EXHIBIT 10.24
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Confidential treatment has been requested for portions of this
exhibit. The copy filed herewith omits the information subject to
the confidentiality request. Omissions are designated as [*]. A
complete version of this exhibit has been filed separately with
the Securities and Exchange Commission.
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MICROSOFT CONFIDENTIAL
MICROSOFT XBOX COMPONENT PURCHASE AGREEMENT
This Component Purchase Agreement (the "Agreement") dated and effective as of
December 19, 2000 (the "Effective Date") is by and between Microsoft
Corporation, a Washington corporation, with offices at One Microsoft Way,
Redmond, WA 98052-6399 (including its successors and assigns, "Microsoft") and
Applied Microsystems Corporation, a Washington corporation, with offices at 5020
- - 148th Avenue Northeast, P.O. Box 97002, Redmond, Washington 98073-9702
("Supplier" and, together with Microsoft, the "Parties").
RECITALS
A. Microsoft, a developer of software technologies and hardware products, is
developing a video game device known internally by Microsoft as Xbox.
B. Supplier, a manufacturer of a DVD emulation system, desires to sell to
Microsoft certain Product(s) (as hereinafter defined) for use by Microsoft
with respect to its Xbox game devices.
C. The Parties hereto wish to establish the terms and conditions under which
Supplier will sell to Microsoft and its Subcontractor(s) such Product(s)
for use with respect to Xbox game devices.
D. In connection herewith, the Parties have separately entered into a
Microsoft Corporation Non-Disclosure Agreement dated May 25, 2000 (the
"NDA"), a Microsoft Corporation Xbox Component Development Kit License
dated July 20, 2000, a Development & License Agreement dated as of the date
hereof and the License and Comprehensive Preferred Escrow Agreement dated
as of the date hereof (the "Escrow Agreement") (this Agreement, together
with such other agreements, the "Operative Documents").
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Definitions.
"Buffer Inventory" shall have the meaning described in Article 8 of
this Agreement.
"Competitor" means [*] or any other person, company or entity engaged
in manufacturing or developing video game consoles or video game
development tools, and any successor to or assign of any of the
foregoing.
"Compliance Period" means, with respect to any Product(s), a [*]
period commencing upon the date of delivery thereof to Microsoft.
"Derivative Technology" means: (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.
"Escrow Materials" is defined in the Escrow Agreement.
"Microsoft Jurisdictions" means the United States, [*], or any
successors thereto.
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MICROSOFT CONFIDENTIAL
"Product(s)" shall mean the product or products specified in Exhibit A
hereto, including any cost reduced versions thereof developed in
accordance herewith.
"Purchase Order(s)" shall mean purchase orders for Product(s)
submitted by Microsoft or Subcontractor(s) to Supplier under this
Agreement.
"Specifications" means the specifications for the Product(s) as set
forth in Exhibit A.
"Subcontractor(s)" means Subcontractor(s) authorized by Microsoft to
manufacture and/or repair the Xbox and/or components thereof.
Subcontractor(s) authorized as of Effective Date are listed in Exhibit
B, which Exhibit B may be amended at any time by Microsoft giving
written notice to Supplier.
"Term" shall mean the term of this Agreement as set forth in Article
14(a).
"Xbox" shall mean the video game device(s) designed by Microsoft and
referred to internally by Microsoft as the "Xbox".
2. Products and Prices.
(a) Products. Supplier hereby agrees to sell the Product(s) to Microsoft
and Subcontractor(s) pursuant to the terms and conditions of this
Agreement.
(b) Prices. The price(s) for the Product(s) are specified on Exhibit A.
Notwithstanding the foregoing, at all times during the Term, the
price(s) for the Product(s) purchased by Microsoft and
Subcontractor(s) hereunder shall not be higher than the lowest price
charged by Supplier to any other customer purchasing reasonably
comparable products in quantities similar to or less than the
aggregate quantities of Product(s) purchased by Microsoft and
Subcontractor(s) hereunder (regardless of the quantities Microsoft or
a Subcontractor(s) may purchase individually). In the event that
Supplier offers any such other customer a lower price, Supplier shall
immediately notify Microsoft and reduce the price charged hereunder
for the applicable Product(s). The reduced price shall be applied to
both future Purchase Orders and to Purchase Orders already submitted
but not yet filled. Microsoft will be entitled to independent audit to
ensure compliance with this Article as provided in Article 19(i).
(c) Cost Reductions. Supplier and Microsoft agree to pursue cost reduction
opportunities and to share the benefit of such cost reductions in a
manner to be mutually agreed upon. Agreed-upon cost reductions shall
be set forth in written amendments to Exhibit A, which Exhibit also
contains the Parties' cost reduction goals for the Product(s).
(d) No Changes. Supplier shall not change the form, fit, function, design
or appearance of the Product(s), or make any significant process
technology changes to the Product(s) during the Term without having
received the prior written consent of Microsoft (except as provided in
Article 2(e) below). Microsoft will reasonably promptly respond to
Supplier's request for its consent and will not unreasonably withhold
or delay its consent. During the Term, Supplier shall not discontinue
the manufacture of the Product(s) without Microsoft's written consent.
(e) Mandatory Changes. If mandatory changes to the Product(s) are required
to satisfy governmental standards of any Microsoft Jurisdiction
(including any subdivision thereof) or for safety reasons (any such
change, a "Mandatory Change"), Supplier will provide Microsoft with
ninety (90) days' prior written notice before implementing any such
changes, and all Product(s) delivered to Microsoft after such
Mandatory Changes are in effect shall incorporate the Mandatory
Changes. Supplier shall bear all risks and expenses associated with
such Mandatory Changes, including, without limitation, all
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MICROSOFT CONFIDENTIAL
costs of re-engineering, inspection, testing and labor. Supplier will
provide related technical support as Microsoft and/or Subcontractor(s)
may request in connection with any of the foregoing.
(f) Purchase Order Terms Excluded. This Agreement shall exclusively govern
all orders of Product(s) by Microsoft and Subcontractor(s) and except
for delivery dates stated in Purchase Orders, any additional terms on
any Purchase Order, acceptance, confirmation or other form shall be of
no effect and shall be disregarded.
(g) Product Updates. If Supplier makes available any updates or other
improvements to the Products, Supplier agrees to give Microsoft the
right to purchase such updates or other improvements under the terms
and conditions of this Agreement and at prices to be mutually agreed
by Supplier and Microsoft (subject to Article 2(b) above). All such
updates or other improvements will be offered to Microsoft as early as
to any of Supplier's other customers.
(h) Effect of Microsoft Reviews, Approvals and Consents. Microsoft is
entitled to certain reviews, approvals and consents as provided in
this Agreement, but no such review, approval or consent will in any
way constitute a waiver of Supplier's obligations hereunder, including
its obligation to deliver Products complying with the Specifications
and the other terms of this Agreement.
(i) No Conflict of Interest. During the Term, Supplier shall not accept
work, enter into any contract or accept any obligation, the terms of
which is/are inconsistent or incompatible with Supplier's obligations
under this Agreement, and Supplier hereby warrants, represents and
covenants to Microsoft that Supplier is not as of the date hereof
subject to any such contract or obligation, it being understood that
Supplier may from time to time accept work or obligations or enter
into contracts with Competitors on terms that are consistent and
compatible with its obligations hereunder.
3. Subcontractor(s).
(a) Exercise Through Subcontractors. Microsoft may purchase Product(s) and
otherwise exercise its rights and/or perform its obligations hereunder
directly and/or through its authorized Subcontractor(s). Supplier
agrees to accept and fill, in accordance with the terms hereof,
Purchase Orders placed by Microsoft and Subcontractor(s).
(b) Authorized Subcontractors. Subcontractor(s) authorized as of the
Effective Date are specified in Exhibit B hereto. Notifications
concerning Microsoft amendments to Exhibit B shall be sent to the
following and shall be effective as the date Microsoft sends such
notice:
Applied Microsystems Corporation
5020 - 148th Avenue Northeast
P.O. Box 97002
Redmond, WA 98073-9702
Attn: Chief Financial Officer
4. Terms of Payment. Terms of payment are net [*] days from the date of
delivery to Microsoft or the Subcontractor(s). Supplier shall issue
invoices only after delivering the Product(s) covered by the invoice.
5. Forecasts, Purchase Orders, Allocations.
(a) Program Forecasts. By the end of the first week of each Microsoft
fiscal quarter, Microsoft will provide Supplier with a Product(s)
demand forecast specifying Product(s)
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MICROSOFT CONFIDENTIAL
volumes by quarter for the remainder of the Term. The quarterly demand
forecast will be for general forecasting purposes only.
(b) Monthly Forecasts. Microsoft will provide Supplier, on a [*] basis,
with a [*] month rolling forecast of the anticipated quantity of
Product(s) required by Microsoft and its Subcontractor(s) for the
following [*] months (the "[*] Month Rolling Forecast"). The [*] Month
Rolling Forecast will constitute only Microsoft's good faith estimate
of intended total purchases of Products and will not constitute a
commitment to buy. Unless Supplier notifies Microsoft to the contrary
within five (5) business days after having received the Microsoft [*]
Month Rolling Forecast, Supplier shall be deemed to have confirmed
supply of Product(s) for such rolling [*] month period as shown in the
Microsoft [*] Month Rolling Forecast. Confirmation of the [*] Month
Rolling Forecast by Supplier constitutes a commitment by Supplier to
provide the forecasted quantities of Product(s) upon receipt of
Purchase Orders therefor. In any event, Supplier for each month during
the Term shall always ensure that it has a minimum supply capacity for
such month as provided in Exhibit A. Supplier may reject only a [*]
Month Rolling Forecast that forecasts an average quantity of
Product(s) per month over the months covered therein that exceeds such
minimum supply capacity.
(c) Purchase Orders. A Purchase Order is Supplier's only authorization to
ship Product(s) hereunder and Microsoft and Subcontractor(s) may
return any unauthorized shipment of Product(s) at Supplier's sole risk
and expense. Microsoft and Subcontractor(s) shall submit Purchase
Orders in writing and may transmit Purchase Orders by fax or by email.
Unless Supplier notifies Microsoft or a Subcontractor(s) to the
contrary within three business (3) days after the date of their
Purchase Order, Supplier shall be deemed to have accepted and
confirmed, and shall be obliged to fill, such Purchase Order. Purchase
Orders will be placed at least [*] days in advance of the date as of
which the Product(s) are to be delivered. Microsoft may request a
shorter lead time, and Supplier shall use its commercially reasonable
efforts to meet such date. During any calendar month, Supplier will
not be required to deliver a quantity of Product(s) that exceeds the
sum of (i) the quantity forecast to be delivered for such month under
the current [*] Month Rolling Forecast and (ii) the required Buffer
Inventory for such month, unless Supplier otherwise agrees. If
Microsoft and its Subcontractor(s) at any time increase the quantities
of Product(s) to be delivered in excess of the foregoing limit,
Supplier will not be required to deliver the excess quantity within
the specified time period, but Supplier will use its best efforts to
do so. Unless Microsoft is in material breach of this Agreement,
Supplier will not be entitled to reject any Purchase Order which
complies with the terms of this Agreement. Supplier shall fill all
Purchase Orders from the Buffer Inventory first, on a "First In -
First Out" basis as described in Article 8 below.
(d) Acceleration. Microsoft and its Subcontractor(s) may at any time
increase the quantities of Product(s) to be delivered to Microsoft or
the Subcontractor(s) as shown in the [*] Month Rolling Forecast up to
a maximum quantity of Product(s) equal to that then available in the
Buffer Inventory maintained as specified in Article 8 below.
(e) Capacity Constraints and Allocation. Supplier shall allocate
manufacturing capacity, components and parts, for manufacture of the
Product(s) in sufficient quantity to meet Microsoft's then current [*]
Month Rolling Forecast. Upon request by Microsoft and/or
Subcontractor(s), Supplier shall provide up-to-date reports of
allocations of, and any existing or foreseeable constraints upon,
Supplier's manufacturing capacity and supplies of components for the
Product(s). Supplier will provide Microsoft and Subcontractor(s) with
all reasonable cooperation with respect to their monitoring of such
capacities, supplies and allocations. Without limiting Supplier's
other obligations and Microsoft's rights hereunder, if capacity and/or
supplies of parts or components constrain the availability of
Product(s) such that Supplier cannot meet the demand stated in
Microsoft's then current [*] Month Rolling Forecast, Supplier shall
nevertheless give Microsoft priority
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MICROSOFT CONFIDENTIAL
allocation over that of any other customer of Supplier. At a minimum,
such priority allocation shall directly reflect the percentage of
Supplier's business represented by the aggregate of Microsoft's and
Subcontractor(s)' purchases hereunder based on quantity of Product(s)
and not on Supplier's margin or profit thereon. If for any reason (but
without limiting Supplier's right to claim Excusable Delay under
Article 13(b)) Supplier cannot meet the minimum supply capacity as
provided in Exhibit A, Microsoft, at its option, may at any time enter
into commitments with other suppliers for substitute supply for a
period up to the remainder of the Term and, without limiting
Supplier's other obligations hereunder, Supplier will be responsible
for any additional cost of such substitute supply and any expenses
incurred in connection therewith.
(f) Electronic Commerce. Microsoft and Supplier agree to use their best
efforts to establish systems to implement this Agreement through
electronic commerce business practices in order to minimize or
eliminate the use of paper, fax, voice mail and/or e-mail for the
communication of routine business data, including, but not limited to:
communications of forecasts and Purchase Orders, placement,
acknowledgement, acceptance, modification, available to promise,
completion, ship notification, shipment tracking, product receipt
notification, and invoicing. To this end, the Parties shall work
expeditiously to develop an agreed upon framework for electronic
commerce including plans and allocations of resources by each Party
necessary to accomplish the implementation of such framework by [*].
(g) Minimum Buy Quantities. Subject to Supplier's compliance with the
terms hereof and any termination of this Agreement pursuant to Article
14, Microsoft agrees to purchase a minimum of [*] units of Product(s)
prior [*], but only so long as Supplier is able to produce Product(s)
that conform to the Specifications and other requirements hereunder
prior to such date.
6. Shipment, Packing and Delivery.
(a) Terms of Shipment. Supplier shall ship all Product(s) purchased by
Microsoft and Subcontractor(s) hereunder [*] to such locations as
shall be specified in the Purchase Order. Supplier shall separately
itemize and invoice Microsoft for charges for shipping that is in
accordance with Article 6(b) and for reasonable and customary
insurance.
(b) Selection of Carrier. Supplier will ship the Product(s) only via
carriers designated by Microsoft or a Subcontractor(s), as the case
may be. In the absence of written instructions from Microsoft or a
Subcontractor(s), Supplier shall select a carrier qualified to
Supplier standards for shipment of similar commodities and arrange for
shipment of the Product(s) under ordinary and customary terms and
conditions of carriage.
(c) Packing, Marking, Documentation. Supplier will handle, pack, mark and
ship the Product(s) in accordance with Supplier's standards for
similar commodities and any packing and labeling specifications
required by Microsoft or the Subcontractor(s) and notified to Supplier
at least thirty (30) days prior to shipment. Supplier shall mark the
Product(s) and packaging with the country of origin as required, and
provide a certificate of origin and any other documents required for
customs purposes.
(d) Delivery Date. Supplier acknowledges and agrees that the scheduled
delivery date stated in a Purchase Order is a material term of this
Agreement, and that time is of the essence for all deliveries of
Product(s) hereunder. Supplier shall deliver all Product(s) hereunder
on such scheduled delivery date. Supplier shall not deliver in advance
of such scheduled delivery date without the prior written consent of
Microsoft or the Subcontractor(s) that issued the Purchase Order.
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(e) Delayed Delivery. Without prejudice to the provisions of the foregoing
Article 6(d), if in the case of any individual Purchase Order, unusual
circumstances cause Supplier to be unable to make delivery on the
delivery date specified in such Purchase Order, Supplier shall notify
Microsoft or the Subcontractor(s), as the case may be, as soon as
Supplier becomes aware of the delay, and shall state in such notice
the date on which delivery can be made. Upon such notice, Microsoft or
the Subcontractor(s) may, at its sole option, require Supplier to ship
the Product(s) under such Purchase Order by air, and Supplier hereby
agrees to bear the additional cost of such air shipments and any other
costs incurred to deliver the Product(s) covered by such Purchase
Order on or before such revised delivery date.
(f) Partial Delivery. If in the case of any individual Purchase Order,
only a portion of (or none of) Product(s) stipulated on the Purchase
Order are available to meet the specified delivery date, Supplier
shall notify Microsoft or the Subcontractor(s) in writing of the
shortfall as soon as Supplier becomes aware of the shortfall prior to
the scheduled shipment date, and unless otherwise directed by
Microsoft or the Subcontractor(s), Supplier shall ship the available
Product(s) as scheduled.
7. Cancellations and Reschedules.
(a) Cancellation. Upon written notice to Supplier given no less than [*]
days prior to the scheduled delivery date for any Purchase Order,
Microsoft or the Subcontractor(s) may cancel all or any part of such
Purchase Order. Except for cancellations of Purchase Orders associated
with the termination of this Agreement by Microsoft pursuant to
Article 14(b)(ii), Microsoft and Subcontractor(s) will not cancel, in
whole or in part, Purchase Orders scheduled for shipment within [*]
days.
(b) Rescheduling. Upon written notice to Supplier given no less than [*]
days prior to the scheduled delivery date for any Purchase Order,
Microsoft or the Subcontractor(s) may reschedule the delivery of all
or part of the Product(s) covered by such Purchase Order. Unless
Supplier otherwise agrees, Microsoft may reschedule an order only once
and cannot reschedule any order for more than [*] days beyond the
originally scheduled delivery date.
8. Buffer Inventory.
Commencing not later than [*] weeks after the first delivery date set forth
on Microsoft's initial program forecast, in addition to manufacturing the
quantity of Product(s) necessary to meet Microsoft's forecasts and to fill
Purchase Orders in accordance with Article 6 above, Supplier shall, at its
own expense, establish, and thereafter maintain throughout the Term, an
additional inventory of Product(s) that have passed inspection pursuant to
Article 9(a) below (the "Buffer Inventory"). The amount of Product(s)
required to be maintained in the Buffer Inventory shall vary from month to
month and shall in each month be equal to [*] of the total amount of
Product(s) Microsoft forecasts to be required during the upcoming [*] month
period as stated on Microsoft's then current [*] Month Rolling Forecast.
Supplier shall maintain a Buffer Inventory for each different Product
listed on Microsoft's then current [*] Month Rolling Forecast. Supplier
shall maintain the Buffer Inventory at Supplier's final assembly and test
facility specified in Exhibit A, and Microsoft may inspect the Buffer
Inventory at any reasonable time upon reasonable notice to Supplier.
Supplier shall fill Purchase Orders from the Buffer Inventory on a "First
In - First Out" (FIFO) basis and shall continuously replenish the Buffer
Inventory to maintain the required amount of Product(s) as described above.
If due to acceleration of Purchase Orders pursuant to Article 6(d) above
the Buffer Inventory becomes depleted below the required level, Supplier
shall re-establish the required amount of Buffer Inventory within [*] days
of such depletion. If at any time Supplier fails for any reason to maintain
the amount of Buffer Inventory required hereunder, Microsoft, at its option
and without limiting its other rights and Supplier's other obligations
hereunder, may enter into commitments with other suppliers for substitute
supply for a period up
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to the remainder of the Term and, without limiting Supplier's other
obligations hereunder, Supplier will be responsible for any additional cost
of such substitute supply and any expenses incurred in connection
therewith.
9. Quality Inspection.
(a) Inspection by Supplier. Prior to any Product(s) shipment or inclusion
in the Buffer Inventory, Supplier shall inspect all Product(s) and
confirm that all Product(s) are free of defects in design, materials
and workmanship, conform to the Specifications and meet all quality
requirements specified in the Microsoft Supplier Quality Requirements
attached to this Agreement as Exhibit C. Supplier shall not ship or
include in the Buffer Inventory any unit of Product(s) that fails to
meet any of the foregoing criteria unless specifically instructed in
writing by Microsoft to do so.
(b) Inspection by Microsoft and Subcontractor(s). Microsoft and
Subcontractor(s) may inspect the Product(s) within [*] days after
Microsoft's or the Subcontractor(s)'s actual physical receipt thereof
and prior to use of the Product(s) in the manufacturing process. If
such inspection determines that any Product(s) contains any defect in
design, materials or workmanship or does not conform to the
Specifications and meet all quality requirements set forth in Exhibit
C, Microsoft or the Subcontractor(s) will give Supplier written notice
of the defective Product(s) and the remedy provisions of Article 10(b)
below shall apply.
(c) Conditional Acceptance of Defective Product(s); Price Reduction. Upon
written notice to Supplier, Microsoft or the Subcontractor(s) may
conditionally accept Product(s) inspected as described in Article 9(a)
or (b) above and determined to be defective. In such case:
(i) Microsoft or the Subcontractor(s) may, at any time within [*]
days after such conditional acceptance, reject such defective
Product(s) in accordance with Article 10(b) below; or
(ii) if Microsoft or the Subcontractor(s) chooses to utilize the
defective Product(s), Supplier shall provide Microsoft or the
Subcontractor(s) with an appropriate reduction in price to be
agreed upon by the Parties. Any dispute as to an appropriate
reduction in price shall be handled in accordance with Article
19(b).
(d) No Effect on Warranty. Neither the conduct of or failure to conduct
inspections, nor the conditional acceptance and/or utilization of
defective Product(s), pursuant to this Article 9 shall in any way
affect the application or interpretation of Article 10 below.
10. Warranties.
(a) Product Warranties. Supplier represents and warrants that:
(i) All Product(s) will be free from defects in design, material and
workmanship for a period of [*] following the date of shipment.
(ii) All Product(s) will meet the quality requirements set forth in
Exhibit C and will conform to, and perform in accordance with,
the Specifications and any additional Supplier-published
specifications for such Product(s).
(iii) All Product(s) will be new and unused unless Microsoft requests
refurbished Product(s) in writing (it being understood that any
Product(s) repaired by Supplier in accordance with Article
10(b)(z) shall be considered new and unused for the purpose of
this subclause (iii)). If Microsoft requests refurbished
Product(s), they will be clearly marked as such when delivered
to Microsoft or Subcontractor(s).
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(iv) Supplier will provide good and marketable title to the
Product(s), free and clear of any and all liens, claims,
encumbrances and other restrictions.
(v) Supplier has and will continue to have all necessary rights
and licenses in the Product(s) necessary to allow Microsoft
and the Subcontractor(s) to directly and indirectly use,
have used, import, promote, distribute, lease, sell and
offer for sale the Products in the Microsoft Jurisdictions,
or [*], anywhere else in the world without restriction or
additional charge.
(vi) The Product(s) do not and will not infringe (i) any patent
in any Microsoft Jurisdiction; (ii) [*], any patent in any
other location; or (iii) any copyright, mask work right,
database right, or other proprietary right, or
misappropriate any trade secret, of any third party, except
(A) to the extent that any such infringement results from
technology provided by Microsoft to Supplier under the
Development & License Agreement or (B) in the case of any
patent infringement, to the extent that such infringement
results from the combination of the Product(s) with such
other products that it is not reasonably intended to be
combined with, unless the Product(s) would contributorily
infringe.
(vii) The Product(s) conform to and will conform with (i) all
requirements of applicable laws or regulations of each Microsoft
Jurisdiction, including any subdivision thereof, including but
not limited to all applicable health and safety regulations and,
(ii) [*], any laws or regulations of any other governmental
authority, in each case, as such laws or regulations are in
effect during the Compliance Period.
(b) Remedies. In the event that: (i) any Product(s) fails to pass
Microsoft's or a Subcontractor(s)'s inspection in accordance with
Article 9(b) above; (ii) Microsoft or a Subcontractor(s) determines to
reject any conditionally accepted Product(s) in accordance with
Article 9(c)(i) above; and/or (iii) Microsoft or a Subcontractor(s)
otherwise determines that any Product(s) fails to meet any of the
warranties stated in Article 10(a) above, Microsoft or the
Subcontractor(s) will reasonably promptly after Microsoft becomes
aware of such defect give Supplier notice of the defective Product(s).
Within [*] days after the date of such notice, Supplier shall provide
Microsoft or the Subcontractor(s) with a Return Merchandise
Authorization ("RMA") for the units of Product(s) to be returned to
Supplier. Without limiting Microsoft's other rights in this Agreement,
within [*] days of its receipt of such returned units of Product(s),
Supplier shall, at Microsoft's or the Subcontractor(s)'s option and at
Supplier's own expense: (x) replace such Product(s) with new
Product(s) that meet the Specifications and quality requirements
hereunder and in Exhibit C; (y) issue Microsoft or the
Subcontractor(s) a refund or credit in the full amount of the price of
the defective units of Product(s) and all shipping and insurance
charges associated therewith; or (z) for any Product(s) rejected by
Microsoft or its Subcontractor(s) prior to installation on a game
development kit, repair such Product(s) so that such Product(s) meet
the Specifications and the quality requirements hereunder and in
Exhibit C. If Supplier fails to replace or repair defective Product(s)
or credit or refund to Microsoft or the Subcontractor(s) the full
purchase price of such defective Product(s) and all shipping and
insurance charges associated therewith as required by this Article
10(b), in addition to any other remedies available to Microsoft by law
or under this Agreement, Microsoft may terminate this Agreement for
cause in accordance with Article 14(b)(ii).
(c) Field Failures. In the event that Microsoft or a Subcontractor(s)
knowingly or unknowingly incorporates any defective Product(s) into
any Xbox product and a subsequent failure of such Product(s) during
the Warranty Period for such Product(s) results in returns from end
users to Microsoft or a Subcontractor(s), then in addition to the
remedies set forth in Article 10(b) above, Supplier, at its expense,
shall cooperate and
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coordinate with Microsoft in the establishment of an orderly and
routine process for handling such returns. Such process shall minimize
the amount of Product(s) inventory held by Microsoft and
Subcontractor(s).
(d) Failure Analysis, Technical Support, Costs. Supplier shall, within [*]
days of receipt of returned or rejected units of Product(s), inspect
and retest such returned units of Product(s) and provide Microsoft or
the Subcontractor(s) with an failure analysis of the rejected units of
Product(s) and a corrective action plan to prevent the recurrence of
similar defects or failures. Supplier shall bear all risks and
expenses associated with analysis and replacement of defective
Product(s) including, without limitation, all costs of shipment,
re-installation, re-engineering, inspection, testing, labor,
materials, end-user returns and redistribution, as well as providing
related technical support as Microsoft and Subcontractor(s) may
reasonably request in connection with any of the foregoing.
(e) Epidemic Failure. An "Epidemic Failure" is the occurrence of defects
(defined as a common or repetitive failure of the same component part
or product, inclusive of firmware and software): (i) in greater than
[*]% of the Product(s) received by Microsoft or Subcontractor(s) in
any particular shipment or (ii) in greater than [*]% of the aggregate
number of units of Product(s) received by Microsoft or
Subcontractor(s) within any ninety (90) day period. In the event of an
Epidemic Failure of any Product(s) within [*] following the date of
delivery of such Product(s), Supplier agrees to assist Microsoft and
Subcontractor(s) in the technical resolution thereof, and to be
responsible for all losses, liabilities, costs and/or expenses
incurred by Microsoft and/or Subcontractor(s) as a result thereof;
including, without limitation, the full cost of returns of Xbox
products into which the defective Product(s) have been incorporated,
and any additional costs of replacement, re-installation,
re-inspection, testing and redistribution. If during the Term an
Epidemic Failure occurs with respect to any Product(s), Microsoft may
replace such failed Product(s) with replacement Product(s) purchased
from Supplier at a unit price equal to Supplier's documented cost of
goods sold as determined in accordance with GAAP.
(f) Correction of Programming Errors. For a period of [*] following the
date of shipment of a Product, Supplier, at its cost and expense, will
use its best efforts to correct such errors within the time specified
in Exhibit D (and in any event within [*] days) after becoming aware
of such error. Supplier shall promptly notify Microsoft in writing of
all errors of which Supplier is or becomes aware in any version of the
Product.
11. Waiver of Certain Damages. EXCEPT AS PROVIDED IN THIS AGREEMENT, IN NO
EVENT SHALL ANY PARTY OR MICROSOFT'S SUBCONTRACTOR(S) BE LIABLE TO THE
OTHER PARTY FOR ANY LOSS OF PROFITS, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR
SPECIAL DAMAGES, REGARDLESS OF WHETHER SUCH PARTY AND/OR SUCH
SUBCONTRACTOR(S) HAVE ADVANCE NOTICE OF THE POSSIBILITY OF SUCH DAMAGES.
12. Indemnification.
(a) Indemnity. Supplier will, at its expense and Microsoft's request,
defend, indemnify and hold harmless Microsoft, its Subcontractor(s),
their respective successors and assigns, and the respective directors,
officers, employees, agents, customers, affiliates, and distributors
of each of the foregoing from and against any and all claims, actions,
demands, legal proceedings, liabilities, damages, losses, judgments,
authorized settlements, costs and expenses, including, without
limitation, attorney's fees, arising out of or in connection with any
actual or alleged:
(i) infringement by Supplier and/or any Product(s) of (i) any patent
in any Microsoft Jurisdiction; (ii) any other patent the
infringement of which Supplier has knowledge as of the Effective
Date or that Supplier subsequently comes to know
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of and does not give notice of as provided in, and comply
with its obligations under, Article 12(c); or (iii) any
copyright, mask work right, database right, trade secret,
trademark or other proprietary right of any third party;
except (A) to the extent that any such infringement results
from technology provided by Microsoft to Supplier under the
Development & License Agreement or (B) in the case of any
patent infringement, to the extent that such infringement
results from the combination of the Product(s) with such
other products that it is not reasonably intended to be
combined with, unless the Product(s) would contributorily
infringe;
(ii) breach of any representation or warranty made by Supplier
herein;
(iii) claim by any person (including any employees of Supplier,
Microsoft or any Subcontractor(s)) or third party that any
Product(s) has caused bodily harm (including death) or has
damaged any real or personal property or environment;
(iv) failure of any Product(s) to comply with any applicable law or
regulation of:
(i) any Microsoft Jurisdiction (including any subdivision
thereof), as such laws or regulations are in effect at any
time during the Compliance Period for such Product;
(ii) any Microsoft Jurisdiction (including any subdivision
thereof), as such laws or regulations are in effect at any
time after the Compliance Period for such Product, of which
Supplier comes to know of and does not give notice of as
provided in Article 12(d); or
(iii) any governmental authority (including any subdivision
thereof) other than in a Microsoft Jurisdiction, as such
laws or regulations are in effect at any time, of which
Supplier has knowledge as of the Effective Date or that
Supplier subsequently comes to know of and does not give
notice as provided in Article 12(d); or
(v) violation by Supplier of any applicable law or regulation,
or any possession, handling, transportation, storage or use
of hazardous materials or explosives by Supplier or any of
its direct or indirect subcontractors; or
(vi) claim by or on behalf of any direct or indirect subcontractor,
supplier, employee or agent of Supplier.
(b) Procedures. In the event Microsoft becomes aware of any such claim,
Microsoft shall: (i) reasonably promptly notify Supplier thereof
(provided that failure to provide such notice will not release
Supplier from any of its indemnity obligations hereunder except to the
extent that such failure materially increases Supplier's indemnity
obligation); (ii) at Supplier's expense, provide Supplier with
reasonable cooperation in the defense thereof; and (iii) not settle
any such claim without Supplier's consent (unless such claim or the
defense thereof could give rise to criminal liability, could have a
material effect on Microsoft's business in the jurisdiction of such
proceeding or involves a material risk of the sale, forfeiture or loss
of, or the creation of any material lien on, the Products or any
Microsoft property). Supplier shall not unreasonably withhold its
consent. Microsoft shall have the right to approve the counsel
selected by Supplier to defend any such claim (such approval not to be
unreasonably withheld) and shall also have the right to have its own
counsel participate in the defense of any such claim at Microsoft's
own expense. Notwithstanding the foregoing, Microsoft will be entitled
(using its own counsel and without the consent of Supplier) to control
the defense of, and settle, any claim if Supplier does not, upon
Microsoft's demand, acknowledge in writing full responsibility to
indemnify therefor. Payments will be made by Supplier within twenty
(20) days after demand. Supplier's
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indemnity obligations will be those of a primary obligor, whether or
not the indemnified party is also indemnified with respect to the same
matter under the terms of any other agreement or policy, and the
indemnified party may proceed directly against Supplier without first
seeking to enforce any other rights of indemnification. Supplier will
not be entitled to any right of contribution from, or be subrogated to
any right of the indemnified party against, such other indemnifying
party. In the event Microsoft and Supplier agree to settle a claim or
action, Supplier agrees not to publicize the settlement without first
obtaining Microsoft's written permission.
(c) Infringement Claims. In addition to Supplier's obligations as stated
above, in the event an infringement claim is made or is likely to be
made, Supplier may (or, in the event that Microsoft reasonably
believes that Supplier is not likely to prevail with respect to such
infringement claim, Supplier shall) promptly (and in any event within
five (5) business days) notify Microsoft of such claim and, at
Microsoft's option and Supplier's sole risk and expense: (i) procure
for Microsoft and the Subcontractor(s) the right to continue using and
selling the infringing or allegedly infringing Product(s); (ii)
replace such Product(s) with a non-infringing Product(s); or (iii)
modify such Product(s) so that it becomes non-infringing, provided
that such replacement or modification meets the Specifications and
otherwise complies with the requirements of this Agreement, does not
change Microsoft's specifications for the Xbox, interfere with
Microsoft's or Subcontractor(s) production schedule or require any
recall of the Xbox. Microsoft and Subcontractor(s) may return, at
Supplier's sole risk and expense, any inventory of infringing or
allegedly infringing Product(s) and Supplier shall refund the full
purchase price of such returned Product(s) within thirty (30) days of
receipt thereof. Any disputes as to the reasonableness of Microsoft's
belief that Supplier is not likely to prevail with respect to an
infringement claim shall be handled in accordance with Article 19(b).
(d) Compliance with Laws. In addition to Supplier's obligations as stated
above, in the event that Supplier obtains knowledge that any
Product(s) already delivered to Microsoft violate any law or
regulation as in effect at any time during the Term, Supplier will
promptly (and in any event within five (5) business days) notify
Microsoft of such violation and, with respect to laws or regulations
of any Microsoft Jurisdiction only (including any subdivision thereof)
as in effect during the Compliance Period for such Product, at
Microsoft's option and Supplier's sole risk and expense: (i) replace
such Product(s) with compliant Product(s) or (ii) modify such
Product(s) so that it becomes compliant, provided that such
replacement or modification meets the Specifications and otherwise
complies with the requirements of this Agreement, does not change
Microsoft's specifications for the Xbox, interfere with Microsoft's or
Subcontractor(s) production schedule or require any recall of the
Xbox. Microsoft and Subcontractor(s) may return, at Supplier's sole
risk and expense, any inventory of noncompliant Product(s) and
Supplier shall refund the full purchase price of such returned
Product(s) within thirty (30) days of receipt thereof. If during the
Term a Product becomes noncompliant after the end of the Compliance
Period for such Product, Microsoft may replace such noncompliant
Product with a compliant Product purchased from Supplier at a unit
price equal to Supplier's documented cost of goods sold as determined
in accordance with GAAP.
(e) Hazard. In the event either Supplier or Microsoft becomes aware of any
information which reasonably supports a conclusion that any Product(s)
may contain a defect that could cause bodily injury (including death)
to any person or property damage (a "Hazard"), the Party with such
information shall promptly notify the other Party of the Hazard. If
permitted by law, such notice shall be given prior to notice to any
governmental agency. Supplier and Microsoft shall promptly exchange
all relevant data and may meet to review and discuss the information,
tests, and conclusions relating to the alleged Hazard and the basis
for any contemplated recall or other remedial action. Supplier shall
be responsible for all costs of any such remedial action including,
but not limited to, the reasonable out-of-pocket costs to Microsoft
and Subcontractor(s) directly
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related thereto. Each Party shall, on request and at Supplier's
expense, provide to the other Party reasonable assistance in (i)
determining how best to deal with the Hazard; and (ii) preparing for
and making any presentation before any governmental agency which may
have jurisdiction over Hazards involving the Product(s).
13. Disaster Recovery Plan; Excusable Delay.
(a) Disaster Recovery Plan. Supplier shall maintain a written disaster
recovery plan (the "Disaster Recovery Plan") for the Product(s) to be
supplied hereunder in order to ensure the supply of Product(s) to
Microsoft and Subcontractor(s). Such Plan may include multiple sources
of supply for the Product(s) and parts and components thereof,
multiple manufacturing facilities, and/or providing Microsoft with all
rights, licenses, information, assistance, know-how and/or other
deliverables as may be required to enable Microsoft and
Subcontractor(s) to manufacture, test, and support the Product(s), or
retain one or more contractors to perform any or all of these
services. Supplier shall submit a proposed Disaster Recovery Plan for
the Product(s) to Microsoft no later than [*] after the Effective Date
(with payments to Supplier hereunder after such date being conditioned
upon approval of the Disaster Recovery Plan). The Disaster Recovery
Plan and any changes thereto shall be subject to Microsoft's prior
review and written approval (not to be unreasonably withheld) as part
of all business reviews conducted between the Parties. Notwithstanding
Microsoft's review and/or approval of any Disaster Recovery Plan or
any change thereto, Supplier shall at all times remain solely liable
for the adequacy and implementation of all disaster recovery plans.
Supplier agrees to comply fully with the terms of the Disaster
Recovery Plan upon occurrence of any disaster or similar circumstances
contemplated therein.
(b) Excusable Delay. A delay in the performance of any Party hereunder
shall be an "Excusable Delay" to the extent caused by extraordinary
events not within the reasonable control of such Party, its affiliates
or its subcontractors and their affiliates, and including the
following events: terrorism, condemnation, confiscation and similar
acts of a governmental authority in its sovereign capacity; war and
civil insurrection; and fire, earthquake, flood, epidemic or similar
act of God. Notwithstanding the foregoing, Excusable Delay events do
not include events that could be avoided by reasonable foresight and
reasonable precautions, including risk and disaster contingency
planning (including the Disaster Recovery Plan). Excusable Delay
events also do not include events attributable in any respect to
negligence, intentional act, failure to comply with law or failure to
comply with this Agreement, whether by such Party or any of its
affiliates, its subcontractors or any affiliates of such
subcontractor. Excusable Delay events do not include technological
difficulties, including any faced in designing, developing or
producing product, product defects, or failure to properly manage
inventory. The Party affected by the Excusable Delay shall not be
liable for non-performance hereunder to the extent caused by the
Excusable Delay, subject to such Party's compliance with this Article
13(b). The Party affected by an Excusable Delay will provide the other
Party written notice of any event giving rise to an Excusable Delay
immediately upon becoming aware thereof and in no event later than ten
(10) calendar days after such event occurs (and failure to give such
notice in a timely fashion will be deemed to be a waiver of such
Excusable Delay). The Party affected by an Excusable Delay will have
the burden of establishing such has occurred, the consequences thereof
and such Party's compliance with its mitigation obligations. If an
Excusable Delay event occurs, the affected Party will work with the
utmost diligence to avoid or minimize the impact of such delay. None
of the terms of this Agreement (including the Product(s) price) will
be adjusted, and there will be no reimbursement for any additional
costs incurred. If the Excusable Delay has been in effect (or is
likely to be in effect) for more than [*] days, the other Party will
be entitled at any time and in its sole discretion to terminate this
Agreement without any penalty or further liability of any kind to the
other Party (and notwithstanding Article 5(g) or Article
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14(b)(iii)(B)). If Supplier is the affected Party, Microsoft shall be
entitled to the license and Escrow Materials as described in the
Escrow Agreement and the assistance as described in Article 14(e).
14. Term and Termination.
(a) Term. This Agreement shall be effective for a period of [*] years from
the Effective Date (the "Term").
(b) Termination.
(i) Termination For Convenience. Microsoft may terminate this
Agreement without cause by giving Supplier ninety (90) days prior
written notice.
(ii) Termination For Cause.
(A) Microsoft may terminate this Agreement for cause: (i) if
Supplier is in material breach or default of any
representation, warranty, covenant, obligation or agreement
hereunder or under any of the other Operative Documents,
which breach or default is not cured within thirty (30) days
of written notice from Microsoft; (ii) if Supplier becomes
insolvent, upon ten (10) days written notice from Microsoft;
or (iii) if Supplier becomes the subject of any proceeding
under any bankruptcy, insolvency or liquidation law, whether
domestic or foreign and whether voluntary or involuntary,
which is not resolved favorably to Supplier within [*] days
of commencement thereof; (iv) Supplier becomes subject to
property attachment, court injunction or court order which
has a material adverse effect on its operations or (v)
Supplier at any time breaches its obligation to continue to
perform its obligations hereunder, including timely supply
of the Product(s), as required under Article 14(c).
Microsoft may also terminate this Agreement for cause as set
forth in Article 10(b).
(B) Supplier may terminate this Agreement for cause (i) if any
sum due to Supplier hereunder is not paid within (a) in the
case of an invoice sent to Microsoft, [*] after receipt by
Microsoft of written notice of such failure to pay, or (b)
in the case of an invoice sent to a Subcontractor,
forty-five (45) business days after receipt by Microsoft of
written notice of such failure to pay; or (ii) upon thirty
(30) days written notice to Microsoft if Microsoft becomes
the subject of any proceeding under any bankruptcy,
insolvency or liquidation law, whether domestic or foreign
and whether voluntary or involuntary, which is not resolved
favorably to Microsoft within [*] days of commencement
thereof.
(iii) Effect of Termination.
(A) In the event of termination of this Agreement by Microsoft
for cause as described in Article 14(b)(ii)(A) above,
Microsoft and Subcontractor(s) shall have no liability or
payment obligation to Supplier for termination other than
payment (subject to Microsoft's set-off rights) of any
balance due for Product(s) delivered to and accepted by
Microsoft and Subcontractor(s) prior to such termination. In
connection with any such termination, Microsoft will be
entitled to the cost of "cover" or, at Microsoft's option,
the difference between the market price and the contract
price, as well as any expenses incurred in effecting cover
or with respect to rightfully rejected goods, and any other
costs or expenses
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reasonably related to such breach. The foregoing are not
exclusive, but cumulative and in addition to any other
remedies existing at law or equity.
(B) In the event of termination of this Agreement by Microsoft
for convenience as described in Article 14(b)(i) ,
Microsoft's and Subcontractor(s) sole liability and
Supplier's exclusive remedy is limited to payment for (i)
the quantities of Product(s) ordered under confirmed
Purchase Orders which are not cancelled due to such
termination; (ii) Buffer Inventory manufactured pursuant
hereto that Supplier, despite its best efforts, can not use
for the manufacture of other products or divert for any
other purpose or sale; and (iii) to the extent that there is
any remaining Minimum Buy Quantity that Microsoft is
obligated to purchase but has failed to do so, Microsoft
shall, at its option, either (x) submit Purchase Orders for
such unpurchased Product(s), and in such case Supplier shall
build and deliver such Product(s) in accordance with the
terms hereof (notwithstanding any termination) and of such
Purchase Orders; or (y) pay Supplier for its anticipated net
profit on such unpurchased Product(s), subject to Supplier
providing satisfactory documentation of such lost profit. In
the event of termination of this Agreement by Supplier for
cause as described in Article 14(b)(ii)(B), Supplier shall
also be entitled to the remedies described above in this
Article 14(b)(iii)(B), but in such event such remedies shall
not be exclusive, but cumulative and in addition to any
other remedies of Supplier existing at law or equity;
provided, in no event shall Microsoft and Subcontractor(s)
have any obligation to pay Supplier for any raw materials or
assemblies of work in process.
(C) Supplier shall, in accordance with the terms and conditions
of this Agreement, deliver to Microsoft or to any
Subcontractor(s) designated by Microsoft, all Product for
which Microsoft has paid Supplier pursuant to this Article
14(b)(iii). Supplier agrees that upon termination, Microsoft
and/or Subcontractor(s) may place a final Purchase Order for
(and Supplier shall deliver in accordance with the terms and
conditions of this Agreement) Products forecast to be
required during the period in which such termination occurs.
(c) Continuing to Perform. Notwithstanding any other provision in this
Agreement, Supplier during the pendency of any dispute of any nature
in connection with this Agreement shall, unless directed otherwise by
Microsoft in writing, diligently continue to carry out and fulfill all
its obligations under this Agreement, including the obligation during
the pendency of the dispute to ensure that the Product(s) are
delivered to Microsoft and the Subcontractor(s) in the quantities and
within the time required hereunder; provided that Microsoft shall
continue to make payments of amounts not disputed in accordance with
this Agreement. Any failure of Supplier to comply with this Article
14(c) will constitute a default under Article 14(b)(ii) hereof.
(d) Survival. The following Articles of this Agreement shall survive the
expiration or earlier termination of this Agreement: Article 10
Warranties; Article 11 Limitation of Liability; Article 12
Indemnification; Article 14(b)(iii) Effect of Termination; Article 15
No Obligation; Article 16 Confidentiality; Article 17 Covenant Not to
Sue; the last sentence of Article 18(a) and of Article 18(b); and
Article 19 General.
(e) License. Without limiting Microsoft's other rights and Supplier's
other obligations hereunder, in the event that Microsoft terminates
this Agreement under Article
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14(b)(ii)(A), then Microsoft shall be entitled to the license and
Escrow Materials described in the Escrow Agreement.
In connection therewith, Supplier shall further, at its sole cost and
expense, provide technical and such other assistance to Microsoft as
may be necessary or desirable in connection with the transfer of the
foregoing license and materials, and shall, at the request of the
Microsoft, provide such cooperation and do and perform all such other
and further acts as Microsoft may consider necessary or desirable or
as may be required by law to use, establish, maintain and protect its
rights granted under the Escrow Agreement, in each case for the
purpose of supplying an alternate source of substitute products to be
used in connection with Microsoft's Xbox program (or any successor
program thereto).
15. No Obligation. Notwithstanding any other provision of this Agreement,
Microsoft and Subcontractor(s) shall have no obligation to use or include
the Product(s) as part of the Xbox. 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 product(s)
performing the same or similar functions as the Product(s) contemplated by
this Agreement, or to market and distribute such similar product(s) in
addition to, or in lieu of, the Product(s) contemplated by this Agreement.
16. Confidentiality. The Parties shall comply with the terms of the NDA, and
nothing herein shall be construed to limit the respective rights and
liabilities of the Parties thereunder.
Without limiting the foregoing, Supplier agrees that, without Microsoft's
prior approval, no Competitors, journalists or industry consultants will be
permitted to view any production areas devoted exclusively or primarily to
the Products intended for sale hereunder to Microsoft, and access to such
areas by other third parties shall be limited to the minimum necessary in
the normal course of Supplier's business and subject to reasonable measures
to protect the confidentiality of all Microsoft "Confidential Information"
(as defined in the NDA), and in no event will possession of any Products
(unless commodity products being sold in the identical specification to
numerous customers) be transferred to any third party or persons except in
accordance with Microsoft's express instructions.
17. Covenant Not to Sue. Supplier covenants that it will not assert against
Microsoft, Subcontractor(s) or Microsoft's distributors or customers a
claim of direct or indirect patent or copyright infringement, or trade
secret misappropriation arising from the manufacture, sale, import,
distribution or use of the Xbox.
18. Insurance. At all times during the Term, Supplier shall, at its own
expense, maintain in force policies of insurance with reputable insurers
sufficient in coverage and amounts to secure its obligations and potential
liabilities under this Agreement. All premiums, and any deductibles and/or
retentions associated with such insurance shall be solely the
responsibility of Supplier. At the request of Microsoft, Supplier shall
provide to Microsoft certificates of insurance evidencing such insurance
coverage, and failure by Supplier to furnish certificates of insurance or
failure by Microsoft to request same shall not constitute a waiver by
Microsoft of the insurance requirements set forth herein. If Microsoft so
requests, Supplier shall provide to Microsoft, or make available for
Microsoft's review, copies of such insurance policies. At a minimum, such
insurance policies shall include the following coverage:
(a) Commercial general liability insurance with policy limits of not less
than [*] each occurrence for bodily injury and [*] each occurrence for
damage to property, or, alternatively, [*] combined single limit each
occurrence for bodily injury and property damage combined. The policy
shall be the "occurrence" form and shall include coverage for premises
and operations, contractual liability (including insurable contractual
liability
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assumed in this Agreement), broad form property damage, and products
and completed operations. The policy shall name Microsoft as an
additional insured to the extent of the contractual liability assumed
by Supplier in this Agreement (without any obligations or any
liability to pay premiums); shall be primary without right of
contribution from any other insurance carried by Supplier or
Microsoft, shall waive any right of the insurers to any set-off
(including for unpaid premiums), counterclaim or any other deduction,
by attachment or otherwise; shall expressly provide that all the
provisions thereof, except the limits of liability, shall operate in
the same manner as if there were a separate policy covering each
insured; and shall provide that the insurers waive all rights of
subrogation that may arise by contract, at law or otherwise against
Microsoft. Upon expiration or termination of this Agreement, Supplier
will maintain an active policy complying with the requirements of this
Agreement and providing coverage through at least twelve (12) months
after such expiration or termination.
(b) Professional liability/errors & omissions insurance with policy limits
of not less than [*] each claim. Such insurance's retroactive coverage
date will be no later than the Effective Date of this Agreement. Upon
expiration or termination of this Agreement, Supplier will either
maintain an active policy, or purchase an extended reporting period,
providing coverage for claims first made and reported to the insurance
company within two years after the expiration or termination of this
Agreement.
19. General.
(a) Notices. All notices and requests in connection with this Agreement
shall written in the English language and shall be deemed given as of
the day they are received either by messenger, delivery service, or in
the United States of America mails, postage prepaid, certified or
registered, return receipt requested, and addressed as follows:
To Supplier:
Applied Microsystems Corporation
5020 - 148th Avenue Northeast
P.O. Box 97002
Redmond, WA 98073-9702
Fax: (425) 883-3049
To Microsoft: with a copy to:
Microsoft Corporation Microsoft Corporation
One Microsoft Way One Microsoft Way
Redmond, WA 98052-6399 Redmond, WA 98052-6399
Attention: Group Manager for Xbox Attention: Law & Corporate Affairs
Program Developer Relations Fax: (425) 706-7409
Fax: (425) 706-7329
or to such other address as a party may designate pursuant to this notice
provision.
(b) Governing Law; Venue; Attorneys' Fees. This Agreement shall be
governed by the laws of the State of Washington as though entered into
between Washington residents and to be performed entirely within the
State of Washington, and Supplier consents to jurisdiction and venue
in the state and federal courts sitting in the State of Washington. In
any action or suit to enforce any right or remedy under this Agreement
or to interpret any provision of this Agreement, the prevailing Party
shall be entitled to recover its costs, including reasonable
attorneys' fees.
In the event of any dispute or disagreement between the Parties in
relation to this
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Agreement, either Party may call a meeting, such meeting to be held
within seven (7) days of the date of the notice calling the same
(unless otherwise agreed). Each Party shall appoint a senior
representative to attend that meeting to resolve the dispute. Such
senior representatives shall meet as often as the Parties jointly deem
necessary to gather and exchange all applicable information with
respect to the matter at issue which the Parties believe appropriate,
and the senior representatives shall negotiate in good faith to that
end. Without waiving any other rights or remedies of either Party
under this Agreement, if the representatives are unable to resolve the
dispute within a further period of two (2) weeks, the Parties shall be
entitled, in the event of a failure to agree between them on a method
of dispute resolution, to commence such proceedings as they may
competently pursue. Notwithstanding the foregoing, either Party may
commence proceedings at any time without following the above
procedures if such Party would be irreparably harmed by a delay.
(c) Independent Contractors. The Parties are independent contractors, and
nothing in this Agreement shall be construed as creating an
employer-employee relationship, a partnership, or a joint venture
between the Parties. Neither Party has any authority to assume or
create obligations or liability of any kind on behalf of the other.
(d) Severability. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable under
any applicable law, then such provision shall be deemed modified to
the extent necessary in order to render such provision valid and
enforceable; if such provision may not be so saved, it shall be
severed and the remainder of this Agreement shall remain in full force
and effect.
(e) Assignment; Successors and Assigns; Change in Control. This Agreement
shall be binding upon and inure to the benefit of each Party's
respective successors and assigns; provided, however, that this
Agreement may not be assigned by Supplier in whole or in part without
the prior written consent of Microsoft, and any attempted assignment
without Microsoft's consent will be null and void.
Upon the occurrence of a Change in Control (as defined below),
Microsoft, in its discretion, will be entitled by written notice to
terminate this Agreement without any penalty or further liability of
any kind to Supplier (and notwithstanding Articles 5(g) and
14(b)(iii)(B)), and Microsoft shall be entitled to the license and
Escrow Materials described in the Escrow Agreement. A "Change in
Control" shall mean the occurrence of any one or more of the following
events: (i) any merger or consolidation involving Supplier where
Supplier is not the surviving entity, (ii) any other transaction or
series of transactions whereby a third party acquires direct or
indirect power to control the management and policies of Supplier,
whether through the acquisition of voting securities, by contract, or
otherwise, or (iii) the sale or other transfer of Supplier's business
or substantial portion of Supplier's assets (whether in a single
transaction or a series of transaction). Without limiting Supplier's
obligations under the NDA, Supplier agrees to obtain the consent of
Microsoft in writing prior to disclosing any terms and conditions of
this Agreement or any other Operative Document, or any other
information regarding Xbox, to a third party in connection with any
Change of Control, unless such information is otherwise in the public
domain other than through a breach of this Agreement or the NDA.
Supplier agrees to give Microsoft notice prior to the occurrence of
any Change in Control as early as practicable.
Microsoft may assign this Agreement to a successor to or assign of its
Xbox business or to any subsidiary or affiliate of Microsoft. In
addition, upon any merger or consolidation involving Microsoft, the
surviving entity will be entitled to all rights of Microsoft
hereunder.
(f) Language. This Agreement is executed in the English language only and
shall be interpreted according to the plain meaning of its terms. Any
translation of this Agreement
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into a language other than English shall be for reference only and
shall not affect the interpretation hereof.
(g) Modification; Wavier. This Agreement shall not be modified except by
an agreement written in the English language, dated subsequent to the
date of this Agreement and signed on behalf of Supplier and Microsoft
by their respective duly authorized representatives. 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, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving
party. This Agreement has been negotiated by the Parties and their
respective counsel and will be interpreted fairly in accordance with
its terms and without any strict construction in favor of or against
either Party.
(h) Government Approvals. Supplier shall, at its own expense, obtain and
arrange for the maintenance in full force and effect of all
governmental approvals, consents, licenses, authorizations,
declarations, filings, and registrations as may be necessary or
advisable for the performance of all of the terms and conditions of
the Agreement including, but not limited to, foreign exchange
approvals, import and/or export licenses, fair trade approvals and all
approvals which may be required to realize the purposes of the
Agreement. Additionally, Supplier, at its expense, will assist
Microsoft in addressing problems with Product(s) that contribute to a
failure of Xbox to meet any regulatory requirement due to integration
of Supplier's Product(s). Supplier shall ensure that each Product
bears appropriate labels indicating compliance with these
requirements; provided, that Supplier shall not be required to obtain
export licenses for any countries to which export is prohibited by
United States law at the time of export.
(i) Records/Audit. Supplier will maintain accurate records in the normal
course of its business and will grant Microsoft or its authorized
agent reasonable access to and copies of such records and information
reasonably requested by Microsoft that pertain to Supplier's
performance under this Agreement (including quality programs and test
documentation). Supplier represents that it maintains and will
continue to maintain its records for a period of at least three (3)
years.
(j) Taxes. Neither Microsoft nor any Subcontractor(s) shall be liable for
any taxes that Supplier is legally obligated to pay which are incurred
or arise in connection with or related to the sale of Product(s) under
this Agreement, and all such taxes (including but not limited to net
income or gross receipts taxes, franchise taxes, and/or property
taxes) shall be solely the financial responsibility of Supplier,
provided that Microsoft and Subcontractor(s) shall pay to Supplier any
sales or use taxes that are owed by Microsoft or Subcontractor(s)
solely as a result of purchases of Product(s) under this Agreement and
which are required to be collected from Microsoft or Subcontractor(s)
by Supplier under applicable law. Microsoft and Subcontractor(s) may
provide to Supplier an valid exemption certificate in which case
Supplier shall not collect the taxes covered by such certificate.
Supplier agrees to indemnify, defend and hold Microsoft and
Subcontractor(s) harmless from any taxes (including sales or use taxes
paid by Microsoft or Subcontractor(s) to Supplier) or claims, causes
of action, costs (including, without limitation, reasonable attorneys'
fees) and any other liabilities of any nature whatsoever related to
such taxes. This tax Article shall govern the treatment of all taxes
arising as a result of or in connection with this Agreement
notwithstanding any other Article of this Agreement.
(k) Headings. Article headings in this Agreement are solely for
convenience and will not be considered in its interpretation.
(l) Counterparts. This Agreement may be executed in two counterparts, each
of which will
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MICROSOFT CONFIDENTIAL
be deemed an original and all of which together will constitute one
and the same instrument.
(m) Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements or communications
with respect to the subject matter hereof.
20. Exhibits. The following Exhibits are made a part of this Agreement:
Exhibit A - Products and Pricing
Exhibit B - Microsoft Authorized Subcontractor(s)
Exhibit C - Microsoft Supplier Quality Requirements
Exhibit D - Maintenance Problem Severity and Response Time Schedule
21 Order of Precedence. If there is a conflict or inconsistency between or
among any of the following documents, unless expressly stated otherwise
herein, the order of precedent for conflict resolution in descending order
will be as follows:
(a) Change Orders;
(b) the NDA;
(c) the Development and License Agreement;
(d) Microsoft Corporation Xbox Component Development Kit License
(e) the body of this Agreement;
(f) Exhibit A - Products and Pricing;
(g) Exhibit B - Microsoft Authorized Subcontractor(s);
(h) Exhibit C - Microsoft Supplier Quality Requirements;
(i) Exhibit D - Maintenance Problem Severity and Response Time Schedule;
and
(j) the Escrow Agreement.
AGREED:
MICROSOFT CORPORATION APPLIED MICROSYSTEMS CORPORATION
By: /s/ J. Allard By: /s/ Stephen J. Verleye
--------------------------------- -----------------------------------
Name: J. Allard Name: Stephen J. Verleye
------------------------------- ---------------------------------
Title: General Manager Title: President & CEO
------------------------------ --------------------------------
Date: 12/19/00 Date: 12/19/2000
------------------------------- ---------------------------------
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EXHIBIT A
Product(s)
- ---------- ------------------------------------------------------------- --------------------- ---------- --------------------
Product Price/
Item Description Specification Unit Manufacturing.
Reference # $ US Site/s
- ---------- ------------------------------------------------------------- --------------------- ---------- --------------------
1 DVD Emulation System - PCI card, hard drive and emulator See below Redmond, WA
card
- ---------- ------------------------------------------------------------- --------------------- ---------- --------------------
2 Emulator card component [*] Redmond, WA
- ---------- ------------------------------------------------------------- --------------------- ---------- --------------------
------------------------------------------ -------------------------------------
Annual Unit Volume Unit Price
------------------------------------------ -------------------------------------
[*] [*]
------------------------------------------ -------------------------------------
[*] [*]
------------------------------------------ -------------------------------------
[*] [*]
------------------------------------------ -------------------------------------
[*] [*]
------------------------------------------ -------------------------------------
Note: The above-listed pricing applies to annual quantities delivered to
Microsoft in an annual period commencing with the first shipment of DVD
Emulation Systems to Microsoft. The discounted unit price at higher volumes is
not retroactive to prior quantities delivered during such year.
Cost Reduction Target
- ---------- ------------------------------------------------------------- ----------------- ---------------- ------------------
Annual Cost Annual Cost Annual Cost
Reduction Reduction Reduction
Item Description Target Target Target
Year 1 Year 2 Year 3
- ---------- ------------------------------------------------------------- ----------------- ---------------- ------------------
1 DVD Emulation System [*] [*] [*]
- ---------- ------------------------------------------------------------- ----------------- ---------------- ------------------
Minimum Supply Capacity
Without limiting Supplier's other obligations in the Agreement, Supplier during
the Term shall ensure that for each month of the Term it has a minimum supply
capacity at least equal to the following: [*] greater than the average quantity
of Product(s) ordered per month during the [*]-month period preceding such month
(or, if there are fewer than [*]months since the Effective Date, then the
average quantity of Product(s) ordered per month since the Effective Date,
excluding the initial order). Notwithstanding the foregoing, the minimum supply
capacity for the first month of the Term shall be [*] units of Product(s).
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EXHIBIT B
Approved Subcontractor(s)
- ---------- ----------------------------------- -------------------------------------- ---------------------- ------------------
Item Microsoft Subcontractor(s) Corp. Office Address Contact Activity
- ---------- ----------------------------------- -------------------------------------- ---------------------- ------------------
1 [*] [*] [*] Assembly & Test
- ---------- ----------------------------------- -------------------------------------- ---------------------- ------------------
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EXHIBIT C
Microsoft Supplier Quality Requirements
See attached.
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EXHIBIT D
Maintenance Problem Severity and ResPONSE TIME SCHEDULE
Severity Criteria Time Limit
-------- -------- ----------
1 Critical: Problem which prevents or seriously impairs the [*]
performance of substantially all major functions.
2 Severe Impact: Problem which prevents or seriously impairs the [*]
performance of a major function.
3 Degraded Operation: Problem which disables or impairs the [*]
performance of a minor function.
[*] Confidential treatment requested