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Sample Business Contracts

Custom Sales Agreement - International Business Machines Corp. and Apple Computer Inc.

CUSTOM SALES AGREEMENT

BASE AGREEMENT

Agreement No.  000451

This Custom Sales Agreement between Apple Computer, Inc. (“Apple”) and International Business Machines Corporation (“IBM”), which consists of this Base Agreement and Statement of Work Attachments, shall be referred to as the “Agreement”.  The term of this Agreement commences on October 21, 2002 and expires on October 20, 2007.

By signing below, the parties each agree to be bound by the terms and conditions of this Agreement including the initial Statements of Work, Attachments No. 1 and No. 2, and no additional signature on those Statements of Work are required.  Subsequent Statement of Work Attachments under this Agreement must be signed by the parties to become effective.

Upon signature by both parties, it is agreed this Agreement constitutes the complete and exclusive agreement between them superseding all contemporaneous or prior agreements, written or oral, relating to the subject matter notwithstanding anything contained in any document issued by either party, except the Confidentiality Agreement (Mutual), Agreement No. X1329, as amended, signed by IBM and Apple with an effective date of April 1, 1999.  This Agreement may not be amended or modified except by a written amendment signed by duly authorized signatories of both parties.

The parties expressly acknowledge that they have received and are in possession of a copy of any referenced item not physically attached to the Agreement and any such item will be treated as if attached.

Accepted and Agreed To:

1.0           DEFINITIONS

Capitalized terms in this Agreement have the following meanings.  An Attachment may define additional terms and conditions; however, those terms and conditions will apply only to that Attachment.  References in this Agreement to a gender include references to all genders, and references to the singular include references to the plural, and vice versa.  Unless the context otherwise requires, the term “party” means a party to this Agreement.  The words “include”, “includes” and “including”, when used in this Agreement shall be deemed to be followed by the phrase “without limitation.”  Unless the context otherwise requires, references in this Agreement to sections, exhibits, schedules, appendices and attachments shall be deemed references to sections of, and exhibits, schedules, appendices and attachments to this Agreement.  Unless the context otherwise requires, the word “or” shall be disjunctive and the words “hereof”, “hereby” and “herein” and words of similar meaning when used in this Agreement shall refer to this Agreement in its entirety and not to any particular article, section or provision of such Agreement.  Unless the context otherwise requires, references to “IBM, and its Plant” shall be read to include “as the case may be.”

1.1           “ASIC Products” means a custom Product that is an application specific integrated circuit.

1.2           “Authorized Purchaser” means the entity that placed (or, in the case of Apple, had a Designee place) the Purchase Order for particular Products or Services, provided such entity is (i) Apple, (ii) any of Apple’s wholly-owned Subsidiaries, including Apple Computer International and Apple Computer Limited, or (iii) another Apple-Related Company authorized to place Purchase Orders under this Agreement as set forth in Section 2.4, below, and not a Designee or any other third party.

1.3           “Base Agreement” means this document, exclusive of Statement of Work Attachments.

1.4           “Business Days” means a regularly scheduled day of work in the United States for both Apple and IBM.

1.5           “Designee” means an original equipment manufacturer, contract manufacturer or other third party engaged by Apple or an Apple-Related Company to manufacture Apple-branded products or subassemblies for Apple-branded products and authorized by Apple, pursuant to Section 2.5, below, to purchase Products and perform other tasks on Apple’s behalf.

1.6           “Exhibit 4 Products” means those specific Products set forth on the attached Exhibit 4, including those in its footnotes.

1.7           “Failed Units” means specific units of a particular Exhibit 4 Product, or any other ASIC Product that the parties may agree to treat in a similar manner, sold hereunder that exhibited a Failure or can be predicted with a reasonable certainty to exhibit a Failure prior to the expiration of the [**] commencing on the date such units were manufactured.

1.8           “Failure” means that the unit of Exhibit 4 Product or the unit of any other ASIC Product that the parties may agree to treat in a similar manner does not operate in conformance with the agreed upon (in writing) specifications (in ASIC Products, such specifications will be set forth in the RTM as that term is defined in the ASIC Development Agreement, Agreement No. 000798) and [**] and which reasonably could not have been detected by Apple through system, subsystem, and part testing activities which are no less thorough than (i) for both the ASIC and PowerPC Exhibit 4 Products, those testing activities generally conducted by Apple but not less thorough than those testing activities generally conducted by other personal computer manufacturers (but not microprocessor  manufacturers) in the industry, or (ii) for PowerPC Exhibit 4 Products, after a test specification is agreed upon by IBM and Apple pursuant to Section 14.1 of this Agreement, those testing activities to be conducted by Apple as described in such test specification.

1.9           “Failure Threshold.”  For each Exhibit 4 Product, or any other ASIC Product that the parties may agree to treat in a similar manner, sold under this Agreement, the Failure Threshold shall be [**] of the total number of units of the particular Product manufactured [**] and shipped by IBM.

1.10         “Forecast” means a non-binding monthly forecast in substantially the same format shown in Exhibit 3 specifying the number of Products Apple anticipates that its Authorized Purchasers and Designees will purchase from IBM each month during the specified period.

1.11         “Item” means any part, specification, design, document, report, data or the like which Apple delivers to IBM under this Agreement.

1.12         “Plant” means the IBM-Related Company described in Section 2.6.

1.13         “PowerPC Product” means a stand-alone microprocessor Product based on the PowerPC Architecture.

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

1.14         “Product” means production units to be sold or purchased under this Agreement, including the Exhibit 4 Products.  Products may be “standard” (available for purchase by one or more customers other than Apple) or “custom” (resulting from IBM performing Services for Apple under this Agreement and not available for IBM’s own use (other than ordinary manufacturing activities) or for purchase by any other customer).  Standard Products may include, but not necessarily be limited to, PowerPC Products and SRAM Products.  Custom Products may include, but not necessarily be limited to, PowerPC Products and ASIC Products.  Product shall be designated as “standard” or “custom” in the Attachment applicable to such Product.  Products shall not include Prototypes.

1.15         “Prototype” means a preliminary version of an ASIC Product which may or may not be functional, is intended for internal use and testing and not for resale, and is not suitable for production in commercial quantities.  The terms and conditions relating to Prototypes are set forth in the ASIC Development Agreement, Agreement No. 000798, signed by the parties on September 26, 2001.

1.16         “Purchase Order” means a written order containing the terms set forth in Section 3.2, below, issued by an Authorized Purchaser or Designee pursuant to this Agreement.

1.17         “Purchase Order Lead Time” means the required minimum amount of time between IBM’s receipt of the Purchase Order and the Scheduled Shipment Date.  Purchase Order Lead Times will be established for each Product sold hereunder and shall be set forth in the Attachment hereto which is applicable to such Product.

1.18         “Related Company” of a party hereunder shall mean a corporation, company or other entity which controls or is controlled by such party or by another Related Company of such party, where control means ownership or control, direct or indirect, of more than fifty (50) percent of:  (i) the outstanding voting shares or securities (representing the right to vote for the election of directors or managing authority), or (ii) the ownership interests representing the right to make decisions for such a corporation, company or other entity (as the case may be in a partnership, joint venture or unincorporated association having no outstanding shares or securities).  However, any such corporation, company or other entity shall be deemed to be a Related Company of such party only so long as such ownership or control exists.

1.19         “Related Company Agreement” means the agreement to be executed by the parties and by the Authorized Purchaser in the form attached hereto as Exhibit 1.

1.20         “Sales Acknowledgment” means a written sales acknowledgment or other acceptance document issued by IBM or its Plant in response to a Purchase Order.

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

1.21         “Scheduled Shipment Date” means:  [**] and (iii) in either case, if later rescheduled by the Authorized Purchaser or Designee pursuant to Section 5.3, below, the rescheduled date.

1.22         “Service” means any design or engineering work that IBM performs pursuant to this Agreement.

2.0           AGREEMENT STRUCTURE

2.1           This Agreement consists of:  (i) the Base Agreement which defines the basic terms and conditions of the relationship between the parties; and (ii) Attachments which specify the details of specific work tasks (Services) or Products.  An Attachment may include additional or differing terms and conditions from the Base Agreement, however such terms and conditions will apply only to that Attachment.  Attachments may also include any specifications agreed to by the parties applicable to the specific work tasks (Services) or Product under that Attachment.

2.2           If there is a conflict or ambiguity among the terms and conditions of the various documents, Attachment terms and conditions govern only as to the Attachment.

2.3           Except for Product part numbers, Product descriptions (e.g. 1 GHz microprocessor), prices, quantities, bill-to locations, ship-to locations, shipping instructions (limited to preferred carrier, carrier account number, and expedited shipping method, if any), and Scheduled Shipment Dates, any other terms and conditions on Purchase Orders and Sales Acknowledgements are void and replaced by this Agreement.

2.4           Apple and its wholly-owned subsidiaries, including Apple Computer International and Apple Computer Limited, may issue Purchase Orders for Products and Services under this Agreement.  Either party may include its other Related Companies under this Agreement by prior written agreement with the other party.  Apple will cause any wholly-owned subsidiary or Related Company purchasing Product under this Agreement to execute a Related Company Agreement with Apple and IBM binding them to the terms and conditions of this Agreement.

2.5           Apple may, in a writing provided to IBM, name one or more agents who are authorized by Apple to issue Purchase Orders for Products with Apple part numbers, receive, reschedule or cancel deliveries of such Products ordered pursuant to such Purchase Orders, process warranty claims related to such Products and pay for such Products and any associated freight costs (“Designees”).  Designees are not authorized to act for Apple in any other capacity or to bind Apple in any other respect whatsoever.  Apple may disclose to its Designees those terms and conditions of this Agreement specifically set forth in Exhibit 2, hereto, and each party agrees that it will not disclose any other terms or conditions of this Agreement to any Designee without the other’s prior written consent.  Apple represents and warrants that before giving notice to IBM

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

appointing a Designee, Apple will have executed an appropriate agreement with such Designee establishing the limited agency described in this Section, establishing that the Designee is not a third party beneficiary of this Agreement, protecting the confidentiality of any terms or conditions of this Agreement that Apple may disclose to the Designee pursuant to this Section, as well as any Confidential Information (as that term is defined in the Confidentiality Agreement (Mutual), Agreement No. X1329, as amended, signed by IBM and Apple with an effective date of April 1, 1999) that may be disclosed to the Designee, and securing such Designee’s agreement to be bound to those terms and conditions set forth in Exhibit 2.  No Designee may receive Confidential Information prior to executing an agreement with the party disclosing the Confidential Information to the Designee, such agreement including restrictions on nondisclosure and nonuse at least as stringent as those restrictions in Agreement No. X1329.  Each Designee shall be subject to all of the obligations and responsibilities of “Apple” under this Agreement with respect to the terms and conditions in Exhibit 2.  Apple, not its Designee, will remain responsible for fulfilling all of its other obligations under the Agreement not delegated to such Designee pursuant to this Section.  Should any Designee fail to pay an invoice from IBM or a Plant within fifteen (15) days after IBM provided written notice to the Designee and to Apple that such invoice was overdue, IBM will provide Apple written notice of such Designee’s continued failure to so pay, and Apple agrees to pay, or cause the Designee to pay, in full, all of such sums due and unpaid, together with interest from the date payment was due from the Designee, within thirty (30) days after receipt of said later notice.  IBM will not be obligated to exhaust remedies against any Designee for breach of any of its obligations before seeking enforcement directly against Apple except as expressly set forth in this Section.  Apple shall hold harmless IBM from and against any and all claims or actions of any kind made by any Designee against IBM, which claims or actions in any way arise out of or are related to any such Designee’s role hereunder or Apple’s termination of such role.  Apple may withdraw a Designee by providing IBM ten (10) days prior written notice; and thereafter (i) the Designee will no longer be authorized to purchase Product on Apple’s behalf or perform any other of the tasks described in this Section, and (ii) Apple will either cancel any open Purchase Orders placed on its behalf by such withdrawn Designee and pay any applicable cancellation charges therefor or take delivery of and pay for any Products covered by such Purchase Orders.

2.6           Notwithstanding any other provision hereof, for US sales (sales for which IBM ships to the Authorized Purchaser or Designee and title transfers within the United States), the contract of sale for Products purchased under this Agreement will be between IBM and the Authorized Purchaser or, in the case of Designees, Apple.  For non-U.S. sales (sales for which IBM ships to the Authorized Purchaser or Designee with shipment and title transfer outside of the United States), the contract of sale for Products purchased under this Agreement will be between the IBM Related Company that will supply the Products (“the Plant”) and the Authorized Purchaser or, in the case of Designees, Apple, as the case may be.  It is agreed that all such Purchase Orders will incorporate the terms and conditions of this Agreement whether expressly referenced or not and will only be accepted subject to the terms and conditions of this Agreement.  Purchase Orders will be accepted by the Plant when it issues the Sales Acknowledgment accepting the Purchase Order, thereby creating the contract of sale for the Products.  Apple reserves the right to

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

enforce the provisions of this Agreement on behalf of its Authorized Purchasers and IBM reserves the right to enforce the provisions of this Agreement on behalf of its Plant(s) and any other IBM-Related Companies added to this Agreement.  IBM represents and warrants that it has and will have, throughout the term of this Agreement, an agreement with the Plant, wherein the Plant agrees to be bound to the terms and conditions set forth in IBM’s sales agreements for IBM Microelectronics Division products.

2.7           Any purchase order submitted by an Authorized Purchaser or Designee during the term of this Agreement (whether or not it references this Agreement) for products or services from IBM’s Microelectronics Division shall be subject to and governed by the terms and conditions of this Agreement, unless:  (i) there is another signed, written agreement in place between IBM and Apple with respect to the subject matter of such purchase order; or (ii) the product or service was ordered by a Designee for use in or in connection with its own or another customer’s product and not in an Apple-branded product.  The foregoing shall be in effect regardless of whether Apple and IBM have executed any Attachment specific to the Products, or Services ordered.  If no such Attachment has been executed, then the terms and conditions of the Attachment most recently executed by Apple and IBM shall control, except with respect to those matters which are uniquely applicable to the specific Product or Service in question (such as specific NRE charges, Product pricing, specific Items and IBM deliverables, Product names and descriptions, Purchase Order Lead Times, and Forecasts).

3.0           PRODUCT DEMAND FORECASTS AND ORDERS

3.1           At or before execution of the Agreement and each month during the term of the Agreement, on or before the last Business Day of the month, Apple will provide IBM an [**] rolling Forecast of Apple’s and its Authorized Purchasers’ requirements for Exhibit 4 Products and any other ASIC Products that the parties may agree to treat in a similar manner, the first month of the Forecast being the month following that month in which the Forecast is placed.  [**]  If Apple discovers an error or omission in an accepted Forecast, Apple may submit a corrected Forecast; such corrected Forecast will be deemed accepted provided it meets the volume requirements described above and was submitted by the tenth (10^th) day of the first month in the Forecast.  If IBM becomes concerned that Apple’s Forecasts are inaccurate, IBM may escalate that concern to the Apple executive designated for such purpose pursuant to Section 21.2.  Forecasts shall constitute good faith estimates of Apple’s anticipated requirements for Products but shall not obligate Apple or any Authorized Purchaser or Designee to purchase the forecasted units.

3.2           IBM will accept Purchase Orders for Products or Services placed by an Authorized Purchaser or Designee in accordance with the terms and conditions of this Agreement.  Purchase Orders will specify (i) the Purchase Order number, (ii) the Authorized Purchaser’s or Designee’s tax status (exempt or non-exempt), (iii) the ship-to location, (iv) the bill-to location, (v) the order-from location, (vi) shipping instructions (including preferred carrier and carrier account

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

number), (vii) requested shipment dates, (viii) the name of the Authorized Purchaser’s or Designee’s contact, (ix) Product part numbers and the quantity ordered (in increments of the Minimum Order Quantity (“MOQ”),  (x) the applicable unit price, and (xi) the agreement number of this Agreement.  Additionally, Purchase Orders placed by a Designee shall clearly state that such Designee is purchasing “as the agent of Apple Computer, Inc.”  Purchase Order Lead Times and any applicable MOQ’s will be as set forth in the relevant Attachment.

3.3           IBM and its Plants will respond promptly regarding all Purchase Orders placed under this Agreement, providing a Sales Acknowledgment accepting or rejecting the Purchase Order within [**] Business Days after receipt of any Purchase Order placed with the requisite Purchase Order Lead Time and within [**] Business Days after receipt of any Purchase Order placed with less than the requisite Purchase Order Lead Time.  Purchase Orders for Exhibit 4 Products and any other ASIC Product that the parties may agree to treat in a similar manner may be rejected by IBM or its Plant only if:

(i)            the entity placing the Purchase Order is not an Authorized Purchaser or Designee;

(ii)           the Purchase Order does not comply with the terms and conditions of this Agreement;

(iii)          the Purchase Order exceeds Apple’s current credit-limit established pursuant to Section 6.3, below;

(iv)          [**];

(v)           IBM has provided notice to Apple pursuant to Section 3.5 that it no longer intends to manufacture such Product or Service and the Purchase Order requests delivery after the end of the period identified in Section 3.5;

(vi)         the Purchase Order is placed with less than the requisite Purchase Order Lead Time; or

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

(vii)         the Purchase Order requests shipment of a PowerPC Product with a specified frequency that exceeds the then available product frequencies as set forth in Exhibit 4.

If IBM rejects a Purchase Order for any of the above-stated reasons, IBM will provide Apple with prompt written notice of such rejection, and Apple may escalate the discussions to the IBM executive designated for such purpose pursuant to Section 21.2.

3.4           IBM will specify the Scheduled Shipment Date for the Products ordered in the applicable Sales Acknowledgment.  [**]

3.5           Nothing herein shall prevent IBM from discontinuing the manufacture of a particular Product.  In the event that IBM decides to do so, however, IBM will provide Apple with at least [**] written notice before it discontinues any Product.  IBM will be obligated to accept and fulfill all orders for such Products placed by an Authorized Purchaser or Designee within the [**] notice period, except to the extent IBM does not have manufacturing capacity available to manufacture quantities ordered [**].  Apple must take final delivery of all Products ordered pursuant to this Section during the [**] notice period [**] unless IBM in its sole discretion extends the last date of delivery in order to allow for the manufacture of quantities [**]. To the extent IBM accepts Purchase Orders issued pursuant to this Section for quantities in excess of [**], IBM shall not be obligated under Section 3.3 to respond to such Purchase Order within [**] Business Days, [**]  This Section 3.5 shall not apply to any products sold or manufactured by IBM as of the date of the Agreement other than those Products set forth in an Attachment.

4.0           DELIVERY

4.1           The Authorized Purchaser or Designee is responsible for all freight and duty charges from IBM’s shipping location.  Title and risk of loss will pass to the Authorized Purchaser or Designee upon tender to the carrier for shipment to such Authorized Purchaser or Designee.

4.2           In the event that IBM and Apple enter into an agreement to provide just-in-time delivery of Product utilizing hub locations, such agreement will be set forth in a separate written agreement as an attachment to this Agreement and signed by each party.

4.3           If IBM or its Plant foresees any supply constraint with respect to an accepted Purchase Order, IBM will provide prompt notice to Apple and, if the Purchase Order was placed by someone other than Apple, to the Authorized Purchaser or Designee who placed the Purchase Order.  Apple and IBM will then discuss likely shipment recovery plans, and if they are unable to do so to Apple’s satisfaction, the parties will immediately escalate the issue to the IBM and Apple executives designated for such purpose pursuant to Section 21.2 and the parties will use reasonable efforts to promptly resolve the discrepancy.  If IBM’s supply of the Product and / or

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

Services ordered by Authorized Purchasers or Designees and accepted by IBM hereunder becomes constrained [**] IBM may reduce the quantities of Products and / or Services to be supplied to Authorized Purchasers or Designees [**].

4.4           If IBM or its Plant foresees any delivery delay with respect to an accepted Purchase Order, IBM will provide prompt notice to Apple and, if the Purchase Order was placed by someone other than Apple, to the Authorized Purchaser or Designee who placed the Purchase Order.  Apple and IBM will then discuss likely shipment recovery plans, and if they are unable to do so to Apple’s satisfaction, the parties will immediately escalate the issue to the IBM and Apple executives designated for such purpose pursuant to Section 21.2 and the parties will use reasonable efforts to promptly resolve the delay. [**]

5.0           CANCELLATION AND RESCHEDULING

5.1           Cancellation.  Authorized Purchasers and Designees may cancel accepted Purchase Orders for Products for their convenience at any time, provided they pay IBM or its Plant applicable cancellation charges as set forth in this Section 5.1.

5.1.1        Exhibit 4 Products.  Authorized Purchasers and Designees may cancel Purchase Orders for Exhibit 4 Products (and any other ASIC Product that the parties may agree to treat in a similar manner) without charge, provided they give IBM written notice [**] days prior to the original Scheduled Shipment Date.  If the Authorized Purchaser or Designee provides IBM written notice canceling a Purchase Order for such Products [**] days prior to the original Scheduled Shipment Date, the Authorized Purchaser or Designee will pay IBM [**] of the purchase price of the Products ordered.  Promptly after receiving notice canceling a Purchase Order for Exhibit 4 Products, IBM will provide Apple and the Authorized Purchaser or Designee who placed the Purchase Order written notice of any applicable cancellation charges.  The Authorized Purchaser or Designee will promptly after receiving IBM’s notice, issue a Purchase Order to IBM for such charges, and IBM will invoice the same upon receipt.  Neither Apple nor the Authorized Purchaser will be liable for any other fees or costs not expressly set forth in this Section when canceling a Purchaser Order for Exhibit 4 Products.

                5.1.2        Other Products.  If the Authorized Purchaser or Designee provides IBM written notice canceling a Purchase Order for any other Product, the party canceling the Purchase

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

Order shall pay the cancellation charges set forth in the applicable Product Attachment.  IBM will provide Apple and the Authorized Purchaser or Designee who placed the Purchase Order prompt written notice of any applicable cancellation charges.  The Authorized Purchaser or Designee canceling the Purchaser Order will, upon receipt of IBM’s written notice, promptly issue a Purchase Order to IBM for such charges and IBM will invoice the same upon receipt.  Neither Apple nor the Authorized Purchaser will be liable for any other fees or costs except those expressly set forth in this Section when canceling a Purchase Order for other Products.

5.2           If an Authorized Purchaser or Designee cancels a Purchase Order for Services for its convenience, IBM will cease further work in connection with the Purchase Order and the Authorized Purchaser or Designee will pay IBM for reasonable costs actually incurred by IBM pursuant to such Purchase Order before the Authorized Purchaser or Designee’s notice of cancellation.  IBM must make its claim for cancellation charges and provide supporting documentation within forty-five (45) days of the date of cancellation.  Any claim not made within such forty-five (45) day period will be deemed waived.  In the event IBM is more than twenty-one (21) days late in completing a Purchase Order for Services, the Authorized Purchaser or Designee may cancel such Purchase Order and the Authorized Purchaser or Designee’s sole obligation will be to pay IBM for any deliverables ordered pursuant to that Purchase Order that were actually completed or delivered by IBM before the Authorized Purchaser or Designee’s notice of cancellation, provided that any periods of such delay that were caused by the Authorized Purchaser or Designee shall be excluded for purposes of calculating the length of the delay hereunder.

5.3           Rescheduling.  The Authorized Purchaser or Designee may reschedule accepted Purchase Orders for Products in accordance with this Section 5.3.

5.3.1                        Exhibit 4 Products.  The Authorized Purchaser or Designee may reschedule a Scheduled Shipment Date for an Exhibit 4 Product or any other ASIC Product that the parties may agree to treat in a similar manner to a later date provided:  (i) it sends IBM or its Plant written notice of the request to reschedule; (ii) the Product being rescheduled has not yet been shipped; and (iii) the requested rescheduled shipment date is within [**] after the original Scheduled Shipment Date.  If the foregoing requirements are met, [**] will be imposed by IBM or its Plant for rescheduling.

5.3.2                        Other Products.  The Authorized Purchaser or Designee may reschedule an order for any other Product to a later date only upon prior written notice to IBM and as set forth in the applicable Product Attachment.  In the event of a reschedule which exceeds the rescheduling rights set forth in the applicable Attachment, IBM may invoice the Authorized Purchaser or Designee the quoted price for any Products

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

that were delivered or ready for shipment pursuant to that Purchase Order on the date the Authorized Purchaser’s or Designee’s notice was received by IBM or its Plant, and the cancellation charges set forth in the applicable Attachment for any Products on that Purchase Order that were not already delivered or ready for shipment when IBM or its Plant received such notice.

5.4           Product Remix without Charge.  Apple and its Authorized Purchasers and Designees may request that IBM or its Plant ship a different mix of Products than those originally ordered.  IBM or its Plant will agree to do so without charge provided:  (i) Apple, the Authorized Purchaser or the Designee gives written notice to IBM or its Plant, as the case may be, at least [**] before the Scheduled Shipment Date;  (ii) all substituted Products are within the same Product-family as those originally ordered.  Products that utilize the same design revision, materials and manufacturing process from wafer start to module final test are within the same Product-family; (iii) the total number of units ordered remains the same; (iv) the change will not have any significant negative manufacturing or financial impact to IBM or its Plant in IBM or its Plant’s sole and reasonable judgment; and (v) subject to availability of Products that permit the requested remixing.  Changes that do not meet the requirements of this Section may be accepted for similar treatment in IBM’s or its Plant’s sole discretion.  If IBM or its Plant agrees to change an order as described in this Section, as a condition of obtaining such agreement, the Authorized Purchaser or Designee will promptly cancel the original Purchase Order without incurring any cancellation or other charge and place a new one for the modified Product mix.

6.0           PRICES AND PAYMENT

6.1           Exhibit 4 Products.   Prices for the Exhibit 4 Products will be as set forth in the attached Exhibit 5.

6.2           Other Products and Services.   Prices for Products and Services not set forth in Exhibit 4 shall be as set forth in either (i) the Sales Acknowledgment and accepted Purchase Order, provided the price in both is the same, or (ii) the applicable Attachment (as the same may be amended from time to time), or (iii) the most recent uncontested notice, as set forth below.  If there is a conflict between the prices set forth in (i), (ii) and (iii), the prices in the most recent document(s) will govern.  IBM and Apple will review prices for Products on a quarterly basis at least thirty (30) days prior to the start of each calendar quarter.  If the parties agree to revise prices during a quarterly review, IBM will document that agreement in a written communication to Apple, and, unless Apple contests the documentation in writing within three (3) Business Days after receiving IBM’s written communication, the revised prices in such written communication will be deemed effective as of the first Business Day of the applicable calendar quarter and will apply to any Products originally scheduled for shipment during that quarter.  For purposes of this section, e-mail transmissions shall be considered valid written notification.   If the parties are unable to agree on revised prices, the most recent prices, as set forth in the applicable

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

Attachment, Sales Acknowledgment and accepted Purchase Order, as appropriate, or uncontested written notice from IBM, will be used until such time as the parties agree differently.

6.3           Invoices and Payments.  IBM or its Plant shall invoice the Authorized Purchaser or Designee after the Products have been shipped, or the Services provided.  Payment will be due within thirty (30) days after the date of invoice.  Late payment of invoices may be assessed a charge equal to the lesser of one and one-half percent (1.5%) per month or the statutorily maximum rate of interest in accordance with the laws of the State of New York.  In addition, if an Authorized Purchaser or Designee’s account balance exceeds Apple’s credit limit with IBM, or becomes delinquent, IBM may stop shipments to the Authorized Purchaser or Designee or ship to such party on a prepaid basis until the account is compliant.

6.4           Credit Limits.  At any time, Apple may request that IBM disclose the credit limit that IBM’s Microelectronics’ Division is then willing to extend to Apple and the aggregate amounts then outstanding against such credit limit.  IBM will respond promptly.  IBM will notify Apple within one (1) Business Day after any decrease of IBM’s credit limit for Apple.  IBM will decrease Apple’s credit limit only if IBM, in its sole and reasonable discretion, believes that there has been an increase in the risk of extending credit to Apple.

6.5           [**] Costs. IBM will be solely responsible for all [**] incurred in connection with [**] of the microprocessor Products set forth on Exhibit 4, and under no circumstances will Apple be liable to IBM for any such costs (except to the extent such costs were included in the agreed purchase price of a Product and Apple is liable for that purchase price pursuant to this Agreement without reference to this Section 6.5).

7.0           TERMINATION

7.1           If either party materially breaches a term or condition of this Base Agreement or an Attachment, the other party may, at its option, terminate this Agreement or any or all Attachments provided the party in breach is given written notice and fails to cure such breach within thirty days (30) days after the notice of termination, or immediately in the event of (i) insolvency, dissolution or liquidation by or against the other party,  (ii) any assignment of the other party’s assets for the benefit of creditors; (iii) any act or omission of an act by the other party demonstrating its inability to pay debts generally as they become due, or (iv) any transfer of substantially all of the other party’s business or assets to a third party, unless such transfer is effectuated in accordance with Section 21.4, below.

7.2           If IBM terminates pursuant to Section 7.1, at IBM’s sole discretion, all previously accepted Purchase Orders may be canceled and Apple shall pay (i) for any Products delivered or ready for shipment when the Agreement terminated, the full price determined in accordance with Section 6.1 or 6.2, as applicable; (ii) for any Products not delivered or ready for shipment when the Agreement terminated, the actual amount IBM paid for any long lead time materials authorized by Apple and procured in accordance with the terms and conditions of an applicable

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

Attachment or this Agreement and any applicable cancellation charges set forth in this Agreement or the Attachment for such Products (IBM agrees to attempt to mitigate any amounts payable by Apple for any long lead time materials through such means as use in other manufacturing activities or sale, if practicable); (iii) for any Services completed when the Agreement terminated, the full price determined in accordance with the applicable Attachment; and (iv) for any Services not delivered or completed when the Agreement terminated, the applicable cancellation charges determined in accordance with the applicable Attachment, or, if none, in accordance with Section 5.2 of this Agreement.  Under no circumstances will the total amount due for a Product or Services under (i), (ii), (iii), or (iv), above, exceed the full price for such Product or Service determined in accordance with Section 6.1 or 6.2, as applicable, and any applicable Attachment.

7.3           If Apple terminates pursuant to Section 7.1, at Apple’s discretion all previously accepted Purchase Orders may be canceled and no cancellation charges (including long-lead-time materials) will apply.

7.4           Apple may terminate this Agreement or any or all Attachments for convenience by providing written notice to IBM at least twelve (12) months before the termination date.  If Apple terminates this Agreement, or any or all Attachments, for its convenience, all previously accepted Purchase Orders will be filled, but IBM shall not be obligated to accept further Purchase Orders pursuant to the terminated Agreement or Attachment, as the case may be, after receiving notice of termination.

7.5           All amounts due for Products or Services under this Agreement shall be paid in accordance with the terms and conditions of this Agreement notwithstanding any termination of this Agreement for any reason, provided, however, that in the event this Agreement is terminated pursuant to Section 7.1 all amounts due and payable to the non-terminating party as of the date of such termination shall become immediately due and payable.

7.6           This Base Agreement will continue after its termination or expiration with respect to any Attachments already in place until they expire, or are terminated or performed.  Applicable Items shall be returned or disposed of as directed by Apple in writing at Apple’s expense after a termination or expiration of this Agreement or relevant Attachment.

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

8.0           CONFIDENTIAL INFORMATION

8.1           In the event IBM or Apple wishes to disclose specific confidential information to the other in connection with IBM furnishing Products and/or Services hereunder, such information shall be disclosed only pursuant to the terms and conditions of the Apple Computer, Inc. Confidentiality Agreement (Mutual), Agreement No. X1329, as amended, signed by IBM and Apple with an effective date of April 1, 1999, the current version of which, and all currently effective Amendments to the same, are attached hereto as Exhibit 6, or pursuant to the terms and conditions of another comparable confidential disclosure agreement. The parties agree to treat the terms and conditions of this Agreement as confidential information.

9.0           LICENSE

9.1           No license, immunity or other right is granted herein to any Authorized Purchaser or Designee whether directly or by implication, estoppel or otherwise, with respect to any patent, trademark, copyright, mask work, trade secret, utility, model, or know-how, or other intellectual property right of IBM.  Nothing herein shall abrogate any rights that may arise by operation of the patent exhaustion doctrine.

10.0         TRADEMARK

10.1         Nothing in this Agreement grants either party any rights to use the other party’s trademarks or trade names, directly or indirectly, in connection with any product, service, promotion, or to make any publication or publicity without prior written approval of the other party or trademark or trade name owner.

11.0         INTELLECTUAL PROPERTY AND INDEMNIFICATION

11.1         Neither party is required by this Agreement to knowingly infringe any valid patent or other intellectual property of a third party. If either party has reason to believe that any Item, Product or portion thereof infringes such an intellectual property right, it will promptly escalate its concern to the executive of the other party designated for such escalations pursuant to Section 21.2, and the parties will work together to make necessary changes or provide substitute Items or Products so as to avoid infringement.  IBM may stop shipments of all such Products without liability for failure to deliver a Product under this Agreement for up to [**] while IBM and Apple analyze the potential infringement and discuss whether shipments should resume.  If a Product becomes or is likely to become the subject of a claim covered by Section 11.2, below, IBM will, at its own expense: (i) obtain the rights and licenses necessary to permit Authorized Purchasers and Designees to continue to use and sell the Products consistent with this Agreement;

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

(ii) modify the Products so they are non-infringing and in compliance with this Agreement; (iii) replace the Products with non-infringing ones that comply with the Agreement; or (iv) at Apple’s request, accept the return of infringing Products and refund any amount paid.  [**]  If an Item provided to IBM hereunder becomes or is likely to become the subject of a claim covered by Section 11.3, below, IBM will provide Apple written notice advising Apple of such claim, and, [**] IBM may stop further shipment of Products incorporating that Item or portion thereof without liability for failure to deliver a Product under this Agreement unless Apple has demonstrated to IBM’s reasonable satisfaction that the Item does not infringe or has modified the Item so it is non-infringing, replaced the Item with a non-infringing Item, or obtained the rights and licenses necessary to permit IBM to continue to make, use and sell Products incorporating the Item consistent with this Agreement. If a court of law of competent jurisdiction determines that any Item, Product, or portion thereof infringes an intellectual property right of any third party: (i) either party may, in its sole discretion, terminate its obligations hereunder with respect to such Item and/or Product effective immediately upon written notice; and (ii) any payments [**] will be indemnified or reimbursed by Apple pursuant to Section 11.3, below.

11.2         At Apple’s request, IBM will defend any claim that a Product sold to an Authorized Purchaser or Designee or a Service provided by IBM or any of its Related Companies hereunder infringes a patent, copyright, or mask work right of a third party in any country in which IBM sells or provides similar products or services and IBM will indemnify and hold Apple and its Authorized Purchasers harmless from any damages assessed against them as a result of a final judgment of a court of competent jurisdiction, any settlement agreed upon by IBM in writing, and any costs or fees reasonably incurred by them (including but not limited to fees of attorneys and other professionals) that are attributable to such claim; PROVIDED THAT Apple: (i) promptly notifies IBM, in  writing, of  the charge of infringement; (ii) allows IBM to control and cooperates with IBM at IBM’s expense in the defense and any related settlement action; and (iii) upon the written request of IBM (a) allows IBM to modify or replace the Product in the Authorized Purchaser’s inventory at IBM’s expense, provided that modified or replaced product meets the applicable specifications for the Product being so modified or replaced (and returns any such Products being so modified or replaced to IBM), or (b) if option (a) is not reasonably available, returns the Product for a credit equal to the purchase price of such Product.  Such indemnification does not apply to the extent that the claim of infringement arises from (i) modifications to any Product or Service by Apple unless directed in writing by IBM, (ii) the combination, operation or use of a Product or Service with a product, data or apparatus not sold by IBM to Apple, unless the Product has no substantial non-infringing use or unless directed in writing by IBM, (iii) modifications made by IBM to Product sold to Authorized Purchasers and / or Designees and in compliance with Apple’s written specification(s), except for modifications made by IBM to standard Products; (iv) any Item that is incorporated into a particular Product or Service with Apple’s agreement as evidenced by Apple’s execution of the related RTM (as that term is defined in the ASIC Development Agreement, Agreement No. 000798), or (v) infringement by a non-IBM product alone, as opposed to its combination with Products IBM provides to Apple as a system (collectively referred to as “Apple-Indemnified Action”).

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

11.3         At IBM’s request, Apple will defend any claim that an Item provided by Apple to IBM hereunder infringes a patent, copyright, or mask work right of a third party in any country in which Apple sells or provides similar Items, products or services based on such Items, or products which include the Products or output from the Services, and Apple will indemnify and hold IBM harmless from any damages assessed against IBM as a result of a final judgment of a court of competent jurisdiction, any settlement agreed upon by Apple in writing, and any costs or fees reasonably incurred by IBM (including but not limited to fees of attorneys and other professionals) that are attributable to such claim; PROVIDED THAT IBM: (i) promptly notifies Apple, in writing, of the charge of infringement; (ii) allows Apple to control and cooperates with Apple at Apple’s expense in the defense and any related settlement action; and (iii) upon the written request of Apple, (a) allows Apple to modify or replace the Items in IBM’s possession at Apple’s expense provided that the modified or replaced Items meet the applicable specifications for the Items being so modified or replaced (and returns any such Items being so modified or replaced to Apple), or (b) if option (a) is not reasonably available, returns the Item to Apple provided that Apple pays any costs incurred by IBM in connection with reworking the Products or Services as a result of the replacement.  Such indemnification does not apply to the extent that the claim of infringement arises from (i) modifications to any Item by IBM unless directed in writing by Apple, (ii) the combination, operation or use of an Item with a product, data or apparatus not provided by Apple to IBM, unless the Item has no substantial non-infringing use or unless directed in writing by Apple, (iii) modifications to any Item, Product or Service made by Apple in compliance with IBM’s written specification(s), (iv) anything IBM provides that is incorporated into an Item with IBM’s agreement as evidenced by IBM’s execution of the related RTM (as that term is defined in the ASIC Development Agreement, Agreement No. 000798); (v) Items licensed to IBM pursuant to a separate agreement between the parties; or (vi) IBM’s use of an Item in a way not expressly permitted by this Agreement or in writing by Apple, which written agreement would be evidenced by Apple’s execution of the related RTM (as that term is defined in the ASIC Development Agreement, Agreement No. 000798).

11.4         Reference that Product Sales and Manufacturing Services Agreement, Base Agreement, Agreement No. IMD001 and Section 11.1 thereof, such Section 11.1 is incorporated herein by reference and hereby agreed to extend to and cover, to the extent implicated in that BIAX litigation (Civil Action No. 01-601-RRM(GMS)(MPT), currently pending in the United States District Court for the District of Delaware and any related action involving the same patents

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

hereafter filed), Product (as defined in Agreement No. IMD001) provided by IBM to Apple directly or indirectly through one or more other entities during the term of that agreement and through the date of commencement of this Agreement.  This Section 11.4 does not reduce or negate any other right or claim of indemnity that Apple may have under any of the above agreements or any other agreements or statute or common law without reference to this Section 11.4.

11.5         The foregoing as limited by Section 12.0 states the entire obligations and exclusive remedies of IBM and Apple regarding any third party claim of infringement relating to any Product sold or Service or Item provided hereunder or, as the case may have been, under that agreement referenced in Section 11.4.

12.0         LIMITATION OF LIABILITY

12.1         Neither party shall be entitled to special, indirect, incidental, consequential or punitive damages, including lost profits, opportunities or savings based on any breach or default of the other party, even if such party is informed of their possibility, except (i) [**], and (ii) to the extent such damages are awarded in a final judgment or settlement covered by Section 11.

12.2         In no event shall either party’s aggregate liability to the other party for damages in connection with all claims relating to this Agreement exceed the amount of [**], regardless of the form of action (including fundamental breach, negligence, misrepresentation, or other contract or tort claim), provided that this limitation will not apply to:  (i) the amount of any damages for bodily injury (including death) caused by such party’s negligence or damages to real property and tangible personal property caused by such party’s negligence; and (ii) payments owed for Products and Services provided hereunder.

This Section 12.2 also applies to any of IBM’s subcontractors and any Authorized Purchasers.  It is the maximum for which IBM and its subcontractors are collectively responsible, and for which Apple and its Authorized Purchasers are collectively responsible.

12.3     Under no circumstances is either party liable to the other for any of the following:  (i) third party claims against a party for losses or damages other than those in Section 11 and 12.2 (i), above; or (ii) loss of, or damage to, records or data.  Further under no circumstances will IBM be liable when the Products or Services are used in conjunction with military, nuclear, automotive or aeronautical applications or medical implantation or other direct life support applications where malfunction may result in injury, harm or death to persons, or used in any other ultrahazardous applications

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

13.0         WARRANTIES

13.1         Product Warranty.

13.1.1      PowerPC Warranty.  IBM warrants each PowerPC Product delivered hereunder to be free from defects in material and workmanship and to comply with Product specifications at the time of manufacture, as agreed in writing by IBM and Apple, for the notice period of [**] from the date of shipment.

13.1.2      ASIC Product Warranty.  IBM warrants all ASIC Products delivered to be free from defects in material and workmanship and conform to the Product specifications as set forth in the RTM for the notice period of [**] from the date of shipment. Apple acknowledges that the functionality of ASIC Products may be contingent on Apple’s designs and, therefore, Apple agrees that such warranty does not apply to the functionality of ASIC Products designed by Apple and manufactured by IBM under this Agreement except to the extent the lack of functionality is due to a defect in materials or workmanship.

13.1.3      Other Product Warranty.  IBM warrants all other standard Products delivered to be free from defects in material and workmanship and to conform to the Product Specifications for the notice period of [**] from the date of shipment unless otherwise stated in an Attachment applicable to such standard Products, and all other custom Products delivered to be free from defects in material and workmanship for the notice period of [**] from date of shipment unless otherwise stated in an Attachment applicable to such custom Products.  Apple acknowledges that the functionality of such other custom Products may be contingent on Apple’s designs and, therefore, Apple agrees that such warranty does not apply to the functionality of Products designed by Apple and manufactured by IBM under this Agreement except to the extent the lack of functionality is due to a defect in materials or workmanship.  IBM warrants Services will be performed using reasonable care and ordinary skill.

13.2         The Product warranty does not include defects in or failures of Products that result from (i) an Apple-supplied design; (ii) matters not covered in the Product specification or use outside of the intended operating environment set forth in the applicable Product specifications; (iii) accident, disaster, neglect, abuse, misuse, improper handling, testing, storage or installation after delivery to the carrier, including improper handling in accordance with generally acceptable static sensitive electronic device handling requirements; (iv) alterations, modifications or repairs

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.

 by Apple or third parties not authorized by IBM in writing; (v) removal or alteration of labels by Apple or a third party; or (vi) failure caused by a product which IBM did not provide or for which IBM is not responsible.  IBM does not warrant uninterrupted or error free operation of the Products or that IBM will correct all defects.

13.3         THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS OR USAGE FOR PARTICULAR PURPOSE OR NON-INFRINGEMENT.

13.4         This warranty is not transferable.  No course of dealing, course of performance, usage of trade, or description of Product or Service shall be deemed to establish a warranty, express or implied.

13.5         If an Authorized Purchaser or Designee claims that any Products or Services are nonconforming, the Authorized Purchaser or Designee shall, (i) promptly notify IBM, in writing, of the basis for such claim of nonconformity; (ii) follow IBM’s instructions for the prompt return of the Products; and (iii) return such Products freight collect to IBM’s designated facility.  If IBM determines that the returned Products are nonconforming and such returned Products were shipped with Apple’s consent prior to their qualification, IBM’s sole and exclusive obligation will be to, at IBM’s option, repair or replace the defective Products, or issue a credit for the purchase price (e.g., Section 14.0 will not apply to such Product units delivered before the Product is qualified).  If IBM determines the Products are nonconforming and they were shipped subsequent to their qualification, IBM will issue a credit or rebate for the purchase price.

13.6         Prior to returning any defective Products to IBM, the Authorized Purchaser or Designee shall obtain a Return Merchandise Authorization number (“RMA”) from IBM (which IBM will provide within [**] Business Days of the request) and provide the specific description of the problem, by part number for the total quantity of the defective Products.  The Authorized Purchaser or Designee shall only return the exact quantity authorized in each RMA by following IBM’s RMA instructions.  Each shipping container shall contain only one (1) RMA.

13.7         IBM’s sole liability and Apple’s exclusive remedy for breach of warranty shall be limited as stated in this Section 13, except that Product Failures which exceed the applicable Failure Threshold shall be governed by Section 14 below.

[**] = information redacted pursuant to a confidential treatment request.  Such omitted information has been filed separately with the Securities and Exchange Commission.