EXHIBIT 10.7
CONFIDENTIAL TREATMENT REQUESTED
* Portions of this document denoted with an asterisk have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
BUSINESS AGREEMENT
PREAMBLE
This Business Agreement ("Agreement"), effective October 6, 2003 ("Effective
Date") is made by and between Maxtor Corporation, a Delaware corporation, having
principal places of business at 000 XxXxxxxx Xxxxxxxxx, Xxxxxxxx, Xxxxxxxxxx
00000; ("Maxtor"), and Komag, Inc., a Delaware corporation, having its principal
place of business at 0000 Xxxxxxxxxx Xxxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000
("Komag") and its wholly owned subsidiary Komag USA (Malaysia) Sdn., a Malaysia
unlimited liability company, having its principal place of business at Bayan
Lepas Free Industrial Xxxx, Xxxxx 0, 00000 Xxxxxx Xxxxxxxx. ("Komag Malaysia")
(references to Komag shall be deemed to include references to Komag Malaysia).
RECITALS
WHEREAS, "Maxtor" shall include without limit Maxtor Peripherals (S) Pte Ltd
("MSP"), and Maxtor Technologies (Suzhou) Ltd ("MTS"); and all other
subsidiaries and locations of Maxtor worldwide;
WHEREAS, "Komag" shall include without limit Komag U.S.A. (Malaysia) SDN
("KMS"), and all other subsidiaries and locations of Komag worldwide;
WHEREAS, Komag is in the business of designing, manufacturing and selling thin
film disk media, including without limit, all commercially viable form factors,
materials and technologies of media and substrates ("Product") for hard disk
drives which are competitive in price, quality and technology and wishes to sell
such Product to manufacturers of disk drives such as Maxtor;
WHEREAS, the parties recognize that the disk drive market is very demanding of
quality, timeliness, and price, and that the essence of the relationship between
Maxtor and Komag is flexibility; timely delivery of necessary quantities of
qualified, high-yield Products and low costs;
WHEREAS, Maxtor appoints Komag as Maxtor's preferred strategic external media
partner and Komag appoints Maxtor as Komag's most favored customer with the
expectation that this relationship will provide an excellent opportunity for
synergy between the two companies and capitalize on the mutual benefits of
sharing of information and technical resources;
WHEREAS, Maxtor wishes to secure a supply of Product and to purchase quantities
of such Product from Komag meeting Maxtor's specifications set forth on Exhibit
A and for use in Maxtor's hard disk drives ("HDD"), and, subject to the terms
and conditions hereof, Maxtor shall purchase from Komag a proportion of Maxtor's
total needs for Product ("Requirement");
WHEREAS, Komag shall manufacture and deliver to Maxtor, its agents, and/or its
subsidiaries, Product as set forth in this Agreement, including its Terms and
Conditions;
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CONFIDENTIAL TREATMENT REQUESTED
WHEREAS, as of the date of execution of this document, Komag has committed to
Maxtor a calendar [*] output estimated at [*] disks, based on the then current
mix of form factors and test requirements, to be produced from [*] existing
Intevac [*] sputter tools ("Tools" or "Intevac Tools") which Komag currently
owns and operates in KMS exclusively for Maxtor;
WHEREAS, Komag shall acquire [*] additional Intevac Tools and, with the
installation of these [*] additive Tools ("Additive Tools"), increase Komag's
Intevac Tool capacity, dedicated exclusively to Maxtor, by approximately [*]
disks per quarter. Komag shall own and operate the Additive Tools in KMS
exclusively for Maxtor,
WHEREAS, [*];
WHEREAS, Komag agrees that the target volume for a combined [*] Tools shall be
no less than [*] disks per quarter, subject to adjustment as mutually agreed by
both parties, based upon the mix of form factors and test requirements and a
baseline assumption that each Tool, running a single form factor continuously,
should produce approximately [*] disks per quarter;
WHEREAS, Komag shall fund the entire cost of this Intevac Tool capacity
expansion, including all costs of facilitization and ancillary equipment;
WHEREAS, [*];
WHEREAS, Komag shall, at Maxtor's request, install up to [*] incremental Tools
("Incremental Tools") beyond the [*] Additive Tools, and under substantially
similar terms and conditions, provided that the timing of any secondary
expansion by Komag shall be mutually agreed between the Parties;
WHEREAS, the Parties agree that such request by Maxtor for installation of
Incremental Tools shall require a lead-time of [*];
WHEREAS, the Parties agree to discuss the potential for a separate Maxtor -
Komag agreement that would increase Komag's substrate capacity in a manner that
would enable Komag to supply MMC Technology ("MMC") with up to [*] substrates
per quarter for use in MMC's own thin film media manufacturing;
WHEREAS, if problems should be encountered with respect to any aspect of this
Agreement or if the parties should encounter any problems not covered by this
Agreement, Maxtor and Komag shall discuss them in a cooperative and sincere
spirit and attempt to arrive at a mutually acceptable solution; and
WHEREAS, this Agreement commences on the Effective Date and terminates on
October 6, 2008 ("Termination Date") unless terminated earlier or extended as
set forth in this Agreement;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND ADEQUACY OF
WHICH IS HEREBY ACKNOWLEDGED, AND IN CONSIDERATION OF THE ABOVE PREMISES AND THE
MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS:
MAXTOR CONFIDENTIAL 2
CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS
ARTICLE I -- PRODUCTS................................ 4
1.1 PRODUCT....................................... 4
Purchase and Supply............................. 4
Specification................................... 4
Participation In Programs....................... 4
Freedom of Action............................... 4
Second Sources.................................. 4
1.2 WARRANTY...................................... 4
Authority Warranty.............................. 4
Product Warranty................................ 4
Scope of Warranty............................... 5
Warranty Disclaimer............................. 5
1.3 REMEDIES...................................... 5
Product Remedies................................ 5
1.4 PRICES........................................ 5
Product Price................................... 5
Terms of Sale................................... 6
ARTICLE II -- PROCEDURES............................. 6
2.1 QUALIFICATION................................. 6
Qualification................................... 6
Changes......................................... 6
2.2 TOOLING....................................... 6
2.3 COMMITMENT, FORECASTS, AND ORDERS............. 7
Volume Commitment............................... 7
Forecasts....................................... 8
Maxtor's Forecast Allocation.................... 8
Shortages....................................... 8
2.4 ORDERS........................................ 8
Orders.......................................... 8
Precedences..................................... 9
End of Life..................................... 9
2.5 INSPECTION.................................... 9
Inspection by Maxtor............................ 9
Inspection by Komag............................. 9
In Case Of Failure of Inspection................ 9
Stop Ship Order................................. 9
2.6 SHIPPING...................................... 9
Carrier......................................... 9
Timeliness...................................... 10
Shipping Documents.............................. 10
Packing......................................... 10
2.7 JUST IN TIME (JIT) DELIVERY................... 10
2.8 ACCEPTANCE.................................... 10
2.9 RETURNS....................................... 10
2.10 EPIDEMICS..................................... 10
2.11 INVOICING..................................... 11
2.12 PAYMENT....................................... 11
Terms........................................... 11
Currency........................................ 11
Disputes........................................ 11
2.13 ORDER CHANGES................................. 11
Changes......................................... 11
Cancellation.................................... 11
2.14 ENGINEERING CHANGES........................... 12
Definition...................................... 12
Komag Change(s)................................. 12
Maxtor Change(s)................................ 12
2.15 WORKING RELATIONSHIP.......................... 12
ARTICLE III -- INTELLECTUAL PROPERTY................. 12
3.1 CONFIDENTIALITY............................... 12
Confidential Information........................ 12
Items Declared Confidential..................... 12
3.2 PUBLICITY..................................... 13
3.3 LICENSES...................................... 13
License for Ordinary Use........................ 13
No Other Licenses............................... 13
3.4 ASSIGNMENT OF RIGHTS.......................... 13
Inventions...................................... 13
Ownership....................................... 13
Joint Invention................................. 13
ARTICLE IV -- LIABILITIES............................ 13
4.1 GENERAL INDEMNITY............................. 13
4.2 INFRINGEMENT INDEMNITY........................ 13
4.3 STRICT LIABILITY.............................. 13
4.4 LIMITATION OF LIABILITY....................... 14
ARTICLE V -- DISPUTE RESOLUTION...................... 14
5.1 ESCALATION.................................... 14
5.2 ARBITRATION................................... 14
Binding Arbitration............................. 14
Injunctive Relief............................... 14
Governing Language.............................. 14
5.3 CHOICE OF LAW................................. 14
Choice of Law................................... 14
Foreign Corrupt Practices Act................... 14
Export Controls................................. 14
5.4 LIMIT OF TIME TO BRING ACTION................. 14
ARTICLE IVI -- GENERAL............................... 15
6.1 TERM AND TERMINATION.......................... 15
Term............................................ 15
Renewal......................................... 15
Termination..................................... 15
Duties Upon Termination......................... 15
Survival........................................ 15
6.2 GENERAL....................................... 15
Assignment...................................... 15
Audit........................................... 16
Consents........................................ 16
Counterparts.................................... 16
Cumulation of Remedies.......................... 16
Independent Parties............................. 16
Force Majeure................................... 16
Governing Language.............................. 16
Headings........................................ 16
Joint Work Product.............................. 16
Notices......................................... 17
Severance....................................... 17
Time............................................ 17
Waiver.......................................... 17
6.3 ENTIRE AGREEMENT.............................. 17
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CONFIDENTIAL TREATMENT REQUESTED
TERMS AND CONDITIONS
ARTICLE I --- PRODUCTS
1.1 PRODUCT.
1.1.1 Purchase and Supply. Maxtor wishes to secure a supply of Product and to
purchase quantities of such Product from Komag meeting Maxtor's specifications
set forth in Exhibit A and for use in Maxtor's HDD's. Komag shall provide to
Maxtor, exclusively, all of the capacity and output from the Intevac Tools,
Additive Tools, and Incremental Tools required to support this Agreement. Komag
wishes to supply such Product to Maxtor under the terms and conditions of this
Agreement and at the prices set forth on Exhibit B, as more completely detailed
elsewhere in this Agreement, including, but not limited to Section 1.4.1
Pricing. Therefore, subject to the terms and conditions of this Agreement,
Maxtor will purchase and Komag will supply Product for the term of this
Agreement. Maxtor's obligation to purchase Product from Komag is contingent
upon:
(i) Komag's Product meeting Maxtor's requirements, including but not
limited to time to market , time to volume, Product specifications, performance,
quality and functional requirements (including, without limit, media-chargeable
HDD yields), Maxtor customer requirements, and the other terms and conditions of
this Agreement.
(ii) Komag's commitment to Maxtor, on a best efforts basis, that the
installation of the Additive Tools shall be at least partially completed by the
end of [*], to a degree sufficient to ensure that Komag can deliver to Maxtor
the full quarterly capacity of at least [*]. Komag's commitment to capacity and
production output on these [*] machines shall take into account Maxtor's normal
qualification requirements for Products, tools, and facilities.
(iii) Komag' commitment to provide the substrate input required for
[*] Maxtor disk output per quarter, taking into consideration the yields that
are likely for the mix of programs and form factors required from Maxtor. Komag
shall meet its substrate commitments, either by adjusting the allocation of its
current internal and external substrate supply, or by adding qualified capacity
in its own or a third party facility.
1.1.2 Specifications. As of the Effective Date, Exhibit A may not be attached.
The parties will from time to time agree in writing upon specifications for the
Product or amendments to agreed-upon specifications and such agreed-upon
specifications or amendments shall become parts of Exhibit A and shall be
incorporated into this Agreement when each such written agreement is made.
1.1.3 Participation in Programs. Maxtor will use reasonable commercial efforts
to qualify and utilize Komag's Product in all Maxtor programs as they are
defined in Maxtor's product roadmap. Komag will use its best efforts to
participate in all Maxtor programs as they are defined in Maxtor's product
roadmap.
1.1.4 Freedom of Action. Nothing in this Agreement shall prevent either party
from engaging in similar business with other persons, including, without limit,
competitors of the other party, provided that the confidentiality and terms of
this Agreement are not breached.
1.1.5 Second Sources. Komag understands that Maxtor qualifies additional sources
for Products or the same or substantially similar goods or materials from time
to time and places its orders among qualified internal and external suppliers as
it sees fit. Nothing in this Agreement will prevent Maxtor from procuring
Products or the same or substantially similar goods or materials from other
sources than Komag or from providing the same itself, provided that the
confidentiality and intellectual property rights terms of this Agreement are not
breached.
1.2 WARRANTY. Each of Komag's warranties made hereunder is materially relied
upon by Maxtor in entering into this Agreement or any Order.
1.2.1 Authority Warranty. Each party represents and warrants that all corporate
action necessary for the authorization, execution and delivery of this Agreement
by such party and the performance of its obligations under this Agreement has
been taken. Further, each party represents and warrants that neither the
execution of this Agreement nor any performance of this Agreement shall conflict
with or be prohibited by any interest, agreement, obligation, contract, order,
law, regulation, or duty, oral or written, to which it is a party or by which it
is bound.
1.2.2 Product Warranty. Komag warrants the Product, upon delivery and for
fifteen (15) months thereafter, to:
(i) have a clear title, free of all security interests,
encumbrances, or liens;
(ii) not infringe any patent, trademark, copyright, trade secret, or
other intellectual property right of any third person;
MAXTOR CONFIDENTIAL 4
CONFIDENTIAL TREATMENT REQUESTED
(iii) be newly manufactured and not used or reworked (except as
provided in Maxtor-approved procedures);
(iv) be free from defects in workmanship and materials except as
defined in and allowed by the Product Specification;
(v) conform to applicable specifications, drawings, or other
descriptions given, including those set forth in this Agreement and Komag's
sales literature;
(vi) possess the qualities of goods which Komag has held out to
Maxtor as a sample or model;
(vii) initially meet and continue to meet Maxtor's qualification
criteria and standards (this specific warranty shall not apply to any Order
which is declared a "Risk Buy" in writing by Maxtor); and
(viii) be contained or packaged according to Maxtor's specifications as
agreed and in effect at the time this Agreement is executed, or as may be
mutually agreed thereafter.
The above is the Product Warranty ("Product Warranty"). A unit of Product which
meets all of the standards of the Product Warranty shall be a Conforming Product
("Conforming Product"). Replaced Product shall be subject to the provisions of
this warranty to the same extent as the original Product except that the
warranty period shall run from its delivery date.
1.2.4 Scope of Warranty. The above warranties shall be construed as conditions
as well as warranties and shall be cumulative.
1.2.5 Warranty Disclaimer. EXCEPT FOR THE WARRANTIES SET FORTH ABOVE, KOMAG
GRANTS NO WARRANTIES, EITHER EXPRESS OR IMPLIED, FOR THE PRODUCT, AND DISCLAIMS
ALL IMPLIED WARRANTIES INCLUDING WITHOUT LIMIT ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
1.3 REMEDIES.
1.3.1 Product Remedies. In the event that Maxtor determines that a Product is
not a Conforming Product, and Komag has had forty eight (48) hours notice or if
Komag must receive parts from Maxtor, ninety-six (96) hours notice of such
determination, during which time Komag may take such actions as it desires to
confirm for itself Maxtor's determination, then Maxtor may elect to have the
Product replaced or to receive a full refund for the Product as follows:
(i) Komag agrees to replace any Product not Conforming to the
requirements of this Agreement when requested by Maxtor. If Komag, upon such
notice of defect, fails to replace the Product, Maxtor may do so without further
notice and Komag shall reimburse Maxtor for actual direct manufacturing costs
incurred to replace the Media in such actions. No inspection, test or approval
of any kind, including approval of designs, shall affect Komag's obligation
under this Agreement.
(ii) Komag agrees to refund the purchase price (if payment has been
made by Maxtor) or to credit Maxtor's account for such purchase price (if
payment has not been made by Maxtor) of any Product not Conforming to the
requirements of this Agreement when requested by Maxtor.
(iii) Product which has been used or rejected shall not thereafter be
tendered for acceptance unless the former use or rejection is identified by
Komag in writing and Maxtor accepts such tender in writing.
1.4 PRICES.
1.4.1 Product Price.
(A) The purchase price for Product paid to Komag by Maxtor for the
balance of 2003 and for all of 2004 shall be as detailed in Exhibit B "Komag
Expansion Pricing Matrix". This pricing shall be on a not-to-exceed basis, and
it is anticipated that yield improvements and/or decreases in material costs
will provide lower prices from Komag to Maxtor on a Product by Product basis.
The prices in Exhibit B shall be reviewed at least monthly by Komag and Maxtor,
with the specific intent of finding ways to reduce said pricing.
(B) Komag agrees to diligently pursue and to work cooperatively with
Maxtor in pursuing cost reductions, which shall be reflected in prompt
reductions to the prices in Exhibit B when such cost reductions are implemented.
Such price reductions shall not apply to inventory declared by Komag, except as
mutually agreed.
(C) [*].
(D) It is understood and agreed that any cancelled or rejected portion
of an Order which is cancelled or rejected because of Komag's fault, including
without limit warranty, inspection, deliveries, shortages, or epidemic, shall
nevertheless be counted as purchased for purposes of determining Maxtor's right
to any discounts or other considerations based on quantity purchased.
(E) [*].
(F) Komag agrees that prices for new technologies, such as
perpendicular magnetic recording ("PMR") and synthetic anti-ferromagnetic
coating ("SAF" or "AFC") will be based upon the assumption that Komag's costs
shall be comparable to MMC's costs, and that such MMC costs shall be predicated
on MMC using labor costs equivalent to the lesser of MMC's actual labor costs or
the labor costs actually incurred by KMS. Maxtor will help facilitate
communication between MMC
MAXTOR CONFIDENTIAL 5
CONFIDENTIAL TREATMENT REQUESTED
and Komag should there be wide discrepancies in costs for new technologies.
(G) Maxtor agrees that the prices detailed in Exhibit B include process
improvement plans Komag has made known to Maxtor at the time of execution of
this Agreement, as detailed in Exhibit C.
1.4.2 Terms of Sale. The terms of sale are as follows:
(i) For sales to Maxtor's research, engineering, qualification,
development, or NPI facilities, or in any case which is not Just in Time (JIT):
Title and risk of loss or damage to the Products passes from Komag to Maxtor, at
Maxtor's receiving dock. Maxtor selects the common carrier and pays for freight,
but Komag is responsible for all other shipment and pre-delivery costs including
without limit insurance and packing according to the terms of this Agreement. If
the sale involves international shipment from Komag to Maxtor, then the terms of
sale are D.D.P. Maxtor's designated delivery location; and Komag is responsible
for importation and all customs, taxes, imposts, or duties.
(ii) For sales to Maxtor's factory facilities under Just In Time
("JIT") terms:
Title and risk of loss or damage passes from Komag to Maxtor at Maxtor's
receiving dock. Maxtor pays for all freight from Komag's origin to the JIT
warehouse, but Komag is responsible for all other shipment and pre-delivery
costs including without limit inventory, stocking, all warehouse expense,
insurance, packing, and shipment from warehouse to Maxtor according to the terms
of this Agreement. Maxtor selects the common carrier. Excess transportation
costs resulting from Komag's failure to comply with the provisions of this
Agreement will be paid by Komag. Terms of sale are D.D.U. Maxtor's designated
delivery location.
ARTICLE II -- PROCEDURES
2.1 QUALIFICATION.
2.1.1 Qualification. The respective obligations of the parties pursuant to this
Agreement shall be subject to the successful qualification of Komag's Product
and its manufacturing process in Maxtor's HDD and with Maxtor's customers, as
Maxtor deems necessary. Maxtor and Komag shall cooperate to set up the necessary
processes and procedures to accomplish and facilitate such qualification.
Successful qualification means successful qualification with each specified
head. After Maxtor's approval or acceptance of the initial qualification
prototypes of the Products, Komag shall not make any changes in the Product
design or material according to the Specification, any processes documented in
the mutually agreed Process Management Plan; or in plant location.
2.1.2 Changes. Komag shall use its best efforts to promptly notify Maxtor in
writing of any change in Product design or material according to the
Specification; production process documented in the mutually agreed Process
Management Plan; or in plant location in order to allow it to re-qualify the
Product, before any Product is manufactured by the new design, material, process
or in the new location and sold to Maxtor. Failing such written notice and
re-qualification, Komag will be responsible for Maxtor's damages up to the cost
of the affected Product and any direct expense incurred for the rework of
Maxtor's HDD. Any Product delivered to Maxtor after such change and without
re-qualification may be rejected by Maxtor for a full refund.
2.2 TOOLING. Unless otherwise specified in this Agreement, all tooling and/or
all other articles required for Komag's performance under this Agreement shall
be furnished by Komag, maintained in good condition and replaced when necessary
at Komag's expense. If Maxtor agrees to pay Komag for special tooling or other
items either separately or as a stated part of the unit price of Products, title
to same shall be and remain in Maxtor upon payment, and the tooling shall be
treated as property of Maxtor, furnished by Maxtor to Komag.
(A) Maxtor agrees to pay for the prototype tooling required to
establish the development of new form factors in KUS. This includes tools and
cassettes required to transport substrates to Komag, media within Komag's
process, and finished media to Maxtor. Notwithstanding anything to the contrary
in this paragraph, such prototype tooling shall not exceed $250K for any one
form factor for any one program, and Maxtor agrees to pay fifty percent (50%) of
such tooling cost upon placement of purchase order, and the balance of fifty
percent (50%) of such tooling cost upon shipment of first samples of material to
Maxtor. Komag agrees that if, for any reason, it should not qualify on a program
for which Maxtor has authorized and made payments for tooling, Komag shall
reimburse Maxtor for said tooling costs. Maxtor's payments for said tooling
shall be made in accordance with the payment terms and conditions in effect
between the two companies at the time each payment is due.
(B) Komag will pay for all volume tooling, including any special
tooling for form factors new to the Maxtor dedicated Tools at Komag, and make
ready said tooling as required in KMS three (3) months prior to the start of
DVT.
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CONFIDENTIAL TREATMENT REQUESTED
2.3 COMMITMENT, FORECASTS, AND ORDERS.
2.3.1 Volume Commitment.
(A) Komag agrees to exclusively sell Maxtor the output from the
Intevac Tools, Additive Tools, and Incremental Tools and the output from any
other Intevac tools that Komag adds to its production capacity under the terms
of this Agreement.
(B) Komag understands and agrees that Maxtor's intention is to fully
utilize MMC Capacity as a first priority, followed by fully utilizing Komag's
Maxtor-dedicated capacity as a 2nd priority. Should market conditions force a
drastic downturn in demand, Maxtor may not be able to fully consume 100% of
Komag's installed capacity.
(C) Komag's failure to deliver Product for any reason, including but
not limited to production problems, material shortages, quality issues and
qualification issues shall relieve Maxtor of any commitment to purchase Komag
Product for so long as such failure continues, plus reasonable times thereafter
for reallocation of commitments, at no penalty to Maxtor. Komag shall have a
cure period of thirty (30) days in which to cure any default in its volume
commitment to Maxtor. Notwithstanding the above, in the event of Komag's failure
to deliver Product for any reason, Maxtor shall specifically have the right to
re-allocate material demand to other internal or external suppliers subject to
reasonable commitments required by said suppliers that may prevent Maxtor from
meeting its Product purchase commitments to Komag over a period ranging from the
balance of the quarter in which Komag fails to meet its supply commitment plus
the two quarters following that quarter, at no penalty to Maxtor. Maxtor shall
make every reasonable effort to minimize any such impact to Komag.
(D) Maxtor's volume forecasts and commitments are not fixed
quantities, but may vary with Maxtor's level of business, tracking to Maxtor's
increasing or decreasing HDD volumes and business projections, and such
increases or decreases shall be without penalty to Maxtor.
(E) Any cancelled or rejected portion of an Order which is cancelled
or rejected because of Komag's fault, including without limit warranty,
inspection, deliveries, shortages, or epidemic, shall be counted as purchased
for the purpose of determining Maxtor's compliance with the foregoing volume
purchase commitment.
(F) Maxtor's commitment to purchase Product from Komag is strictly
predicated on:
(i) Komag's ability to qualify as required on multiple Maxtor drive
programs across all disk form factors offered by Maxtor, with disks capable of
supporting required drive performance using one Komag disk matched with all head
suppliers, or with one Komag disk matched to individual head suppliers, as
solely determined by Maxtor. Maxtor shall assign reasonable Engineering, SQE,
Factory and other resources to support Komag's efforts to get qualified on
Maxtor products.
(ii) Komag's agreement that Maxtor's volume commitments are
contingent upon Komag providing disks in a qualification time-frame that is
equal to or superior to Maxtor's other supplier(s). Determination of the
performance and reliability aspects of the media provided by Komag shall be
based on VCAP yields, RTP yields, FGA results, SGT testing, HTS testing, the
DPPM levels of Maxtor drives, and any other tests and/or metrics which Maxtor
may from time to time implement or require. Any decision by Maxtor to purchase
from an alternative supplier, based on better performance in Maxtor's drives,
may, at Maxtor's sole option, be deducted from Maxtor's percentage commitment to
Komag without penalty to Maxtor, based on at least one (1) month's worth of
data. Notwithstanding the above, Komag's performance will be assessed using at
least one (1) month's work of drive data involving no less than 200,000 Komag
disks. Differences must be statistically significant.
(iii) Komag's agreement that if, after reasonable commercial efforts
by both parties, Komag fails to qualify on any Head-Disk combinations, then
Maxtor has no duty to purchase Product from Komag for such Head-Disk
combinations and Maxtor's purchase requirements are reduced accordingly without
penalty to Maxtor.
(iv) Komag agreement to provide disks to Maxtor with no degradation
in its ability to meet Maxtor's glide and certification test specifications, as
defined for programs currently qualified and in production, or currently being
developed and/or tested and/or qualified by Maxtor. Any plans by Komag to change
any test parameters shall be submitted to and approved by Maxtor in Maxtor's
sole discretion, prior to implementation by Komag. Should Komag be unable to
provide disks up to and including the anticipated volume of [*] disks per
quarter as the result of tester throughput issues and/or test parameters that do
not meet Maxtor's specifications for quality or performance, Maxtor's purchase
requirements are reduced accordingly without penalty to Maxtor.
(v) Komag's agreement that, in the event Komag fails to qualify with
each head for a particular Maxtor program on a timely basis, Maxtor may:
(a) reduce Komag's allocation for that program if Maxtor produces
HDD for the program with the head that Komag failed to qualify (and use
reasonable commercial efforts to award Komag compensating volumes in other
Programs) without penalty to Maxtor; and
(b) determine that the foregoing volume commitments shall thereafter
be measured without
MAXTOR CONFIDENTIAL 7
CONFIDENTIAL TREATMENT REQUESTED
reference to such reduced program if Maxtor produces HDD for the program with
the head that Komag failed to qualify without penalty to Maxtor.
(G) In the event that Komag fails to qualify for any two (2) Maxtor
programs in a row or for any three (3) Maxtor programs in any twelve (12) month
period, then Maxtor, in its sole discretion, may terminate this Agreement
without any penalty or payment whatsoever, and such termination shall not be a
breach of this Agreement.
2.3.2 Forecasts. During the term of this Agreement, Maxtor shall provide Komag,
on a monthly basis, with a four (4) quarter rolling forecast setting forth its
estimated Product needs and shall provide Orders for the first thirteen (13)
weeks of the forecast. Orders will be placed sixty (60) days in advance of the
date as of which the Products are to be delivered. Maxtor may request a shorter
lead time and Komag shall use its reasonable commercial efforts to meet such
date. Maxtor's forecast is provided solely for Komag's convenience and for its
planning purposes; no forecast shall be construed as an authorization by Maxtor
to order any materials for, or to allocate any labor or equipment for the
manufacture of the Product nor impose on Komag any obligation to supply
additional Product. Maxtor will not be responsible for any of Komag's cost or
expense for materials, Product, labor, or other commitments or expenses, other
than as authorized in Orders.
2.3.3 Komag's Capacity. Komag covenants to provide Maxtor with the right of
first refusal to fifty percent (50%) of any new, uncommitted capacity in order
to meet Maxtor's Product needs.
2.3.4 Maxtor's Forecast Allocation. Allocation of the forecast among Maxtor's
programs is solely at Maxtor's discretion and it is understood that Maxtor shall
have no duty under this Agreement to take or refrain from taking any action
which might, in Maxtor's judgment, substantially and adversely impact Maxtor's
relationships with or commitments to internal or external media vendors or
customers.
(i) If Komag fails to meet the requirements for any Maxtor program
at any time, the Product quantities allocated for that Maxtor program within the
forecast may be reduced or eliminated by Maxtor. Maxtor will use reasonable
commercial efforts to award to Komag compensating increases in other Maxtor
programs.
(ii) If Maxtor forecasts increased Product needs for any particular
Maxtor program, Maxtor will use reasonable commercial efforts to provide Komag
with the opportunity to supply increased quantities for such program, provided
that Komag is qualified to the configurations and customers driving the
increased forecast and is meeting Maxtor's specifications and functional
requirements, including production ramp and yield. In such case, Maxtor will
notify Komag of any such resultant forecasted increased allocation and Komag
will promptly notify Maxtor of Komag's available capacity and commitment to
supply such increase.
(iii) If Maxtor forecasts decreased Product needs for any particular
Maxtor program, Maxtor will use reasonable commercial efforts to award to Komag
compensating increases in other Maxtor programs, subject to the terms of Section
2.3.1 (A).
(iv) Should Maxtor not utilize Komag's reserved capacity for a
period greater than ninety (90) days, and should Maxtor have no forecast to use
said capacity for an additional and successive ninety (90) days, then Komag may,
with Maxtor's prior written agreement, utilize said capacity for a third (3rd)
party, subject to the terms and conditions following: (a) Komag may offer to and
utilize the capacity for any third (3rd) party only if such party agrees with
Komag in writing in advance to give up such capacity with thirty (30) days of
written notice by Komag; and (b) Komag can and will start production for Maxtor
for an existing qualified Maxtor product within forty-eight (48) hours of the
end of said thirty (30) day notice period, or such shorter period if the demand
requirements from the third (3rd) party should end in less than thirty (30)
days.
2.3.5 Shortages. With the exception of substrates, as set forth in Section 1.1.1
(iii), Komag agrees that in the event of a shortage of capacity or material that
will affect the supply of the Product, Maxtor's Order(s), subject to normal
lead-time requirements, shall be filled according to an allocation plan at least
as favorable as those provided to all other Komag customers with similar or
lesser quantity forecasts and Orders. Komag shall provide Maxtor with as much
notice as possible if it anticipates or has reason to believe that Komag's
output of the Product will not be sufficient to meet all of Maxtor's Product
needs for any period.
2.4 ORDERS.
2.4.1 Orders. All purchases and sales shall be initiated by Maxtor's issuance of
written purchase orders sent via airmail, E-mail, web-based, facsimile, or
courier ("Order"). Such Orders shall reference this Agreement and state the unit
quantities, unit descriptions, price, requested delivery dates and shipment
instructions. The acceptance by Komag of an Order shall be indicated by written
or E-signature acknowledgment within three (3) work days. Maxtor will have the
right to deem its order as accepted by Komag if Komag's acknowledgment does not
reach Maxtor within ten (10) days from the date of the Order. By shipping the
Products, or by confirming or accepting an Order, or by performing the work
described
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CONFIDENTIAL TREATMENT REQUESTED
in an Order, or by allowing an Order to be deemed accepted, Komag agrees to the
Order and to the terms and conditions of this Agreement. All Orders meeting the
terms and conditions of this Agreement shall be accepted by Komag.
2.4.2 Precedence's. Any terms and conditions added or referenced by either party
in any purchase order, confirmation, acceptance or any similar document
purporting to modify the terms and conditions contained in this Agreement, shall
be disregarded unless expressly agreed upon in writing signed by the parties,
which expressly amends this Agreement. The preprinted terms and conditions of
purchase orders, acceptances, confirmations and similar business documents shall
have no effect as amendments of, objections to, or modifications of this
Agreement.
2.4.3 End of Life. Komag commits to supply Product to Maxtor for the duration of
the Maxtor HDD program for which the Product is qualified and until one (1)
calendar quarter after Maxtor's last production build for the program. The last
purchase order date and the last shipment date for the Product for each program
shall be agreed to by the parties.
2.5 INSPECTION. Maxtor and Komag shall cooperate to inspect Products, and
nothing in this section shall limit Maxtor's other rights and remedies.
2.5.1 Inspection by Maxtor. Maxtor may test each lot or Order of Product to
ensure that the Products meet Maxtor's specifications and acceptance criteria,
and Komag shall not ship any Products that do not Conform. Product may be
inspected and tested by Maxtor or Maxtor's agent at all reasonable times and
places after manufacture and before or after shipment. . If any inspection or
test is made on the Komag's premises, Komag shall, without additional charge,
provide reasonable facilities and assistance for the safety and convenience of
inspectors in such manner as not unduly to delay the work. Inspection of
Products at Komag's facility shall be without prejudice to Maxtor's right to
inspect and reject such Products upon delivery to Maxtor's facility. Where
applicable, Maxtor may, at its option, inspect all Products or inspect a
statistical sample selected from each lot, and Product, lots or Orders may be
inspected more than once. Product delivered to and inspected by Maxtor and
deemed acceptable by Maxtor will be transferred to Maxtor's ownership and
invoiced according to terms set forth in this agreement.
2.5.2 Inspection by Komag. Komag will ensure that all Products are tested in
accordance with Maxtor's specifications and requirements, as may be amended from
time to time. Komag will provide only those Products conforming to Maxtor's
specifications and requirements, unless Komag has obtained prior written
approval from Maxtor for any deviation from such specifications. Komag further
agrees to maintain adequate authenticated inspection test documents that relate
to work performed under this Agreement. Such records shall be retained by Komag
for a period of two (2) years after Product shipment and made available to
Maxtor upon request. Komag agrees to supply Maxtor with inspection and test
reports, affidavits, certifications or any other documents as may be reasonably
requested. Komag agrees to collect and send to Maxtor, data on failure rates and
causes on a monthly basis in a mutually agreed format.
2.5.3 In Case of Failure of Inspection. If the above inspection or testing
detects Products which do not conform to the specifications or the requirements
of this Agreement, Maxtor and Komag will closely cooperate to identify and find
a way to correct the causes of the problem(s). Maxtor may refuse to accept
Product which does not conform. Maxtor may reject entire lots if lot acceptance
criteria established in the specifications are not fulfilled. The rejected
Product may, at Maxtor's discretion, be returned to Komag and Komag may verify
the nonconformance. Maxtor will use its reasonable commercial efforts to assist
Komag in identifying and rectifying the cause(s) for rejection.
2.5.4 Stop Ship Order. Maxtor may stop future shipments of Product until the
cause(s) for non-conformity, as mutually determined by parties, have been
corrected. A stop ship order may be issued by Maxtor, without limiting its other
rights and remedies, when one half of one percent (.5%) or the threshold amount
stated in the Specification, whichever is less, of the Product shall be
non-conforming over a period of seven (7) days or more or over ten percent (10%)
of an Order or more, whichever occurs sooner. In the event Maxtor issues a stop
ship order, Komag must immediately cease shipment of the Products, and all
Orders which have been or would have been filled by the nonconforming Product
are terminated without liability to Maxtor until such stop ship order is lifted
and Maxtor retains all of its rights and remedies under this Agreement. Maxtor
will use commercially reasonable efforts to work with Komag to determine the
cause of the nonconformance problem and to develop solutions
2.6 SHIPPING. The following terms apply to all shipments, whether Just In Time
(JIT) or otherwise.
2.6.1 Carrier. Komag and Maxtor shall agree upon the common carrier.
MAXTOR CONFIDENTIAL 9
CONFIDENTIAL TREATMENT REQUESTED
2.6.2 Timeliness. Komag shall use its best efforts to meet one hundred percent
(100%) on-time delivery commitments to Maxtor's JIT HUBs, unless relieved of
such JIT HUB obligation in writing in advance by Maxtor. Notwithstanding the
above, Komag shall in all cases use its best efforts to ensure zero shortages to
any Maxtor production line. If Komag's performance falls below one hundred
percent (100%) on-time deliveries, then Komag shall implement a corrective
action plan acceptable to Maxtor which brings the deliveries back to one hundred
percent (100%) on-time. If Komag is unable to deliver any Product on schedule,
Komag shall promptly notify Maxtor giving a new delivery date, and Maxtor may:
(i) accept the new delivery date; or
(ii) reschedule the delivery by means of a Change Order; or
(iii) cancel the delayed portion of the Order without liability, if
(i) and (ii) above are not commercially reasonable for Maxtor.
At Maxtor's request, Komag will provide Maxtor with daily notification of
shipping delays or of the progress of delayed Products in transit. Such
notification will include action plans to for recovery or expediting of the
affected Product.
2.6.3 Shipping Documents. Either invoice or delivery orders may be used when
making deliveries. Each set must contain three (3) copies. Each copy must
identify this Agreement, item number and description of Products, purchase order
number, and quantity of Products shipped. A complete packing list specifying
Maxtor's applicable purchase order number, quantity of Products shipped, and
part number shall be enclosed with all shipments under this Agreement. All
documents accompanying the Products shall reference the purchase order number.
2.6.4 Packing. Unless otherwise specified in writing, all Products are to be
packed and marked in accordance with Maxtor's specifications.
2.7 JUST IN TIME (JIT) DELIVERY. Komag shall maintain a buffer stock of Products
in a quantity and location to be agreed upon from time to time in writing in
order to provide Just-In-Time (JIT) delivery to Maxtor. All expenses of
maintaining the buffer stock shall be borne and covered by Komag, including
without limit the expense of establishing EDI and/or E-mail links as required by
Maxtor, unless otherwise expressly provided by this Agreement. Maxtor recognizes
that Singapore law requires the payment of a tax on inventory that is held in a
JIT Hub more than thirty (30) days, and shall make reasonable efforts to pull
all such inventory within thirty (30) days, subject to drive build schedules. A
minimum of fourteen (14) days of buffer stock shall be maintained at the
warehouse; fourteen (14) days of buffer stock shall be determined as one half
(1/2) of the next four (4) weeks of Product on Order, unless the parties shall
agree to another level of buffer stock in writing. Such JIT buffer stock shall
be required at both Maxtor's Singapore plants and Maxtor's China plant. All
Products in the buffer stock shall have passed source inspection by Komag,
Maxtor, or both, before shipment to the warehouse. Maxtor will, from time to
time, typically daily, request deliveries from the buffer stock in quantities
that are even multiples of pallet loads by means of a pull signal. .
2.8 ACCEPTANCE. If, after thirty (30) days from the date of receipt by Maxtor,
Maxtor has not rejected the Product, it will be deemed to have been accepted by
Maxtor. The act of inspection or payment by Maxtor for the Product will not be
construed as Maxtor's acceptance of any Product. Acceptance of any Product shall
not affect the warranty or any remedy provided hereunder.
2.9 RETURNS. Returns of product to Komag are at Komag's expense for shipping for
all returns which are caused by Komag's fault and for reasonable and customary
packing in the event of significant returns which are caused by Komag's fault,
including without limit warranty, inspection, and epidemics and are F.O.B.
Maxtor, and title and risk of loss pass to Komag upon delivery to the common
carrier at Maxtor's dock. Komag shall pay all expenses for shipment of
replacement Product, which is caused by Komag's fault, including without limit
warranty, inspection, and epidemics. Return shipments are F.O.B. Maxtor, and
title and risk of loss pass to Komag upon delivery to Maxtor's dock. If Komag
requests, Maxtor will apply Komag's Return Materials Authorization (RMA) or
similar number to the returned Products and/or related documentation, provided,
however, that Komag must supply such RMA number to Maxtor on a timely basis.
2.10 EPIDEMICS. Epidemic or sweeping failures of Product may be detected
directly or by virtue of failures of Maxtor's HDD's, and the procedures and
remedies for epidemics are in addition to all other of Maxtor's rights and
remedies available under this Agreement. An epidemic failure shall occur when
one percent (1%) of Maxtor's HDD delivered to one or more customers shall fail
within six (6) months of delivery for reasons Maxtor determines to be related to
Product and which the parties have discussed. In the event that Maxtor's HDD's
should develop any epidemic failure related to Komag's Product, the parties will
meet in order to work out technical methods to diagnose and remedy the
MAXTOR CONFIDENTIAL 10
CONFIDENTIAL TREATMENT REQUESTED
problem. In such event, shipment of undelivered Products related to the epidemic
may be postponed, at Maxtor's request, until the cause of the epidemic has been
corrected. In case upon the expiration of 30 (thirty) days from the date of
Maxtor's notice regarding the epidemic, Komag has not yet remedied the same,
then Maxtor shall be entitled to cancel pending Orders without any liability for
such cancellation and without prejudice to Maxtor's rights for damages or any
other remedy. In the event that a remedy has been found, all Product units
subsequently delivered to Maxtor shall incorporate the modification remedying
the defect, if necessary, and Komag shall be obliged to accept return of all
Product units previously delivered to Maxtor, affected by such epidemic,
provided the epidemic is related to Product or Komag process non-conformance.
Maxtor agrees to re-accept delivery of such returned epidemic material if it is
mutually agreed that such epidemic failure has been remedied. In the event
Maxtor can show that the epidemic is due to the failure of the Product to meet
the Product Specification, Komag will refund the cost of the Product and Maxtor
and Komag will negotiate in good faith any direct expense incurred for the
rework of Maxtor's HDD.
2.11 INVOICING. Komag will issue the invoices for the Products and will date
them with a date equal or subsequent to date of delivery to Maxtor's dock.
Invoices shall reference this Agreement, purchase order number, item number and
description of Products, unit price of Products, and total amounts due.
2.12 PAYMENT.
2.12.1 Terms Invoices shall be due and payable:
(i) [*];
(ii) [*]; and
(iii) [*].
[*].
2.12.2 Currency. Unless expressly provided to the contrary, all amounts stated
in this Agreement and all sums payable under this Agreement shall be denominated
in United States Dollars and all payments made under this Agreement shall be
made by wire transfer, cashier's check, or other ready funds in United States
Dollars to payee's designated account and bank.
2.12.3 Disputes. Maxtor shall have forty five (45) days after the invoice date
to contest in good faith the amounts and items charged. If the dispute is
resolved prior to fifteen (15) days before the original due date, payment shall
be due on the original due date. If the dispute is resolved thereafter, payment
is due fifteen (15) days after the resolution of the dispute.
2.13 ORDER CHANGES. No Order shall be deemed or construed to be modified,
amended, rescinded, canceled, or waived in whole or in part, except by a written
Change Order signed by a representative of each party.
2.13.1 Changes. Komag grants to Maxtor, subject to Komag's plant constraints,
the right to make changes to the Product mix or schedule one or more times
without penalty, provided that the overall volume of the Order is not changed.
Komag must respond within two (2) working days. If any such change causes an
increase or decrease in the cost of, or the time required for performance of,
any part of the work on an Order or affects any other provisions, an equitable
adjustment shall be made in the price or delivery schedule, or both, and in such
other provisions as may be affected. It is understood that market conditions or
requirements by Maxtor's customers may require changes in the Product mix one or
more times and it is anticipated that such changes may occur frequently. Any
claim by Komag for adjustment under this clause must be asserted in writing
within thirty (30) days of Komag's receipt of the Change Order. Where the cost
of any property made obsolete or surplus as a result of a change is included in
Komag's claim for such adjustment, Maxtor shall have the right to prescribe the
manner of disposition of such property once the claim payment has been made. If
Maxtor's Change Order is an acceleration or increase, Komag will use its
reasonable commercial efforts to meet the requested quantities and/or delivery
dates.
2.13.2 Cancellation. Maxtor may cancel Order(s) by notifying Komag in writing.
Komag will cease work on the affected Order in accordance with such notice.
Maxtor will
(i) purchase and pay for any units of Product that have been
completed as of the effective date of the cancellation;
(ii) will pay Komag the actual overhead, labor and materials costs
incurred by Komag in connection with the Production of any Products that are
partially completed as of the effective date of cancellation up to the total
purchase price under the canceled order(s);
(iii) pay the costs of components and other materials procured by
Komag specifically on account of the canceled order(s), and receive title to
such items;
(iv) pay the costs of components and other materials, including
without limit tools, dies, jigs, fixtures, plans, drawings, information and
manufacturing materials specifically produced or acquired for performance of
this Agreement and receive title to such items; and
MAXTOR CONFIDENTIAL 11
CONFIDENTIAL TREATMENT REQUESTED
(v) pay any cancellation or restocking charges imposed by vendors on
account of any canceled orders pursuant to clauses (iii) and (iv) above.
Provided, however, that the aggregate of such payments shall not exceed the
amounts originally due under the Order. Komag will use its reasonable commercial
efforts to return components and other materials to its vendors and/or use them
in other activities at Komag. Komag will in any event use its reasonable
commercial efforts to mitigate the cancellation charges under this Agreement.
All Products which are purchased or paid for under the above terms shall count
as purchased for the purpose of determining total volumes of Product purchased
by Maxtor.
2.14 ENGINEERING CHANGES. Komag shall not make any changes to the Product or any
process by which they are produced except as set forth in this section.
2.14.1 Definition. Engineering change(s) are those changes in Product design or
material according to the Specification or production process documented in the
mutually agreed Process Management Plan. Any Product which is subject to an
engineering change must be re-qualified unless otherwise provided by Maxtor in
writing.
2.14.2 Komag Change(s). Komag will notify Maxtor of any engineering change
proposed to be made by Komag to the Products or any process by which they are
produced, and will supply a written description of the expected effect of the
engineering change on the Products, including its effect on the form, fit,
function, schedule, price, performance, and reliability of the Products. Maxtor
may elect to evaluate the prototype, parts and/or designs specified as part of
the proposed change and Komag shall provide the prototype, parts and/or design
to Maxtor at applicable volume pricing for such evaluation. Maxtor agrees to
make every effort to approve or disapprove Komag's proposed changes within five
(5) working days after receipt of Komag request for non-critical changes, and
within twenty-four (24) hours for critical changes. Komag will not change or
modify the Products or any process by which they are produced by implementation
of such engineering change without Maxtor's prior written approval.
2.14.3 Maxtor Change(s). Maxtor may request, in writing and in a manner similar
to Komag's request, that Komag incorporate any non-critical engineering change
into the Products, and Komag will provide to Maxtor its written response within
five (5) working days after receipt of Maxtor's request. Maxtor will give Komag
as much notice as possible of any expected request. For critical engineering
changes, as determined by Maxtor, Komag will respond within twenty-four (24)
hours of Maxtor's written request. Komag's response will state the cost savings
or increase, if any, expected to be created by the engineering change, and the
effect on the schedule and price of the Products. If Maxtor requests Komag to
incorporate an engineering change into the Products, the applicable
Specifications will be amended as required. Komag will not unreasonably refuse
to incorporate Maxtor's engineering changes into the Products. In the event any
Maxtor required engineering change directly causes a negative financial impact
to Komag due to incorporation of such change into a Product, the parties agree
to promptly meet to discuss fair compensation for such financial impact. Komag
agrees to use its best efforts to notify Maxtor of such financial impact prior
to incorporation of such engineering change, and in any event, notify Maxtor as
soon as Komag becomes aware of such impact. Maxtor will determine whether the
Product must be re-qualified in whole or in part as a result of any engineering
change.
2.15 WORKING RELATIONSHIP.
(A) Designated Maxtor and Komag teams or team members will meet
monthly or as the parties may agree to review current and future plans and
activities. Agendas will include product and technology road-mapping,
development and qualification schedules, capacity planning, yield performance,
cost targets, volumes, plans, quality and delivery performance, and other topics
related to Maxtor and the Products.
(B) Komag agrees to work collaboratively with Maxtor Advanced
Development teams on issues related to Komag's new Product development and
Maxtor's hard disk drive development.
(C) The lead engineers of each party shall agree upon time tables,
contents, and procedures for Product and technology disclosures, at least
quarterly.
(D) Komag shall sample all new Product or other examples of
development, including without limit all new technologies, techniques, or
processes, to Maxtor on a most favored basis.
ARTICLE III -- INTELLECTUAL PROPERTY
3.1 CONFIDENTIALITY.
3.1.1 Confidential Information. The parties have previously executed that
certain "Mutual Nondisclosure Agreement" dated October 1, 1997, which agreement
is hereby integrated herein and made a part hereof. Current Maxtor proprietary
technologies that are protected by this agreement include without limit Flying
Height Adjust.
MAXTOR CONFIDENTIAL 12
CONFIDENTIAL TREATMENT REQUESTED
3.1.2 Items Declared Confidential. This Agreement, its terms and conditions,
Maxtor's specifications, and all Orders are Confidential Information as the term
is defined under the "Mutual Nondisclosure Agreement" dated October 1, 1997.
3.2 PUBLICITY. Neither party shall publicly announce or disclose the existence
of this Agreement or its terms and conditions, or advertise or release any
publicity or press release regarding this Agreement, without the prior written
consent of the other party. Nothing in this Agreement shall limit a party from
making such disclosures as are required by law or court order, provided notice
of such disclosures is given to the other party.
3.3 LICENSES.
3.3.1 Intellectual Property License. Komag and Maxtor will in good faith discuss
entering into negotiations for an intellectual property license agreement within
ninety (90) days of the execution of this Agreement.
3.3.2 No Other Licenses. Except as expressly set forth in this Agreement,
nothing contained in this Agreement shall be deemed to grant, either directly or
by implication, estoppel or otherwise, any license on the patents, patent
applications, copyrights or proprietary information arising out of any other
inventions of either party.
3.4 ASSIGNMENT OF RIGHTS.
3.4.1 Inventions. As used in this Agreement, "Invention" shall mean any idea,
design, concept, technique, discovery, enhancement, modification, or
improvement, whether or not patentable, conceived, or reduced to practice during
the term of this Agreement by one or more employees of Komag or Maxtor
independently of the other ("Inventing Party"), or jointly by one or more
employees of Maxtor and Komag, or their subcontractors, ("Joint Invention") in
conjunction with or as a result of work done under this Agreement.
3.4.2 Ownership. In the event that a patentable invention is conceived or
reduced to practice as a result of either company's direct efforts to fulfill
its obligations under this Supply Agreement, Komag and Maxtor shall disclose the
invention to each other. The party whose employees are inventors of patentable
technology shall have the right to file or cause to have filed a patent
application covering such invention. In the event Komag or Maxtor chooses not to
file a patent application made by its employees in any country or countries, it
will notify the other party of the fact in sufficient time to enable the other
party to file an application in such country or countries and the other party
will be given the opportunity to pursue patent protection on that invention at
its own expense. In this case, rights necessary to enable that party to apply
for the patent will be assigned to the party that pursues the patent, the
inventing party shall fully cooperate and provide any assistance reasonably
requested by the applying party in the preparation and prosecution of such
patent application(s), and the inventing party shall be granted a royalty-free,
non-exclusive license to practice the patented invention. Each party shall bear
the expenses incurred in the filing, prosecution, or maintenance of patent
applications or patents which are owned by or assigned to them, in accordance
with the foregoing.
3.4.3 Joint Invention. In the event that during the term of the Supply
Agreement, a patentable invention is made jointly by one or more employees of
Komag and one or more employees of Maxtor, as determined by the U.S. laws of
inventorship, title to any patent application covering such invention and any
patent or patents maturing therefrom shall be jointly owned by Komag and Maxtor.
ARTICLE IV -- LIABILITIES
4.1 GENERAL INDEMNITY. Each party shall, in the performance of this Agreement,
fully comply with all applicable national, state, and local laws, rules,
regulations, and ordinances and shall indemnify and hold harmless the other
party from and against any loss, claim, damage, liability, expense, or cost
(including without limitation attorney's fees and court costs) resulting from
failure of such compliance, or out of any other negligence.
4.2 INFRINGEMENT INDEMNITY. Komag will indemnify Maxtor for any claim, action or
proceeding brought by any third party alleging infringement by Komag's Product
of patent, trademark, copyright or other proprietary rights. With respect to any
other claim, action or proceeding brought by any third party which may be
instituted against Komag or Maxtor or both of them, each party will (1) maintain
its own defense, and (2) assume all costs and attorneys fees associated with its
defense.
4.3 STRICT LIABILITY. Each party will indemnify the other against and hold it
harmless from any loss, cost, liability or expense (including court costs and
reasonable fees of attorneys and other professionals) to the extent it
MAXTOR CONFIDENTIAL 13
CONFIDENTIAL TREATMENT REQUESTED
arises out of or in connection with, in whole or in part, any negligence or
willful act or omission of it or its employees or agents including but not
limited to any such act or omission that contributes to:
(i) any bodily injury, sickness, disease or death; or
(ii) any injury or destruction to tangible or intangible property of
the other or any related loss of use.
4.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
SPECIAL, CONSEQUENTIAL, PUNITIVE, INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING IN ANY WAY OUT OF THIS
AGREEMENT OR ANY AGREEMENT, UNDERTAKING, OR PERFORMANCE THAT MAY BE PROMISED,
PERFORMED, OR EXECUTED TO IMPLEMENT THIS AGREEMENT, PROVIDED, HOWEVER, THAT THIS
LIMITATION SHALL NOT APPLY TO EITHER THE INDEMNITY OBLIGATIONS OF THIS ARTICLE
OR TO A BREACH OF THE CONFIDENTIALITY OBLIGATIONS OF THIS AGREEMENT.
ARTICLE V -- DISPUTE RESOLUTION
5.1 ESCALATION. The parties agree that any material dispute between the parties
relating to this Agreement will be submitted to a panel of two senior executives
of each of Maxtor and Komag. Either party may initiate this proceeding by
notifying the other party pursuant to the notice provisions of this Agreement.
Within five (5) days from the date of receipt of the notice, the parties'
executives shall confer (via telephone or in person) in an effort to resolve
such dispute. The decision of the executives will be final and binding on the
parties. In the event the executives are unable to resolve such dispute within
twenty (20) days after submission to them, such dispute shall be settled by
means of arbitration as provided below. Each party's executives shall be
identified by notice to the other party, and may be changed at any time by
notice.
5.2 ARBITRATION.
5.2.1 Binding Arbitration. Any controversy, claim, or action, whether in law or
at equity, whether in tort, contract, warranty, or otherwise, arising out of,
relating to, or involving this Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement will be settled by arbitration. Any arbitration proceeding shall be
conducted under the laws of the state of California and the Federal Arbitration
Act, and pursuant to the Commercial Arbitration Rules of the American
Arbitration Association insofar as such Commercial Arbitration Rules do not
conflict with the provisions of this Section. The site for any arbitration
proceeding shall be San Jose, California.
5.2.2 Injunctive Relief. Notwithstanding the above, the parties may apply to any
court of competent jurisdiction for injunctive relief without breach of this
arbitration provision.
5.2.3 Governing Language. The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy.
5.3 CHOICE OF LAW.
5.3.1 Choice of Law. This Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement shall be governed by and construed under the laws of the State of
California, as they apply to agreements made between residents of California for
performance solely within California. The parties expressly agree that this
Agreement and any agreement, undertaking, or performance that may be promised,
performed, or executed to implement this Agreement shall not be subject to and
shall not be interpreted by the United Nations Convention on Contracts for the
International Sale of Goods.
5.3.2 Foreign Corrupt Practices Act. Maxtor and Komag each acknowledge that they
are subject to the laws and regulations of the United States including the
Foreign Corrupt Practices Act ("FCPA").
5.3.4 Export Controls. Each party agrees that it will not knowingly export or
re-export, directly or indirectly, any technical data or product derived from
the other party to any destination to which such export or re-export is
restricted or prohibited by U.S. law, without obtaining prior authorization from
the U.S. Department of Commerce.
5.4 LIMIT OF TIME TO BRING ACTION. No actions or arbitrations, regardless of
form, arising out of this Agreement, may be brought by either party more than
one (1) year after such actions or arbitrations arose, or in the case of
nonpayment, more than one (1) year from the date the last payment was due.
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ARTICLE VI -- GENERAL
6.1 TERM AND TERMINATION.
6.1.1 Term. This Agreement shall become effective on the Effective Date and
shall remain in force until the Termination Date, and on and effective the
Termination Date this Agreement shall terminate.
6.1.2 Termination by Maxtor. On or at any time after the second anniversary of
the Effective Date, Maxtor may terminate this Agreement upon six (6) months
written notice to Komag. On or at any time after the third anniversary of the
Effective Date, Komag may terminate this Agreement upon twelve (12) months
written notice to Maxtor.
6.1.3 Termination for Cause. This Agreement shall be terminated for cause:
(i) If either party materially defaults in the performance of any
provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) calendar days, the Agreement will be terminated at the end of that period
and such termination shall not prejudice or limit either party's remedies; or
(ii) If either party violates any intellectual property,
confidentiality, or license provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party of such violation and of
immediate termination and the Agreement will be terminated when such notice is
given and such termination shall not prejudice or limit either party's remedies;
or
(iii) Upon:
(a) the institution by or against either party of insolvency,
receivership or bankruptcy proceedings or any other proceedings for the
settlement of its debts; or
(b) either party's making an assignment for the benefit of
creditors; or
(c) either party's dissolution, this Agreement shall terminate
immediately without notice and shall be deemed to have been terminated
by the party not so affected and such termination shall not prejudice
or limit either party's remedies.
6.1.4 Duties Upon Termination. Upon any termination or expiration of this
Agreement:
(i) all licenses made to Komag and Maxtor under this Agreement shall
be terminated according to their terms effective the date of the termination or
expiration;
(ii) all trademarks, patents, designs, drawings, formulas or other
data, photographs, samples, literature, and sales aids of every kind received
from or belonging to Maxtor and Komag shall remain the respective property of
Maxtor and Komag, and both parties shall prepare all such items in its
possession with reasonable promptness for shipment to the other at the others
expense;
(iii) neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of the loss of
prospective profits or anticipated sales or on account of expenditures,
investments, leases or commitments in connection with the business or good will
of Maxtor or Komag, or for any other reason growing out of such termination; and
(iv) any Orders placed before such expiration or termination shall be
completed according to the terms of this Agreement.
6.1.5 Survival. The terms of this Agreement which by their nature may survive
the termination or expiration of this Agreement shall survive the termination or
expiration of this Agreement.
6.2 GENERAL.
6.2.1 Assignment. Komag shall not transfer or assign this Agreement or any of
its rights or obligations under this Agreement directly or indirectly including
without limit in the cases of merger, acquisition of greater then fifty percent
(50%) ownership or control interest in Komag by any party, or sale of Komag's
assets, without the prior written consent of Maxtor, which consent shall be
granted, so long as Maxtor is satisfied that any such assignment, merger,
acquisition, or change of ownership or control shall result in a commitment and
capacity to continue Komag's management, technology, operations, and financing,
and meet Komag's commitments to Maxtor.
Further, in the event Komag or its assets are acquired by or become
controlled by an HDD supplier, Maxtor has the right to terminate this Agreement
without penalty or payment of any sort or to seek such assurances or contractual
terms and conditions as it may deem necessary to protect its interests. However,
notwithstanding the foregoing, any Order shall not be cancelled or reduced by
Komag.
Further, in the event Komag or its assets are acquired by another
Maxtor media supplier, Maxtor has the right to limit its total purchases from
the combined entity, notwithstanding any forecasts, orders, or commitments to
either party. However, notwithstanding the foregoing, any Order shall not be
cancelled or reduced by Komag.
Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties, their
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successors and assigns. Any purported assignment of this Agreement by Komag
without the prior written consent of Maxtor shall be void.
Komag shall give Maxtor at least ninety (90) days prior written notice
of any known or planned change in ownership or majority control of Komag, or any
of Komag's subsidiaries, including but not limited to changes in shareholder
ownership of sufficient magnitude to require SEC filings of any type, except in
cases of Form 4 sales involving less than five percent (5%) of the seller's
holdings in Komag.
6.2.2 Audit. Maxtor shall have the right, by itself or by a mutually acceptable
third person auditor, to examine and audit Komag's records related to its
performances hereunder at any time during normal business hours upon three (3)
days notice to Komag to ensure compliance with this Agreement. Komag shall
maintain its records relating to this Agreement for seven (7) years.
Komag shall provide Maxtor financial information in the form of all SEC
documents required to be filed by Komag each quarter. If Komag becomes a private
company, and/or is de-listed from its stock exchange for any reason, Komag shall
provide to Maxtor equivalent documentation.
6.2.3 Consents. No consent required to be given under this Agreement shall be
unreasonably withheld or delayed.
6.2.4 Counterparts. This Agreement shall be prepared in two identical and
original counterparts and both of which together shall be one and the same
instrument and either of which may be used for purposes of proof.
6.2.5 Cumulation of Remedies. All remedies available to either party under this
Agreement are cumulative and may be exercised concurrently or separately, and
the exercise of any one remedy shall not be deemed an election of such remedy to
the exclusion of other remedies.
6.2.6 Independent Parties. Persons furnished by each party for performances
under or related to this Agreement shall be solely the employees or agent of
such party and shall be under the sole and exclusive direction and control of
the furnishing party. They shall not be considered employees of the other party
for any purpose. Each party shall also be solely responsible for payment of
taxes, including federal, state and municipal taxes, chargeable or assessed with
respect to its employees, such as social security, unemployment, worker's
compensation, liability insurance and federal and state withholding. Each party
shall indemnify the other for any loss, damage, liability, claim, demand or
penalty including costs, expenses, and reasonable attorneys' fees assessed
against one party that may be sustained by reasons of the other party's failure
to comply with the provisions of this Section.
Neither Party, nor its employees, officers, directors, or agents, shall
hold itself out as the agent, employee, partner, or joint venture of the other
party, and shall make no commitment or engagement on the account of or on behalf
of the other party. Each party shall remain an independent contractor and shall
be responsible for compliance with all laws, rules and regulations involving,
but not limited to, employment of labor, hours of labor, health and safety,
working conditions and payment of wages.
6.2.7 Force Majeure. Nonperformance of either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
nonperforming party. In the event of any delay caused by such contingency, the
delayed party may defer any performance or delivery prevented by the force
majeure condition for a period equal to the time lost by reason of such delay,
provided, however, that the delayed party promptly commences and reasonably and
diligently pursues actions to cure or circumvent such cause.
Whenever any cause delays or threatens to delay the timely performance
of this Agreement, Komag shall immediately notify Maxtor of all relevant
information with respect to such cause.
If either Party is delayed in any performance under the terms of this
Agreement by more than thirty (30) days, the other Party may terminate the
delayed performance or this Agreement and such termination shall not be a breach
of this Agreement and shall be without penalty.
6.2.8 Governing Language. English shall be the language of this Agreement and
the English language shall govern all disputes, performance and interpretations.
6.2.9 Headings. The descriptive headings of the several Articles and Sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement and shall not affect the interpretation of this Agreement.
6.2.10. Joint Work Product. The parties further acknowledge that they have
thoroughly reviewed this Agreement and bargained over its terms and that for
convenience, Maxtor has written down the terms of this Agreement. Accordingly,
this Agreement shall be construed without regard to the party or parties
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responsible for its preparation and shall be deemed to have been prepared
jointly by the parties.
6.2.11 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be sufficiently given if
delivered by hand or if sent by courier with a receipt requested or by
registered air mail, postage prepaid, addressed to Maxtor or to Komag, as the
case may be, at the addresses first set forth above or to such other address as
may be furnished for such purpose by notice duly given under this Agreement.
Such notice shall be deemed to have been given when delivered by hand or when
delivered by the courier or by mail. Any party may change its address for such
communications by giving such notice to the other party in conformance with this
section.
6.2.12 Severance. If any provision of this Agreement is held to be invalid by a
court of competent jurisdiction, then the remaining provisions shall
nevertheless remain in full force and effect. The parties agree to renegotiate
any term held invalid and to be bound by the mutually agreed substitute
provisions.
6.2.13 Time. Time is of the essence in all performances hereunder. The words
day, month, year, and the like shall mean calendar day, month, year and the like
unless expressly provided to the contrary. References to quarter shall refer to
Maxtor's fiscal quarter unless expressly stated otherwise.
6.2.14 Waiver. The failure of any party to this Agreement at any time or times
to require performance of any provision of this Agreement shall in no manner
affect such party's available remedies or right at a later time to enforce the
same. No waiver by any party of any condition, or of the breach of any term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise (in any one or more instances) shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
of any remedy or as a waiver of any other condition or as a breach of any other
term, covenant, representation or warranty of this Agreement.
6.3 ENTIRE AGREEMENT. The terms and conditions of this Agreement are the entire
agreement between the parties and supersede all previous agreements, proposals,
and understandings, whether oral or written, between the parties with respect to
the subject matter of this Agreement and no agreement or understanding varying
or extending the same shall be binding upon either party unless in a written
document signed by both parties. This Agreement shall supersede all inconsistent
or additional terms contained in any purchase orders, sale acknowledgments,
invoices, or other similar documents delivered by the parties.
THIS AGREEMENT REQUIRES THAT DISPUTES BE SETTLED BY BINDING ARBITRATION.
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In witness whereof, the Parties have executed this Agreement as of the Effective
Date:
MAXTOR CORPORATION KOMAG, INC.
By: /s/ XXXXX XXXXXX By: /s/ XXXX XXXXXX
-------------------------------- ----------------------------
(signature) (signature)
Xxxxx Xxxxxx Xxxx Xxxxxx
----------------------------------- -------------------------------
(print name) (print name)
Senior Vice President President and
Worldwide Materials Chief Technical Officer
& Chief Procurement Officer -------------------------------
----------------------------------- (title)
(title)
The terms and conditions of this Agreement and its Exhibits which apply to Komag
Malaysia are acknowledged and agreed to by
KOMAG USA (MALAYSIA), Sdn
By: /S/ XXX XXXXXX
--------------------------------
(signature)
Xxx Xxxxxx
-----------------------------------
(print name)
Vice President
& Managing Director
Malaysian Operations
-----------------------------------
(title)
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EXHIBIT A
Maxtor Specifications
[*]
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EXHIBIT B
Komag Expansion Pricing Matrix
[*]
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EXHIBIT C
Komag Process Improvement Plans Reflected in Exhibit B Prices
[*]
MAXTOR CONFIDENTIAL 21
