the terms of this Agreement.
11.4. No Third Party Beneficiaries. All rights and obligations of the
----------------------------
parties hereunder are personal to them. This Agreement is not intended to
benefit, nor shall it be deemed to give rise to, any rights in any third party,
except as expressly provided herein.
11.5. Governing Law. This Agreement will be governed and construed,
-------------
to the extent applicable, in accordance with United States law, and otherwise,
in accordance with California law, without regard to conflict of law principles.
Any dispute or claim arising out of or in connection with this Agreement shall
be resolved by final and binding arbitration administered by JAMS/ENDISPUTE
("JAMS"), located at Two Embarcadero Center, Suite 1100, San Francisco,
California, 94111, telephone (415) 982-5267. The arbitration shall be held at
the JAMS office in San Francisco, California, or as agreed by the parties and
JAMS. Judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The parties acknowledge that the United
Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
11.6. Independent Contractors. The parties are independent
-----------------------
contractors. Neither party shall be deemed to be an employee, agent, partner or
legal representative of the other for any purpose and neither shall have any
right, power or authority to create any obligation or responsibility on behalf
of the other.
11.7. Force Majeure. Neither party shall be liable hereunder by
-------------
reason of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, earthquakes, acts of God, war,
governmental action, or any other cause which is beyond the reasonable control
of such party (each a "Force Majeure Event"). Each party will use its reasonable
best efforts to notify the other party of the occurrence of a Force Majeure
Event within three (3) business days of such occurrence.
11.8. Compliance with Law. Each party shall be responsible for
-------------------
compliance with all applicable laws, rules and regulations, if any, related to
the performance of its obligations under this Agreement.
11.9. Waiver. The failure of either party to require performance by
------
the other party of any provision shall not affect the full right to require such
performance at any time thereafter; nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of the provision
itself.
11.10. Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be contrary to law, such provision shall be
changed and interpreted so
12
<PAGE>
as to best accomplish the objectives of the original provision to the fullest
extent allowed by law and the remaining provisions of this Agreement shall
remain in full force and effect.
11.11. Headings. The section headings appearing in this Agreement are
--------
inserted only as matter of convenience and in no way define, limit, construe or
describe the scope or extent of such paragraph, or in any way affect such
agreements.
11.12. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which will be considered an original, but all
of which together will constitute one and the same instrument.
11.13. Entire Agreement. This Agreement, and the Exhibits hereto,
----------------
constitute the entire agreement between the parties with respect to the subject
matter hereof. This Agreement supersedes, and the terms of this Agreement
govern, any other prior or collateral agreements with respect to the subject
matter hereof; including without limitation the Search Engine Services Agreement
between the parties dated effective as of April 1, 1997. Any amendments to this
Agreement must be in writing and executed by an officer of the parties.
IN WITNESS WHEREOF, the parties have caused this Information Services
Agreement to be signed by their duly authorized representatives.
WIRED DIGITAL, INC. INKTOMI CORPORATION
By: /s/ Beth Vandersuce By: /s/ Jerry Kennelly
---------------------------- ----------------------------
Name: Beth Vandersuce Name: Jerry Kennelly
-------------------------- --------------------------
Title: President Title: CFO
------------------------- -------------------------
13
<PAGE>
EXHIBIT A
SERVICES
Basic Services:
- --------------
Inktomi will use the Inktomi Search Engine to crawl the Internet, download
and analyze text and other data, sort and organize the data, create an index of
accessible data, and, after receiving a particular search request from an end
user (in the form of a word query), locate material accessible in the Database,
and present the results of the search to the end user. The functionality
specifications and performance criteria applicable to such services are as
follows:
Baseline Functionality Specifications (Current):
. Inktomi will provide a minimum [*] document searchable Web
index for all queries and will provide a minimum [*] document
searchable Web index that may be accessed by up to [*]% of daily
queries.
. Ability to search by [*] (up to [*] levels), [*], [*] and [*]
. Ability to search by [*] and [*], and search with [*] (including
[*] and [*])
. Search on included object, covering the following objects: Acrobat,
java applets, active x controls, audio, plugins, Flash, form, frame,
image, script, Shockwave, table, video and vrml
. Search on included [*], by [*]
. Search on [*], which permutes different combinations of the query text
to cover different [*] orderings ([*]/[*], [*]/[*], etc)
. Search on specific [*], covering [*] and [*]
. Limit search to [*] containing [*] to a [*]
. Limit search to articles found in a specified newsgroup
. Limit search to words in the HTML "title" field
. Ability to selectively control the [*] of each [*] ([*] records, [*]
records, [*] records, [*] records, [*] records, [*] records)
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Additional Functionality Specifications (Anticipated):
Inktomi will provide the Basic Services using the [*] version of the
Inktomi Search Engine when available (anticipated release date is [*]
[*]), which will provide the following functionality in addition to the
functionality specified above. This additional functionality will be
provided as part of the Basic Services on the same terms and conditions as
the baseline functionality set forth above.
. [*]
. [*]
. Search by [*]
. [*] support
. [*] filtration, which assists in the creation of [*]
[*] in which [*] site is represented [*]
. [*] filtration
Performance Criteria
. Size of Database - Minimum [*] documents for all queries and a
minimum of [*] that may be accessed for up
to [*]% of daily queries
. Database Freshness - Full update once every [*] weeks by [*].
Full update once every [*] weeks by [*].
. Uptime/Downtime - Minimum [*]% uptime ([*]% downtime) over [*]
windows. Downtime = any [*] minute period in
which Inktomi Technology processes [*]
requests. The parties will work toward a
more [*] and definition of uptime/downtime
and [*] the same during the Term.
. Query/Response Speed - Average speed Less than or = [*] ("[*]"
response time)
. Latency - The parties will work together to determine
the definition of a "[*]" the [*] concerning
such standard query and [*], and [*] the
same during the Term.
[*] a [*], Inktomi will provide standard crawl and uptime reports to
Customer.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Additional Services
- -------------------
In addition to the Basic Services described above, Inktomi will provide the
following additional services to Customer:
[*]. Customer may [*] Web URLs to Inktomi for [*] within the Database.
Inktomi will make [*] to [*] the URL's and [*] to the Database within
[*]. It is understood that many of the URL's will "[*]" of the [*], [*] by
[*] "[*]". Inktomi makes [*] to [*] in the database. Inktomi and Customer
agree to work to provide a solution that provides [*] of [*]'s [*] or
otherwise affecting the [*] quality of the Database.
Directory Services. Inktomi will provide directory services to
Customer through the Inktomi Directory Engine (anticipated release date
[*]) for a period of [*] following the date such directory
services are first made publicly available by Inktomi. These directory
services will consist of
. [*] - [*]
. [*] - searches based on an [*] or [*]
. [*] - dynamic categorization of [*], producing [*] "[*]"
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT B
SERVICE FEES
For each broadcast calendar [*] during the Term of the Agreement,
Customer shall pay Inktomi [*] service fees equal to the greater of (a) [*]%
of Net Revenues for the [*]or (b) the Total Results Sets Served charge (as
defined below) for such [*].
The Total Results Sets Served charge for any [*] equals:
(1) the total number of [*] served during such [*] by the total number
of [*] in such [*] ("Average [*] Served"),
(2) [*] and [*] in accordance with the following [*] schedule
For the first [*] Average [*]
[*] [*] per [*] Served
For all additional Average [*]
[*] [*] per [*] Served
(3) [*] by the total number of [*] in such [*],
(4) [*] an amount for each [*] served during the [*] containing more than
[*] records as follows:
[*] [*]
-------------------- -------------------
[*]-[*] records [*] per [*] served ([*]%)
[*]-[*] records [*] per [*] served ([*]%)
[*]-[*] records [*] per [*] served ([*]%)
[*]-[*] records [*] per [*] served ([*]%)
[*]-[*] records [*] per [*] served ([*]%)
These [*] are [*]. Only [*].
Results sets larger than [*] records may not be used for [*] in conjunction
with these [*] prices. This pricing assumes that all [*] in the [*] are
simultaneously [*] to the [*].
Example 1:
- ---------
If [*] for the [*] equals [*] the total number of [*] for the [*]
equals [*] all of which consisted of between [*] and [*] records, and there are
[*] in such [*], the [*] would equal the [*] of:
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]% of [*] = $[*]
or
(1) [*] / [*] = [*] Avg [*]
(2) [*] x $[*] = $[*]
(3) $ [*] x [*] = $[*]
= $[*]
Example 2:
- ---------
If [*] for the [*] equals $[*], the total number of [*] for the month
equals [*] of which [*] consist of between [*] and [*] records and [*]
consist of between [*] and [*] records, and there are [*] in such [*], the [*]
would equal the [*] of:
[*]% of [*] = $[*]
or
(1) [*] / [*] = [*] Avg [*]
(2) [*] x $[*] = $[*]
(3) $ [*] x [*] = $[*]
(4) $ [*] x [*] = $[*]
= $[*]
Example 3:
- ---------
If [*] for the [*] equals $[*], and the total number of [*] for the [*]
equals [*] all of which consisted of between [*] and [*] records, and there are
[*] in such [*], the [*] would equal the [*] of:
[*]% of [*] = $[*]
or
(1) [*] / [*] = [*] Avg [*]
(2) [*] x $[*] = $[*]
[*] x $[*] = $[*]
-----------
= $[*]
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
(3) $ [*] x [*] = $[*]
= $[*]
Example 4:
- ---------
If [*] for the [*] equals $[*] and the total number of [*] for the [*]
equals [*] of which [*] consisted of between [*] and [*] records, [*] consisted
of between [*] and [*] records, [*] consisted of between [*] and [*] records and
[*] consisted of between [*] and [*] and there are [*] in such [*], the [*]
would equal the [*] of:
[*]% of [*] = $ [*]
or
(1) [*] / [*] = [*] Avg [*]
(2) [*] x $ [*] = $ [*]
[*] x $ [*] = $ [*]
-----------
$ [*]
(3) $ [*] x [*] = $ [*]
(4) [*] x $[*] = $ [*]
[*] x $[*] = $ [*]
[*] x $[*] = $ [*]
-----------
$ [*]
= $ [*]
[*] service fees shall be paid in [*] within [*] ([*]) calendar days
following the [*] of each [*].
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C
INKTOMI ATTRIBUTION AND PUBLICITY GUIDELINES
Attribution on Results Pages: A "Powered by Inktomi" style attribution line
with logo which provides a link to Inktomi's Web site located at www.inktomi.com
will appear on all Results Pages. The message will have a tertiary presence to
the (1) Customer Service and (2) Customer brand presences on the page
Press and Media Communications (press releases and media interviews and events):
Releases, interviews and events that relate to Inktomi Technology underlying
Customer Services will contain a discussion of the technology in appropriate
detail, and the Inktomi Technology will be attributed to Inktomi.
Inktomi will receive attribution in press releases regarding HotBot (and other
Customer Services incorporating the Services) that primarily speak to issues of
Web page searching. This will include but not necessarily be limited to press
releases about Inktomi Technology functionality and awards for HotBot (and other
Customer Services incorporating the Services) that are awarded based on Web
search prowess.
The attribution will be placed above the description of Wired (customarily found
at the bottom of the release) and may be included in an "About HotBot" section
of the release. The minimum text will be: "HotBot's Web searching is powered
by technology from Inktomi Corporation."
Customer Service/Customer Advertisements and Marketing Materials: Inclusion of
Inktomi and technology attribution to Inktomi will be in the sole discretion of
Customer.
Cross-Marketing: The parties will participate in cross-marketing opportunities
as they may mutually agree, including by way of example graphical cross-links
between the parties' Web sites and Customer Service.
<PAGE>
EXHIBIT D
CUSTOMER PUBLICITY GUIDELINES
Consistent with support Customer's efforts to brand and promote Customer
Services, Inktomi will refer to Customer Services and specifically the HotBot
service in a manner consistent with Customer's positioning strategy.
Accordingly, the parties have agreed that references substantially consistent
with the sample language set forth below will be deemed acceptable and approved,
as such guidelines may be modified from time to time by mutual agreement of the
parties. For any Customer/Customer Service reference outside the scope of such
pre-approved language, Inktomi will provide Customer with advance review of the
relevant press release, advertising, or marketing materials as provided in
Section 3.1.
Sample Pre-Approved Constructions:
. HotBot, the Wired search engine, is powered by technology from Inktomi
Corporation.
. Wired's HotBot search engine, powered by Inktomi technology.
. Other partners leveraging Inktomi technology in commercial search engines
include Wired in the U.S. (www.hotbot.com), OzEmail in Australia/New
--------------
Zealand (www.anzwers.com.au) and NTT in Japan (www.goo.ne.jp).
------------------ -------------
. Radar UOL offers advanced capabilities similar to those developed by
Inktomi for partners Wired, OzEmail and NTT.
<PAGE>
EXHIBIT 10.12
INFORMATION SERVICES AGREEMENT
This Information Services Agreement ("Agreement") is made and entered into as of
the later of the two signature dates below (the "Effective Date") by and between
INKTOMI CORPORATION ("Inktomi"), a California corporation, 1900 South Norfolk
Street, Suite 110, San Mateo, California 94403, and MICROSOFT CORPORATION
("Microsoft"), a Washington Corporation, One Microsoft Way, Redmond, Washington
98052-6399, with reference to the facts set forth in the Recitals below.
Recitals
A. Inktomi develops and markets computer software products, including
without limitation "search engine" software for searching and indexing
information accessible through the Internet.
B. Microsoft develops, manufactures, distributes and markets computer
software products and services.
C. Inktomi and Microsoft desire to enter into a business relationship
pursuant to which, among other things, (i) Inktomi would (a) develop software
for Microsoft to implement desired features for a Microsoft search engine, (b)
provide search results for Microsoft using Inktomi's search engine customized
with, among other elements, the features developed for Microsoft, (c) provide
software hosting and maintenance services for Microsoft's benefit, and (d)
purchase additional hardware and software necessary or desirable to service
Microsoft's needs, and (ii) Microsoft would make certain payments to Inktomi,
and provide loans to Inktomi to facilitate Inktomi's purchase of additional
hardware and software necessary or desirable to service Microsoft's needs.
D. This Information Services Agreement is intended to delineate the terms
and conditions applicable to the provision of search results aspects of such
business relationship.
Agreement
Accordingly, Inktomi and Microsoft agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
-----------
will have the indicated meanings:
1.1 "Ancillary Agreements" shall mean the following agreements
between Inktomi and Microsoft, and all amended versions thereof or successor
agreements thereto: (i) the Software Development Agreement of even date
herewith; (ii) the Software Hosting Agreement of even date herewith; (iii) the
Loan Agreement of even date herewith, and any and all "Promissory Notes" and/or
"New Note" executed pursuant
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
thereto; (iv) the Security Agreement of even date herewith; and (v) the Escrow
Agreement referred to in this Agreement.
1.2 The "Average Daily Hits" (or "ADH") for a particular calendar
month means the number of Hits in that month divided by the number of days in
that month.
1.3 "Coupled Cluster Technology" means Inktomi's proprietary computer
software that enables a collection of two or more individual computers to be
connected in such a way as to operate as a single computing system.
1.4 "Deliverables" means the search results requested by Microsoft
from time to time throughout the Term of this Agreement, which shall by
transmitted by Inktomi to Microsoft electronically in accordance with the
Specifications.
1.5 A "Hit" occurs each time an end user accesses a Web page
displaying the [*] of a [*] using the [*] conducted by the end user through a
[*]; the [*] displayed on such [*] is [*] in determining the [*] (for example,
viewing a [*] containing [*] constitutes [*]). A "Hit" does not occur when an
end user [*] or, if different from the applicable [*], the [*] in which the end
user [*], or [*] the [*]. Notwithstanding anything contained herein to the
contrary, no "Hits" will be deemed to [*] or otherwise until the [*] of the [*]
is [*] for [*] by the [*]. The parties acknowledge that access by an end user to
a [*] does not constitute a "Hit."
1.6 "Inktomi Technology" means (a) Inktomi's existing Search Engine
and Coupled Cluster Technology, and any and all future versions thereof and
enhancements, upgrades and modifications thereto other than "Derivative
Technology" (as defined in said Software Development Agreement) created during
the Term, as well as (b) all other computer software and/or technology which is
supplied by Inktomi for use in or in connection with the Product and/or Services
and either is (i) existing as of the Effective Date, (ii) developed by Inktomi
at Microsoft's request but without any Microsoft funding, or (iii) developed by
Inktomi after the Effective Date independently.
1.7 "Internet" means any systems for distributing digital electronic
content and information to end users via transmission, broadcast, public
display, or other forms of delivery, whether direct or indirect, whether over
telephone lines, cable television systems, optical fiber connections, cellular
telephones, satellites, wireless broadcast, or other mode of transmission now
known or subsequently developed.
1.8 "Launch Date" will mean that date on which the Microsoft Search
Engine (other than any so-called "beta" version) is first generally available
for use by the public.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.9 "Microsoft Site" means the Microsoft Web Site(s) or Microsoft
application(s) which, when accessed by an end user, will permit the end user to
conduct a search of the Internet (or a portion thereof) using the Product; if
Microsoft sublicenses its rights to use the search results generated by the
Product (as permitted hereunder), then the site(s) of such Microsoft
sublicensee(s) will be deemed to be Microsoft Site(s) for the purposes of
computing Hits and Inktomi's service fees under Section 2 below.
1.10 "Product" means computer software for Web-based and/or
application-based end user Internet searches which is an enhanced version of the
Inktomi Search Engine customized to Microsoft's specifications, as more fully
described in the Specifications and the Software Development Agreement between
Microsoft and Inktomi of even date herewith, and all future versions thereof and
enhancements, upgrades and modifications thereto. The Microsoft Search Engine is
a Product, but other versions of the Product may be used by customers of Inktomi
other than Microsoft (subject to the terms and conditions contained in this
Agreement).
1.11 "Search Engine" means computer software which crawls Web Sites,
downloads and analyzes text and other data, sorts and organizes the data,
creates an index of accessible data, and, after receiving a particular search
request (in the form of a word query which may or may not include limiting the
fields of data to be searched), locates material accessible in the database, and
presents the results of the search to the end user.
1.11.1 "Inktomi Search Engine" means Inktomi's current Search
Engine as of the Effective Date and all future versions thereof and
enhancements, upgrades and modifications thereto, excluding the Derivative
Technology and Microsoft Technology. The Inktomi Search Engine includes, without
limitation, such aspects of Inktomi's present and future Coupled Cluster
Technology as may be used in connection with the functioning of the Inktomi
Search Engine.
1.11.2 "Microsoft Search Engine" will mean those versions of
the Product used to generate search results for Microsoft hereunder or for third
parties requesting search results through Microsoft.
1.12 "Services" means the delivery of search results generated by the
Product in accordance with the Specifications, as they may be modified from time
to time.
1.13 "Specifications" means the specifications for the Services and
Product, attached to this Agreement as Exhibit A, which includes a product
design and content summary, as well as a detailed specification for all required
features and functionality, and a complete delivery and production schedule.
The parties contemplate that the Specifications may be modified by mutual
consent from time to time during the Term; if and when the Specifications are
modified, the parties shall initial the new Specifications or amendments to the
existing Specifications, and immediately following
3
<PAGE>
the last initialing such new Specifications or amendments shall automatically be
deemed to supercede or supplement (as the case may be) Exhibit A.
1.14 "Term" means the period of time commencing on the Effective Date
and continuing thereafter indefinitely until this Agreement is terminated
pursuant to Section 9 below.
1.15 "Territory" means the entire universe.
1.16 "User Interface" means any and all visual mechanisms, metaphors
and/or appearance of the Microsoft Search Engine as designed to be seen by the
end user. Microsoft will be responsible for developing all software needed to
implement any User Interface for the Microsoft Search Engine. Microsoft and
Inktomi will cooperate with each other to ensure the seemless interaction of the
Product with the User Interface for the Microsoft Search Engine.
1.17 "Web" means the so-called World Wide Web, containing, inter
-----
alia, pages written in hypertext markup language (HTML) and/or any similar
- ----
successor technology.
1.18 "Web page" means a document on the Web which may be viewed in
its entirety without leaving the applicable distinct URL address.
1.19 "Web Site" means a collection of inter-related Web pages or
documents accessible through a Web page interface.
2. Service Fees.
------------
2.1 Microsoft agrees to pay to Inktomi service fees for search
results delivered by Inktomi to Microsoft hereunder, based upon Average Daily
Hits, from the Launch Date throughout the remainder of the Term, calculated by
Microsoft monthly (but reportable and payable in arrears in accordance with
Section 3 below), as follows:
(a) if the number of ADH in the applicable month is not more than
[*] ([*]),then an amount equal to: $[*] times the number of ADH times the number
of [*] in the month [or ($[*])(ADH)(days)];
(b) if the number of ADH in the applicable month is more than
[*] ([*]) but not more than [*] ([*]), then an amount equal to: $[*] times the
number of ADH times the number of [*] in the month, [*] $[*] times the number of
[*] in the month [or ($[*])(ADH)(days) [*] ($[*])([*])(days)]; or
(c) if the number of ADH in the applicable month is more than [*]
([*]), then an amount equal to: $[*] times the number of
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
ADH times the number of days in the month, [*] $[*] times the number of days in
the month [($[*])(ADH)(days)[*]($[*])([*])(days)[*] ($[*])([*])(days)].
2.2 As an advance against, and recoupable from, any and all amounts
that may otherwise be payable pursuant to Section 2.1 above, Microsoft agrees to
pay to Inktomi the sum of $[*] promptly after the execution of this Agreement.
Notwithstanding anything contained herein to the contrary, if the Launch Date is
[*], for [*] other than [*] to meet any requirement in the [*], then on
the [*] of each [*] (but attributable to the [*]) beginning on [*], and
continuing until the [*] of [*] or the [*], the [*] portion of [*] shall be
deemed [*] by $[*]. Notwithstanding the foregoing, with respect to the [*] in
which the [*] (if [*]), said $[*] will be [*] by the amount of [*] for such
month pursuant to Section [*].
2.3 In addition to the service fees payable pursuant to Section 2.1
above, Microsoft agrees to pay to Inktomi a [*] (attributable to the [*]) equal
to $[*] per [*], from the [*] throughout the remainder of the [*], calculated by
Microsoft monthly (but [*] and [*] in [*] in accordance with [*] below).
2.4 As an advance against, and recoupable from, any and all amounts
that may otherwise be payable pursuant to Section 2.3 above attributable to the
period from the [*] until the [*] of the [*], Microsoft agrees to pay to Inktomi
the sum of [*] ($[*]) promptly after the execution of this Agreement.
2.5 Notwithstanding anything contained in Section 2.3 to the
contrary, in no event shall Microsoft be required to pay more than $[*] in
any contract year under Section 2.3. For the purposes hereof, a "contract year"
will commence on the Launch Date or an anniversary thereof, and continue for
twelve months thereafter.
2.6 Notwithstanding any other provision of this Agreement, Microsoft
shall have no obligation to use the Product, or to limit the number of search
results on any given Web page in the Microsoft Site. Inktomi acknowledges and
agrees that it is not entitled to any share in any revenue derived by Microsoft
from the Microsoft Site or the Microsoft Search Engine, regardless of how
derived, and that except as may be expressly provided otherwise in this
Agreement (or by subsequent mutual agreement of the parties) the service fees
payable (if any) under Sections 2.1 through 2.4 will be the only payments
required to be made to Inktomi for or in consideration of the rights granted to
Microsoft hereunder, the Services and all results and proceeds thereof. Nothing
in this Agreement will be construed as restricting Microsoft's ability to
acquire, license, develop, manufacture, use or distribute for itself, or have
others acquire, license, develop, manufacture, use or distribute for Microsoft,
similar technology performing the same or
5
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
similar functions as the technology contemplated by this Agreement, or to
market, use and distribute such similar technology in addition to, or in lieu
of, the technology contemplated by this Agreement.
2.7 Microsoft acknowledges that Inktomi has customized and provided,
and will continue to customize and provide, its software and technology to other
parties for use in connection with a variety of applications, including Search
Engine applications. Except as may be expressly provided to the contrary
elsewhere in this Agreement, nothing in this Agreement will be deemed to limit
or restrict Inktomi from customizing and providing its software and technology
to other parties for any purpose, including in connection with Search Engine
applications, or in any way affect the rights granted to such other parties.
2.8 Notwithstanding anything contained herein to the contrary, in the
event that Inktomi licenses its Search Engine and/or Coupled Cluster Technology,
and/or provides search results derived from the use of such technology, to any
third party (including but not limited to arrangements whereby such technology
is branded by such third party and/or such technology is incorporated by a third
party into its product) pursuant to which such third party pays Inktomi service
fees or other payments substantially on a "per hit" or similar basis, then:
(a) in the event that any of the following is [*] than the [*]
set forth in this Agreement: (i) the [*] of what [*] a [*], and/or (ii) the [*]
(or similar [*]) [*] per [*] to the [*], then this Agreement shall be [*] so
that Microsoft shall [*] such [*]; and
(b) in the event that the [*] (or [*]) [*] per [*] to the [*] is
[*] than the [*] of what is [*] by Microsoft under Section [*] above [*] what is
[*] by Microsoft under Section [*] of the [*] between the parties of even date
herewith, then Section [*] above shall be [*] so that said [*] by Microsoft
under said Sections [*] and [*] is [*] than the [*] by the applicable third
party.
3. Accountings and Audits.
----------------------
3.1 Within forty-five (45) days after the end of each calendar month
with respect to which Microsoft owes Inktomi any service fees, Microsoft shall
furnish Inktomi with a statement, together with payment for any amount shown
thereby to be due to Inktomi. The service fee statement shall be based upon the
calculations set forth in Section 2 during the month then ended, and shall
contain information reasonably sufficient to discern how the service fee
payment, if any, was computed. All statements and all other accounts rendered by
Microsoft to Inktomi shall be binding upon Inktomi and not subject to any
objections by Inktomi for any reason unless specific objection in
6
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
writing, stating the basis thereof, is received by Microsoft within one (1) year
from the date rendered.
3.2 Taxes.
-----
3.2.1 All amounts to be paid by Microsoft to Inktomi herein are
exclusive of any federal, state, local, municipal or other governmental taxes,
including, without limitation, taxes based on, imposed on or measured by net or
gross income or receipts, franchise taxes, taxes on doing business, capital
stock taxes (including any minimum taxes and taxes measured by any item of tax
preference), sales, use, excise, property, withholding or similar taxes, duties,
levies, fees, excises or tariffs (all such taxes and other charges collectively
"Taxes") now or hereafter imposed on Inktomi under applicable law (the "Inktomi
Taxes"). Microsoft is not liable to Inktomi for any Taxes incurred in connection
with this Agreement, unless they are (i) owed by Microsoft under applicable law
solely as a result of entering into this Agreement (ii) are based solely upon
the amounts payable under this Agreement, and (iii) are required to be collected
from Microsoft by Inktomi under applicable law, provided, however, that solely
with respect to sales tax or use tax payable to those taxing jurisdictions that
impose sales or use taxes under applicable law upon the vendor, rather than the
purchaser, clause (i) above shall be modified to provide "sales taxes or use
taxes that are owed by Inktomi under applicable law solely as a result of
entering into this Agreement and clause (iii) shall be modified to provide "are
permitted to be collected from Microsoft by Inktomi under applicable law." (Such
Taxes as are described in clauses (i), (ii) and (iii) above, the "Invoiced
Taxes"). The Invoiced Taxes shall be stated separately as applicable on
Inktomi's invoices and shall be remitted by Microsoft to Inktomi. Inktomi shall
promptly provide to Microsoft official tax receipts indicating that such
Invoiced Taxes have been collected by Inktomi. Microsoft may provide to Inktomi
an exemption certificate acceptable to Inktomi and to the relevant taxing
authority (including without limitation a resale certificate) in which case
Inktomi shall not collect the Taxes covered by such certificate. Inktomi agrees
to take such reasonable steps as are requested by Microsoft to minimize such
Invoiced Taxes in accordance with all relevant laws and to reasonably cooperate
with and assist Microsoft, at Microsoft's request, in challenging the validity
of any Invoiced Taxes or other Taxes paid directly by Microsoft to the relevant
taxing authority. Inktomi shall indemnify and hold Microsoft harmless from any
Taxes, penalties, interest, or additions to tax arising from amounts paid by
Microsoft to Inktomi under this Agreement that are asserted or assessed against
Microsoft to the extent such amounts are related to Invoiced Taxes paid to
Inktomi by Microsoft under this section. Other than the Invoiced Taxes, all
Inktomi Taxes shall be the responsibility of Inktomi and may not be passed on to
Microsoft. Inktomi takes full responsibility for all such Inktomi Taxes,
including penalties, interest and other additions thereon and agrees to
indemnify, defend and hold Microsoft harmless from any claims, causes of action,
costs (including without limitation, reasonable attorneys' fees), penalties,
interest charges and other liabilities of any nature whatsoever associated
therewith. All Taxes that are imposed on Microsoft under applicable law (the
"Microsoft Taxes") shall be the responsibility of Microsoft and may not be
passed on to Inktomi. Microsoft takes full responsibility for all such Microsoft
Taxes, including penalties, interest and other
7
<PAGE>
additions thereon and agrees to indemnify, defend and hold Inktomi harmless from
any claims, causes of action, costs (including without limitation, reasonable
attorneys' fees), penalties, interest charges and other liabilities of any
nature whatsoever associated therewith.
3.2.2 In the event that Taxes are required to be withheld on
payments made hereunder by any U.S. (state, local or federal) or foreign
government, Microsoft may deduct such Taxes from the amount owed Inktomi and pay
them to the appropriate taxing authority. Microsoft shall in turn promptly
secure and deliver to Inktomi an official receipt for any Taxes withheld.
Inktomi may provide to Microsoft an exemption certificate acceptable to
Microsoft and to the relevant taxing authority (including without limitation a
resale certificate) in which case Microsoft shall not collect the Taxes covered
by such certificate. Microsoft agrees to take such steps as are reasonably
requested by Inktomi to minimize such Taxes in accordance with all relevant laws
and to reasonably cooperate with and assist Inktomi, at Inktomi's request, in
challenging the validity of any such Taxes.
3.2.3 Inktomi agrees and acknowledges that it will be
responsible for all of its federal and state taxes, withholding, social
security, unemployment and other related taxes, insurance, and other benefits,
and all salaries, benefits, and other costs of its employees.
3.3 Microsoft agrees to keep, for not less than eighteen (18) months,
all proper records and books of account and all proper entries therein relating
to the calculations made under Section 2. Inktomi may cause an audit to be
made, at its expense, of the applicable records in order to verify statements
rendered hereunder. Any such audit shall be conducted only by a certified
public accountant (other than on a contingency-fee basis) and shall be conducted
during regular business hours at Microsoft's offices and in such a manner as not
to interfere with Microsoft's normal business activities. In no event shall an
audit with respect to any service fee statement commence later than eighteen
(18) months from the date of the statement involved, nor shall the audits be
made hereunder more frequently than once annually, nor shall the records
supporting any statements be audited more than once. Inktomi shall require the
certified public accountant when engaged to execute and deliver to Microsoft a
certificate in substantially the following form:
"I hereby certify that I have been engaged by Inktomi to audit the books and
records of MICROSOFT CORPORATION. Inktomi will not pay me on a contingent-
fee basis. The fees to be received by me for conducting the audit shall be
in no manner variable according to the findings or results of the audit.
Inktomi hereby agrees to make available to Microsoft, upon request, its records
and reports pertaining to the audit and any such records and reports prepared
for Inktomi by third parties (including the work sheets generated by its
auditors) but only in the event that Inktomi makes any claim with respect to
such audit. If any Inktomi audit should determine that Microsoft underpaid
Inktomi by an amount of [*]% or more for the period
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
8
<PAGE>
audited, then in addition to any and all other rights and remedies Inktomi may
have under the circumstances, Inktomi may require Microsoft to reimburse it for
all costs it incurred relating to such audit in addition to paying the amount
otherwise owed.
4. Provision of Services. Inktomi shall perform the Services using the
---------------------
Product, and deliver to Microsoft the Deliverables, in accordance with the
Specifications (including the Schedule), as the same may change from time to
time during the Term with the mutual consent of Microsoft and Inktomi, and all
other terms and conditions contained in this Agreement. Inktomi agrees that the
Services shall be performed in a professional manner and shall be of a high
grade, nature and quality.
5. Scope of Rights.
---------------
5.1 Product. Microsoft will have the right to use the Deliverables
-------
and other results and proceeds of the Services, solely in connection with its
provision of search engine services, throughout the Territory during the Term,
if and to the extent that it may determine is appropriate, including without
limitation by way of sublicensing rights to third parties.
5.1.1 However, with respect to such sublicensing: (i) such
sublicensees may operate co-branded and/or "private label" sites accessing the
Deliverables through Microsoft servers, but such sites will not be connected
directly to the applicable hosting servers; (ii) [*] by sublicensees will be [*]
(but [*]) with [*] by Microsoft for purposes of Section [*]; (iii) Microsoft
may only sublicense use of the Deliverables, and any sublicense shall be
effective only, during the Term; and (iv) each sublicensee shall agree to hold
all confidential and proprietary information regarding Inktomi and the Product
in confidence, to use the Deliverables only in connection with providing search
engine services to end users through sites operated by such sublicensee, and not
to reverse engineer, disassemble or decompile the object code version of the
Product or any Inktomi Technology.
5.1.2 Except as provided in this Section 5, Microsoft will have
no other rights in or to any Inktomi Technology. Microsoft shall not reverse
engineer, disassemble or decompile the object code version of any Inktomi
Technology.
5.2 Inktomi Technology. Nothing contained in this Agreement will be
------------------
deemed to transfer any ownership in the Inktomi Technology to Microsoft, and
insofar as Microsoft is concerned, Inktomi will own all rights in and to the
Inktomi Technology.
5.3 No Trademark License. Nothing in this Agreement or its
--------------------
performance shall grant either party any right, title, interest, or license in
or to the other's names, logos, logotypes, trade dress, designs, or other
trademarks.
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<PAGE>
6. Representations and Warranties.
------------------------------
6.1 By Inktomi. Inktomi warrants and represents that:
----------
(a) It has the full power to enter into this Agreement and to
grant the rights set forth herein;
(b) It has not previously and will not grant any rights in the
Inktomi Technology or Deliverables to any third party that are inconsistent with
the rights granted to Microsoft herein; without limiting the generality of the
foregoing, Inktomi represents and warrants that it has the [*] to [*] [*] as
required hereunder, and that providing such search results will not violate any
terms and conditions of other agreements entered into by Inktomi with any third
party (including but not limited to agreements with [*] and [*]); and
(c) The operation of the Product by Inktomi to provide [*] [*]
as required hereunder [*] and [*] [*], or [*] held by [*], and Inktomi has [*]
of [*] of [*] such [*].
6.2 By Microsoft. Microsoft warrants and represents that it has the
------------
full power to enter into this Agreement.
7. Indemnification.
---------------
7.1 By Inktomi. Inktomi shall, at [*] and Microsoft's request, defend
-------
[*] or action brought against Microsoft, and [*] and [*], which, [*], would
constitute a [*] of any [*] or [*] made by Inktomi under this Agreement, and
Inktomi will [*] and [*] Microsoft [*] any [*], [*] and [*] incurred by
Microsoft, including but [*] to [*] of [*] and [*], that are attributable to
such claim. Microsoft shall: (i) provide Inktomi reasonably prompt notice in
writing of any such claim or action and [*], through [*] to Microsoft and
Inktomi, to [*] and [*] such claim or action; and (ii) provide Inktomi [*] and
[*], at [*], to [*] Inktomi to [*] such claim or action. Inktomi will [*] for
any [*] by [*] without [*], which [*] will [*].
7.2 By Microsoft. Microsoft shall, at [*] and Microsoft's
------------
request, defend [*] claim or action brought against Inktomi, and [*] and [*],
which, [*], (i) would constitute a [*] of any [*] or [*] made by Microsoft under
this Agreement, (ii) is [*] in [*] upon [*] to [*] made by [*] Inktomi, or
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THE OMITTED PORTIONS.
<PAGE>
(iii) is [*] in [*] upon [*] of the [*] but is [*] by Section [*] above, and
Microsoft will [*] and hold Inktomi [*] any [*] and [*] by Inktomi, including
but [*] to [*] of [*] and [*], that are attributable to such claim. Inktomi
shall: (i) provide Microsoft reasonably prompt notice in writing of any such
claim or action and [*] through counsel [*] to Inktomi and Microsoft, to
[*] and [*] such claim or action; and (ii) provide Microsoft [*], [*] and [*],
[*], to [*] Microsoft to [*] such claim or action. Microsoft will [*] for any
[*] made by [*] without [*], which [*] will [*].
7.2 Separate Counsel; Reimbursement. An indemnified party shall have
-------------------------------
the right to employ separate counsel and participate in the defense of any claim
or action. The indemnifying party shall reimburse the indemnified party upon
demand for any payments made or loss suffered by it at any time after the date
hereof, based upon the judgment of any court of competent jurisdiction or
pursuant to a bona fide compromise or settlement of claims, demands, or actions,
in respect to any damages related to any claim or action under this Section 7.
7.3 Settlement. The indemnifying party may [*] any claim or
----------
action under this Section 7 [*] the [*] written [*], which [*] will [*]. In the
event Microsoft and Inktomi agree to settle a claim or action, each party agrees
not to publicize the settlement without first obtaining the other's written
permission, which permission will not be unreasonably withheld.
7.4 Proprietary Rights Infringement. Without limiting any of
-------------------------------
[*], in the event of any [*] or [*] by [*] of Section [*], [*] shall notify [*]
and shall [*] (i) [*] for [*] so that [*] shall [*] be in [*] of Section
[*], or (ii) [*] the [*] or [*] thereof, or [*] the [*] with [*] having [*]
the same or [*]. If neither of the foregoing is [*] to achieve within a [*] of
time, then, in addition to any [*] available to [*], [*] may [*] this Agreement.
8. LIMITATION OF LIABILITY. EXCEPT FOR [*] CAUSED BY A [*] OF
-----------------------
SECTION [*], NEITHER PARTY SHALL BE [*] (IN [*] WITH OR PURSUANT TO THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS TAKEN AS A WHOLE) FOR ANY [*], [*] OR [*]
(INCLUDING [*]) [*] OF [*] ([*]), [*] OF THE [*] OF [*], EVEN IF [*] HAD BEEN
[*] OF THE [*] OF SUCH [*].
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<PAGE>
9. Termination and Other Remedies.
------------------------------
9.1 Termination At Will by Either Party.
-----------------------------------
9.1.1 Microsoft may terminate this Agreement without cause upon
[*]'s prior written notice, provided that such notice may not be given
prior to the [*] of the [*].
9.1.2 Inktomi may terminate this Agreement without cause upon
[*]'s prior written notice, provided that such notice may not be given
prior to the [*] of the [*].
9.2 In addition to any other rights and/or remedies that Microsoft
may have under the circumstances, all of which are expressly reserved, Microsoft
may suspend performance and/or terminate this Agreement immediately upon written
notice at any time if:
(a) Inktomi is in material breach of [*], [*] or [*] of this
Agreement, other than those contained in Section [*], and fails to cure that
breach within [*]([*]) days after written notice thereof; or
(b) Inktomi is in material breach of Section [*]; or
(c) Inktomi becomes insolvent or makes any assignment for the
benefit of creditors or similar transfer evidencing insolvency; or suffers or
permits the commencement of any form of insolvency or receivership proceeding;
or has any petition under any bankruptcy law filed against it, which petition is
not dismissed within sixty (60) days of such filing; or has a trustee or
receiver appointed for its business or assets or any part thereof.
9.3 In addition to any other rights and/or remedies that Inktomi may
have under the circumstances, all of which are expressly reserved, Inktomi may
suspend performance and/or terminate this Agreement immediately upon written
notice at any time if:
(a) Microsoft is in material breach of [*], [*] or [*] of this
Agreement, other than those contained in Section [*], and fails to cure that
breach within [*]([*]) days after written notice thereof; or
(b) Microsoft is in material breach of Section [*]; or
(c) Microsoft becomes insolvent or makes any assignment for the
benefit of creditors or similar transfer evidencing insolvency; or suffers or
permits the commencement of any form of insolvency or receivership proceeding;
or has any petition
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<PAGE>
under any bankruptcy law filed against it, which petition is not dismissed
within sixty (60) days of such filing; or has a trustee or receiver appointed
for its business or assets or any part thereof.
9.4 In the event of termination or expiration of this Agreement for
any reason, Sections 1, 3, 5.2, 6, 7, 8, 10.1 and 12shall survive termination.
Neither party shall be liable to the other for damages of any sort resulting
solely from terminating this Agreement in accordance with its terms.
9.5 If Inktomi is in material breach of this Agreement, then, in
addition to any other remedies which Microsoft may have under the circumstances,
Microsoft will have the right to withhold payment of amounts otherwise owed by
Microsoft to Inktomi pursuant to this and/or any Ancillary Agreement; provided,
however, that Microsoft shall give Inktomi not less than [*] ([*]) days to
cure such breach prior withholding any such payments.
9.6 A breach of this Agreement by either party will also constitute a
breach by such party of each and every Ancillary Agreement; and a breach by
either party of any Ancillary Agreement will also consitute a breach of this
Agreement by such party.
9.7 If (a) Microsoft should desire to create a [*] version of the
Microsoft Search Engine pursuant to the Software Development Agreement between
the parties of even date herewith, and/or to deploy such a version via servers
located in [*], and, [*] with Inktomi, [*] to [*] a [*] to [*] from [*] or [*]
such [*] version and (b) Inktomi is unable to [*] of such a [*] by [*] within
[*] ([*]) days after receiving written notice thereof from Microsoft, by
securing [*] from [*] meeting Microsoft's reasonable approval, then Microsoft
will have the right, in recognition of the difficulty of determining Microsoft's
damages with any reasonable specificity or certainty, to elect by written notice
to Inktomi to [*] this [*] to the effect that the [*] by Microsoft pursuant to
Sections [*] and [*] shall [*] be reduced by [*] ([*]%) beginning on the
expiration of said [*] period and continuing thereafter for the [*] of the [*].
Microsoft's rights under this Section 9.7 shall apply notwithstanding anything
contained in this Agreement to the contrary; provided, however, that if
Microsoft elects to so amend this Agreement pursuant to this Section 9.7,
Microsoft may not thereafter terminate this Agreement or any Ancillary Agreement
for cause, or exercise any other remedy, due to or arising from [*] by [*] that
its [*] with Inktomi in effect as of the [*] from creating or deploying a
[*] version of the Microsoft Search Engine; provided that if Microsoft has
incurred [*] under this Agreement or any Ancillary agreement(s) in connection
with development or deployment of a [*] version of the Microsoft Search Engine
prior to such a [*] which [*] such development or deployment, or if [*]
Microsoft, then Inktomi will [*]
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<PAGE>
from its [*] to Microsoft with respect to all such [*] and/or [*].
10. Confidentiality.
---------------
10.1 The parties hereby agree that all terms and conditions of that
certain Microsoft Corporation Non-Disclosure Agreement between them dated March
18, 1997, shall govern the disclosure of confidential and proprietary
information made under this Agreement. In this connection, the parties hereby
agree that the terms of this Agreement shall be treated as confidential in
accordance with the terms of said Non-Disclosure Agreement.
10.2 Without having first sought and obtained Microsoft's written
approval (which Microsoft may withhold in its sole and absolute discretion),
Inktomi shall not, directly or indirectly, (i) trade upon this transaction or
any aspect of Inktomi's relationship with Microsoft, or (ii) otherwise deprecate
Microsoft technology.
10.3 Inktomi shall use its commercially reasonable efforts to cause
Exodus to execute a non-disclosure agreement with Microsoft which includes
substantially similar restrictions as are contained herein.
10.4 Neither party will issue any press release or make any public
announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other party. However, the parties acknowledge that this
Agreement, or portions thereof, may be required under applicable law to be
disclosed, as part of or an exhibit to a party's required public disclosure
documents. If either party is advised by its legal counsel that such disclosure
is required, it will notify the other in writing and the parties will jointly
seek confidential treatment of this Agreement to the maximum extent reasonably
possible, in documents approved by both parties and filed with the applicable
governmental or regulatory authorities. Notwithstanding the foregoing, Microsoft
and Inktomi will cooperate to create a mutually approved joint press release
regarding the non-confidential aspects of this Agreement, which press release
shall be issued by each party on the Launch Date; provided, however, that the
precise timing of such press release shall be subject to the approval of
Microsoft (in its sole and absolute discretion).
11. Relocation of Hosting Servers; Technology Escrow.
------------------------------ -----------------
11.1 If Microsoft should exercise its right to cause Inktomi to
relocate the Hosting Servers (as such term is defined in the Hosting Agreement
between the parties of even date herewith) pursuant to Section 2.6.2 of said
Hosting Agreement, then Inktomi will be deemed to automatically have granted to
Microsoft, upon such relocation, a non-exclusive and irrevocable license during
the remainder of the Term and throughout the Territory to use the Product (and
all required underlying Inktomi Technology), but solely to generate search
results for Microsoft (and/or its sublicensees) as otherwise would be required
to be delivered by Inktomi to Microsoft pursuant to this Agreement,
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and to create enhancements to and derivative works for use in connection with
the Product. The exercise by Microsoft of such relocation rights shall not be
deemed to preclude Microsoft from exercising any other rights or remedies
otherwise available to Microsoft if the reason for such relocation is the breach
by Inktomi of any of its obligations under this Agreement.
11.2 To ensure that Microsoft will have access to such technology as
may be necessary or appropriate to permit it to use the Product to generate
search results (and to develop enhancements and other derivative works for use
in connection with the Product) as contemplated by this Agreement and the
Ancillary Agreements, Inktomi agrees to provide to an escrow agent, the identity
of which is satisfactory to Inktomi and Microsoft, a copy of all source code,
binary code and related documentation used in, or in connection with the
development of, the Product or the Deliverables (including all related
enhancements), concurrently with the deployment or delivery of the applicable
Deliverable or Product (including all related enhancements) to Microsoft.
Without limiting the generality of the foregoing, all source code, binary code
and documentation for the Inktomi's Search Engine and relevant Coupled Cluster
Technology will be escrowed hereunder. Said escrow agent will hold such code and
documentation in escrow, and release it if and only if it is permitted to do so
pursuant to the terms and conditions of the Escrow Agreement appended hereto as
Schedule I. The parties shall execute an Escrow Agreement substantially in the
form of Schedule I concurrently with the execution of this Agreement.
11.3 If Microsoft is entitled to receive any source code, binary code
and/or documentation pursuant to said Escrow Agreement, (i) Inktomi will be
deemed to automatically have granted to Microsoft a non-exclusive and
irrevocable license during the remainder of the Term and throughout the
Territory to use the Product (and all required underlying Inktomi Technology)
solely to generate search results (and to create enhancements and derivative
works for use in connection with the Product) as contemplated by this Agreement
and the Ancillary Agreements, and (ii) Inktomi agrees to furnish to Microsoft,
upon Microsoft's request, the services of Inktomi personnel familiar with the
structure and operation of such source code and/or binary code to explain such
code and train Microsoft personnel in its operation. Such services shall
continue for so long as is reasonably required by Microsoft personnel to become
proficient in its use and application, and Inktomi will charge Microsoft only
for its direct, actual, out-of-pocket costs of such services.
11.4 Except as expressly provided herein or in any Ancillary
Agreement, Inktomi shall be under no obligation whatsoever to deliver any source
code to Microsoft.
12. Miscellany.
----------
12.1 Neither party shall represent itself as the agent or legal
representative of the other for any purpose whatsoever, and neither party shall
have the right to create or assume for the other any obligation of any kind.
This Agreement shall not create or be deemed to create an agency, partnership,
franchise, employment
15
<PAGE>
relationship or joint venture between the parties. Each party's employees who
perform services related to this Agreement shall remain under the exclusive
direction and control of their respective employer and shall receive such
salaries, compensation and benefits as their respective employer may from time
to time determines. Each party shall have full and sole responsibility for its
employees who perform any service related to this Agreement with regard to
compliance with all applicable laws, rules and regulations governing such party
relating to employment, labor, wages, benefits, taxes and other matters
affecting its employees.
12.2 Any notice required or permitted to be given under this
Agreement shall be made in writing and shall be deemed to have been given or
made if it is in writing and is: (i) delivered in person, (ii) sent by same day
or overnight courier, (iii) mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to the party at its address set
forth below or at such other address as such party may subsequently furnish to
the other party by notice hereunder, or (iv) delivered by facsimile, the
transmittal of which shall be confirmed by a telephone call to the other party
and by dispatch of a confirming copy of the transmittal by registered or
certified mail, postage prepaid. Notices will be deemed effective on the date of
delivery in the case of personal delivery, or three (3) business days after
mailing, or on the date of dispatch in the case of notification by facsimile
(assuming confirmation of transmission). The parties' addresses for purposes of
notice shall be as set forth above, provided that all notices to Inktomi shall
be sent to the attention of General Counsel; and all notices to Microsoft shall
be sent to the attention of Shirish Nadkarni, with a copy to: Law & Corporate
Affairs, U.S. Legal.
12.3 This Agreement shall be construed, enforced, performed and in
all respects governed by and in accordance with the laws in the State of
Washington. In any action or suit to enforce any right or remedy under this
Agreement the prevailing party shall be entitled to recover its reasonable
attorneys' fees and costs.
12.4 In the event any provision of this Agreement is rendered null,
void or otherwise ineffective in any given country or any political subdivision
in a given country, then (i) the parties agree to negotiate in good faith an
acceptable alternative provision which reflects as closely as possible the
intent of the unenforceable provision and which shall apply only with respect to
that portion of the Territory in which the original provision is rendered null,
void or otherwise ineffective and (ii) notwithstanding, and regardless of
whether the parties reach agreement after the good faith negotiations described
in clause (i) immediately above, the validity, legality and enforceability of
the remaining provisions of this Agreement with respect to such portion of the
Territory (and of all of the provisions of this Agreement with respect to the
balance of the Territory) shall not in any way be affected or impaired thereby
and shall remain in full force and effect. Section and all other headings used
herein are provided for convenience only and are not to be given any legal
effect or considered in interpreting any provision of this Agreement. No
provision of this Agreement shall be interpreted against any party because such
party or its legal representative drafted such provision.
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<PAGE>
12.5 Except as expressly permitted hereunder or in Exhibit B hereto,
neither party may transfer, assign or sublicense this Agreement, or any rights
or obligations hereunder, whether by contract or by operation of law, except
with the express written consent of the other party, and any attempted transfer,
assignment or sublicense by a party in violation of this Section shall be void.
For purposes of this Agreement, an "transfer" under this Section shall be deemed
to include, without limitation, the following: (a) a merger or any other
combination of an entity with another party (other than a reincorporation of
Inktomi from the State of California to the State of Delaware), whether or not
the entity is the surviving entity; (b) any transaction or series of
transactions whereby a third party acquires direct or indirect power to control
the management and policies of an entity, whether through the acquisition of
voting securities, by contract, or otherwise; (c) in the case of Inktomi, the
sale or other transfer of Inktomi's search engine business or any other
substantial portion of Inktomi's assets (whether in a single transaction or
series of transactions), or (d) the transfer of any rights or obligations in the
course of a liquidation or other similar reorganization of an entity (other than
a reincorporation of Inktomi from the State of California to the State of
Delaware). Neither party will unreasonably withhold or delay its consent to a
requested transfer, assignment or sublicense. Subject to the provisions of this
Section, this Agreement shall be binding upon and inure to the benefit of each
party and their respective successors and assigns.
12.6 All rights and obligations of the parties hereunder are personal
to them. Except as otherwise specifically stated herein, this Agreement is not
intended to benefit, nor shall it be deemed to give rise to, any rights in any
third party.
12.7 Each party shall be responsible for compliance with all
applicable laws, rules and regulations, if any, related to the performance of
its obligations under this Agreement.
12.8 No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof or thereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
12.9 Neither party shall be liable hereunder by reason of any failure
or delay in the performance of its obligations hereunder during any event of
force majeure.
12.10 This Agreement, along with the Ancillary Agreements, together
contain the entire agreement of the parties with respect to the premises, and
may not be modified or amended except by a written instrument executed by the
party sought to be charged or bound thereby.
17
<PAGE>
Executed as of the Effective Date on the signature dates below.
INKTOMI CORPORATION MICROSOFT CORPORATION
/s/ David C. Peterschmidt /s/ Laura Jennings
By: ____________________________ By: ____________________________
David C. Peterschmidt, CEO Laura Jennings
________________________________ ________________________________
(printed name and title) (printed name and title)
July 24 July 27
Date: ____________________, 1997 Date: ____________________, 1997
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<PAGE>
EXHIBIT A
---------
PRODUCT SPECIFICATIONS
----------------------
(32 pages follow)
19
<PAGE>
EXHIBIT A
---------
YUKON REQUIREMENTS FOR THE INKTOMI SEARCH SERVICE
MICROSOFT CONFIDENTIAL
- --------------------------------------------------------------------------
VERSION: 1.0
STABILITY: High
FILENAME: Yukon requirements for Inktomi search service.doc
DATE: 07/07/97 3:57 PM
AUTHOR(S): William Jones wjones
- --------------------------------------------------------------------------
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. Table of Contents
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1. OVERVIEW
================================================================================
The goal of this document is to provide a reasonably complete list of Yukon
requirements for the Inktomi search service. Note that a number of the
requirements in this document are met by the existing search service but are
included anyway for the sake of completeness.
The Section 2 lists all requirements according to area (Performance and
Scalability, Reliability and Fault Tolerance, ...) together with information on
Target Release and Due Date as defined below. The Appendix (Section 7) follows
a similar organization and provides more detail on the requirements..
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EXHIBIT B
---------
Transfer by Inktomi
-------------------
If Inktomi requests Microsoft's consent to a transfer as described in clause (a)
of Section 12.5 of this Information Services Agreement to which this Exhibit B
is appended, and Microsoft reasonably withholds its consent to such transfer (an
"Unconsented Transfer"), then Inktomi will nevertheless have the right to
transfer this Agreement in connection with its proposed Unconsented Transfer"),
subject to the following conditions precedent to the Unconsented Transfer:
(i) Inktomi, at its sole cost and expense, and without any financing supplied
by Microsoft, will create a separate cluster of Hosting Servers for Microsoft
required to service Microsoft's reasonably anticipated needs for a period of
twelve months after the commencement of operation of such new and relocated
cluster (provided however that Microsoft will purchase, or fund (in accordance
with the Loan Agreement of even date herewith) Inktomi's purchase of, (whichever
Microsoft elects) any new hosting servers beyond the Hosting Servers purchased
by Inktomi under the Software Hosting Agreement of even date herewith necessary
to service Microsoft's reasonably anticipated needs as set forth above);
(ii) Inktomi will relocate, at its sole cost and expense (including, without
limitation, indemnifying Microsoft and holding it harmless against any and all
Taxes that arise as a direct or indirect result of the relocation of the Hosting
Servers), all Hosting Servers referred to in clause (i) to a location designated
by Microsoft, in its sole discretion;
(iii) Inktomi, at its sole cost and expense, will provide training to Microsoft
personnel to the extent requested by Microsoft, to enable such personnel to use
and maintain the Microsoft Search Engine, and to create enhancements thereto,
with reasonable competence (all as determined by Microsoft in its sole
discretion);
(iv) Inktomi will grant to Microsoft an irrevocable, non-exclusive,
royalty-free license to use the Product (and all required underlying Inktomi
Technology) solely in connection with Microsoft's operation of the Microsoft
Search Engine (which license shall include the right to create enhancements and
other derivative works based thereon for use in conjunction therewith) for such
period as Microsoft may require to transition its search engine services to
non-Inktomi technology (the "Transition Period"), and Inktomi will waive all
royalties otherwise payable pursuant to the Software Development Agreement of
even date herewith and/or this Information Services Agreement; for the purposes
of this clause (iv), the Transition Period will commence at such time as
Microsoft Search Engine, and will continue thereafter for eighteen months (18)
or until the termination of the Software Development Agreement and Information
Services Agreement (whichever is longer);
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(v) Inktomi will direct the Escrow Agent to release to Microsoft all
Confidential Materials held by the Escrow Agent, subject to Microsoft's
agreement to use such Confidential Materials only in connection with its
licensed rights under clause (iv) above;
(vi) Inktomi will agree to reimburse Microsoft for all reasonable costs
incurred by Microsoft in transitioning its search engine to non-Inktomi
technology (whether created by Microsoft or by a third party); and
(vii) Inktomi will cause the applicable proposed transferee of this Agreement to
assume, jointly and severally with Inktomi, all of Inktomi's obligations
hereunder.
Microsoft will cooperate with Inktomi and use its reasonable best efforts so as
to enable Inktomi to satisfy the foregoing conditions precedent in a timely
manner. Upon satisfaction of the foregoing conditions precedent, said Software
Hosting Agreement shall be deemed terminated pursuant to Section 10.1 thereof.
Upon expiration of the Transition Period, all rights granted to Microsoft to use
the Product (other than Microsoft Technology, Joint Derivative Technology and
the Microsoft Derivative Technology) and/or any Inktomi Technology under the
transitional license referred to in clause (iv) or otherwise shall cease, and
Microsoft shall immediately return to Inktomi all Confidential Materials (and
all copies thereof), provided however that, notwithstanding any provision of
the Ancillary Agreements to the contrary, the undertaking by Inktomi to
indemnify Microsoft and hold it harmless against Taxes as provided in clause
(ii) above shall survive any such terminations.
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SCHEDULE I
----------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into this ___ day of __________, 1997 by and
among INKTOMI CORPORATION ("Inktomi"), a California corporation, whose address
is 1900 South Norfolk Street, Suite 110, San Mateo, California 94403, DATA BASE,
INC. ("Escrow Agent"), a Washington corporation, whose address is 307 South
140th Street, Seattle, WA 98168, and MICROSOFT CORPORATION ("Microsoft"), a
Washington corporation whose address is One Microsoft Way, Redmond, WA 98052-
6399.
A. Inktomi is the owner of computer programs and supporting documentation
that contain confidential information and are protected under copyright and as
trade secrets. Inktomi authorizes others to use the computer programs and
documentation under written agreements which, among other things, require the
other party to protect the confidentiality of Inktomi's property.
B. Computer programs can be expressed in machine-readable form, called
binary code, and in human-readable form, called source code or source listings.
Generally, parties are unable to modify or correct errors in the binary code
without having the source code.
C. This escrow arrangement is provided to assure Microsoft of access to
the source code, binary code and confidential supporting documentation in the
event that Inktomi (i) discontinues all or substantially all of its search
engine business operations or (ii) ceases to provide software development, error
correction, product enhancements and upgrades, and regular maintenance of the
computer programs (collectively, "Support") under and in accordance with the
Software Development Agreement and/or the Information Services Agreement (the
"Agreements") between Inktomi and Microsoft of even date herewith (as it may be
amended by mutual agreement of Inktomi and Microsoft from time to time).
THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, Inktomi, Microsoft and Escrow Agent agree as follows:
1. Confidential Materials.
----------------------
1.1 Escrow Agent, as escrow agent, agrees to accept from Inktomi, for
storage purposes only, confidential materials in the form of source code and
binary code, program listings, supporting documentation, and other related
materials for certain computer programs owned by Inktomi (collectively,
"Confidential Materials"). Inktomi will furnish to Escrow Agent a list naming
or describing all computer programs for which Confidential Materials are
deposited into escrow. This list shall be certified by Inktomi as complete and
accurate. A list of computer programs for which Confidential Materials are
currently on deposit with Escrow Agent is attached as Exhibit A to this
Agreement. This list will be supplemented and updated by Inktomi with each
future deposit or withdrawal of Confidential Materials. For each deposit,
Escrow Agent will issue receipts to Inktomi.
<PAGE>
1.2 Upon each deposit of Confidential Materials, Inktomi shall furnish to
Microsoft a copy of the list provided to Escrow Agent pursuant to this Section
1. Such list shall constitute notice to Microsoft that the Confidential
Materials listed thereon have been deposited with Escrow Agent. Upon the
request of Microsoft, Escrow Agent shall supply to Microsoft copies of all lists
furnished by Inktomi to Escrow Agent hereunder. Escrow Agent shall not be
required to determine the accuracy or completeness of the list(s) furnished by
Inktomi hereunder, nor shall Escrow Agent be responsible for Confidential
Materials not actually deposited with it, whether or not such Confidential
Materials were required to be deposited under the terms of this Agreement, any
license agreement between Inktomi and Microsoft or any other agreement.
2. Retention of Confidential Materials. Escrow Agent agrees to hold in
-----------------------------------
safekeeping the Confidential Materials deposited hereunder, and shall release or
disclose any or all such Confidential Materials only in accordance with the
terms of this Agreement.
3. Release of Confidential Materials. Inktomi authorizes Escrow Agent to
---------------------------------
release Confidential Materials only as follows:
(a) Escrow Agent shall release to Inktomi all Confidential Materials
requested by written demand of both Inktomi and Microsoft, provided that such
Confidential Materials are specifically identified to the satisfaction of Escrow
Agent, and provided that all fees payable to Escrow Agent for performance of its
services hereunder have been fully paid.
(b) Provided that all fees payable to Escrow Agent for the performance of
its services hereunder have been fully paid, all Confidential Materials shall be
returned to Inktomi at any time that Escrow Agent ceases doing business or is
unable to hold the same in accordance with the terms of this Agreement due to
forces beyond its reasonable control; provided however, that Escrow Agent gives
such advance notice to Inktomi and Microsoft as is reasonably practicable, but
in no event less than thirty (30) days.
(c) In the event of (1) a demand by Microsoft pursuant to Subsection 4.1
hereof which is not disputed by Inktomi in the manner and within the time
prescribed in Subsection 4.2 hereof, or (2) a determination by the panel of
arbitrators in accordance with Section 5 hereof that (A) the applicable
Agreement remains in force and effect and (B) Inktomi has discontinued all or
substantially all of its search engine business operations or has ceased to
Support the Confidential Materials on a timely basis as required under the terms
of the applicable Agreement, then Escrow Agent shall, upon the receipt from
Microsoft of full payment for the costs and expenses of duplication, make
duplicate copies of those Confidential Materials which relate to the computer
program or programs with respect to which demand is made and shall deliver such
duplicate copies to Microsoft. Escrow Agent agrees that the "Write-Protect
Ring" on magnetic tape reels furnished to Escrow Agent by Inktomi shall not be
removed at any time.
(d) Escrow Agent shall release such Confidential Materials to such persons
and in such manner as shall be directed by order of any court of competent
jurisdiction pursuant to
-2-
<PAGE>
Section 6 or otherwise. Escrow Agent may also release Confidential Materials
pursuant to the provisions of Section 11 below.
4. Demand and Dispute.
------------------
4.1 In the event Microsoft desires release of Confidential Materials
relating to one or more computer programs, Microsoft shall make written demand
on Escrow Agent therefor, specifically designating the computer program or
programs for which Confidential Materials are requested. Such demand must be
accompanied by all of the following documents and certificates, each executed
under oath by an authorized officer or representative of Microsoft:
(a) A certified true copy of a notice that Microsoft has mailed to
Inktomi at the address stated in this Agreement. The notice must contain a
statement that Microsoft has determined that Inktomi has discontinued all or
substantially all of its search engine business operations or has ceased to
Support the Confidential Materials on a timely basis as required under the terms
of the Agreements.
(b) A certificate stating that (i) Microsoft mailed to Inktomi,
registered or certified mail, the notice described in Paragraph 4.1(a) above,
and that ten (10) business days have elapsed from such mailing without response
from Inktomi, and (ii) before mailing the notice, Microsoft made a request upon
Inktomi for support services and Microsoft did not receive a response to such
request or received a response to the effect that Inktomi was unable or
unwilling to provide such services or Inktomi in fact did not timely provide
such services.
(c) A copy of each of the Agreements, as executed by Inktomi and such
Microsoft, together with a statement by Microsoft, certified by Microsoft, that
the copies of the Agreements are true copies, and that the applicable
Agreement(s) is(are) still in force and grants Microsoft the rights to use the
computer program or programs for which Confidential Materials are requested.
(d) A certificate stating that Microsoft will pay in advance for all
expenses and costs of copying the Confidential Materials requested.
(e) A Confidentiality and Use Limitation Certificate, in the form of
Exhibit B attached hereto, for the benefit of Escrow Agent, Inktomi and any
successor of either.
(f) A certificate stating that Microsoft shall indemnify and hold
harmless Escrow Agent from and against any and all losses, damages, and expenses
(including attorney's fees) that may be incurred by Microsoft and/or Escrow
Agent by reason of Escrow Agent's compliance in good faith with the terms of
this Agreement.
4.2 Upon receipt of a demand and all required supporting documents
described in Subsection 4.1 hereof, Escrow Agent shall promptly give notice to
Inktomi of such receipt and transmit with such notice a copy of such demand and
all accompanying documents. Inktomi or its successor may dispute such demand,
at any time within ten (10) business days following
-3-
<PAGE>
Escrow Agent's notice to Inktomi hereunder by (i) giving written notice to
Escrow Agent that it continues to conduct all or substantially all of its search
engine business operations and continues to Support the Confidential Materials
on a timely basis as required under the terms of the Agreements, or (ii)
otherwise specifically denying any statements made by Microsoft in one or more
of the documents described in Paragraphs 4.1(a), (b) or (c) hereof. Such notice
shall be accompanied by a certificate to Escrow Agent stating that Inktomi will
submit to arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith.
4.3 Upon receipt of Inktomi's notice of dispute as provided in Subsection
4.2 hereof, Escrow Agent shall promptly give notice to Microsoft of such receipt
and transmit with such notice a copy of such documents received from Inktomi
relating to such dispute. Subject to the last sentence of this Subsection 4.3,
Microsoft shall, within thirty (30) days following receipt of Inktomi's notice
of dispute, furnish Escrow Agent with a certificate stating that Microsoft will
submit to Arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith. Microsoft may withdraw its demand for release of the Confidential
Materials at any time by giving Escrow Agent and Inktomi written notice of such
withdrawal.
5. Arbitration. Upon the earlier of the expiration of the thirty (30) day
-----------
period described in Subsection 4.3 or the receipt by Escrow Agent of Microsoft's
certificate described in Subsection 4.3, the matter shall be submitted to
arbitration proceedings in Seattle, Washington, which proceedings shall be
conducted under the commercial rules then prevailing of the American Arbitration
Association, by a panel of not less than three professional experts in the field
of computer software technology. Each party will choose one arbitrator and the
two arbitrators so chosen will choose a third. If the two designated
arbitrators do not so choose a third within thirty (30) days, either party may
apply to the local Superior Court to appoint a third arbitrator. The sole issue
for arbitration shall be whether the Agreements remain in force and effect and
whether Inktomi has discontinued all or substantially all of its search engine
business operations or has ceased to Support the Confidential Materials on a
timely basis as required under the terms of either or both of the Agreements.
If the arbitrators determine that Inktomi has discontinued all or substantially
all of its search engine business operations or has ceased to Support the
Confidential Materials on a timely basis, the arbitrators shall order the
release of Confidential Materials. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorneys' fees, expert and non-expert
witness costs and expenses, and all other costs and expenses incurred directly
or indirectly in connection with the proceedings, unless the arbitrators for
good cause determine otherwise. The decision of the arbitrators shall be final
and binding on the Inktomi and Microsoft and may be entered and enforced in any
court of competent jurisdiction.
6. Interpleader. Notwithstanding any other provisions of this Agreement, if
------------
Escrow Agent receives a written demand from Microsoft for release of
Confidential Materials and Escrow Agent is uncertain whether Inktomi's exercise
of its right to dispute such demand pursuant to Subsection 4.2 hereof was timely
or otherwise effective, then Escrow Agent may, in its sole discretion, begin an
interpleader action, pursuant to applicable law, and deposit the Confidential
-4-
<PAGE>
Materials with the clerk of the court or withhold release of the Confidential
Materials until instructed otherwise by the court order.
7. Fees. Microsoft shall pay to Escrow Agent, in advance, fees at the standard
----
rate prescribed from time to time by Escrow Agent for performance of services
hereunder. Prices will be revised annually in accordance with Escrow Agent's
regular schedule of fees.
8. No Duty to Inquire into Truth, Authenticity or Authority; Right to Require
--------------------------------------------------------------------------
Additional Documents. Escrow Agent shall not be required to inquire into the
- --------------------
truth of any statements or representatives contained in any notices,
certificates or other documents required or otherwise provided hereunder, and
shall be entitled to assume that the signatures on such documents are genuine,
that the persons signing on behalf of any party thereto are duly authorized to
execute the same, and that all actions necessary to render any such documents
binding on the party purportedly executing the same have been duly undertaken.
Without in any way limiting the foregoing, Escrow Agent may in its discretion
require from Inktomi or Microsoft additional documents which it deems to be
necessary or desirable in the course of performing its obligations hereunder.
9. Waiver of Claims.
----------------
(a) Inktomi hereby waives any claim for damages or otherwise which it may
have against Escrow Agent for any acts undertaken by Escrow Agent pursuant to
Microsoft's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
(b) Microsoft hereby waives any claim for damages or otherwise which it may
have against Escrow Agent for any acts undertaken by Escrow Agent pursuant to
Inktomi's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
10. Notices. Notices under this Agreement shall be in writing, addressed to
-------
the parties at the addresses listed in this Agreement, or to such other
addresses as a party shall have designated by notice to the other parties, and
shall be delivered by registered or certified mail, return receipt requested, to
the intended recipient. Notices shall be deemed to have been given and received
(i) when signed for on the return receipt, or (ii) if the party to receive
notice refuses to sign the return receipt or cannot be located after the
exercise of due diligence, three (3) business days after deposit of the notice
in the U.S. mail, properly addressed, with postage prepaid.
11. Termination.
-----------
(a) This Agreement shall terminate upon termination of both the Agreements.
Upon such termination, Inktomi shall give written notice to Escrow Agent, and
provide a copy of such notice to Microsoft in the manner set forth in applicable
notice provisions of the Agreements. Unless Microsoft disputes such notice by
written notice to that effect to Escrow Agent and Inktomi within ten (10)
business days (the "Objection Period") after Microsoft's receipt of said notice
from Inktomi, and provided that all fees payable to Escrow Agent for the
performance of
-5-
<PAGE>
its services hereunder have been fully paid, Escrow Agent shall release and
return all Confidential Materials to Inktomi promptly after the expiration of
the Objection Period.
(b) Except as provided in Subsection 11(a) above or Section 1 hereof with
respect to modification of Exhibit A hereto, this Agreement may not be
terminated or modified except in writing signed by Escrow Agent, Inktomi and
Microsoft. Escrow Agent may, at any time, terminate this Agreement by resigning
as escrow agent hereunder. Escrow Agent shall provide Inktomi and Microsoft
ninety (90) days advance written notice of its intention to resign. Unless
within such period Escrow Agent receives written notice from the Inktomi and
Microsoft instructing Escrow Agent to deliver the Confidential Materials to one
or both of the parties, or to a third party, Escrow Agent shall deliver the
Confidential Materials to Inktomi.
(c) Upon the delivery of the Confidential Materials to one or both of the
parties, or to a third party, as permitted hereunder, all obligations of Escrow
Agent under this Agreement shall cease.
12. Bankruptcy. In the event of the commencement of a case by or against
----------
Inktomi pursuant to 11 U.S.C. Sections 301, 302, or 303, Microsoft may elect to
retain its right under this Agreement pursuant to 11 U.S.C. Section 365 (n). In
this regard, the Confidential Materials shall be deemed to be "intellectual
property" within the meaning of 11 U.S.C. Section 101. Inktomi's obligations
under this Agreement shall be binding on Inktomi's successors, including any
trustee or debtor in possession that may succeed to Inktomi's rights under this
Agreement.
13. Miscellany.
----------
13.1 This Agreement shall be construed, enforced, performed and in all
respects governed by and in accordance with the laws in the State of Washington.
In any action or suit to enforce any right or remedy under this Agreement the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs.
13.2 In the event any provision of this Agreement is rendered null, void
or otherwise ineffective, then (i) the parties agree to negotiate in good faith
an acceptable alternative provision which reflects as closely as possible the
intent of the unenforceable provision and (ii) notwithstanding, and regardless
of whether the parties reach agreement after the good faith negotiations
described in clause (i) immediately above, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby and shall remain in full force and effect.
Section and all other headings used herein are provided for convenience only and
are not to be given any legal effect or considered in interpreting any provision
of this Agreement. No provision of this Agreement shall be interpreted against
any party because such party or its legal representative drafted such provision.
13.3 Subject to such rights as Microsoft and/or Inktomi may have under the
Agreements, no party hereto shall voluntarily or by operation of law assign,
sublicense, transfer, encumber or otherwise dispose of all or any part of its
interest in this Agreement without the prior written consent of the non-
assigning party. Any attempted assignment, sub-license,
-6-
<PAGE>
transfer, encumbrance or other disposal without such consent shall be void and
shall constitute a material default and breach of this Agreement. Subject to the
provisions of this Section, this Agreement shall be binding upon and inure to
the benefit of each party and their respective successors and assigns.
13.4 All rights and obligations of the parties hereunder are personal to
them. Except as otherwise specifically stated herein, this Agreement is not
intended to benefit, nor shall it be deemed to give rise to, any rights in any
third party.
13.5 Each party shall be responsible for compliance with all applicable
laws, rules and regulations, if any, related to the performance of its
obligations under this Agreement.
13.6 No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof or thereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
13.7 This Escrow Agreement (and, as between Inktomi and Microsoft, the
Agreements) contains the entire agreement of the parties with respect to the
premises, and may not be modified or amended except by a written instrument
executed by the party sought to be charged or bound thereby.
13.8 For the purposes of this Agreement, Inktomi and Microsoft hereby
designate the following individuals (and such additional individuals or
substitutes therefor as may hereafter be designated by written notice from
Inktomi or Microsoft, whichever is applicable) as having the authority to
provide directions to Escrow Agent hereunder:
Inktomi designates: David Peterschmidt, Jerry Kennelly
Microsoft designates: ____________________________________________
Executed as of the date first written above.
Escrow Agent: DATA BASE, INC.
- -------------
By:______________________
Data Base, Inc.
307 South 140th Street Print Name:______________
Seattle, WA 98168
Title:___________________
Date:____________________
-7-
<PAGE>
Inktomi: INKTOMI CORPORATION
- -------
By:____________________
Inktomi Corporation
1900 South Norfolk Street, Suite 110 Print Name:____________
San Mateo, CA 94403
ATTN: General Counsel Title:_________________
Date___________________
Microsoft: MICROSOFT CORPORATION
- ---------
Microsoft Corporation By:____________________
One Microsoft Way
Redmond, WA 98053-6399 Print Name:____________
ATTN: Law & Corporate Affairs, U.S. Legal
Title:_________________
Date:__________________
-8-
<PAGE>
EXHIBIT A
---------
COMPUTER PROGRAMS FOR WHICH CONFIDENTIAL MATERIALS ARE DEPOSITED WITH ESCROW
AGENT
-9-
<PAGE>
EXHIBIT B
---------
CONFIDENTIALITY AND USE LIMITATION CERTIFICATE
STATE OF WASHINGTON )
)
COUNTY OF KING )
The undersigned, being first duly sworn upon oath, does state as follows:
1. The undersigned has certain rights in and to certain computer programs and
data, under a Software Development Agreement and Search Results Agreement(the
"Agreements") between the undersigned and Inktomi Corporation, a California
corporation ("Inktomi").
2. The undersigned has demanded, and expects to receive, source listings
and/or other related documentation for such computer programs ("Confidential
Materials"). These materials are the confidential and proprietary information of
Inktomi, and Inktomi claims protection thereof under applicable of copyright and
trade secret law.
3. Upon receipt of the Confidential Materials, the undersigned shall limit the
use thereof solely for purposes of installation, operation, maintenance,
modification and enhancement of the computer programs. The Confidential
Materials, and any copies thereof, shall be used by the undersigned for internal
purposes only, and the undersigned shall not make any use of the binary/object
codes translated from the Confidential Materials, except as expressly permitted
under the Agreements. At all times that the undersigned is entitled to use the
Confidential Materials, the undersigned shall continue to pay to Inktomi all
royalties and other amounts which Inktomi is entitled to receive under the
Agreements.
4. The Confidential Materials shall at all times remain the sole and exclusive
property of Inktomi, and the delivery thereof to the undersigned shall not be
deemed a grant or transfer of such proprietary interests to the undersigned. The
undersigned accepts the Confidential Materials in strict confidence, and shall
not make available, provide or otherwise allow or permit the provision, directly
or indirectly, of the Confidential Materials, or any part or portion thereof, in
any form, representation, or medium, to any person or entity other than the
authorized personnel or consultants of the undersigned.
5. The undersigned agrees that Inktomi and DATA BASE, INC. ("Escrow Agent"), a
Washington corporation, and any successor thereto or employees or agents
thereof, may rely upon this Certificate and the representations made herein for
the delivery of the Confidential Materials to the undersigned, and the
undersigned agrees to indemnify and hold harmless such persons and entities from
and against any and all losses, damages and expenses (including attorneys' fees)
arising out of the undersigned's failure to use the Confidential Materials in
accordance with this Certificate or the Agreements, or otherwise as a result of
any release of any Confidential Materials by Escrow Agent in response to the
undersigned's request.
6. Notwithstanding anything to the contrary, this Certificate shall not limit
or enlarge the rights or obligations of the parties under the Agreements.
DATED this _____ day of ____________, 19___.
MICROSOFT CORPORATION
By:________________________________
Print Name:________________________
Title:_____________________________
-10-
<PAGE>
EXHIBIT 10.13
SOFTWARE DEVELOPMENT AGREEMENT
This Software Development Agreement ("Agreement") is made and entered into as of
the later of the two signature dates below (the "Effective Date") by and between
INKTOMI CORPORATION ("Inktomi"), a California corporation, 1900 South Norfolk
Street, Suite 110, San Mateo, California 94403, and MICROSOFT CORPORATION
("Microsoft"), a Washington Corporation, One Microsoft Way, Redmond, Washington
98052-6399, with reference to the facts set forth in the Recitals below.
Recitals
A. Inktomi develops and markets computer software products, including
without limitation "search engine" software for searching and indexing
information accessible through the Internet.
B. Microsoft develops, manufactures, distributes and markets computer
software products and services.
C. Inktomi and Microsoft desire to enter into a business relationship
pursuant to which, among other things, (i) Inktomi would (a) develop software
for Microsoft to implement desired features for a Microsoft search engine, (b)
provide search results for Microsoft using Inktomi's search engine customized
with, among other elements, the features developed for Microsoft, (c) provide
software hosting and maintenance services for Microsoft's benefit, and (d)
purchase additional hardware and software necessary or desirable to service
Microsoft's needs, and (ii) Microsoft would make certain payments to Inktomi,
and provide loans to Inktomi to facilitate Inktomi's purchase of additional
hardware and software necessary or desirable to service Microsoft's needs.
D. This Software Development Agreement is intended to delineate the terms
and conditions applicable to the software development aspects of such business
relationship.
Agreement
Accordingly, Inktomi and Microsoft agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
-----------
will have the indicated meanings:
1.1 "Ancillary Agreements" shall mean the following agreements
between Inktomi and Microsoft, and all amended versions thereof or successor
agreements thereto: (i) the Information Services Agreement of even date
herewith; (ii) the Software Hosting Agreement of even date herewith; (iii) the
Loan Agreement of even date herewith, and any and all "Promissory Notes" and/or
"New Note" executed pursuant
1
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
thereto; (iv) the Security Agreement of even date herewith; and (v) the Escrow
Agreement of even date herewith.
1.2 The "Average Daily Hits" (or "ADH") for a particular calendar
month means the number of Hits in that month divided by the number of days in
that month.
1.3 "Coupled Cluster Technology" means Inktomi's proprietary computer
software that enables a collection of two or more individual computers to be
connected in such a way as to operate as a single computing system.
1.4 "Deliverables" means the software code in object and/or source
format (as set forth in the Specifications, provided that (i) if not specified,
delivery shall be in object code format, except (ii) in all cases, delivery of
code relating to Joint Derivative Technology and Microsoft Derivative Technology
shall be in both object code and source code format), documentation, and other
materials required to be delivered by Inktomi to Microsoft hereunder, as more
fully described in the Specifications. Unless otherwise set forth in this
Agreement (including the Specifications), or unless otherwise agreed by the
parties, all code to be delivered to Microsoft will be transmitted by Inktomi to
Microsoft electronically in accordance with such security measures as may be
mutually agreed by the parties.
1.5 "Derivative Technology" means any and all technology created or
developed by Inktomi pursuant to this Agreement based upon Inktomi Technology
and/or Microsoft Technology, which development is funded in whole or in
substantial part by Microsoft, including without limitation the following: (i)
for copyrightable or copyrighted material, any translation (including
translation into other computer languages), portation, modification, correction,
addition, extension, upgrade, improvement, compilation, abridgment or other form
in which an existing work may be recast, transformed or adapted; (ii) for
patentable or patented material, any improvement thereon; and (iii) for material
which is protected by trade secret, any new material derived from such existing
trade secret material, including new material which may be protected by
copyright, patent and/or trade secret. Derivative Technology shall be
categorized as one of the following three distinct types:
1.5.1 "Inktomi Derivative Technology" means Derivative
Technology which is, for functionality reasons, inseparably integrated with the
Inktomi Search Engine (as distinguished, for example, from technology which
could be linked to the Inktomi Search Engine through a programming interface).
1.5.2 "Microsoft Derivative Technology" means Derivative
Technology which is (i) based on Microsoft Technology and (ii) separable from
the Inktomi Search Engine.
1.5.3 "Joint Derivative Technology" means Derivative Technology
which is (i) separable from the Inktomi Search Engine and (ii) based on an
2
<PAGE>
idea supplied by Inktomi or Microsoft which idea theretofore was not developed
in any significant manner (such as by developing algorithms or substantial
portions of code toward implementation of the idea).
1.6 "Error(s)" means defect(s) in the Product or a Deliverable which
prevent(s) it from performing in accordance with the Specifications and/or a
Severity Level 1, 2 or 3 error, as such errors are defined in Exhibit B.
1.7 A "Hit" occurs each time an end user accesses a Web page
displaying the [*] of a [*] using the [*] conducted by the end user through a
[*]; the [*] displayed on such [*] is [*] in determining the [*] (for example,
viewing a [*] containing [*] constitutes [*]. A "Hit" does not occur when an end
user [*] or, if different from the applicable [*], the [*] in which the end user
[*], or [*] the [*]. Notwithstanding anything contained herein to the contrary,
no "Hits" will be deemed to [*] or otherwise until the [*] of the [*] is [*] for
[*] by the [*]. The parties acknowledge that access by an end user to a [*] does
not constitute a "Hit."
1.8 "Inktomi Technology" means (a) Inktomi's existing Search Engine
and Coupled Cluster Technology, and any and all future versions thereof and
enhancements, upgrades and modifications thereto, other than Derivative
Technology created during the Term, as well as (b) all other computer software
and/or technology which is supplied by Inktomi for use in or in connection with
the Product and/or Services and either is (i) existing as of the Effective Date,
(ii) developed by Inktomi at Microsoft's request but without any Microsoft
funding, or (iii) developed by Inktomi after the Effective Date independently.
1.9 "Internet" means any systems for distributing digital electronic
content and information to end users via transmission, broadcast, public
display, or other forms of delivery, whether direct or indirect, whether over
telephone lines, cable television systems, optical fiber connections, cellular
telephones, satellites, wireless broadcast, or other mode of transmission now
known or subsequently developed.
1.10 "Launch Date" will mean that date on which the Microsoft Search
Engine (other than any so-called "beta" version) is first generally available
for use by the public.
1.11 "Microsoft Site" means the Microsoft Web Site(s) or Microsoft
application(s) which, when accessed by an end user, will permit the end user to
conduct a search of the Internet (or a portion thereof) using the Product; if
Microsoft sublicenses its rights to use the search results generated by the
Product (as permitted under said Information Services Agreement), then the
site(s) of such Microsoft sublicensee(s) will
3
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
be deemed to be Microsoft Site(s) for the purposes of computing Hits and
Inktomi's royalties under Section 2.1.2 below.
1.12 "Microsoft Technology" means all computer software and other
technology supplied by Microsoft for use in or in connection with the Product
and/or Services.
1.13 "Product" means computer software for Web-based and/or
application-based end user Internet searches which is an enhanced version of the
Inktomi Search Engine customized to Microsoft's specifications, as more fully
described in the Specifications, and all future versions thereof and
enhancements, upgrades and modifications thereto. The Microsoft Search Engine is
a Product, but other versions of the Product may be used by customers of Inktomi
other than Microsoft (subject to the terms and conditions contained in this
Agreement).
1.14 "Schedule" means the schedule(s) for completion of the Services,
as set forth in the Specifications.
1.15 "Search Engine" means computer software which crawls Web Sites,
downloads and analyzes text and other data, sorts and organizes the data,
creates an index of accessible data, and, after receiving a particular search
request (in the form of a word query which may or may not include limiting the
fields of data to be searched), locates material accessible in the database, and
presents the results of the search to the end user.
1.15.1 "Inktomi Search Engine" means Inktomi's current Search
Engine as of the Effective Date and all future versions thereof and
enhancements, upgrades and modifications thereto. The Inktomi Search Engine
includes, without limitation, such aspects of Inktomi's present and future
Coupled Cluster Technology as may be used in connection with the functioning of
the Inktomi Search Engine.
1.15.2 "Microsoft Search Engine" will mean those versions of the
Product used to generate search results for Microsoft under said Information
Services Agreement or for third parties requesting search results through
Microsoft.
1.16 "Services" means the customization and enhancement of the Product
(including the design and development of the Derivative Technology) in
accordance with the Specifications and delivery of the Deliverables, as they may
be modified from time to time, and all other services performed by Inktomi
pursuant to this Agreement.
1.17 "Specifications" means the specifications for the Services and
Product, attached to this Agreement as Exhibit A, which includes a product
design and content summary, as well as a detailed specification for all required
features and functionality, and a complete delivery and production schedule.
The parties contemplate that the Specifications may be modified by mutual
consent from time to time during the
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Term; if and when the Specifications are modified, the parties shall initial the
new Specifications or amendments to the existing Specifications, and immediately
following the last initialing such new Specifications or amendments shall
automatically be deemed to supercede or supplement (as the case may be) Exhibit
A.
1.18 "Term" means the period of time commencing on the Effective Date
and continuing thereafter indefinitely until this Agreement is terminated
pursuant to Section 9 below.
1.19 "Territory" means the entire universe.
1.20 "User Interface" means any and all visual mechanisms, metaphors
and/or appearance of the Microsoft Search Engine as designed to be seen by the
end user. Microsoft will be responsible for developing all software needed to
implement the User Interface for the Microsoft Search Engine. Microsoft and
Inktomi will cooperate with each other to ensure the seemless interaction of the
Product with the User Interface for the Microsoft Search Engine.
1.21 "Web" means the so-called World Wide Web, containing, inter alia,
----- ----
pages written in hypertext markup language (HTML) and/or any similar successor
technology.
1.22 "Web page" means a document on the Web which may be viewed in its
entirety without leaving the applicable distinct URL address.
1.23 "Web Site" means a collection of inter-related Web pages or
documents accessible through a Web page interface.
2. Compensation: Development Costs Plus Royalties.
----------------------------------------------
2.1 Microsoft shall pay Inktomi for all Inktomi's services hereunder
relating to the development and delivery of the Derivative Technology as
follows:
2.1.1 Microsoft will reimburse Inktomi for such development
services, computed [*], in accordance with the following payment schedule: [*]
upon [*]; [*] upon [*] of the [*]; and [*] upon [*] of the [*]. However, prior
to undertaking any such development activities, Inktomi shall obtain Microsoft's
written approval of a budget for such activities, and Inktomi shall not charge
Microsoft for [*] of the approved budget without Microsoft's prior written
approval.
2.1.2 In addition, Microsoft agrees to pay to Inktomi royalties
in connection with certain uses Microsoft makes of the Joint Derivative
Technology and the Microsoft Derivative Technology based upon Average Daily
Hits, from the Launch Date
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
throughout the remainder of the Term, calculated by Microsoft monthly (but
reportable and payable in arrears in accordance with Section 3 below), as
follows:
(a) if the number of ADH in the applicable month is not
more than [*] ([*]), then an amount equal to: $[*] times the number of ADH times
the number of days in the month [or ($[*])(ADH)(days)];
(b) if the number of ADH in the applicable month is more
than [*] ([*]) but not more than [*] ([*]), then an amount equal to: $[*] times
the number of ADH times the number of days in the month, [*] $[*] times the
number of days in the month [or ($[*])(ADH)(days) [*] ($[*])([*])(days)]; or
(c) if the number of ADH in the applicable month is more
than [*] ([*]), then an amount equal to: $[*] times the number of ADH times the
number of days in the month, [*] $[*] times the number of days in the month
[($[*])(ADH)(days)[*]($[*])([*])(days)[*] ($[*])([*]) (days)].
2.2 As an advance against, and recoupable from, any and all amounts
that may otherwise be payable pursuant to Section 2.1.2 above, Microsoft agrees
to pay to Inktomi the sum of $[*] promptly after the execution of this
Agreement. Notwithstanding anything contained herein to the contrary, if the
Launch Date is [*], for [*] other than [*] to meet any requirement in the [*],
then on the [*] of each [*] (but attributable to the [*]) beginning on [*], and
continuing until the [*] of [*] or the [*], the [*] portion of [*] shall be
deemed by [*]. Notwithstanding the foregoing, with respect to the [*] in which
the [*] (if [*]), [*] will be reduced by the amount of [*] for such month
pursuant to Section [*].
2.3 Notwithstanding any other provision of this Agreement, Microsoft
shall have no obligation to use the Product, or to limit the number of search
results on any given Web page in the Microsoft Site. Inktomi acknowledges and
agrees that it is not entitled to any share in any revenue derived by Microsoft
from the Microsoft Site or the Microsoft Search Engine, regardless of how
derived, and that except as may be expressly provided otherwise in this
Agreement (or by subsequent mutual agreement of the parties) the royalties
payable (if any) under Sections 2.1 and 2.2 will be the only payments required
to be made to Inktomi for or in consideration of the development and use of the
Derivative Technology and/or rights granted to Microsoft hereunder, the Services
and all results and proceeds thereof. Nothing in this Agreement will be
construed as restricting Microsoft's ability to acquire, license, develop,
manufacture or distribute for itself, or have others acquire, license, develop,
manufacture or distribute for Microsoft, similar technology performing the same
or similar functions as the technology contemplated by
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THE OMITTED PORTIONS.
<PAGE>
this Agreement, or to market and distribute such similar technology in addition
to, or in lieu of, the technology contemplated by this Agreement.
2.4 Microsoft acknowledges that Inktomi has customized and provided,
and will continue to customize and provide, its software and technology to other
parties for use in connection with a variety of applications, including Search
Engine applications. Except as may be expressly provided to the contrary
elsewhere in this Agreement, nothing in this Agreement will be deemed to limit
or restrict Inktomi from customizing and providing its software and technology
to other parties for any purpose, including in connection with Search Engine
applications, or in any way affect the rights granted to such other parties.
2.5 Notwithstanding anything contained herein, in the event that
Inktomi licenses its Search Engine, and/or search results derived from the use
of such technology, to any third party (including but not limited to
arrangements whereby such technology is branded by such third party and/or such
technology is incorporated by a third party into its product) pursuant to which
such third party pays Inktomi [*], and in the event the [*] to the third
party than the [*] forth in this Agreement, then this Agreement shall be [*]
so that Microsoft shall [*] such [*].
3. Accountings and Audits.
----------------------
3.1 Within forty-five (45) days after the end of each calendar month
with respect to which Microsoft owes Inktomi any royalties, Microsoft shall
furnish Inktomi with a statement, together with payment for any amount shown
thereby to be due to Inktomi. The royalty statement shall be based upon the
calculations set forth in Section 2 during the month then ended, and shall
contain information reasonably sufficient to discern how the royalty payment, if
any, was computed. All statements and all other accounts rendered by Microsoft
to Inktomi shall be binding upon Inktomi and not subject to any objections by
Inktomi for any reason unless specific objection in writing, stating the basis
thereof, is received by Microsoft within one (1) year from the date rendered.
3.2 Taxes.
-----
3.2.1 All amounts to be paid by Microsoft to Inktomi herein are
exclusive of any federal, state, local, municipal or other governmental taxes,
including, without limitation, taxes based on, imposed on or measured by net or
gross income or receipts, franchise taxes, taxes on doing business, capital
stock taxes (including any minimum taxes and taxes measured by any item of tax
preference), sales, use, excise, property, withholding or similar taxes, duties,
levies, fees, excises or tariffs (all such taxes and other charges collectively
"Taxes") now or hereafter imposed on Inktomi under applicable law (the "Inktomi
Taxes"). Microsoft is not liable to Inktomi for any Taxes incurred in connection
with this Agreement, unless they are (i) owed by
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THE OMITTED PORTIONS.
<PAGE>
Microsoft under applicable law solely as a result of entering into this
Agreement (ii) are based solely upon the amounts payable under this Agreement,
and (iii) are required to be collected from Microsoft by Inktomi under
applicable law, provided, however, that solely with respect to sales tax or use
tax payable to those taxing jurisdictions that impose sales or use taxes under
applicable law upon the vendor, rather than the purchaser, clause (i) above
shall be modified to provide "sales taxes or use taxes that are owed by Inktomi
under applicable law solely as a result of entering into this Agreement and
clause (iii) shall be modified to provide "are permitted to be collected from
Microsoft by Inktomi under applicable law." (Such Taxes as are described in
clauses (i), (ii) and (iii) above, the "Invoiced Taxes"). The Invoiced Taxes
shall be stated separately as applicable on Inktomi's invoices and shall be
remitted by Microsoft to Inktomi. Inktomi shall promptly provide to Microsoft
official tax receipts indicating that such Invoiced Taxes have been collected by
Inktomi. Microsoft may provide to Inktomi an exemption certificate acceptable to
Inktomi and to the relevant taxing authority (including without limitation a
resale certificate) in which case Inktomi shall not collect the Taxes covered by
such certificate. Inktomi agrees to take such steps as are reasonably requested
by Microsoft to minimize such Invoiced Taxes in accordance with all relevant
laws and to reasonably cooperate with and assist Microsoft, at Microsoft's
request, in challenging the validity of any Invoiced Taxes or other Taxes paid
directly by Microsoft to the relevant taxing authority. Inktomi shall indemnify
and hold Microsoft harmless from any Taxes, penalties, interest, or additions to
tax arising from amounts paid by Microsoft to Inktomi under this Agreement that
are asserted or assessed against Microsoft to the extent such amounts are
related to Invoiced Taxes paid to Inktomi by Microsoft under this section. Other
than the Invoiced Taxes, all Inktomi Taxes shall be the responsibility of
Inktomi and may not be passed on to Microsoft. Inktomi takes full responsibility
for all such Inktomi Taxes, including penalties, interest and other additions
thereon and agrees to indemnify, defend and hold Microsoft harmless from any
claims, causes of action, costs (including without limitation, reasonable
attorneys' fees), penalties, interest charges and other liabilities of any
nature whatsoever associated therewith. All Taxes that are imposed on Microsoft
under applicable law (the "Microsoft Taxes") shall be the responsibility of
Microsoft and may not be passed on to Inktomi. Microsoft takes full
responsibility for all such Microsoft Taxes, including penalties, interest and
other additions thereon and agrees to indemnify, defend and hold Inktomi
harmless from any claims, causes of action, costs (including without limitation,
reasonable attorneys' fees), penalties, interest charges and other liabilities
of any nature whatsoever associated therewith.
3.2.2 In the event that Taxes are required to be withheld on
payments made hereunder by any U.S. (state, local or federal) or foreign
government, Microsoft may deduct such Taxes from the amount owed Inktomi and pay
them to the appropriate taxing authority. Microsoft shall in turn promptly
secure and deliver to Inktomi an official receipt for any Taxes withheld.
Inktomi may provide to Microsoft an exemption certificate acceptable to
Microsoft and to the relevant taxing authority (including without limitation a
resale certificate) in which case Microsoft shall not collect the Taxes covered
by such certificate. Microsoft agrees to take such steps as are reasonably
requested by Inktomi to minimize such Taxes in accordance with all relevant
8
<PAGE>
laws and to reasonably cooperate with and assist Inktomi, at Inktomi's request,
in challenging the validity of any such Taxes.
3.2.3 Inktomi agrees and acknowledges that it will be
responsible for all of its federal and state taxes, withholding, social
security, unemployment and other related taxes, insurance, and other benefits,
and all salaries, benefits, and other costs of its employees.
3.3 Microsoft agrees to keep, for not less than eighteen (18) months,
all proper records and books of account and all proper entries therein relating
to the calculations made under Section 2. Inktomi may cause an audit to be
made, at its expense, of the applicable records in order to verify statements
rendered hereunder. Any such audit shall be conducted only by a certified
public accountant (other than on a contingency-fee basis) and shall be conducted
during regular business hours at Microsoft's offices and in such a manner as not
to interfere with Microsoft's normal business activities. In no event shall an
audit with respect to any royalty statement commence later than eighteen (18)
months from the date of the statement involved, nor shall the audits be made
hereunder more frequently than once annually, nor shall the records supporting
any statements be audited more than once. Inktomi shall require the certified
public accountant when engaged to execute and deliver to Microsoft a certificate
in substantially the following form:
"I hereby certify that I have been engaged by Inktomi to audit the books and
records of MICROSOFT CORPORATION. Inktomi will not pay me on a contingent-
fee basis. The fees to be received by me for conducting the audit shall be
in no manner variable according to the findings or results of the audit.
Inktomi hereby agrees to make available to Microsoft, upon request, its records
and reports pertaining to the audit and any such records and reports prepared
for Inktomi by third parties (including the work sheets generated by its
auditors) but only in the event that Inktomi makes any claim with respect to
such audit. If any Inktomi audit should determine that Microsoft underpaid
Inktomi by an amount of 5% or more for the period audited, then in addition to
any and all other rights and remedies Inktomi may have under the circumstances,
Inktomi may require Microsoft to reimburse it for all costs it incurred relating
to such audit in addition to paying the amount otherwise owed.
4. Product Development.
-------------------
4.1 In General. Inktomi shall perform the Services, and deliver to
----------
Microsoft the Deliverables, in accordance with the Specifications (including the
Schedule), as the same may change from time to time during the Term with the
mutual consent of Microsoft and Inktomi, and all other terms and conditions
contained in this Agreement. Inktomi will use its best efforts to meet each
milestone in the Schedule for delivering the Product and the Deliverables.
Inktomi agrees that the Services shall be performed in a professional manner and
shall be of a high grade, nature and quality. Throughout the Term:
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4.1.1 Inktomi will assign human and financial resources to
maintain the Inktomi Search Engine and the Product, and develop enhancements
thereof, of at least the same quality and quantity as allocated to the
development and maintenance of the Inktomi Search Engine prior to the Effective
Date. Without limiting the generality of the foregoing, Inktomi agrees that, for
so long as he is an employee of Inktomi, [*] shall (i) be substantially
responsible for the guidance and direction of the Inktomi Search Engine and the
Product, including the development and enhancement thereof, and (ii) devote such
time and effort with respect to the Inktomi Search Engine and Product as may be
required to reasonably ensure the maintenance of their quality, functionality
and reliability. Inktomi further agrees that Microsoft will have the right to
approve [*] successor as "leader" of the Inktomi Search Engine team, if [*]
should cease to be an employee of Inktomi. Inktomi shall use its commercially
reasonable efforts to [*] within the Inktomi Search Engine development team, and
to ensure that the [*] is [*] than [*].
4.1.2 Inktomi will monitor the reliability and accessibility of
the Product, and ensure that it continues to perform in accordance with the
Specifications. Without limiting the generality of Section 4.1.3 below, if
Inktomi is contemplating any modifications to the Inktomi Search Engine or
Coupled Cluster Technology which might materially affect the performance of the
Product, Inktomi will confer in good faith with Microsoft regarding the
appropriateness of such modifications and mutually agree whether or not to make
such modifications; provided, however, that such consultation will not be deemed
to relieve Inktomi from its obligations to ensure that the Product continues to
meet the Specifications and operational cost estimates as specified in Exhibit C
at all times during the Term.
4.1.3 Prior to customization of the Inktomi Search Engine in
accordance with the Specifications, and thereafter throughout the Term, Inktomi
will keep Microsoft informed, in writing, of all planned enhancements to the
Inktomi Search Engine, and the status of development thereof, provided Inktomi
has the right to do so. Unless requested otherwise by Microsoft, Inktomi will
incorporate any or all such other planned enhancements into the Product,
provided Inktomi has the right to do so, in which case the Specifications shall
be deemed to be amended to include such enhancements.
4.1.4 From time to time, Microsoft may request that Inktomi
undertake to develop certain enhancements to the Product. Upon such request,
Inktomi shall confer in good faith with Microsoft regarding the feasibility of
developing such enhancements and the time frame for developing, testing and
incorporating such enhancements (giving due consideration to the status of
Microsoft as a primary licensee of Inktomi). Then, Inktomi and Microsoft shall
mutually agree as to whether Inktomi should pursue development of such
enhancements, and, if so, which of Inktomi and/or Microsoft will fund such
development, and, if funded in substantial part by Microsoft, whether the
enhancement will be Inktomi Derivative Technology, Microsoft Derivative
Technology, or Joint Derivative Technology. Upon mutual agreement, the
Specifications shall be deemed amended to include such enhancements.
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THE OMITTED PORTIONS.
<PAGE>
4.2 Acceptance. The terms and conditions contained in this Section
----------
4.2 will apply to the initial release of the Product, as well as to each
subsequent release, upgrade, enhancement and version thereof.
4.2.1 Inktomi agrees to thoroughly test the Product (including
without limitation each and every release, version, and enhancement thereof), as
appropriate under the circumstances, at all appropriate stages of development,
and shall document its testing by written test documents delivered to Microsoft.
Inktomi will submit its test plans to Microsoft for review, so as to ensure that
Microsoft's standards of quality are maintained, and Inktomi agrees to
subsequently modify the test plans to accommodate Microsoft's requests if
Microsoft reasonably deems any changes to be necessary or appropriate. Such test
documents shall include a detailed description of the tests as conducted, and
test results (including, without limitation, resulting bug list and outstanding
issues list). Notwithstanding anything contained in this Agreement to the
contrary, Inktomi will not deploy the Product, and/or any enhancement thereof,
unless and until Microsoft authorizes such deployment in writing.
4.2.2 If either party is aware or becomes aware of a delay that
will prevent Inktomi from meeting a scheduled milestone for any Deliverable
under the Schedule, such party will promptly inform the other party of such
delay, and the reason therefor, in writing. If such delay is caused by
Microsoft, the Schedule will automatically be deemed extended, for the
applicable Deliverable and for subsequent deliverables, if and to the extent
minimally necessitated by the original delay. If such delay is caused by
Inktomi, Inktomi will be given a reasonable period (up to thirty (30) days,
depending on the circumstances) to cure the unmet Deliverable Schedule. However,
Inktomi acknowledges that timely meeting the Schedule is of critical importance
under this Agreement, and that time is of the essence in curing a delayed
delivery.
4.2.3 Microsoft shall evaluate the beta and final version of
each Deliverable and shall submit an acceptance or rejection to Inktomi within
ten (10) days after Microsoft's receipt of the engineering prototype and beta
versions and fifteen (15) calendar days after receipt of the final version of
the Deliverable. If Microsoft identifies Errors in any Deliverable prior to
acceptance, then Inktomi shall correct, at its sole expense, such Errors, and
use its best efforts to effect such correction within the applicable time
specified in Exhibit B.
4.2.4 If Inktomi fails to deliver any Deliverable within the
dates specified in the Schedule (after application of the applicable reasonable
cure period) and if any Errors discovered during the acceptance process cannot
be eliminated in the correction period specified in the Specifications or
Exhibit B (whichever is applicable) then Microsoft may, at its option: (i)
extend the correction period; or (ii) suspend its performance until the problem
is corrected to Microsoft's reasonable satisfaction and/or, if the failure to
deliver or uncorrected Error is material, terminate this Agreement for cause
pursuant to Section 9.
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<PAGE>
4.2.5 Notwithstanding anything contained herein to the contrary,
Inktomi shall at all times hereunder be responsible for ensuring that the
Product meets all Specifications, and if any Error is discovered after
acceptance, Inktomi shall remain obligated to correct such Error in accordance
with the applicable timetable determined by Microsoft and Inktomi as set forth
in the Specifications or Exhibit B, or as otherwise may be mutually agreed under
the circumstances.
4.3 Specific Enhancements. Without limiting the foregoing, Inktomi
---------------------
and Microsoft acknowledge that at some time during the Term they contemplate the
following enhancements to the Product:
(a) [*] to the [*]. In this connection, as soon as practicable
following execution of this Agreement, Inktomi will undertake a study (using one
or more neutral, independent third party consultants the identity of whom will
be subject to Microsoft's reasonable prior approval) to determine the cost,
timing and other feasibility aspects [*]. Following completion of this
feasibility study, unless said mutually approved consultant(s) indicate(s) that
[*] is impossible or would require more than [*] ([*]) [*], Inktomi and
Microsoft will meet and mutually determine a timetable and milestones for
Inktomi to accomplish [*], with Inktomi using its commercially reasonable
efforts to complete the [*] by no later than [*].
(b) development of international versions of the Product, in any
and all languages desired by Microsoft, upon timetables and in accordance with
technical specifications as are mutually agreed by Microsoft and Inktomi from
time to time during the Term.
Unless otherwise agreed by the parties, Inktomi's Services hereunder will
include, without limitation, all development services required with respect to
[*]. However, with respect to the port, Microsoft will provide such [*]
(including the services of Microsoft's [*]) as may be reasonably available
to Microsoft and reasonably requested by Inktomi.
5. Scope of Rights.
---------------
5.1 Inktomi Technology. Nothing contained in this Agreement will
------------------
be deemed to transfer any ownership in the Inktomi Technology to Microsoft, and
insofar as Microsoft is concerned, Inktomi will own all rights in and to the
Inktomi Technology.
5.2 Microsoft Technology.
--------------------
5.2.1 Microsoft hereby grants to Inktomi a non-exclusive license
to incorporate Microsoft Technology into the Product, as contemplated by the
development process hereunder, provided that Inktomi may not itself use, nor
authorize
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<PAGE>
any third party's use of, the Microsoft Technology portion of the Product
without Microsoft's prior written approval (which Microsoft may give or withhold
in its sole and absolute discretion, and which may be conditioned, without
limitation, upon a royalty or other fee being payable to Microsoft).
5.2.2 Subject to Section 5.2.1 above, as between Microsoft and
Inktomi, Microsoft will own all rights in and to Microsoft Technology.
5.3 Derivative Technology.
---------------------
5.3.1 Inktomi Derivative Technology will be owned exclusively
by Inktomi and treated in the same manner as Inktomi Technology under this
Section 5, except as follows:
(a) Inktomi will not make available any Inktomi
Derivative Technology or any search engine features implemented thereby to any
third party search engine customer for a period of not less than [*] ([*]) years
commencing on the incorporation of the final (not "beta") version of the Inktomi
Derivative Technology into the Microsoft Search Engine. After the expiration of
said [*] ([*]) year exclusivity period, Inktomi will have the right to use the
Inktomi Derivative Technology in other versions of the Inktomi Search Engine,
but if Inktomi so uses any Inktomi Derivative Technology it will pay to
Microsoft, in [*], an amount equal to [*] of the amounts Microsoft paid for
development of such Inktomi Derivative Technology pursuant to Section 2.1.1
above, but except for such payments Inktomi will not owe any royalties or other
amounts to Microsoft for any use of the Inktomi Derivative Technology; and
(b) Inktomi hereby grants to Microsoft a non-exclusive
and irrevocable, fully paid-up, license under any and all patents that Inktomi
may own related to any portion of the Inktomi Derivative Technology, throughout
the Territory for the applicable life of the respective patent; provided,
however, that nothing contained in this clause (b) shall be deemed to require
Inktomi to deliver any code to Microsoft.
5.3.2 Each of Inktomi and Microsoft will own an [*] ([*])
interest in and to all Joint Derivative Technology, at all stages of
development, and the parties hereby assign to each other such individual rights
therein as necessary to effectuate said [*] ownership relationship. Subject to
the other rest of this Section 5.3.2, each party shall have the right to use
Joint Derivative Technology as each may determine (including creating other
derivative works based thereon) without any limitation or necessity to account
to the other. However, Inktomi will not make available any Joint Derivative
Technology or any search engine features implemented thereby to any third party
search engine customer for a period of not less than [*] ([*]) years commencing
on the incorporation of the final (not "beta") version of the Joint Derivative
Technology into the Microsoft Search Engine. After the expiration of said [*]
([*]) year exclusivity period, Inktomi will have the right to use the Joint
Derivative Technology in other versions of the Inktomi Search Engine, but if
Inktomi so uses any Joint Derivative
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THE OMITTED PORTIONS.
<PAGE>
Technology it will pay to Microsoft, in [*], an amount equal to [*] of the
amounts Microsoft paid for development of such Joint Derivative Technology
pursuant to Section 2.1.1 above, but except for such payments by Inktomi to
Microsoft, and the payments by Microsoft to Inktomi pursuant to Section 2.1.2
above, neither Microsoft nor Inktomi will owe any royalties or other amounts to
the other for any of their respective uses of the Joint Derivative Technology.
Each party will have the right to file registrations, and prosecute
infringements, relating to the Joint Derivative Technology, but will consult
with the other party before doing so, and will cooperate with the other should
it desire joint filings or prosecutions.
5.3.3 Subject to Section 5.3.4 below, as between Microsoft and
Inktomi, Microsoft will own all rights in and to the Microsoft Derivative
Technology.
(a) Inktomi acknowledges and agrees that, insofar as Inktomi is
concerned, the Microsoft Derivative Technology has been specially ordered
and commissioned by Microsoft and are "works made for hire" for copyright
purposes, with all copyrights in the Microsoft Derivative Technology owned
by Microsoft.
(b) To the extent (if any) that any Microsoft Derivative Technology
does not qualify as a work made for hire under applicable law, and to the
extent that the Microsoft Derivative Technology includes material subject
to copyright, patent, trade secret, or other proprietary right protection,
Inktomi hereby assigns to Microsoft, its successors and assigns, all right,
title and interest in and to the Microsoft Derivative Technology,
including, but not limited to, all rights in and to any inventions and
designs embodied in the Microsoft Derivative Technology or developed in the
course of Inktomi's creation of the Microsoft Derivative Technology. The
foregoing assignment includes a license under any current and future
patents owned or licensable by Inktomi to the extent necessary to combine
the Microsoft Derivative Technology with any hardware and software.
(c) Inktomi hereby irrevocably transfers and assigns to Microsoft any
and all "moral rights" that Inktomi may have in the Microsoft Derivative
Technology. Inktomi also hereby forever waives and agrees never to assert
any and all "moral rights" it may have in the Microsoft Derivative
Technology, even after termination of the Services.
5.3.4 Microsoft hereby grants to Inktomi a non-exclusive
license to incorporate Microsoft Derivative Technology into the Product, as
contemplated by the development process hereunder, provided that Inktomi may not
itself use, nor authorize any third party's use of, the Microsoft Derivative
Technology portion of the Product without Microsoft's prior written approval
(which Microsoft may give or withhold in its sole and absolute discretion, and
which may be conditioned, without limitation, upon a royalty or other fee being
payable to Microsoft).
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<PAGE>
5.4 User Interface. Microsoft intends to develop a User Interface(s)
--------------
for the Product; accordingly, any such User Interface would be Microsoft
Technology. If and to the extent that any User Interface for the Product is
developed by Inktomi, Inktomi acknowledges that it would be Microsoft Derivative
Technology. In either event, subject only to Section 5.2.2 or 5.3.3 (whichever
is applicable), as between Microsoft and Inktomi, Microsoft will own all rights
in and to any User Interface.
5.5 Deliverables.
------------
5.5.1 Microsoft will own all tangible materials (such as disks,
CD-ROMs, tapes and the like) delivered by Inktomi to Microsoft in connection
with this Agreement, and Inktomi hereby transfers all right, title and interest
in and to the same to Microsoft (subject to the other provisions in this Section
5).
5.5.2 Without limitation, and notwithstanding anything
contained in or omitted from the Specifications, all object code, source code
and related documentation for Joint Derivative Technology and Microsoft
Derivative Technology, and all data derived from testing the same, will be
deemed to be Deliverables under this Agreement, and Inktomi agrees to provide
Microsoft with copies thereof promptly after creation.
5.6 Assistance. Each party shall execute and deliver such
----------
instruments and take such other action as may be requested by the other to
perfect, protect, evidence or effectuate their respective rights in the Product,
Derivative Technology or any other technology referenced herein. In case one
party requests the other to execute and deliver any such instrument necessary to
perfect, protect, evidence or effectuate its rights and such other party fails
to accommodate any reasonable such request within thirty (30) days, such other
party hereby appoints and constitutes the requesting party as its attorney-in-
fact to execute, acknowledge and file all such instruments and to take such
other steps in its name as the requesting party, in its reasonable judgment, may
deem necessary or desirable to secure and/or protect its rights, such
appointment being a right coupled with an interest and irrevocable.
5.7 No Trademark License. Nothing in this Agreement or its
--------------------
performance shall grant either party any right, title, interest, or license in
or to the other's names, logos, logotypes, trade dress, designs, or other
trademarks.
6. Representations and Warranties.
------------------------------
6.1 By Inktomi. Inktomi warrants and represents that:
----------
(a) It has the full power to enter into this Agreement and to
grant the rights set forth herein;
15
<PAGE>
(b) It has not previously and will not grant any rights in
the Inktomi Technology, the Product, the Derivative Technology or Deliverables
to any third party that are inconsistent with this Agreement (including without
limitation pursuant to agreements with [*]);
(c) Except for the portion thereof consisting of Microsoft
Technology (if any), (i) the Deliverables and Derivative Technology [*], or [*]
held by [*], and Inktomi has [*] of [*] of any [*], and (ii) the operation of
the Deliverables and Derivative Technology as part of the Product as intended
under this Agreement and/or the Information Services Agreement of even date
herewith [*], or [*] held by any third party, and Inktomi has [*] of [*] of any
[*];
(d) The Deliverables, Product and Derivative Technology will
[*] throughout the Term; provided, however, that a [*] and [*] to so perform
will not be deemed to be a material breach hereunder;
(e) The Product [*] to the extent Microsoft requires throughout
the Term, [*] with the [*] set forth in [*] (which is appended hereto and
incorporated herein by this reference); and
(f) The Derivative Technology, Deliverables and Product will
be created by employees of Inktomi within the scope of their employment and
under obligation to assign inventions to Inktomi, and/or by independent
contractors under written obligations to assign all rights in the Derivative
Technology, Deliverables and Product to Inktomi.
6.2 By Microsoft. Microsoft warrants and represents that it has the
------------
full power to enter into this Agreement.
6.3 Exclusions. Inktomi's warranties under Section [*] above will
----------
[*] to [*]: (i) use by Microsoft of the [*]; (ii) [*], or [*], the Product made
by Microsoft, unless such [*] or [*] and [*] by Microsoft; (iii) use by
Microsoft of the [*] with data or software or hardware which is [*] with the
Product [*] was [*] in writing; or (iv) [*] made to the [*] purported to be made
by [*] without the [*] of Inktomi.
7. Indemnification.
---------------
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
7.1 By Inktomi. Inktomi shall, [*] and Microsoft's request, defend
----------
[*] claim or action brought against Microsoft, and [*] and [*], which, [*],
would constitute a [*] of any [*] or [*] made by Inktomi under this Agreement,
and Inktomi will [*] and [*] Microsoft [*] any [*], [*] and [*] by Microsoft,
including but [*] to [*] of [*] and [*], that are attributable to such claim.
Microsoft shall: (i) provide Inktomi reasonably prompt notice in writing of any
such claim or action and [*], through [*] to Microsoft and Inktomi, to [*] and
[*] such claim or action; and (ii) provide [*] and [*], at [*], to [*] Inktomi
to [*] such claim or action. Inktomi will [*] for any [*] by [*] without [*],
which [*] will [*].
7.2 By Microsoft. Microsoft shall, at [*] and Microsoft's request,
------------
defend [*] or action brought against Inktomi, [*] and [*], which, [*], (i)
would constitute a [*] of any [*] or [*] made by Microsoft under this Agreement,
(ii) is [*] in [*] upon [*] to [*] made by [*] by Inktomi, (iii) is [*] in [*]
upon [*] of the [*] is [*] by Section [*] above, and/or (iv) is based in [*] on
[*], and Microsoft will [*] and [*] Inktomi [*] any [*] and [*] incurred by
Inktomi, including but [*] to [*] of [*] and [*], that are attributable to such
claim. Inktomi shall: (i) provide Microsoft reasonably prompt notice in writing
of any such claim or action and [*], through counsel [*] to Inktomi and
Microsoft, to [*] and [*] such claim or action; and (ii) provide Microsoft [*]
and [*], at [*], to [*] Microsoft to [*] such claim or action. [*] will [*] for
any [*] by [*] without [*], which [*] will [*].
7.2 Separate Counsel; Reimbursement. An indemnified party shall
-------------------------------
have the right to employ separate counsel and participate in the defense of any
claim or action. The indemnifying party shall reimburse the indemnified party
upon demand for any payments made or loss suffered by it at any time after the
date hereof, based upon the judgment of any court of competent jurisdiction or
pursuant to a bona fide compromise or settlement of claims, demands, or actions,
in respect to any damages related to any claim or action under this Section 7.
7.3 Settlement. The indemnifying party may [*] any claim or action
----------
under this Section 7 [*] the [*] written [*], which [*] will [*]. In the event
Microsoft and Inktomi agree to settle a claim or action, each party agrees not
to publicize the
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
settlement without first obtaining the other's written permission, which
permission will not be unreasonably withheld.
7.4 Proprietary Rights Infringement. Without limiting any of
-------------------------------
[*], in the event of any [*] or [*] by [*] of Section [*]([*]), [*] shall notify
[*] and shall [*] (i) [*] for [*] so that [*] shall [*] be in [*] of Section
[*]([*]), or (ii) [*] the [*] or [*] thereof, or [*] the [*] with [*] having [*]
the same or [*]. If neither of the foregoing is [*] to achieve within a [*] of
time, then, in addition to any [*] available to [*], [*] may [*] this Agreement.
8. LIMITATION OF LIABILITY. EXCEPT FOR [*] CAUSED BY A [*] OF
-----------------------
SECTION [*], NEITHER PARTY SHALL BE [*] (IN CONNECTION WITH OR PURSUANT TO THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS TAKEN AS A WHOLE) FOR ANY [*], [*] OR [*]
(INCLUDING [*]) [*] OF [*] ([*]), [*] OF THE [*] OF [*], EVEN IF [*]
HAD BEEN [*] OF THE [*] OF SUCH [*].
9. Termination and Other Remedies.
------------------------------
9.1 Termination At Will by Either Party.
-----------------------------------
9.1.1 Microsoft may terminate this Agreement without cause upon
[*]'s prior written notice, provided that such notice may not be given prior to
the [*] of the [*].
9.1.2 Inktomi may terminate this Agreement without cause upon
[*]'s prior written notice, provided that such notice may not be given prior to
the [*] of the [*].
9.2 In addition to any other rights and/or remedies that Microsoft
may have under the circumstances, all of which are expressly reserved, Microsoft
may suspend performance and/or terminate this Agreement immediately upon written
notice at any time if:
(a) Inktomi is in material breach of [*] or [*] of this
Agreement, other than those contained in Section 10.1, and fails to cure that
breach within [*] ([*]) days after written notice thereof; or
(b) Inktomi is in material breach of Section [*]; or
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
(c) Inktomi becomes insolvent or makes any assignment for the
benefit of creditors or similar transfer evidencing insolvency; or suffers or
permits the commencement of any form of insolvency or receivership proceeding;
or has any petition under any bankruptcy law filed against it, which petition is
not dismissed within sixty (60) days of such filing; or has a trustee or
receiver appointed for its business or assets or any part thereof.
9.3 In addition to any other rights and/or remedies that Inktomi may
have under the circumstances, all of which are expressly reserved, Inktomi may
suspend performance and/or terminate this Agreement immediately upon written
notice at any time if:
(a) Microsoft is in material breach of [*] or [*] of this
Agreement, other than those contained in Section [*], and fails to cure that
breach within [*] ([*]) days after written notice thereof; or
(b) Microsoft is in material breach of Section [*]; or
(c) Microsoft becomes insolvent or makes any assignment for
the benefit of creditors or similar transfer evidencing insolvency; or suffers
or permits the commencement of any form of insolvency or receivership
proceeding; or has any petition under any bankruptcy law filed against it, which
petition is not dismissed within sixty (60) days of such filing; or has a
trustee or receiver appointed for its business or assets or any part thereof.
9.4 In the event of termination or expiration of this Agreement for
any reason, Sections 1, 3, 5.1, 5.2.2, 5.3.1(a), 5.3.2, 5.3.3, 5.3.4, 5.4, 5.5,
5.6, 5.7, 6, 7, 8, 10.1 and 12 (other than Section 12.12) shall survive
termination. Neither party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance with its terms.
9.5 If Inktomi is in material breach of this Agreement, then, in
addition to any other remedies which Microsoft may have under the circumstances,
Microsoft will have the right to withhold payment of amounts otherwise owed by
Microsoft to Inktomi pursuant to this and/or any Ancillary Agreement; provided,
however, that Microsoft shall give Inktomi not less than forty-five (45) days to
cure such breach prior withholding any such payments.
9.6 A breach of this Agreement by either party will also constitute a
breach by such party of each and every other Ancillary Agreement; and a breach
by either party of any Ancillary Agreement will also consitute a breach of this
Agreement by such party.
9.7 Except as expressly provided herein, upon expiration of the Term
or upon any termination of this Agreement, Microsoft shall have no further
rights with
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
respect to the Product or Inktomi Technology, and will promptly return to
Inktomi or destroy all copies of Inktomi Technology then in its possession or
under its control.
10. Confidentiality.
---------------
10.1 The parties hereby agree that all terms and conditions of that
certain Microsoft Corporation Non-Disclosure Agreement between them dated March
18, 1997, shall govern the disclosure of confidential and proprietary
information made under this Agreement. In this connection, the parties hereby
agree that the terms of this Agreement, the Specifications, the Derivative
Technology and all Microsoft-requested enhancements to the Inktomi Search Engine
shall be treated as confidential in accordance with the terms of said Non-
Disclosure Agreement.
10.2 Without having first sought and obtained Microsoft's written
approval (which Microsoft may withhold in its sole and absolute discretion),
Inktomi shall not, directly or indirectly, (i) trade upon this transaction or
any aspect of Inktomi's relationship with Microsoft, or (ii) otherwise deprecate
Microsoft technology.
10.3 Neither party will issue any press release or make any public
announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other party. However, the parties acknowledge that this
Agreement, or portions thereof, may be required under applicable law to be
disclosed, as part of or an exhibit to a party's required public disclosure
documents. If either party is advised by its legal counsel that such disclosure
is required, it will notify the other in writing and the parties will jointly
seek confidential treatment of this Agreement to the maximum extent reasonably
possible, in documents approved by both parties and filed with the applicable
governmental or regulatory authorities. Notwithstanding the foregoing, Microsoft
and Inktomi will cooperate to create a mutually approved joint press release
regarding the non-confidential aspects of this Agreement, which press release
shall be issued by each party on the Launch Date; provided, however, that the
precise timing of such press release shall be subject to the approval of
Microsoft (in its sole and absolute discretion).
11. Technology Escrow.
-----------------
11.1 To ensure that Microsoft will have access to such technology as
may be necessary or appropriate to permit it to use the Product to generate
search results (and to develop enhancements and other derivative works for use
in connection with the Product) as contemplated by this Agreement and the
Ancillary Agreements, Inktomi agrees to provide to an escrow agent, the identity
of which is satisfactory to Inktomi and Microsoft, a copy of all source code,
binary code and related documentation used in, or in connection with the
development of, the Product or the Deliverables (including all related
enhancements), concurrently with the deployment or delivery of the applicable
Deliverable or Product (including all related enhancements) to Microsoft.
Without limiting the generality of the foregoing, all source code, binary code
and documentation for the Inktomi's Search Engine and relevant Coupled Cluster
Technology will be
20
<PAGE>
escrowed hereunder. Said escrow agent will hold such code and documentation in
escrow, and release it if and only if it is permitted to do so pursuant to the
terms and conditions of the Escrow Agreement appended hereto as Schedule I. The
parties shall execute an Escrow Agreement substantially in the form of Schedule
I concurrently with the execution of this Agreement.
11.2 If Microsoft is entitled to receive any source code, binary code
and/or documentation pursuant to said Escrow Agreement, (i) Inktomi will be
deemed to automatically have granted to Microsoft a non-exclusive and
irrevocable license during the remainder of the Term and throughout the
Territory to use the Product (and all required underlying Inktomi Technology)
solely to generate search results (and to create enhancements and derivative
works for use in connection with the Product) as contemplated by this Agreement
and the Ancillary Agreements, and (ii) Inktomi agrees to furnish to Microsoft,
upon Microsoft's request, the services of Inktomi personnel familiar with the
structure and operation of such source code and/or binary code to explain such
code and train Microsoft personnel in its operation. Such services shall
continue for so long as is reasonably required by Microsoft personnel to become
proficient in its use and application, and Inktomi will charge Microsoft only
for its direct, actual, out-of-pocket costs of such services.
12. Miscellany.
----------
12.1 Neither party shall represent itself as the agent or legal
representative of the other for any purpose whatsoever, and neither party shall
have the right to create or assume for the other any obligation of any kind.
This Agreement shall not create or be deemed to create an agency, partnership,
franchise, employment relationship or joint venture between the parties. Each
party's employees who perform services related to this Agreement shall remain
under the exclusive direction and control of their respective employer and shall
receive such salaries, compensation and benefits as their respective employer
may from time to time determines. Each party shall have full and sole
responsibility for its employees who perform any service related to this
Agreement with regard to compliance with all applicable laws, rules and
regulations governing such party relating to employment, labor, wages, benefits,
taxes and other matters affecting its employees.
12.2 Any notice required or permitted to be given under this
Agreement shall be made in writing and shall be deemed to have been given or
made if it is in writing and is: (i) delivered in person, (ii) sent by same day
or overnight courier, (iii) mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to the party at its address set
forth below or at such other address as such party may subsequently furnish to
the other party by notice hereunder, or (iv) delivered by facsimile, the
transmittal of which shall be confirmed by a telephone call to the other party
and by dispatch of a confirming copy of the transmittal by registered or
certified mail, postage prepaid. Notices will be deemed effective on the date of
delivery in the case of personal delivery, or three (3) business days after
mailing, or on the date of dispatch in the case of notification by facsimile
(assuming confirmation of transmission).
21
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The parties' addresses for purposes of notice shall be as set forth above,
provided that all notices to Inktomi shall be sent to the attention of General
Counsel; and all notices to Microsoft shall be sent to the attention of Shirish
Nadkarni, with a copy to: Law & Corporate Affairs, U.S. Legal.
12.3 This Agreement shall be construed, enforced, performed and in
all respects governed by and in accordance with the laws in the State of
Washington. In any action or suit to enforce any right or remedy under this
Agreement the prevailing party shall be entitled to recover its reasonable
attorneys' fees and costs.
12.4 In the event any provision of this Agreement is rendered null,
void or otherwise ineffective in any given country or any political subdivision
in a given country, then (i) the parties agree to negotiate in good faith an
acceptable alternative provision which reflects as closely as possible the
intent of the unenforceable provision and which shall apply only with respect to
that portion of the Territory in which the original provision is rendered null,
void or otherwise ineffective and (ii) notwithstanding, and regardless of
whether the parties reach agreement after the good faith negotiations described
in clause (i) immediately above, the validity, legality and enforceability of
the remaining provisions of this Agreement with respect to such portion of the
Territory (and of all of the provisions of this Agreement with respect to the
balance of the Territory) shall not in any way be affected or impaired thereby
and shall remain in full force and effect. Section and all other headings used
herein are provided for convenience only and are not to be given any legal
effect or considered in interpreting any provision of this Agreement. No
provision of this Agreement shall be interpreted against any party because such
party or its legal representative drafted such provision.
12.5 Except as expressly permitted hereunder or in Exhibit D hereto,
neither party may transfer, assign or sublicense this Agreement, or any rights
or obligations hereunder, whether by contract or by operation of law, except
with the express written consent of the other party, and any attempted transfer,
assignment or sublicense by a party in violation of this Section shall be void.
For purposes of this Agreement, an "transfer" under this Section shall be deemed
to include, without limitation, the following: (a) a merger or any other
combination of an entity with another party (other than a reincorporation of
Inktomi from the State of California to the State of Delaware), whether or not
the entity is the surviving entity; (b) any transaction or series of
transactions whereby a third party acquires direct or indirect power to control
the management and policies of an entity, whether through the acquisition of
voting securities, by contract, or otherwise; (c) in the case of Inktomi, the
sale or other transfer of Inktomi's search engine business or any other
substantial portion of Inktomi's assets (whether in a single transaction or
series of transactions), or (d) the transfer of any rights or obligations in the
course of a liquidation or other similar reorganization of an entity (other than
a reincorporation of Inktomi from the State of California to the State of
Delaware). Neither party will unreasonably withhold or delay its consent to a
requested transfer, assignment or sublicense. Subject to the provisions of this
Section, this Agreement shall be binding upon and inure to the benefit of each
party and their respective successors and assigns.
22
<PAGE>
12.6 All rights and obligations of the parties hereunder are
personal to them. Except as otherwise specifically stated herein, this Agreement
is not intended to benefit, nor shall it be deemed to give rise to, any rights
in any third party.
12.7 Each party shall be responsible for compliance with all
applicable laws, rules and regulations, if any, related to the performance of
its obligations under this Agreement.
12.8 No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof or thereof, and no waiver shall be effective
unless made in writing and signed by an authorized representative of the waiving
party.
12.9 Neither party shall be liable hereunder by reason of any
failure or delay in the performance of its obligations hereunder during any
event of force majeure.
12.10 This Agreement, along with the Ancillary Agreements, together
contain the entire agreement of the parties with respect to the premises, and
may not be modified or amended except by a written instrument executed by the
party sought to be charged or bound thereby.
12.11 The parties acknowledge that there may be instances during the
Term when, notwithstanding the Non-Disclosure Agreement referred to in Section
10.1 above, Inktomi will not wish to disclose or have Microsoft become aware
(through inspection or otherwise) of certain confidential and proprietary
information of Inktomi relating to its business and/or technology. In those
instances, the parties agree to work together in a spirit of cooperation to work
around such disclosure so that Inktomi is able to perform the Services to
Microsoft's reasonable satisfaction and otherwise discharge its obligations
under this Agreement without making such disclosure.
12.12 Inktomi will notify Microsoft of all meetings of Inktomi's
Board of Directors (and all meetings of any executive committee of such Board),
with such notice being given at the same time and in the same manner as Inktomi
notifies the members of such Board (or executive committee, if applicable).
Microsoft shall have the right to designate one individual to attend (at
Microsoft's sole expense) each such meeting in a non-voting, observer capacity,
and in this connection, Inktomi will provide to such individual copies of all
information packages, slides and other review and/or presentation materials (if
any) made available to members of such Board relating to Inktomi's search engine
business; provided, however, that Inktomi shall have the right without prior
written notice to exclude the Microsoft representative from any part of the
discussion (and/or refrain from delivering copies of materials) if the Board
determines in good faith that the material to be discussed is privileged or of
such a sensitive nature that such representative should not be present. In
addition, Inktomi shall provide such representative with copies of all written
materials supplied by Inktomi to potential third party investors during the
Term. All information learned by the representative by
23
<PAGE>
attending such meeting and all written materials delivered to the representative
shall be treated as Confidential Information in accordance with the Non-
Disclosure Agreement.
13. Insurance.
---------
13.1 Throughout the term of this Agreement, Inktomi shall
procure and maintain insurance coverage. Such insurance shall be in a form and
with insurers reasonably acceptable to Microsoft, and shall comply with the
following minimum requirements:
(i) [*] Liability insurance with policy limits of not
less than [*] Dollars (US$[*]) [*] each occurrence for [*] and [*] combined.
Such policy shall be the [*] including coverage for [*].
(ii) [*] Liability Insurance with policy limits of not
less than [*] (US$[*]) each claim with a [*] of not more than [*] Dollars
(US$[*]). Such insurance shall include coverage for [*] (other than [*]) of [*]
[*] including without limitation [*] and [*] as related to Inktomi's performance
under this Agreement.
(iii) [*]. Inktomi shall at all times comply with all
applicable workers' compensation, occupational disease, and occupational health
and safety laws, statutes, and regulations to the full extent applicable. Such
workers' compensation and occupational disease requirements shall include
coverage for all employees of Inktomi, and for all [*] by Inktomi, [*]
(including [*]) by [*] which arises out of or in connection with the performance
of this Agreement by Inktomi. Satisfaction of these requirements shall include,
but shall not be limited to:
a. full participation in any required governmental
occupational injury and/or disease insurance program, to the extent
participation in such program is mandatory in any jurisdiction, and
b. purchase of [*] and [*] insurance providing
benefits to employees in full compliance with all applicable laws,
statutes, and regulations (but only to the extent such coverage is not
provided under a mandatory government program as in a. above), and/or
c. maintenance of a legally permitted and
governmentally approved program of self insurance for [*] and [*].
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<PAGE>
Except to the extent prohibited by law, the program of Inktomi's compliance with
[*] laws, statutes, and regulations in a., b., or c. above shall provide for a
full waiver of rights of subrogation against Microsoft, its directors, officers,
and employees. If Inktomi, or any subcontractor retained by Inktomi, fails to
effect and maintain a program of compliance with applicable [*] laws, statutes,
and regulations, and Microsoft incurs liability or fines or is required by law
to provide benefits to such employees, or to obtain coverage for such employees,
Inktomi shall indemnify Microsoft for such fines, payment of benefits to Inktomi
or subcontractor employees or their heirs or legal representatives, and/or the
cost of effecting coverage on behalf of such employees. Any amount owed to
Microsoft by Inktomi pursuant to this indemnity may be deducted from any
payments owed by Microsoft to Inktomi for performance of this Agreement.
13.2 Promptly following execution of this Agreement, Inktomi
shall provide to Microsoft proof evidencing full compliance with the insurance
requirements set forth herein. Inktomi shall notify Microsoft in writing at
least fifteen (15) days in advance if Inktomi's insurance coverage is to be
canceled or materially altered so as not to comply with the requirements of this
section. In the event Inktomi fails to provide such proof or fails to provide
such notice as requested herein, and in the event of liability or expense
incurred by Microsoft as a result of such failure by Inktomi, Inktomi hereby
agrees to indemnify Microsoft for all liability and expense (including
reasonable attorneys' fees and expenses associated with establishing the right
to indemnity) incurred by Microsoft as a result of such failure by Inktomi.
13.3 Inktomi agrees that Microsoft will not be responsible for
loss of or damage to any personal property located on Microsoft premises
belonging to Inktomi or any subcontractor retained by Inktomi. This Section 13.3
will not apply to the moved Hosting Servers (as defined in the Software Hosting
Agreement of even date herewith) if Microsoft exercises its right to require
Inktomi to move the Hosting Servers pursuant to Section 2.6.2 of said Software
Hosting Agreement.
13.4 Upon termination of this Agreement, Inktomi will maintain
an extended reporting period providing that the claims first made and reported
to the insurance company within one year after the end of this Agreement will be
deemed to have been made during the applicable policy period.
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<PAGE>
Executed as of the Effective Date on the signature dates below.
INKTOMI CORPORATION MICROSOFT CORPORATION
By: /s/ David C. Peterschmidt By: /s/ Laura Jennings
-------------------------- -------------------------
David C. Peterschmidt, CEO Laura Jennings
- ----------------------------- ----------------------------
(printed name and title) (printed name and title)
Date: July 24, 1997 Date: July 27, 1997
26
<PAGE>
EXHIBIT A
---------
PRODUCT SPECIFICATIONS
----------------------
(32 pages follow)
27
<PAGE>
EXHIBIT A
---------
YUKON REQUIREMENTS FOR THE INKTOMI SEARCH SERVICE
MICROSOFT CONFIDENTIAL
- -----------------------------------------------------------------------
VERSION: 1.0
STABILITY: High
FILENAME: Yukon requirements for Inktomi search service.doc
DATE: 07/07/97 3:57 PM
AUTHOR(S): William Jones wjones
- -----------------------------------------------------------------------
Page i of 32
<PAGE>
. Table of Contents
[*]
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<PAGE>
1. OVERVIEW
================================================================================
The goal of this document is to provide a reasonably complete list of Yukon
requirements for the Inktomi search service. Note that a number of the
requirements in this document are met by the existing search service but are
included anyway for the sake of completeness.
The Section 2 lists all requirements according to area (Performance and
Scalability, Reliability and Fault Tolerance, ...) together with information on
Target Release and Due Date as defined below. The Appendix (Section 7) follows a
similar organization and provides more detail on the requirements..
[*]
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[*]
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[*]
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EXHIBIT B
---------
[*]
- ----------------
. [*]: A "[*]" is a [*] which causes the system or a major component to [*]
or renders it otherwise [*] (e.g. [*]; [*]; [*]; [*]).
. [*]: A "[*]" is a [*] in which [*] of a component [*] from the behavior as
[*] in the [*] of [*] or causes a component to [*] without [*] the [*]
(e.g. [*] with [*]; [*]; [*] in [*]).
. [*]: A "[*]" is a [*] in which a component [*] from [*] in a [*] or [*]
(e.g. an [*]; [*] with [*]; [*]; [*]).
[*]
- ---------------
[*] are determined by the [*] which shall determine the [*] and [*] of [*]. For
instance, a [*] that causes the system to [*] but the user is [*], might be [*].
The [*] includes representatives from [*], and [*].
The criteria used for determining [*] is as follows:
. [*]: A "[*]" is a [*] for which a [*] is [*]. For all releases, this would
be a [*] by which the [*] is [*]. For an [*], this [*] may also indicate a
[*] that is [*] or [*] to [*]
. [*]: A "[*]" is a [*] for which a [*] is [*], but [*].
. [*]: A "[*]" is a [*] for which a [*] is [*].
TIMETABLE FOR [*] AND [*]/1/
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
[*] Plan /2/ [*] [*] [*]
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ For each cell in the timetable, the time should be met for [*] or more of
the [*].
/2/ Time within which Inktomi must provide a [*] and, if possible, a [*]
/3/Software that includes the [*] is [*] on the [*].
/4/ Software that includes the [*] is [*] in the [*].
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EXHIBIT C
---------
SCALABILITY COST PROJECTIONS
----------------------------
<TABLE>
<CAPTION>
GROSS
CAPITAL $
Size of Database
50M 75M 100M
<S> <C> <C> <C> <C>
2M $ [*] $ [*] $ [*]
4M $ [*] $ [*] $ [*]
[*] 6M $ [*] $ [*] $ [*]
8M $ [*] $ [*] $ [*]
10M $ [*] $ [*] $ [*]
12M $ [*] $ [*] $ [*]
14M $ [*] $ [*] $ [*]
20M $ [*] $ [*] $ [*]
</TABLE>
* [*] relating to [*] by the Product at [*] with (i) an [*] of less than [*] and
(ii) [*] than [*] containing [*] and (iii) [*] than [*] being [*] (i.e.,
[*]) [*].
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EXHIBIT D
---------
Transfer of Control by Inktomi
------------------------------
If Inktomi requests Microsoft's consent to a transfer as described in clause (a)
of Section 12.5 of this Software Development Agreement to which this Exhibit D
is appended, and Microsoft reasonably withholds its consent to such transfer (an
"Unconsented Transfer"), then Inktomi will nevertheless have the right to
transfer this Agreement in connection with its proposed Unconsented Transfer
subject to the following conditions precedent to the Unconsented Transfer:
(i) Inktomi, at its sole cost and expense, and without any financing supplied
by Microsoft, will create a separate cluster of Hosting Servers for Microsoft
required to service Microsoft's reasonably anticipated needs for a period of
twelve months after the commencement of operation of such new and relocated
cluster (provided however that Microsoft will purchase, or fund (in accordance
with the Loan Agreement of even date herewith) Inktomi's purchase of, (whichever
Microsoft elects) any new hosting servers beyond the Hosting Servers purchased
by Inktomi under the Software Hosting Agreement of even date herewith necessary
to service Microsoft's reasonably anticipated needs as set forth above);
(ii) Inktomi will relocate, at its sole cost and expense (including, without
limitation, indemnifying Microsoft and holding it harmless against any and all
Taxes that arise as a direct or indirect result of the relocation of the Hosting
Servers), all Hosting Servers referred to in clause (i) to a location designated
by Microsoft, in its sole discretion;
(iii) Inktomi, at its sole cost and expense, will provide training to Microsoft
personnel to the extent requested by Microsoft, to enable such personnel to use
and maintain the Microsoft Search Engine, and to create enhancements thereto,
with reasonable competence (all as determined by Microsoft in its sole
discretion);
(iv) Inktomi will grant to Microsoft an irrevocable, non-exclusive, royalty-
free license to use the Product (and all required underlying Inktomi Technology)
solely in connection with Microsoft's operation of the Microsoft Search Engine
(which license shall include the right to create enhancements and other
derivative works based thereon for use in conjunction therewith) for such period
as Microsoft may require to transition its search engine services to non-Inktomi
technology (the "Transition Period"), and Inktomi will waive all royalties
otherwise payable pursuant to this Software Development Agreement and/or the
Information Services Agreement of even date herewith; for the purposes of this
clause (iv), the Transition Period will commence at such time as Microsoft
assumes control over said separate cluster and begins itself operating the
Microsoft Search Engine, and will continue thereafter for eighteen months (18)
or until the termination of said Software Development Agreement and Information
Services Agreement (whichever is longer);
30
<PAGE>
(v) Inktomi will direct the Escrow Agent to release to Microsoft all
Confidential Materials held by the Escrow Agent, subject to Microsoft's
agreement to use such Confidential Materials only in connection with its
licensed rights under clause (iv) above;
(vi) Inktomi will agree to reimburse Microsoft for all reasonable costs
incurred by Microsoft in transitioning its search engine to non-Inktomi
technology (whether created by Microsoft or by a third party); and
(vii) Inktomi will cause the applicable proposed transferee of this Agreement to
assume, jointly and severally with Inktomi, all of Inktomi's obligations
hereunder.
Microsoft will cooperate with Inktomi and use its reasonable best efforts so as
to enable Inktomi to satisfy the foregoing conditions precedent in a timely
manner. Upon satisfaction of the foregoing conditions precedent, said Software
Hosting Agreement shall be deemed terminated pursuant to Section 10.1 thereof.
Upon expiration of the Transition Period, all rights granted to Microsoft to use
the Product (other than Microsoft Technology, Joint Derivative Technology and
the Microsoft Derivative Technology) and/or any Inktomi Technology under the
transitional license referred to in clause (iv) or otherwise shall cease, and
Microsoft shall immediately return to Inktomi all Confidential Materials (and
all copies thereof), provided however that, notwithstanding any provision of the
Ancillary Agreements to the contrary, the undertaking by Inktomi to indemnify
Microsoft and hold it harmless against Taxes as provided in clause (ii) above
shall survive any such terminations.
31
<PAGE>
SCHEDULE I
----------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into this ___ day of __________, 1997 by and
among INKTOMI CORPORATION ("Inktomi"), a California corporation, whose address
is 1900 South Norfolk Street, Suite 110, San Mateo, California 94403, DATA BASE,
INC. ("Escrow Agent"), a Washington corporation, whose address is 307 South
140th Street, Seattle, WA 98168, and MICROSOFT CORPORATION ("Microsoft"), a
Washington corporation whose address is One Microsoft Way, Redmond, WA 98052-
6399.
A. Inktomi is the owner of computer programs and supporting documentation
that contain confidential information and are protected under copyright and as
trade secrets. Inktomi authorizes others to use the computer programs and
documentation under writtenagreements which, among other things, require the
other party to protect the confidentiality of Inktomi's property.
B. Computer programs can be expressed in machine-readable form, called
binary code, and in human-readable form, called source code or source listings.
Generally, parties are unable to modify or correct errors in the binary code
without having the source code.
C. This escrow arrangement is provided to assure Microsoft of access to
the source code, binary code and confidential supporting documentation in the
event that Inktomi (i) discontinues all or substantially all of its search
engine business operations or (ii) ceases to provide software development, error
correction, product enhancements and upgrades, and regular maintenance of the
computer programs (collectively, "Support") under and in accordance with the
Software Development Agreement and/or the Information Services Agreement (the
"Agreements") between Inktomi and Microsoft of even date herewith (as it may be
amended by mutual agreement of Inktomi and Microsoft from time to time).
THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, Inktomi, Microsoft and Escrow Agent agree as follows:
1. Confidential Materials.
----------------------
1.1 Escrow Agent, as escrow agent, agrees to accept from Inktomi, for
storage purposes only, confidential materials in the form of source code and
binary code, program listings, supporting documentation, and other related
materials for certain computer programs owned by Inktomi (collectively,
"Confidential Materials"). Inktomi will furnish to Escrow Agent a list naming
or describing all computer programs for which Confidential Materials are
deposited into escrow. This list shall be certified by Inktomi as complete and
accurate. A list of computer programs for which Confidential Materials are
currently on deposit with Escrow Agent is attached as Exhibit A to this
Agreement. This list will be supplemented and updated by Inktomi with each
future deposit or withdrawal of Confidential Materials. For each deposit,
Escrow Agent will issue receipts to Inktomi.
<PAGE>
1.2 Upon each deposit of Confidential Materials, Inktomi shall furnish to
Microsoft a copy of the list provided to Escrow Agent pursuant to this Section
1. Such list shall constitute notice to Microsoft that the Confidential
Materials listed thereon have been deposited with Escrow Agent. Upon the
request of Microsoft, Escrow Agent shall supply to Microsoft copies of all lists
furnished by Inktomi to Escrow Agent hereunder. Escrow Agent shall not be
required to determine the accuracy or completeness of the list(s) furnished by
Inktomi hereunder, nor shall Escrow Agent be responsible for Confidential
Materials not actually deposited with it, whether or not such Confidential
Materials were required to be deposited under the terms of this Agreement, any
license agreement between Inktomi and Microsoft or any other agreement.
2. Retention of Confidential Materials. Escrow Agent agrees to hold in
-----------------------------------
safekeeping the Confidential Materials deposited hereunder, and shall release or
disclose any or all such Confidential Materials only in accordance with the
terms of this Agreement.
3. Release of Confidential Materials. Inktomi authorizes Escrow Agent to
---------------------------------
release Confidential Materials only as follows:
(a) Escrow Agent shall release to Inktomi all Confidential Materials
requested by written demand of both Inktomi and Microsoft, provided that such
Confidential Materials are specifically identified to the satisfaction of Escrow
Agent, and provided that all fees payable to Escrow Agent for performance of its
services hereunder have been fully paid.
(b) Provided that all fees payable to Escrow Agent for the performance of
its services hereunder have been fully paid, all Confidential Materials shall be
returned to Inktomi at any time that Escrow Agent ceases doing business or is
unable to hold the same in accordance with the terms of this Agreement due to
forces beyond its reasonable control; provided however, that Escrow Agent gives
such advance notice to Inktomi and Microsoft as is reasonably practicable, but
in no event less than thirty (30) days.
(c) In the event of (1) a demand by Microsoft pursuant to Subsection 4.1
hereof which is not disputed by Inktomi in the manner and within the time
prescribed in Subsection 4.2 hereof, or (2) a determination by the panel of
arbitrators in accordance with Section 5 hereof that (A) the applicable
Agreement remains in force and effect and (B) Inktomi has discontinued all or
substantially all of its search engine business operations or has ceased to
Support the Confidential Materials on a timely basis as required under the terms
of the applicable Agreement, then Escrow Agent shall, upon the receipt from
Microsoft of full payment for the costs and expenses of duplication, make
duplicate copies of those Confidential Materials which relate to the computer
program or programs with respect to which demand is made and shall deliver such
duplicate copies to Microsoft. Escrow Agent agrees that the "Write-Protect
Ring" on magnetic tape reels furnished to Escrow Agent by Inktomi shall not be
removed at any time.
(d) Escrow Agent shall release such Confidential Materials to such persons
and in such manner as shall be directed by order of any court of competent
jurisdiction pursuant to
-2-
<PAGE>
Section 6 or otherwise. Escrow Agent may also release Confidential Materials
pursuant to the provisions of Section 11 below.
4. Demand and Dispute.
------------------
4.1 In the event Microsoft desires release of Confidential Materials
relating to one or more computer programs, Microsoft shall make written demand
on Escrow Agent therefor, specifically designating the computer program or
programs for which Confidential Materials are requested. Such demand must be
accompanied by all of the following documents and certificates, each executed
under oath by an authorized officer or representative of Microsoft:
(a) A certified true copy of a notice that Microsoft has mailed to
Inktomi at the address stated in this Agreement. The notice must contain a
statement that Microsoft has determined that Inktomi has discontinued all or
substantially all of its search engine business operations or has ceased to
Support the Confidential Materials on a timely basis as required under the terms
of the Agreements.
(b) A certificate stating that (i) Microsoft mailed to Inktomi,
registered or certified mail, the notice described in Paragraph 4.1(a) above,
and that ten (10) business days have elapsed from such mailing without response
from Inktomi, and (ii) before mailing the notice, Microsoft made a request upon
Inktomi for support services and Microsoft did not receive a response to such
request or received a response to the effect that Inktomi was unable or
unwilling to provide such services or Inktomi in fact did not timely provide
such services.
(c) A copy of each of the Agreements, as executed by Inktomi and such
Microsoft, together with a statement by Microsoft, certified by Microsoft, that
the copies of the Agreements are true copies, and that the applicable
Agreement(s) is(are) still in force and grants Microsoft the rights to use the
computer program or programs for which Confidential Materials are requested.
(d) A certificate stating that Microsoft will pay in advance for all
expenses and costs of copying the Confidential Materials requested.
(e) A Confidentiality and Use Limitation Certificate, in the form of
Exhibit B attached hereto, for the benefit of Escrow Agent, Inktomi and any
successor of either.
(f) A certificate stating that Microsoft shall indemnify and hold
harmless Escrow Agent from and against any and all losses, damages, and expenses
(including attorney's fees) that may be incurred by Microsoft and/or Escrow
Agent by reason of Escrow Agent's compliance in good faith with the terms of
this Agreement.
4.2 Upon receipt of a demand and all required supporting documents
described in Subsection 4.1 hereof, Escrow Agent shall promptly give notice to
Inktomi of such receipt and transmit with such notice a copy of such demand and
all accompanying documents. Inktomi or its successor may dispute such demand,
at any time within ten (10) business days following
-3-
<PAGE>
Escrow Agent's notice to Inktomi hereunder by (i) giving written notice to
Escrow Agent that it continues to conduct all or substantially all of its search
engine business operations and continues to Support the Confidential Materials
on a timely basis as required under the terms of the Agreements, or (ii)
otherwise specifically denying any statements made by Microsoft in one or more
of the documents described in Paragraphs 4.1(a), (b) or (c) hereof. Such notice
shall be accompanied by a certificate to Escrow Agent stating that Inktomi will
submit to arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith.
4.3 Upon receipt of Inktomi's notice of dispute as provided in Subsection
4.2 hereof, Escrow Agent shall promptly give notice to Microsoft of such receipt
and transmit with such notice a copy of such documents received from Inktomi
relating to such dispute. Subject to the last sentence of this Subsection 4.3,
Microsoft shall, within thirty (30) days following receipt of Inktomi's notice
of dispute, furnish Escrow Agent with a certificate stating that Microsoft will
submit to Arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith. Microsoft may withdraw its demand for release of the Confidential
Materials at any time by giving Escrow Agent and Inktomi written notice of such
withdrawal.
5. Arbitration. Upon the earlier of the expiration of the thirty (30) day
-----------
period described in Subsection 4.3 or the receipt by Escrow Agent of Microsoft's
certificate described in Subsection 4.3, the matter shall be submitted to
arbitration proceedings in Seattle, Washington, which proceedings shall be
conducted under the commercial rules then prevailing of the American Arbitration
Association, by a panel of not less than three professional experts in the field
of computer software technology. Each party will choose one arbitrator and the
two arbitrators so chosen will choose a third. If the two designated
arbitrators do not so choose a third within thirty (30) days, either party may
apply to the local Superior Court to appoint a third arbitrator. The sole issue
for arbitration shall be whether the Agreements remain in force and effect and
whether Inktomi has discontinued all or substantially all of its search engine
business operations or has ceased to Support the Confidential Materials on a
timely basis as required under the terms of either or both of the Agreements.
If the arbitrators determine that Inktomi has discontinued all or substantially
all of its search engine business operations or has ceased to Support the
Confidential Materials on a timely basis, the arbitrators shall order the
release of Confidential Materials. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorneys' fees, expert and non-expert
witness costs and expenses, and all other costs and expenses incurred directly
or indirectly in connection with the proceedings, unless the arbitrators for
good cause determine otherwise. The decision of the arbitrators shall be final
and binding on the Inktomi and Microsoft and may be entered and enforced in any
court of competent jurisdiction.
6. Interpleader. Notwithstanding any other provisions of this Agreement, if
------------
Escrow Agent receives a written demand from Microsoft for release of
Confidential Materials and Escrow Agent is uncertain whether Inktomi's exercise
of its right to dispute such demand pursuant to Subsection 4.2 hereof was timely
or otherwise effective, then Escrow Agent may, in its sole discretion, begin an
interpleader action, pursuant to applicable law, and deposit the Confidential
-4-
<PAGE>
Materials with the clerk of the court or withhold release of the Confidential
Materials until instructed otherwise by the court order.
7. Fees. Microsoft shall pay to Escrow Agent, in advance, fees at the standard
----
rate prescribed from time to time by Escrow Agent for performance of services
hereunder. Prices will be revised annually in accordance with Escrow Agent's
regular schedule of fees.
8. No Duty to Inquire into Truth, Authenticity or Authority; Right to Require
--------------------------------------------------------------------------
Additional Documents. Escrow Agent shall not be required to inquire into the
- --------------------
truth of any statements or representatives contained in any notices,
certificates or other documents required or otherwise provided hereunder, and
shall be entitled to assume that the signatures on such documents are genuine,
that the persons signing on behalf of any party thereto are duly authorized to
execute the same, and that all actions necessary to render any such documents
binding on the party purportedly executing the same have been duly undertaken.
Without in any way limiting the foregoing, Escrow Agent may in its discretion
require from Inktomi or Microsoft additional documents which it deems to be
necessary or desirable in the course of performing its obligations hereunder.
9. Waiver of Claims.
----------------
(a) Inktomi hereby waives any claim for damages or otherwise which it may
have against Escrow Agent for any acts undertaken by Escrow Agent pursuant to
Microsoft's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
(b) Microsoft hereby waives any claim for damages or otherwise which it
may have against Escrow Agent for any acts undertaken by Escrow Agent pursuant
to Inktomi's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
10. Notices. Notices under this Agreement shall be in writing, addressed to
-------
the parties at the addresses listed in this Agreement, or to such other
addresses as a party shall have designated by notice to the other parties, and
shall be delivered by registered or certified mail, return receipt requested, to
the intended recipient. Notices shall be deemed to have been given and received
(i) when signed for on the return receipt, or (ii) if the party to receive
notice refuses to sign the return receipt or cannot be located after the
exercise of due diligence, three (3) business days after deposit of the notice
in the U.S. mail, properly addressed, with postage prepaid.
11. Termination.
-----------
(a) This Agreement shall terminate upon termination of both the
Agreements. Upon such termination, Inktomi shall give written notice to Escrow
Agent, and provide a copy of such notice to Microsoft in the manner set forth in
applicable notice provisions of the Agreements. Unless Microsoft disputes such
notice by written notice to that effect to Escrow Agent and Inktomi within ten
(10) business days (the "Objection Period") after Microsoft's receipt of said
notice from Inktomi, and provided that all fees payable to Escrow Agent for the
performance of
-5-
<PAGE>
its services hereunder have been fully paid, Escrow Agent shall release and
return all Confidential Materials to Inktomi promptly after the expiration of
the Objection Period.
(b) Except as provided in Subsection 11(a) above or Section 1 hereof with
respect to modification of Exhibit A hereto, this Agreement may not be
terminated or modified except in writing signed by Escrow Agent, Inktomi and
Microsoft. Escrow Agent may, at any time, terminate this Agreement by resigning
as escrow agent hereunder. Escrow Agent shall provide Inktomi and Microsoft
ninety (90) days advance written notice of its intention to resign. Unless
within such period Escrow Agent receives written notice from the Inktomi and
Microsoft instructing Escrow Agent to deliver the Confidential Materials to one
or both of the parties, or to a third party, Escrow Agent shall deliver the
Confidential Materials to Inktomi.
(c) Upon the delivery of the Confidential Materials to one or both of the
parties, or to a third party, as permitted hereunder, all obligations of Escrow
Agent under this Agreement shall cease.
12. Bankruptcy. In the event of the commencement of a case by or against
----------
Inktomi pursuant to 11 U.S.C. Sections 301, 302, or 303, Microsoft may elect to
retain its right under this Agreement pursuant to 11 U.S.C. Section 365 (n). In
this regard, the Confidential Materials shall be deemed to be "intellectual
property" within the meaning of 11 U.S.C. Section 101. Inktomi's obligations
under this Agreement shall be binding on Inktomi's successors, including any
trustee or debtor in possession that may succeed to Inktomi's rights under this
Agreement.
13. Miscellany.
----------
13.1 This Agreement shall be construed, enforced, performed and in all
respects governed by and in accordance with the laws in the State of Washington.
In any action or suit to enforce any right or remedy under this Agreement the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs.
13.2 In the event any provision of this Agreement is rendered null, void
or otherwise ineffective, then (i) the parties agree to negotiate in good faith
an acceptable alternative provision which reflects as closely as possible the
intent of the unenforceable provision and (ii) notwithstanding, and regardless
of whether the parties reach agreement after the good faith negotiations
described in clause (i) immediately above, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby and shall remain in full force and effect.
Section and all other headings used herein are provided for convenience only and
are not to be given any legal effect or considered in interpreting any provision
of this Agreement. No provision of this Agreement shall be interpreted against
any party because such party or its legal representative drafted such provision.
13.3 Subject to such rights as Microsoft and/or Inktomi may have under the
Agreements, no party hereto shall voluntarily or by operation of law assign,
sublicense, transfer, encumber or otherwise dispose of all or any part of its
interest in this Agreement without the prior written consent of the non-
assigning party. Any attempted assignment, sub-license,
-6-
<PAGE>
transfer, encumbrance or other disposal without such consent shall be void and
shall constitute a material default and breach of this Agreement. Subject to the
provisions of this Section, this Agreement shall be binding upon and inure to
the benefit of each party and their respective successors and assigns.
13.4 All rights and obligations of the parties hereunder are personal to
them. Except as otherwise specifically stated herein, this Agreement is not
intended to benefit, nor shall it be deemed to give rise to, any rights in any
third party.
13.5 Each party shall be responsible for compliance with all applicable
laws, rules and regulations, if any, related to the performance of its
obligations under this Agreement.
13.6 No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof or thereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
13.7 This Escrow Agreement (and, as between Inktomi and Microsoft, the
Agreements) contains the entire agreement of the parties with respect to the
premises, and may not be modified or amended except by a written instrument
executed by the party sought to be charged or bound thereby.
13.8 For the purposes of this Agreement, Inktomi and Microsoft hereby
designate the following individuals (and such additional individuals or
substitutes therefor as may hereafter be designated by written notice from
Inktomi or Microsoft, whichever is applicable) as having the authority to
provide directions to Escrow Agent hereunder:
Inktomi designates: David Peterschmidt, Jerry Kennelly
Microsoft designates: ____________________________________________
Executed as of the date first written above.
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<PAGE>
Escrow Agent: DATA BASE, INC.
- ------------
Data Base, Inc. By:____________________________
307 South 140th Street
Seattle, WA 98168 Print Name:____________________
Title:_________________________
Date:__________________________
INKTOMI CORPORATION
Inktomi:
- -------
Inktomi Corporation By:____________________________
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403 Print Name:____________________
ATTN: General Counsel
Title:_________________________
Date:__________________________
MICROSOFT CORPORATION
Microsoft:
- ---------
Microsoft Corporation By:____________________________
One Microsoft Way
Redmond, WA 98053-6399 Print Name:____________________
ATTN: Law & Corporate Affairs, U.S. Legal
Title:_________________________
Date:__________________________
-8-
<PAGE>
EXHIBIT A
---------
COMPUTER PROGRAMS FOR WHICH CONFIDENTIALMATERIALS ARE DEPOSITED
WITH ESCROW AGENT
-9-
<PAGE>
EXHIBIT B
---------
CONFIDENTIALITY AND USE LIMITATION CERTIFICATE
STATE OF WASHINGTON )
)
COUNTY OF KING )
The undersigned, being first duly sworn upon oath, does state as follows:
1. The undersigned has certain rights in and to certain computer programs and
data, under a Software Development Agreement and Search Results Agreement(the
"Agreements") between the undersigned and Inktomi Corporation, a California
corporation ("Inktomi").
2. The undersigned has demanded, and expects to receive, source listings
and/or other related documentation for such computer programs ("Confidential
Materials"). These materials are the confidential and proprietary information of
Inktomi, and Inktomi claims protection thereof under applicable of copyright and
trade secret law.
3. Upon receipt of the Confidential Materials, the undersigned shall limit the
use thereof solely for purposes of installation, operation, maintenance,
modification and enhancement of the computer programs. The Confidential
Materials, and any copies thereof, shall be used by the undersigned for internal
purposes only, and the undersigned shall not make any use of the binary/object
codes translated from the Confidential Materials, except as expressly permitted
under the Agreements. At all times that the undersigned is entitled to use the
Confidential Materials, the undersigned shall continue to pay to Inktomi all
royalties and other amounts which Inktomi is entitled to receive under the
Agreements.
4. The Confidential Materials shall at all times remain the sole and exclusive
property of Inktomi, and the delivery thereof to the undersigned shall not be
deemed a grant or transfer of such proprietary interests to the undersigned. The
undersigned accepts the Confidential Materials in strict confidence, and shall
not make available, provide or otherwise allow or permit the provision, directly
or indirectly, of the Confidential Materials, or any part or portion thereof, in
any form, representation, or medium, to any person or entity other than the
authorized personnel or consultants of the undersigned.
5. The undersigned agrees that Inktomi and DATA BASE, INC. ("Escrow Agent"), a
Washington corporation, and any successor thereto or employees or agents
thereof, may rely upon this Certificate and the representations made herein for
the delivery of the Confidential Materials to the undersigned, and the
undersigned agrees to indemnify and hold harmless such persons and entities from
and against any and all losses, damages and expenses (including attorneys' fees)
arising out of the undersigned's failure to use the Confidential Materials in
accordance with this Certificate or the Agreements, or otherwise as a result of
any release of any Confidential Materials by Escrow Agent in response to the
undersigned's request.
6. Notwithstanding anything to the contrary, this Certificate shall not limit
or enlarge the rights or obligations of the parties under the Agreements.
DATED this _____ day of ____________, 19___.
MICROSOFT CORPORATION
By:___________________________
Print Name:___________________
Title:________________________
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<PAGE>
EXHIBIT 10.14
SOFTWARE HOSTING AGREEMENT
This Software Hosting Agreement (the "Agreement") is entered into and effective
as of the later of the two signature dates below (the "Effective Date") INKTOMI
CORPORATION ("Inktomi"), a California corporation, 1900 South Norfolk Street,
Suite 110, San Mateo, California 94403, and MICROSOFT CORPORATION ("Microsoft"),
a Washington Corporation, One Microsoft Way, Redmond, Washington 98052-6399,
with reference to the facts set forth in the Recitals below.
Recitals
A. Inktomi develops and markets computer software products, including
without limitation a "search engine" software for searching and indexing
information accessible through the Internet.
B. Microsoft develops, manufactures, distributes and markets computer
software products and services.
C. Pursuant to that certain Software Development Agreement between the
parties executed as of the Effective Date (the "Software Development
Agreement"), Inktomi is customizing its Internet search engine software for
Microsoft.
D. Microsoft desires that Inktomi host and maintain the customized search
engine on servers owned by Inktomi and located at a facility selected by Inktomi
in California, and Inktomi desires to provide such hosting and maintenance
services, on the terms and conditions contained herein.
Agreement
Accordingly, Inktomi and Microsoft hereby agree as follows:
1. Definitions.
-----------
1.1 "Ancillary Agreements" shall mean the following agreements
between Inktomi and Microsoft, and all amended versions thereof or successor
agreements thereto: (i) the Software Development Agreement of even date
herewith; (ii) the Information Services Agreement of even date herewith; (iii)
the Loan Agreement of even date herewith, and any and all "Promissory Notes"
and/or "New Note" executed pursuant thereto; (iv) the Security Agreement of even
date herewith; and (v) the Escrow Agreement of even date herewith.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2 "Deployment, Hosting and Maintenance Specifications" shall mean
the specifications for the Services attached to this Agreement as Exhibit A, as
it may be amended from time to time by mutual agreement of the parties, which
agreement shall not be unreasonably withheld by either party; if and when the
Deployment, Hosting and Maintenance Specifications are modified in accordance
with Section 2.2 below, the parties shall initial the new Deployment, Hosting
and Maintenance Specifications or amendments to the existing Deployment, Hosting
and Maintenance Specifications, and immediately following the last initialing
such new Deployment, Hosting and Maintenance Specifications or amendments shall
automatically be deemed to supercede or supplement (as the case may be) Exhibit
A.
1.3 "Hosting Servers" shall mean those servers (including both the
search engine cluster and the crawling cluster) and other hardware and third
party software identified in the Deployment, Hosting and Maintenance
Specifications that shall be used to host or service the Microsoft Search Engine
and Usage Data.
1.4 "Internet" means any systems for distributing digital electronic
content and information to end users via transmission, broadcast, public
display, or other forms of delivery, whether direct or indirect, whether over
telephone lines, cable television systems, optical fiber connections, cellular
telephones, satellites, wireless broadcast, or other mode of transmission now
known or subsequently developed.
1.5 "Launch Date" will mean that date on which the Microsoft Search
Engine (other than any so-called "beta" version) is first generally available
for use by the public.
1.6 "Microsoft Search Engine" will mean those versions of the Product
developed to Microsoft specifications pursuant to said Software Development
Agreement and used to generate search results for Microsoft (or for third
parties requesting searches through Microsoft) under said Information Services
Agreement.
1.7 "Microsoft Site" means the Microsoft Web Site(s) or Microsoft
application(s) which, when accessed by an end user, will permit the end user to
conduct a search of the Internet (or a portion thereof) using the Product; if
Microsoft sublicenses its rights to use the search results generated by the
Product hereunder (as permitted under the Information Services Agreement), then
the site(s) of such Microsoft sublicensee(s) will be deemed to be Microsoft
Site(s).
1.8 "Product" shall mean that certain customized search engine
software developed by Inktomi for Microsoft pursuant to the Software Development
Agreement, as more specifically described in said Software Development
Agreement.
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<PAGE>
1.9 "Security Measures" shall mean those procedures and precautions
described in Exhibit A, for maintaining the security of the Product and Usage
Data required under this Agreement.
1.10 "Services" shall mean the deployment, hosting and maintenance of
the Product as described under this Agreement.
1.11 "Term" means the period of time commencing on the Effective Date
and continuing thereafter indefinitely until this Agreement is terminated
pursuant to Section 10 below.
1.12 "Usage Data" means such data as Inktomi may collect relating to
the usage of (i) the Product by Microsoft and end users, and/or (ii) the Hosting
Servers.
1.13 "Web" means the so-called World Wide Web, containing, inter alia,
Web Pages written in hypertext markup language (HTML) and/or any similar
successor technology.
1.14 "Web Indexing Data" means such data as Inktomi may collect
relating to the documents crawled by its crawling software in connection with
its operation of the Product.
1.15 "Web Page" means a document on the Web which may be viewed in its
entirety without leaving the applicable distinct URL address.
1.16 "Web Site" means a collection of inter-related Web Pages.
2. Services.
--------
2.1 Inktomi shall deploy, host and maintain the Product and Hosting
Servers in accordance with the Deployment, Hosting and Maintenance
Specifications and the other terms and conditions contained in this Agreement.
Inktomi agrees that the Services shall be performed in a professional manner and
shall be of a high grade, nature, and quality.
2.2 The parties contemplate that there may be additions, deletions or
other changes which may affect the Deployment, Hosting and Maintenance
Specifications from time to time during the Term. Subject to Sections 2.2.1
through 2.2.3 below, any such additions, deletions or other changes to the
Deployment, Hosting and Maintenance Specifications shall be mutually agreed to
by Inktomi and Microsoft. Upon such mutual agreement (or, if mutual agreement is
not required, upon notice of any such changes desired by Microsoft), Inktomi
shall alter the Services in order to accommodate the revised Deployment, Hosting
and Maintenance Specifications.
3
<PAGE>
2.2.1 Inktomi and Microsoft will confer not less frequently than
monthly regarding the appropriate size (including hardware requirements) and
capacity of the Hosting Server cluster, and Inktomi will supply all available
and relevant usage data it may have; Microsoft will specify its capacity
desires, and, notwithstanding anything contained herein to the contrary, any and
all changes in capacity (including without limitation, number of Hosting Servers
and connectivity capacity) requested by Microsoft shall be deemed acceptable to
Inktomi, and Inktomi shall conform to such new capacity requirements in
accordance with the timetable specified by Microsoft.
2.2.2 Inktomi will deploy the capacity requested by Microsoft
hereunder within the timeframe specified in the Deployment, Hosting and
Maintenance Specifications, or as otherwise may be agreed by Microsoft and
Inktomi at such time.
2.2.3 At each monthly conference referred to above in Section
2.2.1, Inktomi will state its good faith estimate of the hardware and capacity
needs for itself and its other customers. At its sole cost and expense, Inktomi
promptly will provision for such hardware and capacity needs, and supply
Microsoft with a list of the hardware provisioned and an officer's certification
that Inktomi has made such provisions. Upon Microsoft's request (but not more
often than twice in any calendar year), Inktomi will supply Microsoft with
documentation evidencing such provisioning.
2.3 In accordance with its performance of the Services, Inktomi may
collect and/or possess Web Indexing Data and Usage Data.
2.3.1 As between Inktomi and Microsoft, Inktomi will own all
rights in and to Web Indexing Data. However, Inktomi will provide Microsoft with
access to the Web Indexing Data solely for purposes of managing, marketing and
promoting the Microsoft Search Engine.
2.3.2 All Usage Data shall be owned jointly by Microsoft and
Inktomi, and Inktomi hereby irrevocably assigns to Microsoft an [*]
interest therein. However, Inktomi shall not have the right to share any of such
Usage Data with third parties (except that Inktomi may include Usage Data as
part of "gross" undifferentiated data which it shares with other search engine
customers but does not indicate as Usage Data related to the Microsoft Search
Engine).
2.4 Inktomi shall provide to Microsoft all reports described in the
Deployment, Hosting and Maintenance Specifications, in accordance with the terms
therein.
4
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
2.5 Inktomi shall strictly adhere to all Security Measures in
performing the Services, including without limitation securing the Usage Data,
which it may possess or have under its control from time to time, from
unauthorized access and modification.
2.6 Microsoft will have the right, in its sole and absolute
discretion, to require Inktomi to devote a separate cluster of Hosting Servers
to servicing Microsoft hereunder, which Servers would not be used to service any
needs of Inktomi and/or any third parties. The Hosting Servers purchased by
Inktomi at Microsoft's request hereunder would be re-deployed to such separate
cluster.
2.6.1 If Microsoft notifies Inktomi in writing that it desires
such a separate cluster, Microsoft shall reimburse Inktomi for all actual,
direct expenses incurred and paid by Inktomi for equipment (other than Hosting
Servers, which shall be purchased by Inktomi with financing loaned by Microsoft
as set forth elsewhere herein) and services of necessary subcontractors (but not
services of Inktomi employees) required to create and set up such separate
cluster, but Microsoft's obligations to make any payments to Inktomi pursuant to
clause (a) of Section 4.1 below will cease and terminate effective on the date
such separate cluster becomes operational.
2.6.2 Nothing contained in this Agreement will be deemed to
require Microsoft to deploy the Product in Hosting Servers owned by Inktomi, or
to require Microsoft to continue to utilize Inktomi's services to host the
Product at any time during the Term; without limitation, Microsoft will have the
right to deploy the Product, in whole or in part, at other site(s) (whether
owned by Microsoft or third parties) during the Term. If Microsoft elects to
deploy and operate the Product at other sites, Inktomi will take all steps
necessary or appropriate to facilitate such other deployment and operation;
without limitation, Inktomi will move any and all Hosting Servers to any
location(s) designated by Microsoft (costs of relocation, including shipping and
insurance, to be borne exclusively by Microsoft), and Inktomi will provide
training to Microsoft personnel and/or others designated by Microsoft to enable
them to satisfactorily operate and maintain the Product and Hosting Servers
wherever located. Notwithstanding anything to the contrary contained in this
Agreement, Microsoft will not be obligated to make any payments to Inktomi
pursuant to clauses (a), (e) and/or (f) of Section 4.1 below if Microsoft
exercises its rights to move the Hosting Servers under this Section 2.6.2.
2.7 Inktomi will assign two (2) full-time Inktomi employees
exclusively dedicated to maintenance duties hereunder. Such employees are
identified in Exhibit D attached hereto; and their replacements shall be subject
to Microsoft's prior written approval (which approval Microsoft will not
unreasonably withhold). Notwithstanding the foregoing, if Microsoft and Inktomi
mutually agree in writing, additional Inktomi employees may be required to be
assigned to maintenance duties hereunder.
5
<PAGE>
2.8 Microsoft acknowledges that Inktomi has customized and provided,
and will continue to customize and provide, its software and technology to other
parties for use in connection with a variety of applications, including search
engine applications. Except as may be expressly provided to the contrary
elsewhere in this Agreement, nothing in this Agreement will be deemed to (i)
limit or restrict Inktomi from customizing and providing its software and
technology to other parties for any purpose, including in connection with search
engine applications, or (ii) in any way affect the rights granted to such other
parties. Microsoft further acknowledges that in addition to utilizing the
Hosting Servers to host the Product, Inktomi may also use the Hosting Servers to
service its own needs and the needs of other third parties, unless Microsoft
elects to use a separate cluster in accordance with Section 2.6 above (it being
understood that Inktomi will estimate the capacity for servicing the needs of
itself and its other customers in good faith and provision accordingly, in
accordance with Section 2.2).
3. Hosting Servers.
---------------
3.1 Inktomi shall own all new Hosting Servers purchased by Inktomi
pursuant to Microsoft's request hereunder.
3.1.1 To the extent Inktomi is required to do so in order to
meet Microsoft's capacity requests under the Deployment, Hosting and Maintenance
Specifications (as the same may change from time to time), Inktomi shall
purchase new Hosting Servers. Prior to purchasing any such new Hosting Servers,
Inktomi will seek bids from third parties, copies of which Inktomi will provide
to Microsoft, and Microsoft will have the right to approve all such purchases
and the applicable purchase prices. Inktomi shall use commercially reasonable
efforts to minimize the purchase prices of such new Hosting Servers, but in any
event such purchase prices will not be more than any comparable equipment
purchased by Inktomi during the same time frame. Inktomi will consult with
Microsoft regarding the proposed purchase prices of all new Hosting Servers
prior to purchasing the same, and if Microsoft is aware of a vendor who is
willing to sell Hosting Servers to Inktomi at a lower purchase price than as
proposed by Inktomi, Inktomi agrees to purchase the applicable new Hosting
Servers from such vendor.
3.1.2 Notwithstanding Section 3.1.1 above, Inktomi shall have no
obligation whatsoever to purchase any new Hosting Servers unless Microsoft loans
Inktomi an amount equal to the purchase price thereof pursuant to the Loan
Agreement between Inktomi and Microsoft of even date herewith (the "Loan
Agreement").
3.2 Microsoft acknowledges that, pursuant to Inktomi's contractual
arrangement with its subcontractor, Exodus Communications, Inc. ("Exodus"),
Inktomi will locate the Hosting Servers at the facilities of Exodus, and Exodus
will provide power and Internet telecommunications services to the Hosting
Servers. However, Microsoft will have no obligations or liabilities to Exodus,
Inktomi will remain liable for providing all
6
<PAGE>
Services to Microsoft notwithstanding its arrangement with Exodus, and Inktomi
will [*] and [*] against from any and all [*] to [*] (in accordance with the
procedures specified in Section [*] below). A copy of the contract(s) between
Inktomi and Exodus is/are attached hereto as Exhibit [*], and Inktomi shall not
modify said contract(s) or replace Exodus as its subcontractor for the
applicable services (including without limitation by having Inktomi perform the
Services directly) without Microsoft's prior written approval (which approval
Microsoft agrees to not unreasonably withhold). Inktomi shall provide Exodus
with a copy of the Security Measures applicable under this Agreement and will
use commercially reasonable efforts to ensure that Exodus strictly adheres to
all such Security Measures.
3.3 Subject to Microsoft's rights under Section 2.6.2 above and/or
the Security Agreement between Inktomi and Microsoft of even date herewith,
executed in accordance with the Loan Agreement, Microsoft shall not have any
access to the Hosting Servers, except as follows: (i) Microsoft will have
electronic read-only access to "real time" system data on the status of the
usage, accessibility and performance of the Microsoft Search Engine (via
software developed by Inktomi in consultation with Microsoft), and (ii)
Microsoft will have the right, upon reasonable notice and during normal business
hours, to have representatives escorted by Inktomi employees tour the premises
where the Hosting Servers are located as necessary to ensure Microsoft's
satisfaction with the operation of the physical plant and equipment. Microsoft
agrees to comply with the Security Measures at all times when accessing the
Hosting Servers as permitted hereunder.
4. Payment For Services.
--------------------
4.1 As full and complete compensation for the Services, Microsoft
shall pay to Inktomi the following monthly fees:
(a) beginning with the Launch Date, the sum of [*]
[*] Dollars ($[*]) (attributable to the use during the Term of the Hosting
Servers owned by Inktomi as of the Effective Date), provided that in no event
will Microsoft be obligated to make more than [*] ([*]) monthly payments
pursuant to this clause (a), and if the Term extends beyond [*] years after the
Launch Date, this clause (a) will be deemed deleted from this Agreement
effective on the [*] anniversary of the Launch Date notwithstanding anything
to the contrary contained herein;
(b) an amount equal to [*] ([*]) of the [*], [*], [*], [*]
thereon, incurred by Inktomi to purchase each new Hosting Server required to
service Microsoft's needs in accordance with Section 3.1 above (attributable to
the use during the Term of such new Hosting Servers); such payments will
commence with respect to each new Hosting Server at such time as Inktomi's
repayment obligations begin with respect to such new Hosting
7
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Server pursuant to the Loan Agreement and the applicable Promissory Note.
Notwithstanding section 4.2 below, such payments shall be due in immediately
available funds on the first business day of each month. The parties acknowledge
that the monthly fee under this clause (b) will increase throughout the Term if
and to the extent that Microsoft's Hosting Server requirements increase, but,
notwithstanding anything contained herein to the contrary, no amounts shall be
payable under this clause (b) attributable to any Hosting Server which is more
than [*] years old;
(c) an amount equal to the [*] and [*] of the new Hosting
Servers purchased by Inktomi pursuant to Section 3.1 above ([*] any amounts paid
by Inktomi to Exodus for such services or attributable to the employees referred
to in clause (f) below), payable if and when Inktomi pays such maintenance
costs; Inktomi will use its commercially reasonable efforts to ensure that the
annual hardware and software maintenance costs for each such new Hosting Server
are not more than [*] percent ([*]%) of the purchase price of such New Hosting
Server, and Microsoft will not be obligated to pay higher maintenance costs than
such [*]% annual estimate without its prior written consent;
(d) an amount equal to [*] Percent ([*]%) of the sum of the
amounts payable under clauses (b) and (c) above (attributable as Inktomi's
management fee for providing the Services);
(e) an amount equal to Microsoft's [*] of the [*] [*] by Inktomi
to Exodus in connection with the applicable Hosting Servers cluster, computed in
accordance with Exhibit [*], [*] the [*] new Hosting Servers are [*] at Exodus;
and
(f) an amount equal to [*] per month per person identified
in Section 2.7 above, [*] of the new Hosting Servers.
In addition, if the number of ADH (as defined in the Software Development
Agreement and Information Services Agreement) should exceed the capacity
requested by Microsoft, or if Inktomi's usage of its estimated capacity
requirements should exceed its estimates as communicated to Microsoft in
accordance with Section 2.2.1 above, then Microsoft's applicable payment(s)
hereunder will be [*] in [*] with the [*] set forth in Exhibit [*] hereto.
4.2 Except as set forth in Section 4.1(b) above, Inktomi shall supply
to Microsoft written invoices for all amounts due under this Agreement, and
payments will be due net [*] ([*]) days from Microsoft's receipt of such
invoice. Inktomi shall bear sole responsibility for all expenses incurred in
connection with the performance of the Services, unless otherwise set forth
herein or agreed to in writing by Microsoft.
8
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
4.3 Inktomi shall keep true and accurate books and records, in
accordance with Generally Accepted Accounting Principles ("GAAP"), relating to
all costs and expenses for which Inktomi is entitled to charge Microsoft
pursuant to Section 4.1 above, throughout the Term and for eighteen (18)
additional months thereafter. Inktomi will permit Microsoft to have access to,
and to make copies of, all such books and records for purposes of auditing and
verifying such costs and expenses, provided that Microsoft shall give Inktomi
reasonable notice prior to each requested audit and shall perform such audit
during normal business hours at Inktomi's office(s) where such records are
normally kept. If any Microsoft audit should determine that Inktomi overcharged
Microsoft by an amount of [*]% or more for the period audited, then in addition
to any and all other rights and remedies Microsoft may have under the
circumstances, Microsoft may require Inktomi to reimburse it for all costs it
incurred relating to such audit.
4.4 Taxes.
-----
4.4.1 All amounts to be paid by Microsoft to Inktomi herein are
exclusive of any federal, state, local, municipal or other governmental taxes,
including, without limitation, taxes based on, imposed on or measured by net or
gross income or receipts, franchise taxes, taxes on doing business, capital
stock taxes (including any minimum taxes and taxes measured by any item of tax
preference), sales, use, excise, property, withholding or similar taxes, duties,
levies, fees, excises or tariffs (all such taxes and other charges collectively
"Taxes") now or hereafter imposed on Inktomi under applicable law (the "Inktomi
Taxes"). Microsoft is not liable to Inktomi for any Taxes incurred in connection
with this Agreement, unless they are (i) owed by Microsoft under applicable law
solely as a result of entering into this Agreement (ii) are based solely upon
the amounts payable under this Agreement, and (iii) are required to be collected
from Microsoft by Inktomi under applicable law, provided, however, that solely
with respect to sales tax or use tax payable to those taxing jurisdictions that
impose sales or use taxes under applicable law upon the vendor, rather than the
purchaser, clause (i) above shall be modified to provide "sales taxes or use
taxes that are owed by Inktomi under applicable law solely as a result of
entering into this Agreement and clause (iii) shall be modified to provide "are
permitted to be collected from Microsoft by Inktomi under applicable law." (Such
Taxes as are described in clauses (i), (ii) and (iii) above, the "Invoiced
Taxes".) The Invoiced Taxes shall be stated separately as applicable on
Inktomi's invoices and shall be remitted by Microsoft to Inktomi. Inktomi shall
promptly provide to Microsoft official tax receipts indicating that such
Invoiced Taxes have been collected by Inktomi. Microsoft may provide to Inktomi
an exemption certificate acceptable to Inktomi and to the relevant taxing
authority (including without limitation a resale certificate) in which case
Inktomi shall not collect the Taxes covered by such certificate. Inktomi agrees
to take such steps as are reasonably requested by Microsoft to minimize such
Invoiced Taxes in accordance with all relevant laws and to reasonably cooperate
with and assist Microsoft, at Microsoft's request, in challenging the validity
of any Invoiced Taxes or other Taxes paid directly by Microsoft to the relevant
taxing authority. Inktomi shall indemnify and hold Microsoft
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<PAGE>
harmless from any Taxes, penalties, interest, or additions to tax arising from
amounts paid by Microsoft to Inktomi under this Agreement that are asserted or
assessed against Microsoft to the extent such amounts are related to Invoiced
Taxes paid to Inktomi by Microsoft under this section. Other than the Invoiced
Taxes, all Inktomi Taxes shall be the responsibility of Inktomi and may not be
passed on to Microsoft. Inktomi takes full responsibility for all such Inktomi
Taxes, including penalties, interest and other additions thereon and agrees to
indemnify, defend and hold Microsoft harmless from any claims, causes of action,
costs (including without limitation, reasonable attorneys' fees), penalties,
interest charges and other liabilities of any nature whatsoever associated
therewith. All Taxes that are imposed on Microsoft under applicable law (the
"Microsoft Taxes") shall be the responsibility of Microsoft and may not be
passed on to Inktomi. Microsoft takes full responsibility for all such Microsoft
Taxes, including penalties, interest and other additions thereon and agrees to
indemnify, defend and hold Inktomi harmless from any claims, causes of action,
costs (including without limitation, reasonable attorneys' fees), penalties,
interest charges and other liabilities of any nature whatsoever associated
therewith.
4.4.2 In the event that Taxes are required to be withheld on payments
made hereunder by any U.S. (state, local or federal) or foreign government,
Microsoft may deduct such Taxes from the amount owed Inktomi and pay them to the
appropriate taxing authority. Microsoft shall in turn promptly secure and
deliver to Inktomi an official receipt for any Taxes withheld. Inktomi may
provide to Microsoft an exemption certificate acceptable to Microsoft and to the
relevant taxing authority (including without limitation a resale certificate) in
which case Microsoft shall not collect the Taxes covered by such certificate.
Microsoft agrees to take such steps as are reasonably requested by Inktomi to
minimize such Taxes in accordance with all relevant laws and to reasonably
cooperate with and assist Inktomi, at Inktomi's request, in challenging the
validity of any such Taxes.
4.4.3 Inktomi agrees and acknowledges that it will be responsible for
all of its federal and state taxes, withholding, social security, unemployment
and other related taxes, insurance, and other benefits, and all salaries,
benefits, and other costs of its employees.
5. Ownership of the Product. The parties respective rights in and to the
------------------------
Product will be as set forth in the Software Development Agreement and the
Information Services Agreement of even date herewith, and nothing contained in
this Agreement shall be deemed to modify such rights allocation.
6. Confidentiality.
---------------
6.1 The parties hereby agree that all terms and conditions of that certain
Microsoft Corporation Non-Disclosure Agreement between them dated March 18,
1997, shall govern the disclosure of confidential and proprietary information
made under this
10
<PAGE>
Agreement. In this connection, the parties hereby agree that the terms of this
Agreement shall be treated as confidential in accordance with the terms of said
Non-Disclosure Agreement.
6.2 Without having first sought and obtained Microsoft's written
approval (which Microsoft may withhold in its sole and absolute discretion),
Inktomi shall not, directly or indirectly, (i) trade upon this transaction or
any aspect of Inktomi's relationship with Microsoft, or (ii) otherwise deprecate
Microsoft technology.
6.3 Inktomi shall use its reasonable commercial efforts to cause
Exodus to execute a non-disclosure agreement with Microsoft which includes
substantially similar restrictions as are contained herein.
6.4 Neither party will issue any press release or make any public
announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other party. However, the parties acknowledge that this
Agreement, or portions thereof, may be required under applicable law to be
disclosed, as part of or an exhibit to a party's required public disclosure
documents. If either party is advised by its legal counsel that such disclosure
is required, it will notify the other in writing and the parties will jointly
seek confidential treatment of this Agreement to the maximum extent reasonably
possible, in documents approved by both parties and filed with the applicable
governmental or regulatory authorities. Notwithstanding the foregoing, Microsoft
and Inktomi will cooperate to create a mutually approved joint press release
regarding the non-confidential aspects of this Agreement, which press release
shall be issued by each party on the Launch Date; provided, however, that the
precise timing of such press release shall be subject to the approval of
Microsoft (in its sole and absolute discretion).
7. Representations and Warranties.
------------------------------
7.1 Microsoft warrants and represents that it has the full power to
enter into this Agreement and perform its obligations hereunder.
7.2 Inktomi warrants and represents that:
7.2.1 It has the full power to enter into this Agreement and
perform its obligations hereunder, and Inktomi's performance of such obligations
will not violate any terms and conditions of other agreements entered into by
Inktomi with [*] ([*]);
7.2.2 Inktomi's [*] and [*] of the Product shall [*] to the [*]
and [*],
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<PAGE>
provided, however, that a [*] and [*] to so [*] will not be [*] to be a [*]
hereunder; and
7.2.3 Notwithstanding any [*] to [*] hereunder, or to any other
[*], Inktomi shall remain [*] for the [*] hereunder in accordance with [*].
8. Indemnification.
---------------
8.1 Each party shall, at the expense of such party (the "Indemnifying
Party") and at the request of the other party (the "Indemnified Party"), defend
[*] party claim or action brought against the Indemnified Party, and/or the
[*] and [*] which, [*], (i) would constitute a [*] of [*], [*] or [*] made
by the Indemnifying Party under this Agreement; or (ii) would [*] of the
Indemnifying Party's [*]; and the Indemnifying Party will [*] and [*] the
Indemnified Party [*] and [*], [*] and [*] incurred by the Indemnified
Party, including but [*] to [*] of [*] and [*], that are attributable to such
claim. The Indemnified Party shall: (x) provide the Indemnifying Party
reasonably prompt notice in writing of any such claim or action and [*] the
Indemnifying Party, through counsel [*] to Microsoft and Inktomi, to [*] and [*]
such claim or action; and (y) provide the Indemnifying Party [*], [*] and [*] at
the [*] Party's [*], to [*] the Indemnifying Party to [*] such claim or action.
The Indemnifying Party will [*] for [*] made by the [*] Party without the
[*] Party's [*], which [*] will [*].
8.2 The Indemnified Party shall have the right to employ separate
counsel and participate in the defense of any claim or action. The Indemnifying
Party shall reimburse the Indemnified Party upon demand for any payments made or
loss suffered by it at any time after the date hereof, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands, or actions, in respect to any damages related to
any claim or action under this Section 8.
8.3 The Indemnifying Party may [*] any claim or action under this
Section 8 on the Indemnified Party's behalf [*] the [*], which [*] will [*].
In the event Microsoft and Inktomi agree to settle a claim or action, the each
party agrees not to publicize the settlement without first obtaining the other
party's written permission, which permission will not be unreasonably withheld.
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<PAGE>
9. LIMITATION OF LIABILITY. EXCEPT FOR [*] CAUSED BY A [*] OF
-----------------------
SECTION [*], NEITHER PARTY SHALL BE [*] (IN [*] WITH OR PURSUANT TO THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS TAKEN AS A WHOLE) FOR ANY [*], [*] OR [*]
[*] (INCLUDING [*]) [*] OF [*] ([*]) [*] OF THE [*] OF [*], EVEN IF [*]
HAD BEEN [*] OF THE [*] OF SUCH [*].
10. Termination and Other Remedies.
------------------------------
10.1 Inktomi may terminate this Agreement without cause upon
[*]'s prior written notice, provided that such notice may not be given prior to
the [*] of the [*].
10.2 Microsoft may terminate this Agreement at any time without cause
upon [*] ([*]) days prior written notice. Upon receipt of such notice, Inktomi
will discontinue all work hereunder. If Microsoft terminates this Agreement
without cause pursuant to this Section 10.2, then Microsoft will pay for all
services provided by Inktomi up until the date of termination under this Section
10.2. Notwithstanding anything contained herein to the contrary, should
Microsoft exercise its termination right pursuant to this Section 10.2, then
Inktomi will have the right to elect, in writing within fifteen (15) days after
receipt of Microsoft's notice of termination hereunder, either one of the
following two options for a early termination penalty:
(a) Inktomi may require Microsoft to pay to Inktomi, in
[*] immediately following the effective termination date, an amount equal to [*]
([*]) of all outstanding principal, interest and other amounts owed or owing to
Microsoft by Inktomi on the date of termination under the Loan Agreement (and
outstanding Promissory Notes issued thereunder); or
(b) Inktomi may deliver that portion of the Collateral (as
defined in the Loan Agreement) which was purchased with Advances evidenced by
the then-outstanding Promissory Notes (as defined in the Loan Agreement) (the
"Returned Collateral") to Microsoft, and assign all right, title and interest in
and to said Returned Collateral to Microsoft, and promptly upon such delivery
and assignment Inktomi may require Microsoft to pay to Inktomi, in [*]
immediately following the effective date of termination, an amount equal to [*]
([*]) of all outstanding principal, interest and other amounts owed or owing to
Microsoft by Inktomi on the date of termination under the Loan Agreement (and
outstanding Promissory Notes issued thereunder); provided, however, that the
following conditions must be satisfied for Inktomi to be entitled to elect this
alternative (b)-
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<PAGE>
(i) Inktomi then owns all of the Returned Collateral and has [*]
the Returned Collateral [*], and [*] other than Lender;
(ii) Inktomi obtains any [*] reasonably required by Microsoft from
Inktomi's [*];
(iii) the Returned Collateral is returned in good condition and
repair, without any waste or unusual or unreasonable depreciation of
Returned Collateral;
(iv) Inktomi has not committed any act for which any portion of the
Returned Collateral might be confiscated by any governmental or private
entity;
(v) Inktomi has paid all taxes, assessments or similar obligations
affecting the Returned Collateral that are then due or have then accrued;
(vi) Inktomi [*] to Microsoft [*] that [*] of the [*] is [*] and
[*]; and
(vii) Inktomi, [*], arranges to deliver the Returned Collateral in a
manner and to a location designated by Microsoft.
In the event Inktomi elects this alternative (b), the Security Agreement
executed in connection with the Loan Agreement shall terminate on the business
day immediately following the date of delivery and assignment of all the
Returned Collateral to Microsoft.
10.3 Subject to Section 12.9 below, in the event the Microsoft
Search Engine is inaccessible to Microsoft, due to a problem other than one with
Microsoft's servers or the telecommunication line from Microsoft to the Hosting
Servers, for twenty-four (24) consecutive hours, or for forty-eight (48) hours
or more in any seventy-two (72) hour period, or for seventy-two (72) hours or
more in any one week period, and such inaccessibility is due to any reason other
than Microsoft's breach of its obligations under this Agreement, then Microsoft
may suspend performance and/or terminate this Agreement immediately with no
further obligation.
10.4 Microsoft may suspend performance and/or terminate this
Agreement immediately upon written notice at any time if:
(a) Inktomi is in [*] of this Agreement (excluding Section
[*]) and fails to cure that breach within [*] ([*]) days after written notice
thereof; or
(b) Inktomi is in material breach of Section [*]; or
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<PAGE>
(c) Inktomi becomes insolvent or makes any assignment for the
benefit of creditors or similar transfer evidencing insolvency; or suffers or
permits the commencement of any form of insolvency or receivership proceeding;
or has any petition under any bankruptcy law filed against it, which petition is
not dismissed within sixty (60) days of such filing; or has a trustee or
receiver appointed for its business or assets or any part thereof.
10.5 Inktomi may suspend performance and/or terminate this Agreement
immediately upon written notice at any time if:
(a) Microsoft is in [*] of this Agreement (excluding Section
[*]) and fails to cure that breach within [*] ([*]) days after written notice
thereof; or
(b) Microsoft is in material breach of Section [*]; or
(c) Microsoft becomes insolvent or makes any assignment for
the benefit of creditors or similar transfer evidencing insolvency; or suffers
or permits the commencement of any form of insolvency or receivership
proceeding; or has any petition under any bankruptcy law filed against it, which
petition is not dismissed within sixty (60) days of such filing; or has a
trustee or receiver appointed for its business or assets or any part thereof.
10.6 If Inktomi is in material breach of this Agreement, then
Microsoft will have the right to withhold payment of amounts otherwise owed by
Microsoft to Inktomi pursuant to this and/or any Ancillary Agreement; provided,
however, that Microsoft shall give Inktomi not less than [*] ([*]) days to cure
such breach prior withholding any such payments.
10.7 A breach of this Agreement by either party will also constitute
a breach by such party of each and every Ancillary Agreement; and a breach by
either party of any Ancillary Agreement will also consitute a breach of this
Agreement by such party.
10.8 In the event of termination or expiration of this Agreement for
any reason, Sections 1, 2.3, 4.3, 4.4, 5, 6.1, 7, 8, 9 and 12 shall survive
termination. Except as otherwise expressly provided in this Agreement, Inktomi
shall turn over to Microsoft all work in progress, software, and any other
materials provided by Microsoft to Inktomi under this Agreement promptly
following termination or expiration. Neither party shall be liable to the other
for damages of any sort resulting solely from such party terminating this
Agreement in accordance with its terms.
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<PAGE>
10.9 The rights and remedies given to the parties under this Section
10 are in addition to any other rights and/or remedies that the parties may have
under the circumstances, all of which are expressly reserved.
11. International Deployment, Hosting & Maintenance Obligations of
--------------------------------------------------------------
Inktomi. Microsoft will have the right to require Inktomi to purchase new
- -------
Hosting Servers, and/or to arrange for and perform such deployment, hosting and
maintenance services, as Microsoft may determine in connection with
international versions of the Product throughout the Term, on the same terms and
conditions as applicable hereunder with respect to the original version of the
Product directed toward the U.S. market, including without limitation requiring
Inktomi to establish, deploy and maintain a cluster of Hosting Servers anywhere
in the world (including [*]) designated by Microsoft. If and when Microsoft
requires such undertakings by Inktomi, it will so notify Inktomi in writing,
whereupon Inktomi will perform such undertakings as requested as expeditiously
as reasonably possible.
12. Miscellany.
----------
12.1 Neither party shall represent itself as the agent or legal
representative of the other for any purpose whatsoever, and neither party shall
have the right to create or assume for the other any obligation of any kind.
This Agreement shall not create or be deemed to create an agency, partnership,
franchise, employment relationship or joint venture between the parties. Each
party's employees who perform services related to this Agreement shall remain
under the exclusive direction and control of their respective employer and shall
receive such salaries, compensation and benefits as their respective employer
may from time to time determine. Each party shall have full and sole
responsibility for its employees who perform any service related to this
Agreement with regard to compliance with all applicable laws, rules and
regulations governing such party relating to employment, labor, wages, benefits,
taxes and other matters affecting its employees.
12.2 Any notice required or permitted to be given under this
Agreement shall be made in writing and shall be deemed to have been given or
made if it is in writing and is: (i) delivered in person, (ii) sent by same day
or overnight courier, (iii) mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to the party at its address set
forth below or at such other address as such party may subsequently furnish to
the other party by notice hereunder, or (iv) delivered by facsimile, the
transmittal of which shall be confirmed by a telephone call to the other party
and by dispatch of a confirming copy of the transmittal by registered or
certified mail, postage prepaid. Notices will be deemed effective on the date of
delivery in the case of personal delivery, or three (3) business days after
mailing, or on the date of dispatch in the case of notification by facsimile
(assuming confirmation of transmission). The parties' addresses for purposes of
notice shall be as set forth above, provided that all notices to Inktomi shall
be sent to the
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<PAGE>
attention of General Counsel; and all notices to Microsoft shall
be sent to the attention of Shirish Nadkarni, with a copy to: Law & Corporate
Affairs, U.S. Legal.
12.3 This Agreement shall be construed, enforced, performed and in
all respects governed by and in accordance with the laws in the State of
Washington. In any action or suit to enforce any right or remedy under this
Agreement the prevailing party shall be entitled to recover its reasonable
attorneys' fees and costs.
12.4 In the event any provision of this Agreement is rendered null,
void or otherwise ineffective, then (i) the parties agree to negotiate in good
faith an acceptable alternative provision which reflects as closely as possible
the intent of the unenforceable provision and (ii) notwithstanding, and
regardless of whether the parties reach agreement after the good faith
negotiations described in clause (i) immediately above, the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby and shall remain in full force and
effect. Section and all other headings used herein are provided for convenience
only and are not to be given any legal effect or considered in interpreting any
provision of this Agreement. No provision of this Agreement shall be interpreted
against any party because such party or its legal representative drafted such
provision.
12.5 Except as expressly permitted hereunder or in Exhibit F hereto,
neither party may transfer, assign or sublicense this Agreement, or any rights
or obligations hereunder, whether by contract or by operation of law, except
with the express written consent of the other party, and any attempted transfer,
assignment or sublicense by a party in violation of this Section shall be void.
For purposes of this Agreement, an "transfer" under this Section shall be deemed
to include, without limitation, the following: (a) a merger or any other
combination of an entity with another party (other than a reincorporation of
Inktomi from the State of California to the State of Delaware), whether or not
the entity is the surviving entity; (b) any transaction or series of
transactions whereby a third party acquires direct or indirect power to control
the management and policies of an entity, whether through the acquisition of
voting securities, by contract, or otherwise; (c) in the case of Inktomi, the
sale or other transfer of Inktomi's search engine business or any other
substantial portion of Inktomi's assets (whether in a single transaction or
series of transactions), or (d) the transfer of any rights or obligations in the
course of a liquidation or other similar reorganization of an entity (other than
a reincorporation of Inktomi from the State of California to the State of
Delaware). Neither party will unreasonably withhold or delay its consent to a
requested transfer, assignment or sublicense. Subject to the provisions of this
Section, this Agreement shall be binding upon and inure to the benefit of each
party and their respective successors and assigns.
12.6 All rights and obligations of the parties hereunder are
personal to them. Except as otherwise specifically stated herein, this Agreement
is not intended to benefit, nor shall it be deemed to give rise to, any rights
in any third party.
17
<PAGE>
12.7 Each party shall be responsible for compliance with all
applicable laws, rules and regulations, if any, related to the performance of
its obligations under this Agreement.
12.8 No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof or thereof, and no waiver shall be effective
unless made in writing and signed by an authorized representative of the waiving
party.
12.9 Neither party shall be liable hereunder by reason of any
failure or delay in the performance of its obligations hereunder during any
event of force majeure.
12.10 The parties acknowledge that there may be instances during the
Term when, notwithstanding the Non-Disclosure Agreement referred to in Section
6.1 above, Inktomi will not wish to disclose or have Microsoft become aware
(through inspection or otherwise) of certain confidential and proprietary
information of Inktomi relating to its business and/or technology. In those
instances, the parties agree to work together in a spirit of cooperation to work
around such disclosure so that Inktomi is able to perform the Services to
Microsoft's reasonable satisfaction and otherwise discharge its obligations
under this Agreement without making such disclosure.
12.11 This Agreement, along with the Ancillary Agreements, together
contain the entire agreement of the parties with respect to the premises, and
may not be modified or amended except by a written instrument executed by the
party sought to be charged or bound thereby.
13. Insurance. Inktomi will maintain insurance (including but not limited
---------
to liability and property insurance covering the Hosting Servers and Inktomi's
operation thereof) in accordance with the requirements set forth in the Software
Development Agreement and Loan Agreement between the parties of even date
herewith.
Executed as of the Effective Date on the signature dates below.
INKTOMI CORPORATION MICROSOFT CORPORATION
/s/ DAVID C. PETERSCHMIDT /s/ LAURA JENNINGS
By: _________________________ By: _________________________
David C. Peterschmidt, CEO Laura Jennings
______________________________ ______________________________
(printed name and title) (printed name and title)
July 24 7/27
Date: ____________________, 1997 Date: ____________________, 1997
18
<PAGE>
EXHIBIT A
DEPLOYMENT, HOSTING AND MAINTENANCE SPECIFICATIONS AND SECURITY MEASURES
(32 pages follow)
<PAGE>
EXHIBIT A
---------
YUKON REQUIREMENTS FOR THE INKTOMI SEARCH SERVICE
MICROSOFT CONFIDENTIAL
- --------------------------------------------------------------------------------
VERSION: 1.0
STABILITY: High
FILENAME: Yukon requirements for Inktomi search service.doc
DATE: 07/07/97 3:57 PM
AUTHOR(S): William Jones wjones
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Table of Contents
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1. OVERVIEW
================================================================================
The goal of this document is to provide a reasonably complete list of Yukon
requirements for the Inktomi search service. Note that a number of the
requirements in this document are met by the existing search service but are
included anyway for the sake of completeness.
The Section 2 lists all requirements according to area (Performance and
Scalability, Reliability and Fault Tolerance, ...) together with information on
Target Release and Due Date as defined below. The Appendix (Section 7) follows
a similar organization and provides more detail on the requirements..
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[*]
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EXHIBIT B
CONTRACT(S) BETWEEN INKTOMI AND EXODUS
<PAGE>
EXHIBIT C
PRO-RATION METHODOLOGY
ALLOCATION OF EXODUS OPERATING COSTS
Exodus charges a monthly fee for facility space, fire suppression, air
conditioning, security, electricity, support services and Internet
connectivity. Inktomi is obliged to contract for this capacity in advance.
The connectivity is currently itemized and charged at a current rate of
[*].
[*] will be according to the [*] provisioned.
Example: [*] - [*] per day, [*] per day [*]. [*] of Exodus charges, [*] of
Exodus charges [*].
[*] will be charged to [*] only for their share of [*]
Current estimate is that [*]; this would be [*].
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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EXHIBIT D
INKTOMI MAINTENANCE EMPLOYEES
[*] and [*]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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EXHIBIT E
OVER-UTILIZATION ADJUSTMENT
In the event that one party under-provisions its portion of the shared Inktomi
hosting cluster such that its [*] are [*] by the [*], there will be a charge
on a [*] levied against the under-provisioned party.
If [*] for a [*] exceeds its agreed capacity provisioning (as determined in
accordance with Sections 2.2 and 2.8, then Microsoft's [*] will be [*] ([*]
if the [*] is by [*], or [*] if such [*] is by [*]) in accordance with the
following computation: [*] the [*] ("[*]") times the [*] of the provisioned
capacity ("[*]"). Note that the over-utilization could apply to [*] in any [*].
[*] will be calculated each month by taking the [*] of the Inktomi [*] without
regard to [*] ([*]) [*] ([*]) [*] by the agreed total [*] provisioned.
[*] will be calculated for each party each month by [*] the number of [*] ([*]
the [*] in the [*]) from the number of [*] for the [*].
Example:
Assumptions:
1. Microsoft provisioned capacity is [*]
2. Inktomi provisioned capacity is [*]
3. [*] in [*] is $[*]
4. [*] is [*] for a [*]
5. [*] is [*] for that [*]
[*] = $[*] = $[*]
[*] = [*] = [*]
Over-Utilization Adjustment = [*] = $[*]
[*] in such [*] payable by [*]
Notwithstanding anything contained herein to the contrary, if a party shall have
[*] its provisioned capacity by [*] in any month, such party shall be deemed [*]
for its [*] during such month as soon as possible.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT F
---------
Transfer by Inktomi
-------------------
If Inktomi requests Microsoft's consent to a transfer as described in clause (a)
of Section 12.5 of this Software Hosting Agreement to which this Exhibit F is
appended, and Microsoft reasonably withholds its consent to such transfer (an
"Unconsented Transfer"), then Inktomi will nevertheless have the right to
transfer this Agreement in connection with its proposed Unconsented Transfer
subject to the following conditions precedent to the Unconsented Transfer:
(i) Inktomi, at its sole cost and expense, and without any financing supplied
by Microsoft, will create a separate cluster of Hosting Servers for Microsoft
required to service Microsoft's reasonably anticipated needs for a period of
twelve months after the commencement of operation of such new and relocated
cluster [provided however that Microsoft will purchase, or fund (in accordance
with the Loan Agreement) Inktomi's of, (whichever Microsoft elects) any new
hosting servers beyond the Hosting Servers purchased by Inktomi under said
Software Hosting Agreement necessary to service Microsoft's reasonably
anticipated needs as set forth above];
(ii) Inktomi will relocate, at its sole cost and expense (including, without
limitation, indemnifying Microsoft and holding it harmless against any and all
Taxes that arise as a direct or indirect result of the relocation of the Hosting
Servers), all Hosting Servers referred to in clause (i) to a location designated
by Microsoft, in its sole discretion;
(iii) Inktomi, at its sole cost and expense, will provide training to Microsoft
personnel to the extent requested by Microsoft, to enable such personnel to use
and maintain the Microsoft Search Engine, and to create enhancements thereto,
with reasonable competence (all as determined by Microsoft in its sole
discretion);
(iv) Inktomi will grant to Microsoft an irrevocable, non-exclusive,
royalty-free license to use the Product (and all required underlying Inktomi
Technology) solely in connection with Microsoft's operation of the Microsoft
Search Engine (which license shall include the right to create enhancements and
other derivative works based thereon for use in conjunction therewith) for such
period as Microsoft may require to transition its search engine services to
non-Inktomi technology (the "Transition Period"), and Inktomi will waive all
royalties otherwise payable pursuant to the Software Development Agreement
and/or the Information Services Agreement between the parties of even date
herewith; for the purposes of this clause (iv), the Transition Period will
commence at such time as Microsoft assumes control over said separate cluster
and begins itself operating the Microsoft Search Engine, and will continue
thereafter for eighteen months (18) or until the
24
<PAGE>
termination of the Software Development Agreement and Information Services
Agreement (whichever is longer);
(v) Inktomi will direct the Escrow Agent to release to Microsoft all
Confidential Materials held by the Escrow Agent, subject to Microsoft's
agreement to use such Confidential Materials only in connection with its
licensed rights under clause (iv) above;
(vi) Inktomi will agree to reimburse Microsoft for all reasonable costs
incurred by Microsoft in transitioning its search engine to non-Inktomi
technology (whether created by Microsoft or by a third party); and
(vii) Inktomi will cause the applicable proposed transferee of this Agreement to
assume, jointly and severally with Inktomi, all of Inktomi's obligations
hereunder.
Microsoft will cooperate with Inktomi and use its reasonable best efforts so as
to enable Inktomi to satisfy the foregoing conditions precedent in a timely
manner. Upon satisfaction of the foregoing conditions precedent, this Software
Hosting Agreement shall be deemed terminated pursuant to Section 10.1. Upon
expiration of the Transition Period, all rights granted to Microsoft to use the
Product (other than Microsoft Technology, Joint Derivative Technology and the
Microsoft Derivative Technology) and/or any Inktomi Technology under the
transitional license referred to in clause (iv) or otherwise shall cease, and
Microsoft shall immediately return to Inktomi all Confidential Materials (and
all copies thereof), provided however that, notwithstanding any provision of the
Ancillary Agreements to the contrary, the undertaking by Inktomi to indemnify
Microsoft and hold it harmless against Taxes as provided in clause (ii) above
shall survive any such terminations.
25
<PAGE>
EXHIBIT 10.15
LOAN AGREEMENT
--------------
This LOAN AGREEMENT, dated as of the later of the two signature dates
below, is made by and among MICROSOFT CORPORATION ("Microsoft"), a Washington
Corporation, One Microsoft Way, Redmond, Washington 98052-6399 ("Lender"), and
INKTOMI CORPORATION ("Inktomi"), a California corporation, 1900 South Norfolk
Street, Suite 110, San Mateo, California 94403 ("Borrower").
RECITALS
--------
A. Borrower develops and markets computer software products, including
without limitation a "search engine" software for searching and indexing
information accessible through the Internet.
B. Lender develops, manufactures, distributes and markets computer
software products and services.
C. Borrower and Lender desire to enter into a business relationship
pursuant to which, among other things, (i) Borrower would (a) develop software
for Lender to implement desired features for a Lender search engine, (b) provide
search results for Lender using Borrower's search engine customized with, among
other elements, the features developed for Lender, (c) provide software hosting
and maintenance services for Lender's benefit, and (d) purchase additional
hardware and software necessary or desirable to service Lender's needs, and (ii)
Lender would make certain payments to Borrower, and provide loans to Borrower to
facilitate Borrower's purchase of additional hardware and software necessary or
desirable to service Lender's needs.
D. This Loan Agreement and a Security Agreement between the parties of
even date, are intended to set forth the terms and conditions applicable to the
loan aspects of such business relationship.
NOW THEREFORE, for and in consideration of the mutual covenants and
conditions set forth herein, the parties agree as follows:
AGREEMENTS
----------
1. Loan to Borrower. Pursuant to the terms and conditions of that certain
----------------
Software Hosting Agreement between Borrower and Lender of even date herewith
(the "Hosting Agreement"), Borrower may be required, after consultation with and
approval by Lender, to purchase additional Hosting Servers, as that term is
defined in the Hosting Agreement. Subject to the terms and conditions of this
Agreement, Lender shall from time to time make advances ("Advances") to Borrower
during the period from the date hereof until the termination of this Agreement.
In no event shall Lender have any obligation to make Advances to Borrower
following the occurrence of any Event of Default as defined in section 11 of
this Agreement.
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A. Advances. Advances shall be made only in amounts separately agreed
--------
between Lender and Borrower to be sufficient to purchase the additional Hosting
Servers required by Lender. Each such Advance shall be evidenced by a promissory
note (the "Promissory Note") with a term of [*] ([*]) [*] in substantially the
form of the sample note attached hereto as Exhibit A. The terms of all such
Promissory Notes are by this reference incorporated in this Agreement. The
proceeds of each Advance shall only be used by Borrower to purchase the
additional Hosting Servers for which that Advance is made.
B. Persons Authorized. Lender is hereby authorized by Borrower to make
------------------
Advances only upon the written requests (including requests made by telex,
telegraph or facsimile), of any one of the following persons (the "Responsible
Officers" and each a "Responsible Officer"): Dave Peterschmidt, Jerry Kennelly
and Randy Gottfried; each of whom is and shall be authorized to request Advances
and direct the disposition of any Advance until written notice by Borrower of
the revocation of such authority is received by Lender. Any Advance shall be
conclusively presumed to have been made to or for the benefit of Borrower when
made in accordance with such a request. Requests for Advances shall be on the
Borrowing Notice form attached hereto as Exhibit B. Any such Borrowing Notice
shall be directed to the following Lender representative (or such other person
as Lender may direct from time to time) for approval prior to disbursement:
Shirish Nadkarni.
C. Assumption of Risk. It is important to Borrower that Borrower have the
------------------
privilege of making requests for Advances by e-mail, telex, telegraph or
facsimile. Therefore, to induce Lender to lend funds in response to such
requests, and in consideration for Lender's agreement to receive and consider
such requests, BORROWER ASSUMES ALL RISK OF THE VALIDITY, AUTHENTICITY AND
AUTHORIZATION OF SUCH REQUESTS, WHETHER OR NOT THE INDIVIDUAL MAKING SUCH
REQUEST HAS AUTHORITY IN FACT TO REQUEST ADVANCES ON BEHALF OF BORROWER. UNLESS
AN UNAUTHORIZED OR INVALID ADVANCE IS MADE AS A RESULT OF GROSS NEGLIGENCE ON
THE PART OF LENDER, LENDER SHALL NOT BE RESPONSIBLE, UNDER PRINCIPLES OF
CONTRACT, TORT OR OTHERWISE, FOR ANY LOSS SUSTAINED BY BORROWER RESULTING FROM
ANY UNAUTHORIZED OR INVALID ADVANCE, INCLUDING, BUT NOT LIMITED TO, THE AMOUNT
OF ANY ADVANCE. Borrower agrees to repay any sums, with interest as provided
herein, that Lender so advances. Borrower agrees to give Lender prompt written
confirmation of all e-mail, telex, telegraph or facsimile requests for Advances;
but Borrower's failure to do so, or the failure of such confirmation to reach
Lender, shall not affect Borrower's assumption of the risk with respect to such
Advance or reduce in any way the obligation of Borrower to repay with interest
all amounts theretofore or thereafter advanced by Lender pursuant thereto.
D. Request for Advance. Each request for an Advance shall set forth the
-------------------
amount of such Advance and the date such Advance is to be made, such request to
be received by Lender by 9:30 a.m., Seattle, WA, USA time ten (10) full business
days before such Advance is to be made. Any proposed Advance shall be made and
effected only on a business day and may be disbursed only after a separate
Promissory Note for such Advance is properly executed by
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Borrower, and delivered to and accepted by Lender. If the date of the proposed
Advance is not a business day, such Advance shall be effected on the next
succeeding business day. Each request for an Advance shall be irrevocable and
binding on Borrower.
E. Disbursement of Advances. Advances made and effected by Lender shall
------------------------
be disbursed by wire transfer in immediately available funds to the depository
account set forth in Exhibit E hereto, or such other account as Borrower may
designate from time to time by written notice to Lender signed by a Responsible
Officer.
2. Term and Termination. This Agreement shall terminate upon the
--------------------
termination of the Hosting Agreement ("Maturity Date"); provided that all rights
and remedies to which Lender is entitled under this Agreement and at law shall
survive any such termination of the Agreement until all amounts advanced or
otherwise due Lender under this Agreement have been repaid or otherwise
satisfied according to the terms of this Agreement.
3. Interest. The outstanding principal balance of the Loan shall bear
--------
interest at the lowest appropriate applicable federal rate, as determined by
Microsoft, when each Promissory Note (or the New Note described in section 4) is
issued. All computations of interest shall be based on a 360-day year for the
actual number of days passed.
4. Payment of Principal and Interest.
---------------------------------
A. Monthly Payments. Payment of principal and interest for each
----------------
Advance shall be made in immediately available funds, by 10:00 a.m., Seattle
time, at such location designated by Lender or the holder of the applicable
Promissory Note, on the date each payment is due as provided in the Promissory
Note. The payments of principal and interest shall be separately calculated for
each Advance and shall be payable in immediately available funds on the first
business day of each month until paid in full. Each installment payment shall be
in an amount sufficient to cause the principal balance of each Advance to be
repaid within three years. Notwithstanding the foregoing, any amounts accrued
but not paid at the time of termination of this Agreement shall be payable or
otherwise satisfied in accordance with the following subsections.
B. Roll-over or Acceleration. Upon expiration or termination of this
-------------------------
Agreement:
(i) If this Agreement is terminated due to the mutual agreement
of the parties, due to termination of the Hosting Agreement by Lender pursuant
to section 10.2 of the Hosting Agreement, or due to termination of the Hosting
Agreement by Borrower pursuant to section 10.1 of the Hosting Agreement, then
immediately prior to the effective date of such termination Lender shall cancel
all outstanding Promissory Notes and Borrower shall simultaneously execute a new
promissory note ("New Note") for all outstanding principal, interest and other
amounts under such Promissory Notes owed or owing to Lender by Borrower on that
date, in substantially the form attached as Exhibit C satisfying and replacing
all outstanding Advances and other amounts due under this Agreement. A New Note
issued
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pursuant to this subsection shall carry the same interest rate and be subject to
the same terms and conditions as all Advances under this Agreement, except that
the term of the New Note shall be two (2) years, and each installment payment
shall be in an amount sufficient to cause the principal balance of the New Note
to be repaid within two (2) years. Installment payments for the New Note shall
be made in immediately available funds, by 10:00 a.m., Seattle time, at such
location designated by Lender or the holder of the New Note, on the date each
payment is due as provided in the New Note. Prior to execution of the New Note,
Borrower shall satisfy all conditions precedent and make all representations and
warranties required for Advances under this Agreement.
(ii) If termination of this Agreement is due to any other reason
(other than due to a material breach of this Agreement or the Hosting Agreement
by Lender), such termination shall be considered an Event of Default and subject
to any and all remedies available to Lender for an Event of Default as provided
in section 12 of this Agreement.
C. Prepayment. Borrower may prepay each Advance in whole or in part,
----------
at any time without penalty. Any repayments of the amounts due under this Loan
Agreement shall be made in immediately available funds and shall be applied
first against any amounts owed to Lender under the Security Agreement, then to
the payment of past due interest on any outstanding Advance, and any remaining
amount shall reduce the outstanding principal amount of each Advance.
5. Overdue Payments; Default Rate. If any amount due under this Agreement
------------------------------
is not paid when and as due, such amount shall bear interest from the date such
payment was due until and including the date such payment is received by Lender
at a rate per annum equal to eighteen percent (18 %) per annum (the "Default
Rate"), provided that in no event shall the rate of interest exceed that
permitted by applicable law.
6. Security for the Loan. This Loan is secured by a purchase money
---------------------
security interest in the Hosting Servers purchased by each Advance, pursuant to
the terms of a security agreement of even date ("Security Agreement"). Lender
shall have a first priority security interest in all of the collateral described
in the Security Agreement (the "Collateral").
7. Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Lender as follows:
A. Corporate Existence. Borrower is a corporation, duly organized
-------------------
and validly existing, in good standing under the laws of its state of
incorporation, and is duly authorized and qualified under all applicable laws,
regulations, ordinances and orders of public authorities to carry on such
business in any state or county where such qualification is necessary and to own
and hold property.
B. Corporate Power. Borrower has full right, power and authority to
---------------
enter into and perform this Agreement, each Promissory Note, the New Note, and
the Security
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<PAGE>
(collectively, the "Documents"), and to grant all of the rights granted and
agreed to be granted pursuant to this Agreement and the Documents.
C. Authorization. Borrower has taken all necessary corporate action
-------------
to authorize the execution, delivery and performance of this Agreement and the
other Documents, including but not limited to, all necessary corporate action
required by its articles of incorporation and bylaws.
D. No Conflict, Violation or Consent Required. The execution,
------------------------------------------
delivery and performance of, and the compliance with the provisions of each of
the Documents do not and will not violate any provision of an applicable law or
any provision of Borrower's articles of incorporation and bylaws, and will not
conflict with, require consent under any provision of, result in any breach of
any of the terms, conditions or provisions of, result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of Borrower pursuant to the terms of, or constitute a default under or
conflict with, any other indenture, contract, mortgage, deed of trust or other
agreement or instrument to which Borrower is a party or by which Borrower is
bound. Borrower shall not enter into other contractual obligations which will
restrict or impair its obligations under this Agreement or any other Document.
E. Binding Effect. This Agreement constitutes, and the Promissory
--------------
Note and each of the other Documents, when executed and delivered by Borrower,
will constitute, valid obligations of Borrower and are binding and enforceable
against Borrower in accordance with their respective terms, except as hereafter
may be limited by applicable bankruptcy, insolvency, reorganization, or similar
laws affecting the enforcement of creditor's rights and the availability of
specific performance.
F. Familiarity With Terms. Borrower is fully familiar with all of
----------------------
the terms, covenants and conditions of the Documents.
G. Legal Proceedings. Except as disclosed on Schedule 1 attached
-----------------
hereto, there is no action, suit or proceeding pending or, to the knowledge of
Borrower, threatened, at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that might result in a material adverse
change in Borrower's ownership or title to any of the Collateral or in its
financial condition or operations. As used in this subsection, the phrase "to
the knowledge of Borrower" shall mean the current actual knowledge of the
executive officers and directors of Borrower.
H. No Governmental Approvals. No registration with or approval of
-------------------------
any governmental agency or commission is necessary for the due execution and
delivery of any of the Documents or for the validity or enforceability thereof
with respect to any obligation of Borrower hereunder or thereunder, except acts
to be performed by Lender in order to perfect Lender's security interest in the
Collateral.
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I. Liens and Encumbrances. Borrower shall keep the Collateral
----------------------
purchased with each Advance free and clear of all liens, claims, encumbrances
and rights of others and at the request of Lender from time to time, shall
obtain an agreement, in a form satisfactory to Lender in its sole discretion,
from any of its general creditors or lien holders to subordinate their interests
in the Collateral to Lender's interest pursuant to this Agreement and the
Security Agreement.
J. Compliance With Laws. Borrower has complied with all laws,
--------------------
regulations, ordinances and orders which affect in any material respect its
right to carry on its operations, perform its obligations under the Documents
or meet its obligations in the ordinary course of business.
K. Outstanding Debt. There exists no default under the provisions of
----------------
any agreement or instrument evidencing any outstanding indebtedness of Borrower
and/or its subsidiaries to any party or any material agreement to which Borrower
and/or its subsidiaries is currently a party.
L. Disclosure. This Agreement does not contain any untrue statement
----------
of a material fact and does state all material facts necessary in order to make
the statements contained herein not misleading in light of the circumstances
under which they were made. There is, to the knowledge of Borrower, no fact that
would materially adversely affect its business, prospects, condition, affairs or
operations or any of its properties or assets.
M. No Consents. The execution, delivery and filing of the Security
-----------
Agreement and any financing statements, and the creation of the lien, mortgage,
encumbrance, preference or security interest contemplated thereby, will not
require the consent or approval of any person or entity not a party to this
Agreement.
N. Perfection of Liens and Security Interest. As of the date hereof,
-----------------------------------------
Lender will have a valid and perfected first priority lien on and security
interest in all of the Collateral (whether now owned or hereafter acquired),
which lien and security interest will be enforceable against the applicable
grantor thereof and all third parties and will secure the obligations stated
therein. All filings, recordations and other actions necessary under any laws to
perfect and protect such liens and security interests as first-priority liens
and security interests in the Collateral have been, or will on the Closing Date
be, duly taken.
8. Affirmative Covenants. Until all amounts owed under the Documents have
---------------------
been paid in full or otherwise satisfied under the terms of this Agreement,
Borrower, at its own expense, covenants and agrees at all times to comply with
the terms of this paragraph 8.
A. Financial Information.
---------------------
(i) Borrower shall furnish or cause to be furnished to Lender,
as soon as practicable and in any event within forty-five (45) days after the
close of each fiscal quarter, the following unaudited financial statements of
Borrower for each such quarter, all in reasonable
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<PAGE>
detail and certified by a Responsible Officer of Borrower to be true and
correct: balance sheet, statement of income, and statement of cash flows.
(ii) Borrower shall furnish or cause to be furnished to Lender,
as soon as the same are available, and in any event within ninety (90) days
after the end of each of each fiscal year Borrower's consolidated balance sheet,
statement of income and a statement of cash flows, all as of the end of such
fiscal year (together, in each case, where applicable, with the comparable
figures for the prior fiscal year), all in reasonable detail. Annual
consolidated financial statements shall be prepared and audited (without any
qualification or exception deemed material by Lender) in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved (except as disclosed in the notes to
the financial statements) by independent certified public accountants of
recognized national standing or otherwise reasonably acceptable to Lender.
(iii) Concurrently with the information described in (i) and
(ii) above, a certificate of a Responsible Officer of Borrower stating that the
consolidated financial statements delivered to Lender are properly stated and
that there exists no Event of Default, or event which with notice or lapse of
time, or both, would constitute an Event of Default, or, if any such event
exists, specifying the nature and period of existence thereof and what action
Borrower proposes to take with respect thereto.
(iv) Borrower shall also furnish or cause to be furnished, from
time to time, such additional financial and other information as Lender may
reasonably request in order to monitor the financial condition of Borrower.
B. Notice of Default. Immediately upon obtaining knowledge of the
-----------------
occurrence of any event that constitutes an Event of Default, or that with
notice or lapse of time, or both, would constitute an Event of Default, Borrower
shall give written notice thereof to Lender, together with a detailed statement
of the steps being taken by Borrowers to cure such event.
C. Maintenance of Existence. Borrower shall cause to be done all
------------------------
things necessary to maintain and preserve the corporate existence, rights and
franchises of Borrower and shall comply with all related laws applicable to
Borrower and/or its subsidiaries.
D. Payment of Taxes. Borrower shall pay, indemnify and hold Lender
----------------
harmless from (i) all taxes, assessments and charges lawfully levied or imposed
by the United States, any state or local government, any taxing authority or any
political or governmental subdivision of any foreign country on or with respect
to the Collateral or any part thereof, and (ii) any other claims which, if
unpaid, might become by law a lien upon Borrower's property; except, and only to
the extent that any such taxes, assessments, charges or claims are being
contested in good faith (and for the payment of which adequate reserves have
been provided) by appropriate proceedings conducted diligently and in good faith
so long as such proceedings do not involve a material danger of the sale,
forfeiture or loss of all or a material portion of the Collateral.
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<PAGE>
E. Maintenance of Property and Leases. Borrower shall keep its
----------------------------------
properties in good repair and condition, reasonable wear and tear excepted, and
from time to time make all necessary and proper repairs, renewals, replacements,
additions and improvements thereto. Borrower shall at all times comply with the
provisions of all leases to which it is a party so as to prevent any loss or
forfeiture thereof or thereunder.
F. Insurance. Borrower shall maintain with responsible companies
---------
reasonably acceptable to Lender liability insurance and insurance with respect
to the Collateral in amounts and covering risks as is customary among companies
engaged in businesses similar to that of Borrower. Each liability insurance
policy maintained pursuant to this paragraph shall name Lender as additional
insured. Each such policy other than liability policies shall name Lender as
named insured and loss payee as its interest may appear. The parties agree that
such interest of Lender shall be equal to the total of all amounts owed under
the Documents to Lender. Borrower shall maintain insurance against any other
risks as is customary among companies engaged in businesses similar to that of
Borrower. All required insurance shall (a) be in form and amount reasonably
satisfactory to Lender and (b) contain a Lender's Loss Payable Endorsement. Each
insurer shall agree by endorsement upon the policies issued by it, or by
independent instrument furnished to Lender, that it will give Lender thirty (30)
days written notice before the policy is materially altered or canceled. The
proceeds of any public liability policy shall be payable first to Lender to the
extent of its liability, if any, and the balance shall be payable to Borrower.
Borrower hereby irrevocably appoints Lender as Borrower's attorney-in-fact to
make claim for, receive payment of, and execute and endorse all documents,
checks or drafts for loss or damage under any insurance policy.
G. Notice of Litigation. Borrower shall promptly notify Lender in
--------------------
writing of the initiation of any litigation against Borrower that in Borrower's
good faith judgment might materially and adversely affect the operations,
financial condition, property or business of Borrower. If any suit is filed
against any of the Collateral or if any of the Collateral is otherwise attached,
levied upon or taken in custody by virtue of any legal proceeding in any court,
Borrower shall promptly notify Lender thereof by telephone, confirmed by letter,
and within sixty (60) days (unless otherwise consented to in writing by Lender)
cause the Collateral to be released and promptly notify Lender thereof in the
manner aforesaid.
H. Accounts and Reports. Borrower shall keep true and accurate
--------------------
records and books of account in which full, true and correct entries shall be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles.
I. Compliance With Laws. Borrower shall duly observe and conform to
--------------------
all valid requirements of governmental authorities relating to the conduct of
its business or to its property or assets.
J. Inspection. Borrower shall permit Lender or its designated
----------
representative, at all reasonable hours upon reasonable advance notice, to visit
and inspect Borrower's
-8-
<PAGE>
properties, offices, facilities and the Collateral, and to examine Borrower's
books of account, solely to monitor the status of the Collateral and financial
condition of Borrower. Lender agrees that any such visitation or inspection may
be escorted and monitored by Borrower.
K. Filing and Execution of Documents. Borrower shall from time to
---------------------------------
time do and perform such other and further acts and execute and deliver any and
all such further instruments as may be required by law or reasonably requested
by Lender to establish, maintain and protect Lender's security interest in any
of the Collateral as provided in this Agreement.
L. Anti-forfeiture. Borrower shall not have committed or commit any
---------------
act or omission affording the federal government or any state or local
government the right of forfeiture as against the property of Borrower or any
part thereof or any moneys paid in performance of its obligations under this
Agreement, any Promissory Note or under any of the other Documents. Borrower
covenants and agrees not to commit, permit or suffer to exist any act or
omission affording such right of forfeiture. In furtherance thereof, Borrower
hereby indemnifies Lender and agrees to defend and hold Lender harmless from and
against any loss, damage or injury by reason of the breach of the covenants and
agreements or the warranties and representations set forth in the preceding
sentence. Without limiting the generality of the foregoing, the filing of formal
charges or the commencement of proceedings against Borrower, Lender, or all or
any of the property of any Borrower under any federal or state law for which
forfeiture of such property or any part thereof or of any moneys paid in
performance of any Borrower's obligations under the Documents shall, at the
election of Lender, constitute an Event of Default hereunder without notice or
opportunity to cure.
M. Meeting. The Responsible Officers of Borrower (and such other
-------
officers and employees of Borrower as Lender may reasonably request) shall meet
at least once per year with Lender's designated representatives to review
Borrower's consolidated financial statements and such other information
regarding the operation of Borrower's business as may be reasonably requested by
Lender to monitor the financial condition of Borrower and status of the
Collateral.
9. Negative Covenants. Until all amounts owed under this Agreement, the
------------------
Promissory Note and the other Documents have been paid in full or otherwise
satisfied under the terms of this Agreement, Borrower, without the prior written
consent of Lender, covenants and agrees that it shall not sell all or any
portion of the Collateral, nor relocate the Collateral. Borrower shall not
encumber the Collateral, assume any debt secured by the Collateral or subject
the Collateral to any unpaid charge or claim of any third party. Lender may give
its prior written consent to any sale or encumbrance of any of the Collateral
upon the express terms and conditions set forth in such consent of Lender.
10. Conditions Precedent to Loan Advances. Notwithstanding anything
-------------------------------------
contained herein to the contrary, the obligation of Lender to make any Advance
to Borrower, is expressly conditioned upon the following:
A. Representations and Warranties. All representations and
------------------------------
warranties of Borrower contained in this Agreement, in the Documents and in any
certificate or other
-9-
<PAGE>
instrument delivered pursuant to the provisions hereof, or in connection with
the transactions contemplated hereby, shall be and remain true and correct in
all material respects throughout the term of this Agreement, including without
limitation on the date of each request for an Advance with the same force and
effect as though such representations and warranties had been made on the date
of the Advance.
B. Covenants. Borrower shall have performed and complied with all
---------
material terms, covenants and conditions of this Agreement and the Documents to
be performed or complied with by it on or before execution of this Agreement or
on or before the date of each Advance, as the case may be.
C. No Event of Default. There shall exist no Event of Default, or
-------------------
event which with notice or lapse of time, or both, would constitute an Event of
Default, under this Agreement or the other Documents.
D. Subordination of Prior Interests/Release of Liens. If Lender so
-------------------------------------------------
requests, for any prior security interest, lien or encumbrance in the Collateral
or in the general assets of the Borrower's business, Borrower shall obtain a
subordination agreement from its creditor or lien holder in favor Lender or
shall obtain the release and discharge of such security interest, lien or
encumbrance, including any financing statement or recorded lien filed to perfect
such interest, lien or encumbrance.
E. Delivery of Documentation. Borrower, at its sole cost and
-------------------------
expense, shall have delivered to Lender the following documents, duly executed
by the appropriate party, in form and substance satisfactory to Lender:
(i) the applicable Promissory Note executed by Borrower prior
to disbursement of each respective Advance;
(ii) the Security Agreement executed by Borrower on the date of
this Agreement;
(iii) the Hosting Agreement executed by Borrower, on the date of
this Agreement;
(iv) a certificate of Borrower's corporate secretary, to be
dated as of the date of this Agreement, certifying as true and accurate and in
full force and effect as of that date, copies of current resolutions of
Borrower's Board of Directors authorizing (i) Borrower to enter into and perform
this Agreement and to execute, deliver and honor and perform the other
Documents, and (ii) the persons who have executed or will execute this
Agreement, the Promissory Note and the other Documents to do so;
(v) a certificate, as of the most recent date practical, of the
secretary of state of Borrower's state of incorporation as to the good standing
of Borrower;
-10-
<PAGE>
(vi) certificates issued in favor of Lender evidencing the
insurance policies required by Lender in accordance with Section 8F hereof;
(vii) UCC financing statements executed by Borrower, in form and
substance satisfactory to Lender, evidencing Lender's security interest in the
Collateral designated thereon to be filed in each jurisdiction in which Borrower
is or may be doing business;
(viii) officer's certificates executed by a Responsible Officer
of Borrower, dated the purchase date for each purchase of each item of
Collateral, certifying that on that date (i) Borrower has good title to all
Collateral described in the Security Agreement, (ii) no Event of Default, or
event which with notice or lapse of time, or both, would constitute an Event of
Default, has occurred, and is continuing, and (iii) the representations and
warranties contained in the Documents are true and accurate on and as of that
date;
(ix) such other agreements, certificates or other documents as
shall be deemed necessary or desirable, in the good faith opinion of Lender or
its counsel, in order to fully and completely perfect, preserve or protect
Lender's interests hereunder and Lender's security interest in the Collateral;
(x) a valid and authorized Borrowing Notice containing a
request for an Advance approved by Lender's designated representative.
11. Events of Default. The occurrence of one or more of the following
-----------------
events (herein called "Events of Default") shall constitute a default under this
Agreement.
A. Borrower's failure to pay any portion of any installment of
principal or interest due under any Promissory Note or any other amount under
any of the other Documents when and as the same shall become due and payable as
therein or herein expressed, if such failure continues for a period of ten (10)
days after Lender has notified Borrower (regardless of whether Borrower actually
receives such notice) that such payment has not been received;
B. Borrower's failure to comply with and duly and punctually observe
or perform, any of the covenants of Borrower contained in Sections 8B, 8C, 8D,
8E and 8H and Section 9 of this Loan Agreement;
C. Borrower's failure to maintain insurance as required in
accordance with Section 8F hereof; which failure shall continue for a period of
ten (10) days after the earlier of the giving of notice of such failure by
Lender to Borrower, or the date Lender is notified of such failure by Borrower
or should have been so notified pursuant to section 8B hereof.
D. Borrower applies for, consents to or acquiesces in the
appointment of a trustee, receiver, liquidator, assignee, sequestrator or other
similar official for Borrower or for any of Borrower's property, or makes a
general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization in a proceeding under any bankruptcy law (as now
-11-
<PAGE>
or hereafter in effect) or a readjustment of its indebtedness or an answer
admitting the material allegations of a petition filed against it in any such
proceeding, or seeks relief under the provisions of any bankruptcy or similar
law; or, in the absence of any of the foregoing, a trustee, receiver,
liquidator, assignee, sequestrator or other similar official is appointed for
Borrower or for a substantial part of any of the property of Borrower and is not
discharged within sixty (60) days; or any bankruptcy, reorganization, debt
arrangement or other proceeding under any bankruptcy or other insolvency law or
common law or in equity is instituted against Borrower and is not dismissed
within sixty (60) days; or, in the absence of any of the foregoing, if, under
the provisions of any law providing for reorganization or winding up which may
apply to Borrower, any court of competent jurisdiction shall assume
jurisdiction, custody or control of Borrower or of any substantial part of any
of Borrower's property and such jurisdiction, custody or control shall remain in
force unrelinquished, unstayed or unterminated for a period of sixty (60) days;
E. any material representation or warranty made by Borrower and
contained in any of the Documents, or otherwise made by Borrower to Lender,
proves or becomes untrue in any material respect, provided that any cure period
(if any) available to remedy the inaccuracy has passed;
F. Borrower is in material default in the payment or performance of
any material obligation under any promissory note, indenture, contract,
mortgage, deed of trust or other instrument to which Borrower is a party or by
which Borrower is bound and the applicable cure period shall have expired;
G. any provision of any Document, including, without limitation, the
Security Agreement, shall for any reason (except for acts to be performed by
Lender) cease to be valid and binding on any signatory thereto, or such
signatory shall so allege, or any Security Agreement shall for any reason
(except for acts to be performed by Lender) cease to create a valid and
perfected first priority lien, mortgage, encumbrance or security interest except
to the extent permitted by the terms thereof, in any of the property purported
to be covered thereby, or the signatory to such Security Agreement shall so
allege;
H. the termination of the Hosting Agreement by Lender due to the
material breach thereunder by Borrower; or
I. Borrower's failure to duly and punctually observe or perform, in
any material respect, any other of the covenants, conditions or agreements to be
performed or observed by Borrower contained in this Agreement or any of the
Documents and, except as may otherwise be specifically provided in the
Documents, such failure continues for a period of thirty (30) days after the
earlier of the giving of notice of such failure by Lender to Borrower, or the
date Lender is notified of such failure by Borrower or should have been so
notified pursuant to section 8B hereof.
J. Borrower's material breach under the Hosting Agreement and/or any
of the following agreements between the parties (which remains uncured after the
applicable core
-12-
<PAGE>
period, if any, thereunder): the Software Development Agreement of even date
herewith; and the Information Services Agreement of even date herewith (and the
Escrow Agreement referred to therein).
12. Remedies. Upon the occurrence of an Event of Default and while any
--------
Event of Default is continuing, Lender may at its option elect to pursue any or
all of the following remedies, which are cumulative and in addition to any other
right or remedy provided by applicable law:
A. without further demand, protest or notice of any kind to
Borrower, declare any or all sums and obligations due under the Documents to be
due and immediately payable, and upon such declaration the same shall become and
be immediately due and payable;
B. terminate Lender's commitment to make Advances hereunder;
C. If Borrower fails to perform any act that it is required to
perform under this Agreement or the Security Agreement, Lender may, but shall
not be obligated to, perform, or cause to performed, such act, provided that any
reasonable expense thereby incurred by Lender and any money thereby paid by
Lender, shall be a demand obligation owing by Borrower and Lender shall promptly
notify Borrower of the amount of such obligation, which obligation shall bear
interest at the Default Rate from the date Lender makes such payment until
repaid by Borrower; and Lender shall be subrogated to all rights of the person
receiving such payment;
D. enforce Lender's rights under the Security Agreement;
E. terminate the Hosting Agreement;
F. institute one or more legal proceedings at law or in equity for
the:
(i) specific performance of any covenant, condition, agreement
or undertaking contained in the Documents, or in aid of the execution of any
powers granted therein and/or to recover a judgment for damages for the breach
hereof, including, without limitation, any amount due under the Documents,
either by their terms or by virtue of such declaration, and collect the same out
of any property of Borrower;
(ii) foreclosure of its security interest in the Collateral and
the sale of all or any part of the Collateral under the judgment or decree of
any court of competent jurisdiction;
(iii) enforcement of such other appropriate legal or equitable
remedy as may in the opinion of Lender be necessary to protect and enforce
Lender's rights under the Documents;
G. assert such other rights and remedies of a secured party and of a
mortgagee under the laws of the United States or the state of Washington
(regardless of whether such law or one similar thereto has been enacted in the
jurisdiction where the rights or remedies are asserted),
-13-
<PAGE>
including, without limitation, all rights of a secured party under the UCC,
whether or not this Agreement and the transactions contemplated hereby are
determined to be governed by the UCC.
13. Costs and Expenses of Collection and Enforcement. Borrower shall pay
------------------------------------------------
to Lender on demand all reasonable attorneys fees and other costs and expenses
reasonably incurred by Lender in protecting the Collateral or in exercising
Lender's rights, powers or remedies under this Agreement or the Documents,
together with interest on such sums at the Default Rate from the date when the
costs and expenses are incurred until fully paid. If because of Borrower's
default the Lender consults an attorney regarding the enforcement of any of its
rights under any Document, or if suit is brought to enforce any Document,
Borrower promises to pay all costs thereof, including attorneys' fees. Such
costs and attorneys' fees shall include, without limitation, costs and
attorneys' fees incurred in any appeal, forfeiture proceeding or in any
proceedings under any present or future federal bankruptcy or state receivership
law.
14. Allocation of Proceeds. The (a) proceeds of any sale, (b) proceeds of
----------------------
any insurance received by Lender under any insurance policy obtained by any
Borrower hereunder, and (c) any and all other moneys received by Lender with
respect to the Documents, the application of which has not elsewhere herein been
specifically provided for, shall, except as otherwise specified in any
applicable Document, be applied as follows
(i) first, to the payment of all expenses and charges, including
expenses of any sale or retaking, reasonable attorneys' fees, court costs and
other expenses or advances reasonably made or incurred by Lender, or on Lender's
behalf, under the Documents upon an Event of Default, and to the payment of, and
provision for adequate indemnity for, any taxes, assessments or liens prior to
the lien of Lender;
(ii) second, to the payment of all accrued and unpaid interest under
the Promissory Notes or New Notes;
(iii) third, to the payment of the unpaid principal balance under the
Promissory Notes or New Note;
(iv) fourth, to the payment of all other amounts due to Lender under
the Documents; and
(v) last, any residue shall be paid to Borrower, or as otherwise
required by law, or, directed by a court having jurisdiction.
If the proceeds and other sums described in this section 14 are insufficient to
pay in full all amounts due to Lender under the Documents, Borrower shall
immediately pay such deficiency to Lender.
15. Modifications, Consents and Waivers. No failure or delay on the part
-----------------------------------
of Lender in exercising any power or right hereunder or under the Promissory
Notes or New Notes or under any other Document shall operate as a waiver
thereof, nor shall any single or partial exercise of
-14-
<PAGE>
any such right or power preclude any other or further exercise thereof or the
exercise of any other right or power. No amendment, modification or waiver of
any provision to this Agreement, the Notes or any other Document, nor consent to
any departure therefrom, shall in any event be effective unless the same shall
be in writing and consented to by Lender, and then such amendment, modification,
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances.
16. Notices. All notices and requests in connection with this Agreement,
-------
the Promissory Notes, the New Note or any other Document shall be in writing and
may be given by personal delivery, registered or certified mail, telegram,
facsimile or telex addressed as follows:
to Borrower: Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, California 94403
Attn: Chief Financial Officer
and to:
Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, California 94403
Attn: General Counsel
to Lender: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: Shirish Nadkarni
and to:
Microsoft Corporation
One Microsoft Way, Building 8
Redmond, WA 98052-6399
Attn: Law & Corporate Affairs, U.S. Legal
or to such other address as the party to receive the notice or request shall
designate by notice to the other. The effective date of any notice or request
shall be five (5) days from the date on which it is sent by the addresser if
mailed, or when delivered to a telegraph company, properly addressed as above
with charges prepaid, or when telexed, sent by facsimile or personally
-15-
<PAGE>
delivered. Borrowers hereby agree that such notice shall be deemed to meet any
requirements of reasonable notice contained in the UCC.
17. Costs and Expenses of Perfecting Security Interests and other Rights.
--------------------------------------------------------------------
Borrower shall pay in a timely manner all costs and expenses incurred by Lender,
including the reasonable fees and expenses of legal counsel, in connection with
the approval, preparation, negotiation, filing, or recording of any financing
statements, pledge agreements, waivers, subordination agreements, and
assignments (as well as any amendments or extensions thereto) reasonably
required to protect or perfect Lender's interest in the Collateral or any other
rights granted by the Documents.
18. Survival of Covenants. All covenants, agreements, representations and
---------------------
warranties made by Borrower hereunder shall survive the execution and delivery
of this Agreement and the disbursement of any Advances made pursuant to this
Agreement. All statements contained in certificates or other instruments
delivered by Borrower pursuant to this Agreement shall constitute
representations and warranties made by Borrower hereunder, as the case may be.
19. Binding Effect and Assignment. This Agreement, the Promissory Notes
-----------------------------
and all other Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns, except that,
subject to Exhibit D hereto, Borrower may not assign or transfer its rights
hereunder, or delegate its obligations hereunder, without the prior written
consent of Lender, which may be withheld in Lender's sole and absolute
discretion. From and after any assignment, transfer or delegation of obligation
by Lender of its interest hereunder, Lender shall be released from all liability
to Borrower hereunder arising after the date of such assignment, transfer or
delegation of obligation; provided, however, that any assignee of Lender shall
expressly assume all of the obligations of Lender hereunder. For purposes of
this Agreement, an "transfer" under this Section shall be deemed to include,
without limitation, the following: (a) a merger or any other combination of an
entity with another party (other than a reincorporation of Inktomi from the
State of California to the State of Delaware), whether or not the entity is the
surviving entity; (b) any transaction or series of transactions whereby a third
party acquires direct or indirect power to control the management and policies
of an entity, whether through the acquisition of voting securities, by contract,
or otherwise; (c) in the case of Inktomi, the sale or other transfer of
Inktomi's search engine business or any other substantial portion of Inktomi's
assets (whether in a single transaction or series of transactions), or (d) the
transfer of any rights or obligations in the course of a liquidation or other
similar reorganization of an entity (other than a reincorporation of Inktomi
from the State of California to the State of Delaware).
20. Headings. Article and paragraph headings used in this Agreement are
--------
for convenience of reference only and shall not affect the construction of this
Agreement.
21. Severability. The unenforceability or invalidity of any provision or
------------
provisions of this Agreement, the Promissory Notes, the New Note, or any other
Document shall not render any other provision or provisions hereof or thereof
unenforceable or invalid. If any rate of
-16-
<PAGE>
interest provided for herein is greater than that permitted under applicable
law, such rate shall be automatically reduced to be the maximum permitted by
law.
22. Additional Documents. Borrower shall at Lender's request, from time
--------------------
to time, at Borrower's sole cost and expense, execute, re-execute, deliver and
redeliver any and all documents, and do and perform such other and further acts,
as may reasonably be required by Lender to enable Lender to perfect, preserve
and protect Lender's security interest in the Collateral and Lender's and
Lender's rights and remedies under this Agreement or granted by law and to carry
out and effect the intents and purposes of this Agreement.
23. Integration. This Agreement and the other Documents shall constitute
-----------
the entire agreement between the parties hereto with respect to the subject
matter of this Loan Agreement and shall supersede all other agreements, written
or oral, with respect thereto. In the event of any conflict between this
Agreement and the other Documents, the provisions of this Agreement shall
control.
24. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original if fully executed, but
all of which shall constitute one and the same document.
25. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Washington.
26. Confidentiality.
---------------
A. The parties hereby agree that all terms and conditions of that
certain Microsoft Corporation Non-Disclosure Agreement between them dated March
18, 1997, shall govern the disclosure of confidential and proprietary
information made under this Agreement. In this connection, the parties hereby
agree that the terms of this Agreement and any information provided to Lender
hereunder shall be treated as confidential in accordance with the terms of said
Non-Disclosure Agreement.
B. Without having first sought and obtained Lender's written
approval (which Lender may withhold in its sole and absolute discretion),
Borrower shall not, directly or indirectly, (i) trade upon this transaction or
any aspect of Borrower's relationship with Lender, or (ii) otherwise deprecate
Microsoft technology.
C. Neither party will issue any press release or make any public
announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior written
consent of the other party. However, the parties acknowledge that this
Agreement, or portions thereof, may be required under applicable law to be
disclosed, as part of or an exhibit to a party's required public disclosure
documents. If either party is advised by its legal counsel that such disclosure
is required, it will notify the other in writing and the parties will jointly
seek confidential treatment
-17-
<PAGE>
of this Agreement to the maximum extent reasonably possible, in documents
approved by both parties and filed with the applicable governmental or
regulatory authorities.
ORAL COMMITMENTS. NOTICE IS HEREBY GIVEN THAT ORAL AGREEMENTS OR ORAL
- ----------------
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Lender: Borrower:
Microsoft Corporation, a Washington Inktomi Corporation, a California
corporation corporation
/s/ Laura Jennings /s/ David C. Peterschmidt
By __________________________ By __________________________
Vice President CEO
Its ______________________ Its ______________________
July 27, 1997 July 24, 1997
Date: ____________________ Date: ____________________
-18-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
US$_________________ Seattle, Washington
_________, 199__
FOR VALUE RECEIVED, the undersigned, INKTOMI CORPORATION ("Maker"), hereby
promises to pay to the order of MICROSOFT CORPORATION ("Lender"), at such place
as Lender may designate in writing from time to time, the principal sum of
___________________ and No/100 United States Dollars (US$________________)
together with interest and costs as herein provided.
Interest. The outstanding principal balance of the Loan shall bear interest at
- --------
the rate of ____ percent (___%) per annum. All computations of interest shall be
based on a 360-day year for the actual number of days passed.
Term/Note Maturity Date. The term of this Note shall be three (3) years. The
- -----------------------
Note Maturity Date shall be __________________, 200_.
Loan Agreement. This Note is given pursuant to the terms and conditions of the
- --------------
Loan Agreement, dated as of ____________, 1997 between Maker and Lender (the
"Loan Agreement"). Capitalized terms not otherwise defined herein shall have
the meaning given to them in the Loan Agreement.
Payments of Principal and Interest. Maker shall make monthly principal and
- ----------------------------------
interest payments of ___________________ on the first day of each month during
the term of this Note. Maker shall pay all remaining principal and accrued
interest on or before the Note Maturity Date.
Prepayment. Maker may repay all or any portion of the amount due under this
- ----------
Note without premium or penalty.
Events of Default; Acceleration. Upon occurrence of an Event of Default, at the
- -------------------------------
option of Lender the entire outstanding principal, interest and costs hereunder
shall be immediately due and payable and shall thereafter bear interest at a
rate equal to eighteen percent (18%) per annum (the "Default Rate"), until
payment in full of all amounts due to Lender. Notwithstanding the foregoing,
the interest paid under this Note shall never be greater than the maximum rate
of interest permitted under applicable law.
Liability and Waiver. Maker hereby waives diligence, presentment, demand,
- --------------------
protest and notice of any kind whatsoever. The non-exercise by Lender of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
-19-
<PAGE>
Costs of Collection. Maker, together with all sureties, endorsers and
- -------------------
guarantors of this Note, jointly and severally promise to pay: (a) all costs and
expenses incurred by Lender, including without limitation attorneys' fees, in
the event that Lender consults an attorney regarding a default by Borrower, even
though suit is not instituted; (b) attorneys' fees, and all other costs,
expenses and fees incurred by Lender, including costs on appeal, in the event
that suit is instituted on this Note; (c) all costs and expenses provided for in
the Loan Agreement or in any other instrument given as security for this Note
and/or incurred by or on behalf of Lender in connection with collecting or
otherwise enforcing any right of Lender under this Note, the Loan Agreement or
any other instrument given as security for this Note; and (d) all costs and
expenses, including, without limitation, attorneys' fees, incurred by Lender in
connection with any bankruptcy, forfeiture, insolvency or reorganization
proceeding or receivership in which Maker is involved, including, without
limitation, those incurred in making any appearances in any such proceeding or
in seeking relief from any stay or injunction issued in or arising out of any
such proceeding.
NOTICE. NOTICE IS HEREBY GIVEN THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
- ------
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
Applicable Law. This Note shall be governed by and construed in accordance with
- --------------
the laws of the State of Washington.
Maker:
Inktomi Corporation, a California corporation
By _____________________________
Its _________________________
-20-
<PAGE>
Exhibit B
---------
Notice of Borrowing
-------------------
To: Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052-6399
ATTN: Shirish Nadkarni
The undersigned, INKTOMI CORPORATION ("Inktomi"), hereby refers to the Software
Hosting Agreement and Loan Agreement, both dated July __, 1997, and hereby
requests to borrow the sum of $__________ pursuant to said Loan Agreement and
that such funds be sent by wire transfer to the account specified in the Loan
Agreement.
Pursuant to said Software Hosting Agreement, you and Inktomi agreed, on or about
_________________________, that the Microsoft Search Engine would be increased
to accommodate up to ______________ hits per day, and that Inktomi would
purchase __________ new Hosting Servers to satisfy such capacity requirement.
Inktomi certifies that all amounts loaned by you in response to this request
will be used only to purchase __________ new Hosting Servers for the cluster
servicing the Microsoft Search Engine.
Inktomi further certifies that as of the date hereof: (i) all representations
and warranties made by Inktomi under said Loan Agreement remain true; (ii)
Inktomi is in full compliance with all of its affirmative covenants under said
Loan Agreement; and (iii) no event has occurred and is continuing which
constitutes an Event of Default under said Loan Agreement.
All capitalized terms used in this Notice will have the meanings ascribed to
them under said Loan Agreement or Software Hosting Agreement (whichever is
applicable).
INKTOMI CORPORATION
By: _________________________
Printed Name: _________________________
Printed Title: _________________________
Date: _________________________
-21-
<PAGE>
EXHIBIT C
---------
PROMISSORY NOTE
---------------
US$_________________ Seattle, Washington
_________, 199__
FOR VALUE RECEIVED, the undersigned, INKTOMI CORPORATION ("Maker"), hereby
promises to pay to the order of MICROSOFT CORPORATION ("Lender"), at such place
as Lender may designate in writing from time to time, the principal sum of
___________________ and No/100 United States Dollars (US$________________)
together with interest and costs as herein provided.
Interest. The outstanding principal balance of the Loan shall bear interest at
- --------
the rate of ____ percent (___%) per annum. All computations of interest shall be
based on a 360-day year for the actual number of days passed.
Term/Note Maturity Date. The term of this Note shall be two (2) years. The
- -----------------------
Note Maturity Date shall be __________________, 200_.
Loan Agreement. This Note is given pursuant to the terms and conditions of the
- --------------
Loan Agreement, dated as of ____________, 1997 between Maker and Lender (the
"Loan Agreement"). Capitalized terms not otherwise defined herein shall have
the meaning given to them in the Loan Agreement.
Payments of Principal and Interest. Maker shall make monthly principal and
- ----------------------------------
interest payments of ___________________ on the first day of each month during
the term of this Note. Maker shall pay all remaining principal and accrued
interest on or before the Note Maturity Date.
Prepayment. Maker may repay all or any portion of the amount due under this
- ----------
Note without premium or penalty.
Events of Default; Acceleration. Upon occurrence of an Event of Default, at the
- -------------------------------
option of Lender the entire outstanding principal, interest and costs hereunder
shall be immediately due and payable and shall thereafter bear interest at a
rate equal to eighteen percent (18%) per annum (the "Default Rate"), until
payment in full of all amounts due to Lender. Notwithstanding the foregoing,
the interest paid under this Note shall never be greater than the maximum rate
of interest permitted under applicable law.
Liability and Waiver. Maker hereby waives diligence, presentment, demand,
- --------------------
protest and notice of any kind whatsoever. The non-exercise by Lender of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
-22-
<PAGE>
Costs of Collection. Maker, together with all sureties, endorsers and
- -------------------
guarantors of this Note, jointly and severally promise to pay: (a) all costs and
expenses incurred by Lender, including without limitation attorneys' fees, in
the event that Lender consults an attorney regarding a default by Borrower, even
though suit is not instituted; (b) attorneys' fees, and all other costs,
expenses and fees incurred by Lender, including costs on appeal, in the event
that suit is instituted on this Note; (c) all costs and expenses provided for
in the Loan Agreement or in any other instrument given as security for this Note
and/or incurred by or on behalf of Lender in connection with collecting or
otherwise enforcing any right of Lender under this Note, the Loan Agreement or
any other instrument given as security for this Note; and (d) all costs and
expenses, including, without limitation, attorneys' fees, incurred by Lender in
connection with any bankruptcy, forfeiture, insolvency or reorganization
proceeding or receivership in which Maker is involved, including, without
limitation, those incurred in making any appearances in any such proceeding or
in seeking relief from any stay or injunction issued in or arising out of any
such proceeding.
NOTICE. NOTICE IS HEREBY GIVEN THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
- ------
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
Applicable Law. This Note shall be governed by and construed in accordance with
- --------------
the laws of the State of Washington.
Maker:
Inktomi Corporation, a California corporation
By ___________________________
Its _________________________
-23-
<PAGE>
EXHIBIT D
---------
Transfer of Inktomi
-------------------
If Inktomi requests Microsoft's consent to a transfer as described in clause (a)
of Section 19 of this Loan Agreement to which this Exhibit D is appended, and
Microsoft reasonably withholds its consent to such transfer (an "Unconsented
Transfer"), then Inktomi will nevertheless have the right to transfer this
Agreement in connection with its proposed Unconsented Transfer subject to the
following conditions precedent to the Unconsented Transfer:
(i) Inktomi, at its sole cost and expense, and without any financing supplied
by Microsoft, will create a separate cluster of Hosting Servers for Microsoft
required to service Microsoft's reasonably anticipated needs for a period of
twelve months after the commencement of operation of such new and relocated
cluster (provided however that Microsoft will purchase, or fund (in accordance
with this Loan Agreement) Inktomi's purchase of (whichever Microsoft elects) any
new hosting servers beyond the Hosting Servers purchased by Inktomi under the
Software Hosting Agreement of even date herewith necessary to service
Microsoft's reasonably anticipated needs as set forth above);
(ii) Inktomi will relocate, at its sole cost and expense (including, without
limitation, indemnifying Microsoft and holding it harmless against any and all
Taxes that arise as a direct or indirect result of the relocation of the Hosting
Servers), all Hosting Servers referred to in clause (i) to a location designated
by Microsoft, in its sole discretion;
(iii) Inktomi, at its sole cost and expense, will provide training to Microsoft
personnel to the extent requested by Microsoft, to enable such personnel to use
and maintain the Microsoft Search Engine, and to create enhancements thereto,
with reasonable competence (all as determined by Microsoft in its sole
discretion);
(iv) Inktomi will grant to Microsoft an irrevocable, non-exclusive, royalty-
free license to use the Product (and all required underlying Inktomi Technology)
solely in connection with Microsoft's operation of the Microsoft Search Engine
(which license shall include the right to create enhancements and other
derivative works based thereon for use in conjunction therewith) for such period
as Microsoft may require to transition its search engine services to non-Inktomi
technology (the "Transition Period"), and Inktomi will waive all royalties
otherwise payable pursuant to the Software Development Agreement and/or the
Information Services Agreement of even date herewith; for the purposes of this
clause (iv), the Transition Period will commence at such time as Microsoft
assumes control over said separate cluster and begins itself operating the
Microsoft Search Engine, and will continue thereafter for eighteen months (18)
or until the termination of said Software Development Agreement and Information
Services Agreement (whichever is longer);
-24-
<PAGE>
(v) Inktomi will direct the Escrow Agent to release to Microsoft all
Confidential Materials held by the Escrow Agent, subject to Microsoft's
agreement to use such Confidential Materials only in connection with its
licensed rights under clause (iv) above;
(vi) Inktomi will agree to reimburse Microsoft for all reasonable costs
incurred by Microsoft in transitioning its search engine to non-Inktomi
technology (whether created by Microsoft or by a third party); and
(vii) Inktomi will cause the applicable proposed assignee, transferee or
delegatee of obligation of this Agreement to assume, jointly and severally with
Inktomi, all of Inktomi's obligations hereunder.
Microsoft will cooperate with Inktomi and use its reasonable best efforts so as
to enable Inktomi to satisfy the foregoing conditions precedent in a timely
manner. Upon satisfaction of the foregoing conditions precedent, said Software
Hosting Agreement shall be deemed terminated pursuant to Section 10.1 thereof.
Upon expiration of the Transition Period, all rights granted to Microsoft to use
the Product (other than Microsoft Technology, Joint Derivative Technology and
the Microsoft Derivative Technology) and/or any Inktomi Technology under the
transitional license referred to in clause (iv) or otherwise shall cease, and
Microsoft shall immediately return to Inktomi all Confidential Materials (and
all copies thereof), provided however that, notwithstanding any provision of the
Ancillary Agreements to the contrary, the undertaking by Inktomi to indemnify
Microsoft and hold it harmless against Taxes as provided in clause (ii) above
shall survive any such terminations.
Capitalized terms used in this Exhibit D and not otherwise defined in this Loan
Agreement shall be defined in the same manner as in the applicable agreement
among the following agreements between Lender and Borrower of even date
herewith: Software Development Agreement; Information Services Agreement; and/or
Software Hosting Agreement.
-25-
<PAGE>
EXHIBIT E
---------
Inktomi Depository Account Information
--------------------------------------
All Advances should be sent to Borrower's account by wire transfer as follows,
unless Borrower notifies Lender in writing signed by a Responsible Officer that
Advances henceforth should be sent to a different account:
Name of Bank: Silicon Valley Bank
Address of Bank: P.O. Box 2607
Santa Clara, CA 95055-2607
Routing Number: [*]
Account Number: [*]
-26-
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Exhibit 10.16
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, made and entered into as of the later of the two
signature dates below, is by INKTOMI CORPORATION, a California corporation
("Debtor"), in favor of MICROSOFT CORPORATION, a Washington corporation
("Secured Party") and is made with reference to the following facts:
RECITALS
A. Concurrently with the execution hereof, Secured Party and Debtor
entered into a Loan Agreement (together with all supplements, exhibits and
amendments thereto, referred to as the "Loan Agreement"), pursuant to which
Secured Party agreed to from time to time lend to Debtor amounts as more fully
set forth therein ("Loan"). The funds made available by each loan disbursement
("Advance") shall be used to purchase new computer hardware and other equipment
as required to fulfill Debtor's obligations to Secured Party under the terms of
a Software Hosting Agreement of even date ("Hosting Agreement"). The obligation
to repay the Loan is evidenced by a series of promissory notes executed and
delivered by Debtor to Secured Party (the "Promissory Notes"). Upon expiration
of the Loan Agreement at its Maturity Date or when the Loan Agreement is
terminated for certain reasons, the remaining indebtedness evidenced by the
Promissory Notes may be replaced with a new obligation evidenced by a new
promissory note ("New Note"), which obligation shall thereafter become the Loan.
B. Debtor desires to grant to Secured Party a purchase money security
interest in the following assets of Debtor as security for the Loan and the
performance by Debtor of all of its obligations under the Loan Agreement:
(1) All Hosting Servers, as that term is defined in the Hosting
Agreement, and any computer hardware or other equipment (as defined in the
applicable Uniform Commercial Code), purchased with funds provided by each loan
advance, together with all added and substituted parts and equipment, tools,
parts, accessories, supplies and improvements therefor.
(2) All deposit accounts (as defined in the applicable Uniform
Commercial Code) into which the funds from any Loan Advance are deposited prior
to the purchase of Hosting Servers, computer hardware and/or other equipment for
which such Loan Advance is intended (collectively "Equipment"), to the extent of
any such funds deposited ("Deposited Funds");
(3) All increases, substitutions, accessions, additions and
replacements to any of the foregoing; and
(4) All proceeds of any of the foregoing.
"Proceeds" means whatever is received when any of the foregoing is sold,
exchanged or otherwise disposed of, including involuntary dispositions and
claims for damages thereto,
-1-
<PAGE>
including without limitation cash proceeds, any insurance proceeds and any other
rights or property arising under or receivable upon any such disposition. The
property described in (1) through (4) above, and all interests in which a
security interest is hereby granted are collectively referred to as the
"Collateral."
NOW THEREFORE, in order for Secured Party to make the Loan, Debtor agrees
as follows:
1. Assignment and Creation of Security Interests. FOR VALUE RECEIVED,
---------------------------------------------
Debtor hereby assigns, transfers and grants to Secured Party a security interest
in the Collateral for the purpose of securing (a) payment of all of the
indebtedness evidenced by the Promissory Notes or the New Note, as applicable;
(b) the strict performance and observance of all agreements, warranties,
covenants and conditions of Debtor contained in the Promissory Notes, the New
Note, this Security Agreement, and the Loan Agreement; and (c) the repayment of
all moneys expended by Secured Party under the provisions of this Security
Agreement, the Promissory Notes, the New Note or the Loan Agreement, with
interest thereon from the date of expenditure at the Default Rate (as defined in
the Loan Agreement).
2. Representations. Debtor hereby represents and warrants to Secured
---------------
Party that:
(a) Debtor owns or, with respect to Collateral hereafter acquired,
will own all of the Collateral free and clear of all liens, charges,
encumbrances, financing statements and adverse claims of any kind or nature
whatsoever in favor of any entity other than Secured Party or as approved by
Secured Party.
(b) Debtor's chief executive office and chief place of business is
located at the address set forth in the Loan Agreement. Debtor conducts its
business only under the name Inktomi Corporation. The address of the office
where the books and records of Debtor are kept concerning the Collateral is 1900
South Norfolk Street, Suite 110, San Mateo, California 94403. All of the
Collateral is or will be located within the state of California.
(c) The Collateral is not used or bought primarily for personal,
family or household purposes.
3. Agreements. Debtor hereby agrees that:
----------
(a) Debtor will pay any indebtedness owed to Secured Party promptly
when due and will repay immediately upon demand all expenses, including
reasonable attorneys' fees, legal expenses and costs, together with interest at
the Default Rate (as defined in the Loan Agreement) from the date of such
expenditure, incurred by Secured Party in enforcing the Promissory Notes, the
New Note, the Loan Agreement, or this Security Agreement. Payment of such
expenses and interest shall be secured by this Security Agreement.
-2-
<PAGE>
(b) Debtor will maintain complete and accurate financial records
concerning the Collateral. Debtor will permit Secured Party's representatives to
enter on Debtor's property at any reasonable time to inspect the Collateral and
Debtor's books and records relating thereto and to make extracts from such books
and records.
(c) Debtor shall promptly notify Secured Party of all claims and
demands made against the Collateral and any information received that may affect
the value of the Collateral or the rights and remedies of Secured Party relating
thereto (including any liens, encumbrances or security interests purporting to
affect the title to the Collateral). In the event of any such claim or demand,
Debtor shall promptly take such action as may be necessary to protect the value
of the Collateral.
(d) Debtor will pay when due all taxes, assessments or similar
obligations affecting the Collateral. Debtor shall have the right to contest
the amount or validity of any such taxes, assessments or obligations by
appropriate proceedings conducted in good faith and with due diligence in
accordance with the provisions of the Loan Agreement.
(e) Debtor shall promptly deploy any Hosting Servers purchased with
Loan Advances in the appropriate server cluster on the premises of Exodus
Communications, Inc. located at 1605 Wyatt Drive, Santa Clara, CA 95054-1587.
The Hosting Servers, computer hardware equipment and all other tangible personal
property serving as Collateral shall be kept on such premises, except as
required under the terms of the Hosting Agreement. Debtor shall not permanently
remove such Collateral over the term hereof from such property without the
written consent of Secured Party.
(f) Debtor shall inform Secured Party of the name and address of the
financial institution, and the account number of any deposit account into which
funds from any Loan Advance are deposited. At the request of Secured Party,
Debtor shall promptly provide written notice to the financial institution of
Secured Party's security interest in such Deposited Funds. Debtor shall take all
actions reasonably requested by Secured Party or the financial institution in
order to perfect Secured Party's interest in the Deposited Funds. If so
requested, Debtor shall immediately waive its right to withdraw the deposited
funds without prior written consent from Secured Party. Debtor hereby agrees
that a copy of this Security Agreement, plus a copy of the Promissory Note
associated with such Deposited Funds, may be presented to the financial
institution by Secured Party as evidence of such waiver, and Debtor further
agrees that such presentation to the financial institution by Secured Party
shall also constitute its instruction to the financial institution to prohibit
Debtor's right to withdraw the Deposited Funds without the delivery of prior
written consent of Secured Party to the financial institution.
(g) Debtor will keep the Collateral free from any lien, charge,
encumbrance, financing statement or adverse claim in favor of any entity other
than Secured Party. If third parties make adverse claims against the Collateral,
Debtor will promptly satisfy such claims or provide security for their removal
satisfactory to Secured Party if Secured Party so requires. Debtor will protect
and defend the Collateral against all claims thereto and will indemnify and
-3-
<PAGE>
save Secured Party harmless with respect to any liability or claim in connection
therewith. Debtor will not sell or dispose of Collateral over the term hereof
without the prior written consent of Secured Party. Debtor will not grant a
security interest or other encumbrance in any portion of the Collateral or
execute any financing statement covering any portion of the Collateral in favor
of any person other than Secured Party.
(h) Debtor will do all acts necessary to maintain, preserve, protect
and keep the Collateral in good condition and repair, will not permit any waste
or unusual or unreasonable depreciation of Collateral to occur and will not
commit any act for which any portion of the Collateral might be confiscated by
any governmental or private entity.
4. Secured Party's Actions. Secured Party may, but shall not be
-----------------------
obligated to, discharge taxes, liens or security interests or other encumbrances
at any time levied or placed on the Collateral, pay for insurance on the
Collateral, pay for the maintenance and preservation of the Collateral, sign and
endorse any invoice, freight or express bill, bill of lading, or other documents
relating to the Collateral, demand, bring suit, collect or give acquittances for
any moneys due or compromise, prosecute or defend any action, claim or
proceeding arising from the Collateral. Secured Party may do any or all of the
foregoing in the name of Debtor or otherwise. Should Debtor fail or refuse to
make any payment, perform any covenant or obligation, observe any condition or
take any action which Debtor is obligated hereunder to make, perform, observe,
take or do, at the time or in the manner herein provided, then Secured Party
may, at Secured Party's sole discretion, without notice to or demand upon Debtor
with respect to any such payment and after 30 days' notice with respect to any
non-monetary covenant, obligations, condition or act, and without releasing
Debtor from any obligation, covenant or condition hereof, make, perform,
observe, take or do the same in such manner and to such extent as Secured Party
may, during any period of time that Debtor is in default hereunder, deem
necessary to protect its security interest under this Security Agreement.
Debtor agrees to reimburse Secured Party on demand for any payment made, or any
expense incurred, including but not limited to attorneys' fees, court costs and
expenses of litigation, by Secured Party in connection with the foregoing,
together with interest thereon at the Default Rate (as defined in the Hosting
Agreement).
5. Default. The failure of Debtor to comply with or duly and punctually
-------
observe or perform any of its obligations hereunder, or the occurrence of any
event of default under the Promissory Notes, the New Note, or Loan Agreement,
shall constitute an event of default hereunder. Upon the occurrence of any one
or more events of default hereunder, Secured Party may at its option and without
further notice or demand declare all indebtedness secured hereby immediately due
and payable, and do one or more of the following:
(a) Foreclose or otherwise enforce Secured Party's security interest
on any of the Collateral in any manner permitted by the applicable Uniform
Commercial Code or other applicable laws, or provided for in the Promissory
Notes, the New Note, the Loan Agreement or this Security Agreement.
-4-
<PAGE>
(b) With respect to the Deposited Funds, at any time give notice to
the appropriate financial institution of Debtor's irrevocable assignment of the
Deposited Funds to Secured Party and to any and all persons who may have an
interest in the Deposited Funds or the deposit accounts in which they are held.
Debtor hereby covenants and agrees that Debtor will cooperate fully with Secured
Party, and its employees and agents, and will provide any and all documents
deemed by Secured Party to be necessary or desirable to perfect its interest in
the Deposited Funds and collect and control same.
(c) Sell or otherwise dispose of any tangible personal property
Collateral, including equipment, at one or more public or private sales, whether
or not such Collateral is present at the place of sale, for cash or credit or
future delivery, on such terms and in such manner as Secured Party may
determine. In the event of a sale or other disposition of such Collateral:
(1) Any person, including Debtor and Secured Party, may purchase
at the sale.
(2) In connection with any sale or other disposition of the
Collateral, the parties agree that notwithstanding such other commercially
reasonable conduct as may be followed by Secured Party, the following procedures
shall comprise and constitute a commercially reasonable sale (the "sale"):
(i) Secured Party shall mail to Debtor written notice of
the sale not less than ten (10) days prior to such sale;
(ii) Once per week during the four weeks immediately
preceding the sale, Secured Party will publish notice of the sale in an
appropriate publication that secured party selects. The notice will advise
prospective purchasers as to where they may obtain information with respect
to the Collateral.
(iii) Upon receipt of any written request to do so, Secured
Party will make available to any bona fide prospective purchaser for
inspection, within five (5) business days following receipt of such request
and during reasonable business hours, such information as shall be
necessary to enable a prospective purchaser to prepare a bid.
(3) Notwithstanding paragraph (2) above, in the event Secured
Party offers to sell all or any part of the Collateral, Secured Party will be
under no obligation to consummate a sale if, in its reasonable business
judgment, none of the offers received by it reasonably approximates the fair
value of such Collateral.
(4) Secured Party shall apply the proceeds of any sale,
collection, or disposition hereunder to payment of the following: (v) the
expenses of such sale or disposition together with reasonable attorneys' fees,
and the actual costs of publishing, recording, mailing and posting notice; (w)
the cost of any search and other evidence of title procured in connection
-5-
<PAGE>
therewith and any transfer tax on any deed or conveyance; (x) all sums expended
under the terms hereof, not then repaid, with accrued interest in the amount
provided herein; (y) all other sums secured hereby; and (z) the remainder, if
any, to the person or persons legally entitled thereto.
(5) Secured Party may require debtor to make the collateral
available to Secured Party at a reasonable place designated by Secured Party.
(6) If the holder of a Promissory Note or the New Note is a
purchaser at such sale, such holder shall be entitled to apply any portion of
the indebtedness then secured hereby for or in settlement or payment of any
portion of the purchase price of the property purchased at such sale.
(d) Tecover from Debtor all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by Secured Party in
exercising any right, power or remedy provided by this security agreement or by
law.
6. Exercise of Remedies; No Waiver. All remedies conferred upon Secured
-------------------------------
Party shall be deemed cumulative with, and not exclusive of, any other remedy
conferred by this Security Agreement, by the Promissory Notes, by the New Note,
by any other document securing payment of the notes, or by law. The exercise of
any one remedy shall not preclude the exercise of any other. Failure of Secured
Party to exercise any rights it may have upon Debtor's default hereunder shall
not be deemed to be a waiver of Secured Party's rights thereupon or to be a
release of Debtor from any of its obligations to Secured Party. The acceptance
by Secured Party of any sum after the same is due shall not constitute a waiver
of the right either to require prompt payment, when due, of all other sums
hereby secured or to declare a default as herein provided. The acceptance by
Secured Party of any sum in an amount less than the sum then due shall not
constitute a waiver of the obligation of Debtor to pay the entire sum then due.
The waiver by Secured Party of any default hereunder shall not be deemed to
constitute a waiver of any succeeding default. Debtor waives any right to
require Secured Party to proceed against any person or to exhaust any Collateral
or to pursue any remedy in Secured Party's power.
7. Successors. All agreements, covenants, conditions and provisions of
----------
this Security Agreement shall inure to the benefit of Secured Party and its
successors and assigns, and shall bind the heirs, executors, administrators,
successors and permitted assigns of Debtor, and shall also bind the successors
in interest of Debtor in the Collateral. In the event that there is more than
one Debtor or successor in interest of Debtor in the Collateral, they shall be
jointly and severally liable hereunder.
8. Term. This Security Agreement shall remain in full force and effect
----
until the indebtedness and all other obligations secured hereby, including all
charges, expenses, fees, costs, and interest, shall have been paid in full and
otherwise performed, or until its release and termination as provided in the
Hosting Agreement, or until its release and termination is given in writing by
Secured Party. No party to this Security Agreement shall be discharged by any
extension of time, additional advances, renewals and extensions of the
Promissory Notes, the
-6-
<PAGE>
taking of further security, releases of a part or all of the Collateral, the
replacement of all or a portion of the outstanding indebtedness evidenced by the
Promissory Notes with the new note, or by any other acts except as provided in
this section. Time is of the essence in connection with this Security Agreement.
upon termination of this Security Agreement, Secured Party shall take all steps
necessary (including without limitation executing and filing any required
financing statement termination notices) to terminate and release the security
interest granted hereunder.
9. Governing Law. This Security Agreement, and the rights and
-------------
obligations hereunder of each of the parties hereto, shall be governed by and
construed in accordance with the laws of the state of Washington.
10. Integration. This Security Agreement, together with the loan
-----------
agreement (and Promissory Notes and the New Note referred to therein), the
Hosting Agreement and a Software Development Agreement, Information Services
Agreement and Escrow Agreement between the parties each of even date, shall
constitute the entire agreement between the parties hereto with respect to the
subject matter of this Security Agreement and shall supersede all other
agreements, written or oral, with respect thereto.
11. No Modification. This Security Agreement may not be modified or
---------------
amended except by a written instrument executed by the party sought to be
charged or bound thereby. If any provision hereof should be held unenforceable
or void, then such provision shall be deemed separable from the remaining
provisions hereof and shall in no way affect the validity of this Security
Agreement except that if such provision relates to the payment of any monetary
sum, then Secured Party may at its option declare the indebtedness evidenced by
the Promissory Notes or the New Note, as applicable, and all other sums secured
hereby immediately due and payable.
12. Notices. All notices, requests, consents, demands, approvals and
-------
other communications hereunder shall be given in accordance with the loan
agreement.
13. Waivers. Debtor hereby waives diligence, presentment, protest and
-------
demand, and notices of every kind.
NOTICE. NOTICE IS HEREBY GIVEN THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
- ------
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
\
\
\
\
\
\
\
\
-7-
<PAGE>
IN WITNESS WHEREOF, This Agreement is executed as of the date first set forth
above.
Debtor: Secured Party:
INKTOMI CORPORATION, a california MICROSOFT CORPORATION, a Washington
corporation corporation
/s/ David C. Peterschmidt /s/ Laura Jennings
By __________________________ By __________________________
CEO Vice President
Its ______________________ Its ______________________
July 27, 1997 July 27, 1997
Date: ____________________ Date: ____________________
-8-
<PAGE>
EXHIBIT 10.17
SCHEDULE I
----------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into this 29 day of July, 1997 by and
among INKTOMI CORPORATION ("Inktomi"), a California corporation, whose address
is 1900 South Norfolk Street, Suite 110, San Mateo, California 94403, DATA BASE,
INC. ("Escrow Agent"), a Washington corporation, whose address is 307 South
140th Street, Seattle, WA 98168, and MICROSOFT CORPORATION ("Microsoft"), a
Washington corporation whose address is One Microsoft Way, Redmond, WA 98052-
6399.
A. Inktomi is the owner of computer programs and supporting documentation
that contain confidential information and are protected under copyright and as
trade secrets. Inktomi authorizes others to use the computer programs and
documentation under writtenagreements which, among other things, require the
other party to protect the confidentiality of Inktomi's property.
B. Computer programs can be expressed in machine-readable form, called
binary code, and in human-readable form, called source code or source listings.
Generally, parties are unable to modify or correct errors in the binary code
without having the source code.
C. This escrow arrangement is provided to assure Microsoft of access to
the source code, binary code and confidential supporting documentation in the
event that Inktomi (i) discontinues all or substantially all of its search
engine business operations or (ii) ceases to provide software development, error
correction, product enhancements and upgrades, and regular maintenance of the
computer programs (collectively, "Support") under and in accordance with the
Software Development Agreement and/or the Information Services Agreement (the
"Agreements") between Inktomi and Microsoft of even date herewith (as it may be
amended by mutual agreement of Inktomi and Microsoft from time to time).
THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, Inktomi, Microsoft and Escrow Agent agree as follows:
1. Confidential Materials.
----------------------
1.1 Escrow Agent, as escrow agent, agrees to accept from Inktomi, for
storage purposes only, confidential materials in the form of source code and
binary code, program listings, supporting documentation, and other related
materials for certain computer programs owned by Inktomi (collectively,
"Confidential Materials"). Inktomi will furnish to Escrow Agent a list naming
or describing all computer programs for which Confidential Materials are
deposited into escrow. This list shall be certified by Inktomi as complete and
accurate. A list of computer programs for which Confidential Materials are
currently on deposit with Escrow Agent is attached as Exhibit A to this
Agreement. This list will be supplemented and updated by Inktomi with each
future deposit or withdrawal of Confidential Materials. For each deposit,
Escrow Agent will issue receipts to Inktomi.
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2 Upon each deposit of Confidential Materials, Inktomi shall furnish to
Microsoft a copy of the list provided to Escrow Agent pursuant to this Section
1. Such list shall constitute notice to Microsoft that the Confidential
Materials listed thereon have been deposited with Escrow Agent. Upon the
request of Microsoft, Escrow Agent shall supply to Microsoft copies of all lists
furnished by Inktomi to Escrow Agent hereunder. Escrow Agent shall not be
required to determine the accuracy or completeness of the list(s) furnished by
Inktomi hereunder, nor shall Escrow Agent be responsible for Confidential
Materials not actually deposited with it, whether or not such Confidential
Materials were required to be deposited under the terms of this Agreement, any
license agreement between Inktomi and Microsoft or any other agreement.
2. Retention of Confidential Materials. Escrow Agent agrees to hold in
-----------------------------------
safekeeping the Confidential Materials deposited hereunder, and shall release or
disclose any or all such Confidential Materials only in accordance with the
terms of this Agreement.
3. Release of Confidential Materials. Inktomi authorizes Escrow Agent to
---------------------------------
release Confidential Materials only as follows:
(a) Escrow Agent shall release to Inktomi all Confidential Materials
requested by written demand of both Inktomi and Microsoft, provided that such
Confidential Materials are specifically identified to the satisfaction of Escrow
Agent, and provided that all fees payable to Escrow Agent for performance of its
services hereunder have been fully paid.
(b) Provided that all fees payable to Escrow Agent for the performance of
its services hereunder have been fully paid, all Confidential Materials shall be
returned to Inktomi at any time that Escrow Agent ceases doing business or is
unable to hold the same in accordance with the terms of this Agreement due to
forces beyond its reasonable control; provided however, that Escrow Agent gives
such advance notice to Inktomi and Microsoft as is reasonably practicable, but
in no event less than thirty (30) days.
(c) In the event of (1) a demand by Microsoft pursuant to Subsection 4.1
hereof which is not disputed by Inktomi in the manner and within the time
prescribed in Subsection 4.2 hereof, or (2) a determination by the panel of
arbitrators in accordance with Section 5 hereof that (A) the applicable
Agreement remains in force and effect and (B) Inktomi has discontinued all or
substantially all of its search engine business operations or has ceased to
Support the Confidential Materials on a timely basis as required under the terms
of the applicable Agreement, then Escrow Agent shall, upon the receipt from
Microsoft of full payment for the costs and expenses of duplication, make
duplicate copies of those Confidential Materials which relate to the computer
program or programs with respect to which demand is made and shall deliver such
duplicate copies to Microsoft. Escrow Agent agrees that the "Write-Protect
Ring" on magnetic tape reels furnished to Escrow Agent by Inktomi shall not be
removed at any time.
(d) Escrow Agent shall release such Confidential Materials to such persons
and in such manner as shall be directed by order of any court of competent
jurisdiction pursuant to
-2-
<PAGE>
Section 6 or otherwise. Escrow Agent may also release Confidential Materials
pursuant to the provisions of Section 11 below.
4. Demand and Dispute.
------------------
4.1 In the event Microsoft desires release of Confidential Materials
relating to one or more computer programs, Microsoft shall make written demand
on Escrow Agent therefor, specifically designating the computer program or
programs for which Confidential Materials are requested. Such demand must be
accompanied by all of the following documents and certificates, each executed
under oath by an authorized officer or representative of Microsoft:
(a) A certified true copy of a notice that Microsoft has mailed to Inktomi
at the address stated in this Agreement. The notice must contain a statement
that Microsoft has determined that Inktomi has discontinued all or substantially
all of its search engine business operations or has ceased to Support the
Confidential Materials on a timely basis as required under the terms of the
Agreements.
(b) A certificate stating that (i) Microsoft mailed to Inktomi, registered
or certified mail, the notice described in Paragraph 4.1(a) above, and that ten
(10) business days have elapsed from such mailing without response from Inktomi,
and (ii) before mailing the notice, Microsoft made a request upon Inktomi for
support services and Microsoft did not receive a response to such request or
received a response to the effect that Inktomi was unable or unwilling to
provide such services or Inktomi in fact did not timely provide such services.
(c) A copy of each of the Agreements, as executed by Inktomi and such
Microsoft, together with a statement by Microsoft, certified by Microsoft, that
the copies of the Agreements are true copies, and that the applicable
Agreement(s) is(are) still in force and grants Microsoft the rights to use the
computer program or programs for which Confidential Materials are requested.
(d) A certificate stating that Microsoft will pay in advance for all
expenses and costs of copying the Confidential Materials requested.
(e) A Confidentiality and Use Limitation Certificate, in the form of
Exhibit B attached hereto, for the benefit of Escrow Agent, Inktomi and any
successor of either.
(f) A certificate stating that Microsoft shall indemnify and hold harmless
Escrow Agent from and against any and all losses, damages, and expenses
(including attorney's fees) that may be incurred by Microsoft and/or Escrow
Agent by reason of Escrow Agent's compliance in good faith with the terms of
this Agreement.
4.2 Upon receipt of a demand and all required supporting documents
described in Subsection 4.1 hereof, Escrow Agent shall promptly give notice to
Inktomi of such receipt and transmit with such notice a copy of such demand and
all accompanying documents. Inktomi or its successor may dispute such demand,
at any time within ten (10) business days following
-3-
<PAGE>
Escrow Agent's notice to Inktomi hereunder by (i) giving written notice to
Escrow Agent that it continues to conduct all or substantially all of its search
engine business operations and continues to Support the Confidential Materials
on a timely basis as required under the terms of the Agreements, or (ii)
otherwise specifically denying any statements made by Microsoft in one or more
of the documents described in Paragraphs 4.1(a), (b) or (c) hereof. Such notice
shall be accompanied by a certificate to Escrow Agent stating that Inktomi will
submit to arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith.
4.3 Upon receipt of Inktomi's notice of dispute as provided in Subsection
4.2 hereof, Escrow Agent shall promptly give notice to Microsoft of such receipt
and transmit with such notice a copy of such documents received from Inktomi
relating to such dispute. Subject to the last sentence of this Subsection 4.3,
Microsoft shall, within thirty (30) days following receipt of Inktomi's notice
of dispute, furnish Escrow Agent with a certificate stating that Microsoft will
submit to Arbitration under the terms and conditions described in Section 5
hereof and abide by any decision rendered by the arbitrators in connection
therewith. Microsoft may withdraw its demand for release of the Confidential
Materials at any time by giving Escrow Agent and Inktomi written notice of such
withdrawal.
5. Arbitration. Upon the earlier of the expiration of the thirty (30) day
-----------
period described in Subsection 4.3 or the receipt by Escrow Agent of Microsoft's
certificate described in Subsection 4.3, the matter shall be submitted to
arbitration proceedings in Seattle, Washington, which proceedings shall be
conducted under the commercial rules then prevailing of the American Arbitration
Association, by a panel of not less than three professional experts in the field
of computer software technology. Each party will choose one arbitrator and the
two arbitrators so chosen will choose a third. If the two designated
arbitrators do not so choose a third within thirty (30) days, either party may
apply to the local Superior Court to appoint a third arbitrator. The sole issue
for arbitration shall be whether the Agreements remain in force and effect and
whether Inktomi has discontinued all or substantially all of its search engine
business operations or has ceased to Support the Confidential Materials on a
timely basis as required under the terms of either or both of the Agreements.
If the arbitrators determine that Inktomi has discontinued all or substantially
all of its search engine business operations or has ceased to Support the
Confidential Materials on a timely basis, the arbitrators shall order the
release of Confidential Materials. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorneys' fees, expert and non-expert
witness costs and expenses, and all other costs and expenses incurred directly
or indirectly in connection with the proceedings, unless the arbitrators for
good cause determine otherwise. The decision of the arbitrators shall be final
and binding on the Inktomi and Microsoft and may be entered and enforced in any
court of competent jurisdiction.
6. Interpleader. Notwithstanding any other provisions of this Agreement, if
------------
Escrow Agent receives a written demand from Microsoft for release of
Confidential Materials and Escrow Agent is uncertain whether Inktomi's exercise
of its right to dispute such demand pursuant to Subsection 4.2 hereof was timely
or otherwise effective, then Escrow Agent may, in its sole discretion, begin an
interpleader action, pursuant to applicable law, and deposit the Confidential
-4-
<PAGE>
Materials with the clerk of the court or withhold release of the Confidential
Materials until instructed otherwise by the court order.
7. Fees. Microsoft shall pay to Escrow Agent, in advance, fees at the
----
standard rate prescribed from time to time by Escrow Agent for performance of
services hereunder. Prices will be revised annually in accordance with Escrow
Agent's regular schedule of fees.
8. No Duty to Inquire into Truth, Authenticity or Authority; Right to Require
--------------------------------------------------------------------------
Additional Documents. Escrow Agent shall not be required to inquire into the
- --------------------
truth of any statements or representatives contained in any notices,
certificates or other documents required or otherwise provided hereunder, and
shall be entitled to assume that the signatures on such documents are genuine,
that the persons signing on behalf of any party thereto are duly authorized to
execute the same, and that all actions necessary to render any such documents
binding on the party purportedly executing the same have been duly undertaken.
Without in any way limiting the foregoing, Escrow Agent may in its discretion
require from Inktomi or Microsoft additional documents which it deems to be
necessary or desirable in the course of performing its obligations hereunder.
9. Waiver of Claims.
----------------
(a) Inktomi hereby waives any claim for damages or otherwise which it may
have against Escrow Agent for any acts undertaken by Escrow Agent pursuant to
Microsoft's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
(b) Microsoft hereby waives any claim for damages or otherwise which it may
have against Escrow Agent for any acts undertaken by Escrow Agent pursuant to
Inktomi's direction in Escrow Agent's good faith compliance with the terms of
this Agreement.
10. Notices. Notices under this Agreement shall be in writing, addressed to
-------
the parties at the addresses listed in this Agreement, or to such other
addresses as a party shall have designated by notice to the other parties, and
shall be delivered by registered or certified mail, return receipt requested, to
the intended recipient. Notices shall be deemed to have been given and received
(i) when signed for on the return receipt, or (ii) if the party to receive
notice refuses to sign the return receipt or cannot be located after the
exercise of due diligence, three (3) business days after deposit of the notice
in the U.S. mail, properly addressed, with postage prepaid.
11. Termination.
-----------
(a) This Agreement shall terminate upon termination of both the Agreements.
Upon such termination, Inktomi shall give written notice to Escrow Agent, and
provide a copy of such notice to Microsoft in the manner set forth in applicable
notice provisions of the Agreements. Unless Microsoft disputes such notice by
written notice to that effect to Escrow Agent and Inktomi within ten (10)
business days (the "Objection Period") after Microsoft's receipt of said notice
from Inktomi, and provided that all fees payable to Escrow Agent for the
performance of
-5-
<PAGE>
its services hereunder have been fully paid, Escrow Agent shall release and
return all Confidential Materials to Inktomi promptly after the expiration of
the Objection Period.
(b) Except as provided in Subsection 11(a) above or Section 1 hereof with
respect to modification of Exhibit A hereto, this Agreement may not be
terminated or modified except in writing signed by Escrow Agent, Inktomi and
Microsoft. Escrow Agent may, at any time, terminate this Agreement by resigning
as escrow agent hereunder. Escrow Agent shall provide Inktomi and Microsoft
ninety (90) days advance written notice of its intention to resign. Unless
within such period Escrow Agent receives written notice from the Inktomi and
Microsoft instructing Escrow Agent to deliver the Confidential Materials to one
or both of the parties, or to a third party, Escrow Agent shall deliver the
Confidential Materials to Inktomi.
(c) Upon the delivery of the Confidential Materials to one or both of the
parties, or to a third party, as permitted hereunder, all obligations of Escrow
Agent under this Agreement shall cease.
12. Bankruptcy. In the event of the commencement of a case by or against
----------
Inktomi pursuant to 11 U.S.C. Sections 301, 302, or 303, Microsoft may elect to
retain its right under this Agreement pursuant to 11 U.S.C. Section 365 (n). In
this regard, the Confidential Materials shall be deemed to be "intellectual
property" within the meaning of 11 U.S.C. Section 101. Inktomi's obligations
under this Agreement shall be binding on Inktomi's successors, including any
trustee or debtor in possession that may succeed to Inktomi's rights under this
Agreement.
13. Miscellany.
----------
13.1 This Agreement shall be construed, enforced, performed and in all
respects governed by and in accordance with the laws in the State of Washington.
In any action or suit to enforce any right or remedy under this Agreement the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs.
13.2 In the event any provision of this Agreement is rendered null, void
or otherwise ineffective, then (i) the parties agree to negotiate in good faith
an acceptable alternative provision which reflects as closely as possible the
intent of the unenforceable provision and (ii) notwithstanding, and regardless
of whether the parties reach agreement after the good faith negotiations
described in clause (i) immediately above, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby and shall remain in full force and effect.
Section and all other headings used herein are provided for convenience only and
are not to be given any legal effect or considered in interpreting any provision
of this Agreement. No provision of this Agreement shall be interpreted against
any party because such party or its legal representative drafted such provision.
13.3 Subject to such rights as Microsoft and/or Inktomi may have under the
Agreements, no party hereto shall voluntarily or by operation of law assign,
sublicense, transfer, encumber or otherwise dispose of all or any part of its
interest in this Agreement without the prior written consent of the non-
assigning party. Any attempted assignment, sub-license,
-6-
<PAGE>
transfer, encumbrance or other disposal without such consent shall
be void and shall constitute a material default and breach of this Agreement.
Subject to the provisions of this Section, this Agreement shall be binding upon
and inure to the benefit of each party and their respective successors and
assigns.
13.4 All rights and obligations of the parties hereunder are personal to
them. Except as otherwise specifically stated herein, this Agreement is not
intended to benefit, nor shall it be deemed to give rise to, any rights in any
third party.
13.5 Each party shall be responsible for compliance with all applicable
laws, rules and regulations, if any, related to the performance of its
obligations under this Agreement.
13.6 No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof or thereof, and no waiver shall be effective
unless made in writing and signed by an authorized representative of the waiving
party.
13.7 This Escrow Agreement (and, as between Inktomi and Microsoft,
the Agreements) contains the entire agreement of the parties with respect to the
premises, and may not be modified or amended except by a written instrument
executed by the party sought to be charged or bound thereby.
13.8 For the purposes of this Agreement, Inktomi and Microsoft hereby
designate the following individuals (and such additional individuals or
substitutes therefor as may hereafter be designated by written notice from
Inktomi or Microsoft, whichever is applicable) as having the authority to
provide directions to Escrow Agent hereunder:
Inktomi designates: David Peterschmidt, Jerry Kennelly
Microsoft designates: ____________________________________________
Executed as of the date first written above.
Escrow Agent: DATA BASE, INC.
- ------------ /s/ Jeana Cass
By:________________________________
Data Base, Inc. Jeana Cass
307 South 140/th/ Street Print Name:________________________
Seattle, WA 98168 Escrow Services
Title:_____________________________
July 29, 1997
Date:______________________________
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<PAGE>
INKTOMI CORPORATION
Inktomi: /s/ David C. Peterschmidt
- ------- By:______________________________
David C. Peterschmidt
Inktomi Corporation Print Name:______________________
1900 South Norfolk Street, Suite 110 CEO
San Mateo, CA 94403 Title:___________________________
ATTN: General Counsel
July 24, 1997
Date:____________________________
MICROSOFT CORPORATION
Microsoft: /s/ Laura Jennings
- ---------- By:______________________________
Laura Jennings
Microsoft Corporation Print Name:______________________
One Microsoft Way Vice President
Redmond, WA 98053-6399 Title:___________________________
ATTN: Law & Corporate Affairs, U.S. Legal July 27, 1997
Date:____________________________
-8-
<PAGE>
EXHIBIT A
---------
COMPUTER PROGRAMS FOR WHICH CONFIDENTIAL MATERIALS ARE DEPOSITED WITH ESCROW
AGENT
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-9-
<PAGE>
Search Engine:
- -------------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
Crawler:
- -------
[*] [*]
Indexer:
- -------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
Utilities:
- ---------
[*] [*]
[*] [*]
[*]
-10-
[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT B
---------
CONFIDENTIALITY AND USE LIMITATION CERTIFICATE
STATE OF WASHINGTON )
)
COUNTY OF KING )
The undersigned, being first duly sworn upon oath, does state as follows:
1. The undersigned has certain rights in and to certain computer programs
and data, under a Software Development Agreement and Search Results
Agreement (the "Agreements") between the undersigned and Inktomi Corporation, a
California corporation ("Inktomi").
2. The undersigned has demanded, and expects to receive, source listings
and/or other related documentation for such computer programs ("Confidential
Materials"). These materials are the confidential and proprietary information
of Inktomi, and Inktomi claims protection thereof under applicable of copyright
and trade secret law.
3. Upon receipt of the Confidential Materials, the undersigned shall limit
the use thereof solely for purposes of installation, operation, maintenance,
modification and enhancement of the computer programs. The Confidential
Materials, and any copies thereof, shall be used by the undersigned for internal
purposes only, and the undersigned shall not make any use of the binary/object
codes translated from the Confidential Materials, except as expressly permitted
under the Agreements. At all times that the undersigned is entitled to use the
Confidential Materials, the undersigned shall continue to pay to Inktomi all
royalties and other amounts which Inktomi is entitled to receive under the
Agreements.
4. The Confidential Materials shall at all times remain the sole and
exclusive property of Inktomi, and the delivery thereof to the undersigned shall
not be deemed a grant or transfer of such proprietary interests to the
undersigned. The undersigned accepts the Confidential Materials in strict
confidence, and shall not make available, provide or otherwise allow or permit
the provision, directly or indirectly, of the Confidential Materials, or any
part or portion thereof, in any form, representation, or medium, to any person
or entity other than the authorized personnel or consultants of the undersigned.
5. The undersigned agrees that Inktomi and DATA BASE, INC. ("Escrow
Agent"), a Washington corporation, and any successor thereto or employees or
agents thereof, may rely upon this Certificate and the representations made
herein for the delivery of the Confidential Materials to the undersigned, and
the undersigned agrees to indemnify and hold harmless such persons and entities
from and against any and all losses, damages and expenses (including attorneys'
fees) arising out of the undersigned's failure to use the Confidential Materials
in accordance with this Certificate or the Agreements, or otherwise as a result
of any release of any Confidential Materials by Escrow Agent in response to the
undersigned's request.
6. Notwithstanding anything to the contrary, this Certificate shall not
limit or enlarge the rights or obligations of the parties under the Agreements.
DATED this _____ day of ____________, 19___.
MICROSOFT CORPORATION
By:__________________________________
Print Name:__________________________
Title:_______________________________
-10-
