EXHIBIT 10(s)
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Confidential Treatment Requested as to certain information contained in this
Exhibit 10(s) and filed separately with the Securities and Exchange Commission.
MANUFACTURING AGREEMENT
The Parties:
PRINCIPIA LIGHTWORKS, INC., ("Principia") is a business incorporated under the
laws of California and has its principal place of business at 6455 Independence
Avenue, Woodland Hills, California 91367; and
BANDWIDTH SEMICONDUCTOR, LLC, ("Bandwidth") is a business incorporated under the
laws of Delaware and has its principal place of business at 25 Sagamore Park
Road, Hudson, New Hampshire 03051.
PURPOSE OF THIS AGREEMENT:
Principia designs, develops, and markets semiconductor devices, among which is a
device known as an electron beam-pumped, vertical cavity, surface emitting laser
(the "eVCSEL" or the "Device"). As a component of its strategy to market the
Device, Principia requires a party to manufacture the Device in sufficient
quantity while achieving certain quality, reliability, and cost objectives.
Bandwidth is a semiconductor foundry with proprietary semiconductor fabrication
processing capability and with experience in process technology development
necessary to tailor fabrication processes as needed to fabricate semiconductor
devices, including those applicable to the Device.
Bandwidth has demonstrated to the satisfaction of Principia that it has the
required skill and ability to fabricate the necessary precursor material for the
Device (the "Wafers," defined hereinbelow), and Principia desires that Bandwidth
manufacture the same for Principia's commercial distribution. Bandwidth, for its
part, desires to manufacture the Device for Principia's commercial distribution.
To further this goal, Bandwidth and Principia (collectively, "the Parties")
agree as set forth below (the "Agreement").
1. DEFINITIONS
a) "Bandwidth Background IP" shall mean all of Bandwidth's right,
title and interest in the Intellectual Property which shall
include, but not be limited to, the process parameters for Wafer
fabrication, the means of modifying the same, and methods of
determining the degree to which the finished Wafers meet the
specifications required.
b) "Effective Date" shall mean the date on which the latter of
Principia and Bandwidth shall sign this Agreement.
c) "Intellectual Property" or "IP" shall mean all any and all patent
rights, copyright rights, mask work rights, trade secret rights,
common law confidential information rights, SUI GENERIS database
rights and all other intellectual and industrial property rights
of any sort throughout the world (including any application
therefor), as well as any idea, concept, discovery, invention,
development, technology, work of authorship, trade secret,
software, firmware, tool, process, technique, know-how, data,
plan, device, apparatus, architecture, specification, design,
circuit, layout, mask work, algorithm, program, code,
documentation or other material or information, tangible or
intangible, whether or not it may be patented, copyrighted or
otherwise
protected (including all versions, modifications, enhancements
and derivative works thereof).
d) "Manufacturing Facility" shall mean that facility owned and
operated by Bandwidth for the manufacture, as described in this
Agreement, of the epitaxial metal-organic chemical vapor
deposition reactor material for the Device.
e) "Principia Background IP" shall mean all of Principia's right,
title, and interest in the Intellectual Property which shall in
include, but not be limited to, proprietary designs, formulae,
processes and parameters, specifications, and the design for the
Device, the specific structure from which the Device is
fabricated, and the method of fabricating the Device from a
finished Wafer.
f) "Wafer" shall mean gallium arsenide semiconductor wafers sized
from two inches to four inches, treated for photoluminescence for
R-G-B emissions, and adapted for use in eVCSEL applications,
including, without limitation, by means of epitaxial deposition
processes.
2. MANUFACTURING FACILITY
a) Based on Principia's commitment to purchase Wafers and to pay the
Non-Recurring Engineering and Facility Payment and the Monthly
Facility Availability Payments, both as defined hereinbelow, as
well as other promises contained herein, Bandwidth shall
construct, own, operate, and make available, as provided
hereinbelow, the Manufacturing Facility on the terms and
conditions as set forth herein.
b) Principia hereby agrees and acknowledges, that as a material
precondition to Bandwidth's ability to complete the Manufacturing
Facility, it shall license the Principia Background IP to
Bandwidth for use on Principia's behalf, subject to the terms and
conditions of Section 6, hereinbelow, and shall provide
reasonable consulting services to integrate Principia's
technology by Principia's employees or contractors, at
Principia's sole expense.
c) Bandwidth shall determine, in its sole discretion, the materials,
facilities, and support necessary for the manufacture of the
Wafers, and shall construct, install, qualify, and provide the
same. At the time that the Manufacturing Facility is fully
qualified and ready to commence the manufacture of the Wafers
(the "Substantial Completion"), it shall include some or all of
the following:
i) *** (the "*** Reactors"), each with the capacity of
producing approximately *** Wafers per run;
ii) Support Facilities, to include gas cabinets, gas exhaust and
scrubbers, and related components;
iii) Production Support Equipment, to include blue/green PL
system wafer inspection system, gas detection equipment, and
related components;
iv) Facility Engineering for gas distribution, gas detection,
cleanroom controls, electrical system design and UPS
installation;
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The omitted material has been filed separately with the Securities and Exchange
Commission.
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v) Facility Engineering, Start-up and Technical Support for:
A) Reactor specification, facility design.
B) Installation and start-up.
C) Qualification of material and definitization of the
Manufacturing Specification and Protocols, which shall
be agreed and reduced to writing by the Parties, in
good faith and within a reasonable time after the
installation of the *** Reactors (but no more than one
hundred twenty (120) days thereafter, and which shall
contain the specifications and protocols indicated in
EXHIBIT A, attached hereto. Principia shall further
assist as necessary and reasonable, upon Bandwidth's
request, with defining the required process
specifications and qualifying the equipment as provided
in Paragraph 2(b), hereinabove; and
vi) Start-up Materials, to include required gas sources and
wafers to commission and qualify the Manufacturing Facility.
d) The anticipated time frame (the "Construction Timeline") to
Substantial Completion of the Manufacturing Facility is twelve
(12) months, which shall include, but not be limited to, the
order process for the *** Reactors, the delivery of the ***
Reactors, and the installation and qualification of the ***
Reactors with the assistance of Principia. Principia hereby
agrees and acknowledges that the Construction Timeline represents
Bandwidth's best estimate and that the actual time frame is
subject to, and contingent on, timely inputs from various parties
beyond Bandwidth's control, including, but not limited to,
Principia. Bandwidth makes no representation or warranty as to
the outcome or timing of the Substantial Completion of the
Manufacturing Facility except that it will use commercially
reasonable efforts to meet the Construction Timeline. Principia
agrees and acknowledges that no delay in the Substantial
Completion of the facility shall be grounds for suspension of the
Facility Availability Payments as provided at Paragraph 4(b),
hereinbelow, provided that Bandwidth uses commercially reasonable
efforts.
e) Title to and ownership of the Manufacturing Facility shall vest
solely in Bandwidth. Bandwidth alone shall be responsible for its
operation, maintenance, and upkeep so as to meet the obligations
set forth herein. Production of Wafers, in the quantity required
by Principia and subject to the ordering forecast protocols set
forth hereinbelow, shall have priority over other uses of the
Manufacturing Facility. Bandwidth shall, in its sole discretion,
use the Manufacturing Facility for such other purposes that do
not interfere with the requirements of this Agreement. Principia
shall not place, nor be entitled, in equity or under operation of
law, to place, any lien or encumbrance on the Manufacturing
Facility or any of its contents including, but not limited to,
pursuant to the Uniform Commercial Code or as pledged collateral
for any debt of any kind, nor shall it allow any party to do so
on its behalf or on the behalf of any third party.
f) In the event that Principia seeks to make any improvement in the
design of the Device, or structure of the Wafer that requires
changes in the production parameters, or any other change or
improvement to the Principia Background IP, Principia shall
promptly convey the same to Bandwidth, pursuant to the provisions
of Paragraph
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6(a), and shall cooperate to re-qualify the Manufacturing
Facility equipment, with the expense thereof to be considered an
increase in Bandwidth's cost of manufacture pursuant to Paragraph
4(d), hereinbelow. The Parties agree that such changes will
result in the revised product being characterized as "Wafers"
subject to this Agreement and that the obligations of each Party
to this Agreement are not diminished or voided should such
changes be instituted by Principia.
3. MANUFACTURE OF WAFERS
Pursuant to the provisions of Paragraph 3(a), hereinbelow, Bandwidth
shall be the exclusive manufacturer of the Wafers in accordance with
specifications established by Principia and attached hereto as EXHIBIT
A, based upon the following manufacturing plan:
a) In the period between the Effective Date and Substantial
Completion (the "Interim Period"), Bandwidth may produce, at
Principia's written request, Wafers in the red frequency in its
existing III-V reactor, subject to the same pricing as is
provided at Section 4 and pursuant to the purchase terms and
conditions, set forth herein and in EXHIBIT B.
b) Upon the passage of thirty (30) days of written notice from
Bandwidth of Substantial Completion, Principia, by its signature
hereto, shall be deemed to have placed with Bandwidth a purchase
order (the "Purchase Order") for the twelve (12) month period
(the first "Production Year") beginning on the placement of the
Purchase Order, in substantially the same form as the model
attached at EXHIBIT B, for not less than *** Wafers, at the
pricing established at Paragraph 4(d), hereinbelow, and pursuant
to the terms and conditions set forth at EXHIBIT B. Such Wafers
shall be deliverable over the first Production Year. Within
thirty days of the start of the second Production Year,
Principia, by its signature hereto, is deemed to have placed with
Bandwidth a Purchase Order for at least the same number of Wafers
as in the first Production Year. Each Purchase Order shall be in
the form attached hereto as EXHIBIT B, and shall incorporate by
reference all terms and conditions of this Agreement that are not
inconsistent with the terms and conditions set forth on EXHIBIT
B. In the event of any inconsistency between the Purchase Order
and this Agreement, the Purchase Order shall prevail.
c) In each and every Production Year in the Term, as provided in
Paragraph 10(a), hereinbelow, Principia shall provide to
Bandwidth a production forecast (the "Production Forecast") of
its anticipated order values as soon as possible prior to the
beginning of the New Production Year, but in no event less than
sixty (60) days prior to the beginning of that Production Year.
Bandwidth may reasonably rely on the Production Forecast in
planning its use of the Manufacturing Facility for that year.
Principia shall use its best, commercially reasonable efforts to
plan its orders such that the annualized volume shall not exceed
***% of a Production Forecast without the prior assent of
Bandwidth, and acknowledges that Bandwidth shall not be
responsible to produce any orders in excess of such forecast,
even if such additional amount is within the guaranteed capacity
set forth in Section 3(d) hereinbelow, unless timely forecasted.
For each Production Forecast, a third of the total production
shall be for each of the three colors used in the device.
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The omitted material has been filed separately with the Securities and Exchange
Commission.
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d) In each and every Production Year, Bandwidth hereby guarantees
the capacity to produce up to *** Wafers, and shall use
commercially reasonable efforts to be available to produce up to
a maximum annual capacity of *** Wafers.
e) Principia agrees and acknowledges that all Purchase Orders issued
by it in connection herewith shall be cancelable only by payment
to Bandwidth equal to the profit Bandwidth would have reasonably
earned on the order value for all Wafers ordered under those
Purchase Orders, plus the labor and material costs to manufacture
all Wafers produced and/or in the manufacturing process
(commencing at the point raw material purchase) but not yet
shipped or paid for by Principia according to any such Purchase
Order's schedule, payable as liquidated damage amounts are the
best estimate of the damages Bandwidth would suffer. The parties
agree that Bandwidth's actual damages would be difficult or
impossible to determine if Principia were to breach a given
Purchase Order, and that these stated liquidated damage amounts
are the best estimate of the damages Bandwidth would suffer.
f) Bandwidth shall have the opportunity to provide to Principia
additional value-added manufacturing on the incorporation of the
Wafers into the Device (the "Subsequent Manufacturing Process"),
if it can match or exceed the pricing, quantity, and delivery
terms of any third party manufacturer from whom Principia has
obtained a commitment to provide the Subsequent Manufacturing
Process. Principia shall notify Bandwidth, in writing, prior to
awarding any contract for a material Subsequent Manufacturing
Process, providing Bandwidth with the pricing, quantity, and
delivery terms offered by the third party manufacturer. Bandwidth
shall have ten (10) business days from the receipt of the notice
to notify Principia of its intent to provide the indicated
Subsequent Manufacturing Process on terms comparable to the third
party offer, after which the Parties shall have twenty (20)
business days to exercise reasonable commercial efforts to enter
into a binding contract for Bandwidth to provide the Subsequent
Manufacturing Process.
4. SCHEDULE OF PAYMENTS
Principia shall make certain payments in consideration for Bandwidth's
performance of this Agreement according to the schedule below:
a) "Non-Recurring Engineering and Facility Payment." To facilitate
Bandwidth's establishment, design, installation, commission, and
qualification of the Manufacturing Facility, Principia shall, ten
(10) days after the Effective Date of this Agreement, issue full
payment in the amount of *** to Bandwidth, which shall constitute
the initial payment for non-recurring engineering and facility
expenses relating to the Manufacturing Facility. Principia hereby
agrees and acknowledges that its obligation to make this payment
is a condition precedent to Bandwidth's further obligation to
perform under this Agreement.
b) "Monthly Facility Availability Payments." Principia hereby agrees
and acknowledges that, in consideration for Bandwidth making the
Manufacturing Facility available for the production of Wafers for
Principia, it shall guarantee payment of *** Dollars ($***) (the
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The omitted material has been filed separately with the Securities and Exchange
Commission.
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"Guarantee Account") in sixty (60) equal monthly payments
beginning in the seventh (7th) month after the Effective Date of
this Agreement and continuing for sixty (60) months thereafter
(the "Monthly Facility Availability Payments"). The payments
shall be made without abatement or reduction due to set-off from
any claim by Principia of cost or expense or delay in the
Substantial Completion date, nor shall the payments be suspended
due to any failure by Principia to fulfill its obligations under
this Agreement. The payments for which this Paragraph 4(b)
provides are based upon a sixty (60) month schedule of
liquidation of the outstanding balance on the Guarantee Account.
Any early termination of this Agreement in accordance with
Paragraph 10(b), where Principia is the defaulting Party, shall
have the effect of making the unpaid balance of the Guarantee
Account immediately due and payable in full to Bandwidth.
However, any early termination of this Agreement in accordance
with Paragraph 10(b) where Bandwidth is the defaulting party
Shall relieve Principia of any obligation to make additional
payments on the unpaid balance of the Guarantee Account, as
provided in Paragraph 4(c) below.
Upon the execution of this Agreement, Principia shall, by the
execution of a pledge agreement in substantially the same form as
the Pledge Agreement attached hereto as EXHIBIT D, pledge to
Bandwidth shares of Principia stock (the "Pledged Shares") of the
type that has been issued by Principia in the most recent
corporate finance transaction in such number that the shares will
have an aggregate market value of at least *** Dollars ($***),
based on the value stated in the then-most recent corporate
finance transaction. Simultaneously with the signing of the
Pledge Agreement, Principia shall also execute a Secretary's
Certificate in substantially the same form as attached hereto as
EXHIBIT E. These shares of stock will comply with the terms and
conditions stated in EXHIBIT F, and such other terms and
conditions as Bandwidth may request at the time of the deposit of
the shares and the execution of the Pledge Agreement. The Pledge
Agreement shall secure the first eighteen (18) Monthly Facility
Availability Payments from the seventh (7th) through the
twenty-fourth (24th) month. Should the market or other relevant
valuation of the Pledged Shares decline by 25% or more of the
original value as stated herein for a period of ninety (90) days
or more, in Bandwidth's reasonable determination, Bandwidth may
require Principia to pledge sufficient, additional shares so that
the total value of all pledged shares remains equal to $*** less
the cumulative total of all Facility Availability Payments that
have actually been paid.
The Pledge Agreement shall be structured to allow Bandwidth to
draw upon them should Principia fail to make one or more Monthly
Facility Availability Payments. Bandwidth shall return such
shares to Principia on a PARI PASSU basis at the end of each
month in a fashion in accord with Principia's payments of the
Monthly Facility Availability Payment. The return of the shares
shall occur at a price PRO-RATA with the current market or other
relevant valuation, but not to exceed a value of $*** per share.
c) The amounts to be paid by Principia to Bandwidth as the
Non-Recurring Engineering and Facility Payment and the Monthly
Facility Availability Payments are non-refundable except as
provided in this Paragraph 4(c). In the event of a breach by
Bandwidth that is not cured as provided hereinbelow at Section
10, Principia shall be entitled to forgiveness of any then-unmade
Monthly Facility Availability Payments,
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The omitted material has been filed separately with the Securities and Exchange
Commission.
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as the sole measure of Principia's damages hereunder, which the
parties agree is the best estimate of the damages Principia would
suffer in such event.
d) "Wafer Production Payments." For Bandwidth's manufacture and
delivery of Wafers, Principia shall pay *** dollars ($***) per
Wafer (the "Per Unit Price), which shall not include the costs of
shipping and insurance to be prepaid by Principia. To the extent
that Bandwidth's costs of manufacture increase greater than ***
percent (***%) from the Effective Date or the previous setting of
Per Unit Price, as a result of increases in cost of materials,
the Per Unit Price will be increased by a corresponding
percentage after Bandwidth has provided written notice to
Principia of the increase. Notwithstanding the foregoing, to the
extent that Bandwidth seeks to increase the Per Unit Price based
on an increase of greater than *** percent (***%) in the cost of
manufacture since the Effective Date or the previous setting of
Per Unit Price (if there was one), Principia and Bandwidth shall
use their best efforts to negotiate the increase in the Per Unit
Price. If, only after the Parties have first attempted to use
best efforts, in good faith, to negotiate, they fail to agree on
a Per Unit Price, Principia shall be permitted to enter
negotiations to establish an alternate supplier. If Principia
receives a BONA FIDE, better written offer from an alternate
supplier, Principia shall provide Bandwidth with notice thereof
(including the specifics of that offer) and an opportunity to
match or beat that offer within twenty (20) calendar days.
Hereinabove, shall Principia shall have twenty-five (25) calendar
days therefrom to accept or decline such offer. The parties shall
continue throughout such forty-five (45) calendar day period to
consult with each other and shall expend their best efforts, in
good faith, to reach an agreement. The failure of the Parties to
reach a new agreement shall be considered a material breach of
this Agreement.
In each of the second through the fifth Production Years,
Principia shall be eligible for a volume discount equal to an ***
percent (***%) reduction in the Per Unit Price stated herein for
each whole *** percent (***%) increase in volume that is
purchased in a given Production Year as compared to the original
number of Wafers that are actually purchased and paid for in the
First Production Year. These discounts shall be applicable,
according to this formula, to the annual Wafer production amount
to which Principia commits at the start of any Production Year,
as evidenced by its non-cancelable Purchase Order to Bandwidth.
All purchases shall be F.O.B. Bandwidth's dock, using a carrier
selected by Principia. Invoices shall be issued and dated the day
on which any product is ready for shipment. Payment for invoices
shall be due in full within *** (***) days of the date of
invoice, in immediately available U.S. funds. In the event that
Principia's payment remains unpaid more than *** (***) days past
the date of invoice, Principia shall pay to Bandwidth any amounts
which Bandwidth may incur as a consequence of any payment default
hereunder, which shall include, without limitation, interest at
*** percent (***%) PER ANNUM, and reasonable attorneys' fees and
other reasonable costs of collection. Principia agrees that
Bandwidth shall retain a security interest in all Wafers until
such time as full payment shall be actually received. In the
event of a material adverse change in Principia's credit rating,
Bandwidth may unilaterally reduce the amount or terms of credit
extended to Principia, including, but not limited to, reduction
of the *** (***) day payment terms.
*** Represents text omitted pursuant to a request for confidential treatment.
The omitted material has been filed separately with the Securities and Exchange
Commission.
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e) Principia shall have fifteen (15) days from the date that the
shipment arrives to open and inspect the Wafers using the
standard inspection protocol that is stated in EXHIBIT A. Wafers
not rejected within that period shall be deemed accepted
thereafter, for which no credit or replacements shall be
subsequently issued. Rejections reported prior to the end of this
period that are demonstrably due to conditions that were extant
at the time of shipping shall be replaced by Bandwidth at no
charge to Principia, or a credit shall be issued against future
orders, if requested by Principia. The terms stated here,
including the terms and conditions of the Purchase Order attached
hereto as EXHIBIT B, shall supersede any different terms that may
appear in any Purchase Order issued by Principia. Any Purchase
Order issued by Principia may be accepted according to the
quantity and price stated therein, and a binding contract shall
be formed at the issuance of a Purchase Order, with any
inconsistent terms in Principia's document thereby rejected.
5. NATURE OF THE RELATIONSHIP BETWEEN THE PARTIES
a) Except in the case of a material breach of this Agreement by
Bandwidth as specified in Paragraph 10(b) below, Bandwidth is and
shall remain the exclusive worldwide supplier of up to *** Wafers
to Principia for the Term of this Agreement. If and when
Principia places a Purchase Order for what would amount to an
aggregate annual production of greater than *** (***) Wafers,
Bandwidth shall have the option to endeavor to increase its
production capacity to meet Principia's demand, and shall notify
Principia of its intent, in writing, no later than ten (10) days
after receipt of the Excess Order. In the event of such election,
the Parties shall endeavor to use best efforts, in good faith, to
renegotiate the terms of this Agreement for production of Wafers
above the *** unit threshold. If the Parties shall fail, after
best efforts, in good faith, to reach a new agreement, Principia
shall be permitted to establish a second supplier. The failure of
the Parties to reach a new agreement shall not be considered a
material breach of this Agreement. The sole effect of such
failure shall be that Bandwidth shall no longer be the exclusive
worldwide supplier of the Wafers to Principia for annual
purchases over and above *** Wafers. Notwithstanding the
provisions of this Paragraph 5(a), Principia shall continue to
make the Monthly Facility Payments without abatement or reduction
until the liquidation of the outstanding balance on the Guarantee
Account.
b) Bandwidth is an independent contractor of Principia. This
Agreement confers no additional rights, privileges or obligations
upon either Party beyond those stated herein, and an implied duty
of good faith and fair dealing of the kind that would normally
exist between vendor and customer. The parties do not intend that
one Party shall be the agent, representative, or partner of the
other Party in any respect. Neither Party shall hold itself out
to be the agent, representative, or partner of the other, and
neither shall be liable as such.
c) If and when Principia places a Purchase Order for what would
amount to an aggregate annual production of greater than ***
(***) Wafers, the Parties shall endeavor in good faith to
negotiate pricing for the exclusive manufacturing arrangement
contemplated herein that may provide a
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reduction to reflect efficiencies realizable due to economies of
scale and other reducing factors.
6. ORIGIN AND OWNERSHIP OF INTELLECTUAL PROPERTY
a) Principia hereby grants to Bandwidth a license to use any and all
Principia Background IP for the following uses: *** At the
request of Bandwidth, Principia shall make the Principia
Background IP available in one or more commercially-useful media,
***. In the event that this Agreement is assigned pursuant to
Section 17, this license shall be fully transferable to any
permitted assignee. All transfers of the Technology shall be
subject to the terms of the Confidential Disclosure Agreement
signed between the Parties and attached hereto as Exhibit G,
which shall remain in effect for the entire Term of this
Agreement.
b) Bandwidth hereby grants to Principia a license to use all of the
Bandwidth Background IP to the extent that Principia requires the
use of the Bandwidth Background IP for the purposes of fulfilling
its obligations under Section 2 and Section 3, hereinabove, such
license(s) to be worldwide, exclusive, royalty-free, and for the
Term of this Agreement.
c) Upon either Party's discovery, invention, or other recognition of
any novel piece of Intellectual Property in the course of the
fulfillment of its obligations under this Agreement (the
"Developed Intellectual Property"), the developing Party shall
promptly disclose to the non-developing Party the nature and
application of such development. Upon such disclosure, the
Developed Intellectual Property shall become the sole and
exclusive property of the Party that created such Intellectual
Property, unless the Developed Intellectual Property was the
result of the material participation and collaboration of both
Parties (the "Joint Intellectual Property").
d) ***
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The omitted material has been filed separately with the Securities and Exchange
Commission.
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7. GENERAL REPRESENTATIONS AND WARRANTIES
Each Party to this Agreement individually represents, warrants, and
agrees that: (i) it has sufficient autonomy and/or authority to enter
into this Agreement; (ii) it is capable of rendering the services
and/or attending to the obligations herein set forth; (iii) it is able
to use the Technology and related information without restriction;
(iv) it has no obligation to any other Party and parties that would
create a conflict with its performance of its obligations under this
Agreement, or otherwise inhibit such performance; (v) it knows of no
conflict or potential conflict between its use of the Technology to
which it alleges a proprietary interest and that of any other Party.
In addition, the Parties hereby represent, warrant, and agree that
they and their representatives, agents, and assigns shall not use or
employ the Intellectual Property disclosed herein (including
substantially similar methodologies) except for the obligations
undertaken as set forth herein, nor shall either Party reverse
engineer any aspect of the other Party's Background IP.
8. LIMITED PRODUCT WARRANTY AND EXCLUSIONS
Bandwidth warrants that it shall use commercially reasonable efforts
to ensure that its manufacturing processes follow the specifications
for Principia's structure as set forth in EXHIBIT A, and follow the
manufacturing specifications and related process parameters therein
established for Wafer manufacture. Bandwidth further warrants that it
shall perform the agreed quality control procedures set forth at
EXHIBIT A to detect non-conformities, and shall reject wafers having
non-conformities outside the range established by those tolerances set
forth as part of the manufacturing inspection protocol in EXHIBIT A.
Wafers delivered to Principia shall be those measured for conformity
to the specifications by a certified measurement and inspection system
previously agreed upon by the Parties and are set forth as part of the
manufacturing inspection protocol stated in EXHIBIT A. The parties
acknowledge and agree that Bandwidth makes no representation or
warranty as to its minimum staff availability or as to the outcome or
timing of its obligations under this Agreement, and that no such
representation or warranty shall be effective unless specifically
stated in writing by a duly and actually authorized officer of
Bandwidth. Principia will remain solely responsible for ascertaining
the design integrity, functionality, and suitability of the Wafers, as
well as the absence of intellectual property infringement and design
defects.
AS PROVIDED AT PARAGRAPH 4(E), HEREINABOVE, PRINCIPIA'S SOLE RECOURSE,
AND BANDWIDTH'S SOLE LIABILITY, FOR WAFERS THAT ARE NONCONFORMING IN
ANY REGARD IS THE REPAIR (TO THE EXTENT THIS OPTION IS AVAILABLE),
REPLACEMENT, OR REFUND, SOLELY AT THE ELECTION OF BANDWIDTH, OF SUCH
WAFERS, AT BANDWIDTH'S EXPENSE. THIS LIMITED WARRANTY, AS SPECIFICALLY
SET FORTH HEREIN, IS THE ONLY WARRANTY THAT APPLIES TO ANY PRODUCT OR
SERVICE UNDER THIS AGREEMENT, AND PRINCIPIA SHALL HAVE NO RECOURSE TO
ANY OTHER EXPRESS OR IMPLIED WARRANTY.
IN NO EVENT, UNDER ANY CIRCUMSTANCES, SHALL BANDWIDTH BE LIABLE FOR:
(I) ANY CLAIM, WHETHER BASED ON WARRANTY, CONTRACT, TORT, PRODUCTS
LIABILITY, OR OTHERWISE, OF LOST PROFITS, INDIRECT OR CONSEQUENTIAL
DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS
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OF PROFITS, LOSS OF BUSINESS OPPORTUNITIES, OR LOSS OF USE DAMAGES
ARISING FROM THIS AGREEMENT OR THE PERFORMANCE OF SERVICES AND/OR
SUPPLY OF PRODUCTS HEREUNDER; (II) ANY CLAIM MADE BASED ON A REJECTED
WAFER; (III) ANY CLAIM BASED ON A WAFER THAT HAS BEEN ACCEPTED IN
ACCORDANCE WITH PARAGRAPH 4(E); (IV) CLAIMS BASED UPON REJECTIONS
ARISING WITH BANDWIDTH'S USE OF ERRONEOUS OR INCOMPLETE SPECIFICATIONS
DERIVED FROM ANY INFORMATION FURNISHED BY PRINCIPIA; (V) CLAIMS WHICH
RESULT FROM THE EMERGENCE OF LATENT DEFECTS IN, OR NEGLIGENT
MANUFACTURE OF, RAW OR BASE MATERIALS USED IN THE EPITAXIAL METAL
ORGANIC CHEMICAL VAPOR DEPOSITION PRODUCTION OF THE WAFERS, PROVIDED
THAT BANDWIDTH CAN DEMONSTRATE HAVING USED REASONABLE DUE DILIGENCE TO
INSPECT ALL RAW OR BASE MATERIALS USED IN WAFER MANUFACTURE UPON
RECEIPT; AND (VI) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OTHER THAN THE FABRICATION BY PRINCIPIA OF THE
DEVICE.
9. LIABILITY AND INDEMNIFICATION
Principia hereby agrees to indemnify and hold harmless Bandwidth, its
officers, employees, contractors, and affiliates from any and all
liabilities, losses, claims, damages, costs, and expenses (including,
without limitation, court costs and reasonable attorneys',
consultants' and accountants' fees and other expenses and costs of
litigation) arising out of or resulting from:
a) Any legal or administrative claim whatsoever arising with respect
to this Agreement or its subject matter, or the design, use,
distribution, testing, marketing, or sale of the Wafers or the
provision of any services as provided in this Agreement,
including, but not limited to, any claim of products liability,
design defect, violation of law or regulation (including any
product recall), breach of implied warranty, intellectual
property infringement, negligence, or other tort or contract
claim of any nature whatsoever, including any such claim brought
by Principia or any third party; and
b) Any failure of any business opportunities of Principia,
including, without limitation, any such failure due to
Principia's dissatisfaction or alleged dissatisfaction with the
timeliness, quantity, or outcome of Bandwidth's fulfillment of
its obligations hereunder (unless arising for a material breach
of the specific terms and conditions of this Agreement).
Principia's obligation to defend and indemnify Bandwidth with respect
to claims asserted by Principia or any third party is conditioned upon
the Bandwidth giving prompt written notice to Principia of the claim.
Bandwidth shall have sole and exclusive control of the defense of the
claim and any settlement negotiations, including the exclusive
authority to compromise any claim and make all strategy decisions
regarding all facets of the litigation or matter. Principia shall bear
all expenses associated with such defense.
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10. TERM AND TERMINATION
a) This Agreement shall be in effect as of the Effective Date. The
Term of the Agreement shall be defined as the sixty (60) month
period commencing on the date in which Principia shall begin
making Monthly Facility Availability Payments to Bandwidth under
the terms of this Agreement and shall continue in effect for
sixty (60) months (the "Term"). Notwithstanding the foregoing,
the Term shall expire not later than 31 May 2012. Not later than
1 December 2011 but within thirty (30) days of the end of the
Term (unless otherwise agreed by the Parties in writing), the
Parties may extend the Term of this Agreement by any number of
months mutually agreeable through a written amendment hereto.
b) This Agreement is terminable by either Party for a material
breach upon the passage of thirty (30) days after written notice
of such breach without cure.
Principia may declare Bandwidth to be in "material breach" of
this Agreement: (i) in any instance in which Bandwidth fails to
meet any Wafer delivery schedule established by Principia and
agreed to by Bandwidth in writing; (ii) in any instance when more
than *** percent (***%) of the Wafers shipped to Principia fail
to meet the established acceptance criteria provided in EXHIBIT
A, except that Bandwidth shall not be considered to be in default
if: (x) it has materially complied with the Risk Management Plan,
which shall be agreed and reduced to writing by the Parties, in
good faith and within a reasonable time after the Effective Date
(but no more than one hundred twenty (120) days thereafter, and
which shall be attached hereto as EXHIBIT H; (y) the alleged
breach is due to defective or erroneous technical information
supplied by Principia or its agents; or (z) it has provided
notice to Principia of a FORCE MAJEURE event; or (iii) for
breaches of any material terms or conditions of this Agreement.
Bandwidth may declare Principia to be in "material breach" of
this Agreement in any instance in which Principia: (i) fails to
make any payment established by the provisions of this Agreement;
or (ii) breaches any material terms or conditions of this
Agreement, except that Principia shall not be considered in
default if it provides notices to Bandwidth of a FORCE MAJEURE
event.
c) This Agreement may be terminated by either Party immediately in
the event that the other Party has invoked, as a debtor, any laws
relating to the relief of debtors' or creditors' rights, or has
had such laws invoked against it, or has become involved in any
liquidation or termination of business, or has been adjudicated
bankrupt or involved in an assignment for the benefit of its
condition.
d) The effect of the termination of this Agreement by either Party,
once effective, shall be that all rights, privileges and
obligations hereunder shall cease, with the following exceptions:
i) In the event of Principia's default, any unpaid balance
payable under Section 4 owed by Principia to Bandwidth (or
any minimum required orders that have not been paid for)
shall become immediately due and payable, which balance may
be collected by recourse to the Pledged Shares, and
Bandwidth shall have any and all rights at law to collect
the same.
*** Represents text omitted pursuant to a request for confidential treatment.
The omitted material has been filed separately with the Securities and Exchange
Commission.
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ii) Bandwidth shall deliver, under the delivery terms provided
in Paragraph 4(d), hereinabove, all processed or unprocessed
Wafers in its custody that belong to Principia (i.e., all
those for which Principia has paid), except that Bandwidth
may retain any Wafers in its possession to use to set off
against liabilities then outstanding from Principia to
Bandwidth.
iii) Both Parties shall immediately return to the other all
proprietary information belonging to the other, without
retaining any copies, but each Party may retain a catalogue
of such proprietary information.
iv) Both Parties shall observe all provisions of Section 13,
should the termination of this Agreement be in dispute.
11. NO WAIVER
Waiver of any provision of this Agreement, in whole or in part, in any
one instance shall not constitute a waiver of any other provision in
the same instance, or any waiver of the same provision in any other
instance, but each provision shall continue in full force and effect
with respect to any other then-existing or subsequent breach.
12. NOTICE
Any notice required or permitted under this Agreement shall be given
in writing to the Parties at their respective addresses as specified
above, or at such other address for a Party as that Party may specify,
by notice: (i) by delivery in hand; (ii) by registered or certified
mail, return receipt requested; or (iii) by courier or some other form
of expedited delivery service that provides for delivery to the sender
of a signed receipt. Notice so sent shall be effective upon receipt
unless otherwise specified herein.
Notices directed to Principia shall be addressed:
Principia Lightworks, Inc.
6455 Independence Avenue
Woodland Hills, CA 91367
Attn: President
Notices directed to Bandwidth shall be addressed:
Bandwidth Semiconductor, LLC
25 Sagamore Park Road
Hudson, NH 03051
Attn: General Manager
13. DISPUTES
a) In the event of any dispute or claim for damages with respect to,
or in connection with, this Agreement, or arising out of any of
the transactions described herein, the parties will first use all
reasonable endeavors to resolve the matter on an amicable
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basis. No recourse to arbitration by one party against another
party will take place unless the Parties have attempted to
amicably resolve the matter for a period of not less than thirty
(30) days.
b) If the parties are unable to resolve the Dispute in accordance
with the provisions of Paragraph 13(a) above, such Dispute will
be settled by arbitration as hereinafter provided, which shall be
the sole and exclusive procedure for its resolution.
c) All proceedings in any such arbitration will take place in
Chicago, Illinois, according to the American Arbitration Rules of
Conciliation and Arbitration. The costs of arbitration shall be
shared equally by the Parties.
d) Any arbitration award will be final and binding upon the parties.
14. FORCE MAJEURE
Neither Party to this Agreement shall be responsible to the other
Party for delays or errors in its performance or other breach under
this Agreement occurring solely by reason of circumstances beyond its
control, including: acts of civil or military authority; national
emergencies; fire; major mechanical breakdown; labor disputes; flood
or catastrophe; acts of God; insurrection; war; riots; severe weather;
or, solely in the case of Bandwidth as to third parties, delays of
suppliers or of the supply of tainted, contaminated, substandard, or
non-conforming materials, the existence of which is not discovered
until such material is used.
15. MISCELLANEOUS
This Agreement: (i) may be executed in any number of counterparts,
each of which, when executed by both Party's to this Agreement shall
be deemed to be an original, and all of which counterparts together
shall constitute one in the same instrument; (ii) shall be governed by
and construed under the laws of The Commonwealth of Massachusetts
applicable to contracts made, accepted, and performed wholly in The
Commonwealth, without application to the principal of conflict of
laws; (ii) except and to the extent expressly provided for in Sections
2, 3, 4, 6, 10, and this Section 15 (see below), this Agreement
constitutes the entire agreement between the parties with respect to
its subject matter, superseding all prior oral and written (except as
previously noted) written communications, proposals, negotiations,
representations, understandings, courses of dealing, agreements,
contracts, and the like between the Parties in such respect; (iv) may
be amended, modified, and any right under this Agreement may be waived
in whole or part, only by writing signed by both Parties; (v) contains
headings only for convenience, which headings do not form part, and
shall not be used in construction, of this Agreement; (vi) shall bind
and inure to the benefit of the Parties and their respective legal
representatives, successors and assigns, including, without
limitation, to a parties corporate parents or affiliates, provides
that no Party may delegate any of its obligations under this Agreement
or assign this Agreement except to a related entity or successor by
sale or merger, without prior written consent of the other Party;
(vii) is in the English language only which language shall be
controlling in all aspects; (viii) requires the Parties hereto during
the entire period it is in effect to maintain general liability
insurance
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with an aggregate value of two million ($2,000,000.00) and each Party
shall name the other as an additional insured and shall provide proof
of the same.
16. COMPLIANCE WITH LAWS GENERALLY
Both Parties agree they shall diligently comply with all relevant
laws, statutes, orders and administrative regulations of all relevant
jurisdictions, at all relevant times. Each Party additionally agrees
to indemnify and hold the other Party harmless from any governmental
action at law that results from the willful or negligent failure of
the indemnifying Party to comply with any relevant law, statute, order
or administrative regulation. The parties hereby certify that they
are, to the best of their knowledge, compliant with all such laws,
statutes, orders, and administrative regulations.
17. ASSIGNMENT
This Agreement shall not be assignable by either Party hereto without
the express prior written consent of the other Party, except that it
may be assigned without such consent to the successors to and assigns
of substantially the entire assets and/or business of such Party in a
Change of Control transaction. No assignments hereof shall be valid
without the assumption in writing by such successors or assigns of all
obligations under this Agreement. When duly assigned in accordance
with foregoing, this Agreement shall be binding upon and inure to the
benefit of the assignee.
18. INTEGRATION; ENTIRE AGREEMENT
This Agreement and the exhibits hereto, contain the entire
understanding between the Parties and supersede all prior written and
oral agreements, understandings and negotiations, with regard to the
subject matter contained herein. This Agreement, including this
provision, may not be amended, modified or supplemented absent a
written instrument signed by both parties.
19. SECRETARY'S CERTIFICATE
At the time of the execution of this Agreement, Principia shall
provide to Bandwidth a Secretary's Certificate, in substantially the
same form as attached hereto as EXHIBIT H, which shall represent and
warrant that the Principia signatory hereto has been duly authorized
as required under Principia's Charter, By-laws, or other controlling
corporate documents and protocols.
20. UNITED STATES EXPORT REGULATIONS
The Parties are subject to the Export Regulations of the United States
Department of Commerce and other regulatory agencies that regulate the
export from the United States of certain technical data, information
and materials. Because of these regulations, the Parties to this
Agreement recognize that they may not be able to export certain
technical data, information and materials to certain countries, if at
all, without a validated export license. Principia and Bandwidth
represent to each other that they are sufficiently knowledgeable
regarding such Export Regulations and agree to exercise all necessary
due diligence to insure that such regulations are not violated during
the course of their joint and individual performance of the
obligations set forth herein, including, but not limited
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to, undertaking to secure a similar representation from all customers
to whom to whom the Device is sold.
IN WITNESS WHEREOF, the Parties hereto have set their respective had and seals
signifying their concurrence and endorsement with and of the foregoing, in a
number of counterpart copies, each of which shall be deemed to be an original
for all purposes and deemed effective and binding on the date at the head of
this document.
PRINCIPIA LIGHTWORKS, INC.
/s/ Michael D. Tiberi
- -----------------------------
By: Michael D. Tiberi
Title: President
Date: August 29, 2006
BANDWIDTH SEMICONDUCTOR, LLC
/s/ Edward Gagnon
- -----------------------------
By: Edward Gagnon
Title: General Manager
Date: August 29, 2006
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