Software Development Agreement

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.





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.





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









[*]=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. 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



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







[*]=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. 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



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







[*]=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. 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









[*]=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. 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









[*]=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. 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



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:





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 en ...