Development and Supply Agreement - WatchGuard Technologies Inc. and SMART Modular Technologies Inc.
DEVELOPMENT AND SUPPLY AGREEMENT
This Development and Supply Agreement (this "Agreement") is entered into as
of the 25th day of March, 1998 (the "Effective Date") by and between WatchGuard
Technologies, Inc., a Delaware corporation having principal offices at 316
Occidental Avenue South, Suite 200, Seattle, Washington 98104, and its
subsidiaries (collectively "WATCHGUARD"), and SMART Modular Technologies, Inc.,
a California corporation having principal offices at 4305 Cushing Parkway,
Fremont, California 94538 ("SMART").
IN CONSIDERATION of the mutual covenants and agreements contained herein,
the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, these terms shall have the following
definitions:
1.1 "Developed Technology" means all works of authorship, discoveries,
improvements, inventions, information and trade secrets which are first
conceived, made, created, reduced to practice or fixed in a tangible medium of
expression by SMART alone, or jointly by WATCHGUARD and SMART, in the course of
the development and design of the Product under this Agreement.
1.2 "Product" means the product(s) listed in Exhibit A or added to this
Agreement by mutual agreement of the parties, as well as derivatives, new
releases and updates thereof.
1.3 "Statement of Work" means the schedule attached as Exhibit B, setting
forth the milestones, deliverables, and a schedule for the performance of the
parties' obligations under this Agreement.
2. PRODUCT DEVELOPMENT
2.1 SMART Obligations. SMART shall use commercially reasonable efforts
to accomplish the tasks for which it is responsible in accordance with the
Statement of Work. SMART shall provide WATCHGUARD with such technical support
by qualified SMART personnel as WATCHGUARD may reasonably request in connection
with WATCHGUARD's efforts to accomplish the tasks for which WATCHGUARD is
responsible in accordance with the Statement of Work.
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2.2 WATCHGUARD Obligations. WATCHGUARD shall use commercially reasonable
efforts to accomplish the tasks for which it is responsible in accordance with
the Statement of Work. In consideration of SMART's development of the Product,
WATCHGUARD shall pay SMART the amounts, if any, as indicated and in accordance
with the Statement of Work, and shall comply with the purchase commitment
obligation specified elsewhere in this Agreement. WATCHGUARD shall provide
SMART with such technical support by qualified WATCHGUARD personnel as SMART may
reasonably request in connection with SMART's efforts to accomplish the tasks
for which SMART is responsible in accordance with the Statement of Work.
2.3 Project Management. SMART and WATCHGUARD shall each designate a
project representative to coordinate their business relationship in accordance
with this Agreement.
2.4 Changes to Product. SMART reserves the right to make substitutions
and/or modifications in the Product specifications provided that (i) such
substitutions and/or modifications do not cause a material adverse effect on the
Product's overall performance, and (ii) WATCHGUARD has been notified thereof.
WATCHGUARD reserves the right to specify modifications to the Product from time
to time and, consistent with the Statement of Work, SMART agrees to incorporate
such modifications. The parties shall negotiate in good faith any price,
schedule and other business issues that result from such modifications.
3. RIGHTS IN INTELLECTUAL PROPERTY
3.1 Prior Rights. All intellectual property rights, including without
limitation patents, patent applications, copyrights and trade secrets, owned by
a party as of the Effective Date shall remain the property of such party and no
licenses or other rights with respect to such intellectual property are granted
to the other party except as expressly set forth in this Agreement.
3.2 Developed Technology.
3.2.1 Ownership of Developed Technology. WATCHGUARD and SMART shall
jointly own the Developed Technology, with each owning an undivided one-half
interest, and except as otherwise provided herein each shall be free to
commercially exploit the Developed Technology without any duty to account to the
other for profits. Except as contemplated herein, neither party shall knowingly
take any action to place the Developed Technology into the public domain. In
the event that either party attempts to perfect its interest in the Developed
Technology with any
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governmental agency any place in the world by obtaining patent or copyright
protection or otherwise, such party shall specify on such application or
document filed or sent to such governmental agency that the Developed Technology
is jointly owned by WATCHGUARD and SMART and such party shall provide the other
party hereto with an opportunity to review any such correspondence within a
reasonable time prior to filing or sending such correspondence to such
governmental agency. If either party receives any such correspondence regarding
the Developed Technology, it shall promptly provide a copy of such
correspondence to the other party hereto.
3.2.2 Restriction on Developed Technology. In the event that any
Developed Technology is generated hereunder, SMART agrees, for a period of one
(1) year from the Effective Date, not to sell, develop or design a product
containing the Developed Technology to, or for, a third party in competition
with WATCHGUARD in the network security marketplace.
3.3 Ownership of Derivative Works of Developed Technology.
3.3.1 Bug Fixes. If a party makes any bug fix modification(s) to
any Developed Technology during the term of this Agreement in order to correct
errors in such Developed Technology or to make such Developed Technology operate
in accordance with its documentation, such modification(s) shall be promptly
provided to the other party, and shall be jointly owned by the parties.
Modifications to the Developed Technology to enhance performance, other than bug
fixes, shall not be subject to this Sections 3.3.1.
3.3.2 Other Derivative Works. Except as set forth in Section 3.3.1,
each party shall have sole and exclusive ownership of all right, title and
interest in and to any derivative works of the Developed Technology created by
or for such party to the extent such derivative works differ from the Developed
Technology, including without limitation, any and all intellectual property
rights thereto, and such party shall have the right to apply for copyright
registrations or patent applications, as appropriate, in the United States or
any other country in the world. For purposes of this Section, derivative work
shall have the meaning set forth in 17 U.S.C. Section 101, as amended from time
to time, and include without limitation the combination of the Developed
Technology and any other property of such party.
4. PRODUCT SALES
4.1 Purchase Commitment. Pursuant to the terms and conditions contained
in this Agreement and in consideration of SMART's development of the Product,
WATCHGUARD shall purchase from SMART WATCHGUARD's
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requirements of the Product as determined by WATCHGUARD from time to time (the
"Purchase Commitment"). WATCHGUARD may terminate the Purchase Commitment
provided (i) the Product delivered by SMART has a defect rate, as calculated
below ("Defect Rate"), and such defects are solely attributable to SMART:
(a) greater than ten percent (10%) of the first consecutive three thousand
(3,000) units shipped;
(b) greater than five percent (5%) of the next consecutive three thousand
(3,000) units shipped;
(c) greater than four percent (4%) of the following consecutive three thousand
(3,000) units shipped; or
(d) greater than three percent (3%) of all units shipped thereafter ("Defect
Rate");
(ii) WATCHGUARD provides SMART with written notice of its intent to terminate
the Purchase Commitment, and (iii) SMART fails to reduce the applicable Defect
Rate within thirty (30) calendar days of its receipt of such notice. The Defect
Rate shall be calculated in increments of 1,000 units, i.e., for units 1 through
1,000, the Defect Rate may not be greater that 10%; said Defect Rate applies for
units 1,001 through 2,000 and units 2001 through 3,000; the Defect Rate for
units 3,001 to 4,000 may not be greater than 5%, and so forth. WATCHGUARD may
also terminate the Purchase Commitment if (i) SMART delivers Product to
WATCHGUARD with Defect Rates exceeding those listed above three (3) times in any
six (6) month period, and such defects are solely attributable to SMART, and
(ii) WATCHGUARD provides SMART with written notice of its intent to terminate
the Purchase Commitment.
4.2 Lead-Times and Purchase Orders. Lead-times may vary from time to
time. SMART's current minimum lead-time for delivery of Product is three (3)
months. Product lead-time is based on then current manufacturing lead-time as
well as then current raw material lead-time and allocations. As such, if there
are any changes in manufacturing lead-time as well as raw material lead-time or
allocations, then Product lead-time may change accordingly. WATCHGUARD's
initial purchase order for production versions of the Product shall, at a
minimum, cover the Purchase Commitment for the initial four (4) months. This
initial purchase order shall be provided to SMART in accordance with the terms
and conditions of this Agreement, and shall specify WATCHGUARD's requested
shipment dates and quantities of the Product for said period. After the initial
purchase order, WATCHGUARD shall
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provide SMART with follow-on purchase orders at a minimum every four (4) months,
if and to the extent necessary, to fulfill the Purchase Commitment. Said follow-
on purchase orders shall be provided to SMART in accordance with the terms and
conditions of this Agreement, and shall specify WATCHGUARD's requested shipment
dates and quantities of the Product for a period of no less than six (6) months.
Neither the initial, nor any follow-on purchase order shall be binding on SMART
until SMART accepts it. Once accepted by SMART, each such purchase order shall
be binding on WATCHGUARD, shall be non-cancelable and shall be governed by the
terms and conditions of this Agreement, irrespective of any conflicting,
contrary or additional terms which may be set forth in such purchase order.
4.3 Forecasts. In addition to the purchase orders which WATCHGUARD is to
provide to SMART covering the Purchase Commitment, at the beginning of each
month during the term of this Agreement WATCHGUARD shall provide SMART with a
rolling forecast of WATCHGUARD's anticipated requirements for the Product for
the fifth (5th), sixth (6th) and seventh (7th) months following such month.
Such forecasts are estimates only and are not binding on WATCHGUARD.
4.4 Product Price. The price for the Product shall be as set forth in
Exhibit C and shall be in United States dollars. The Product price shall not
include charges for transportation, insurance, special packaging, marking,
applicable sale or use taxes, value added taxes, export or import licenses,
fees, taxes, duties and the like, the costs of which shall be paid by WATCHGUARD
in addition to the Product price.
4.5 Payment. All payments owed by WATCHGUARD to SMART for the Product
shall be made in United States dollars net thirty (30) calendar days after the
applicable Product shipment date.
4.6 Shipment, Title and Risk of Loss. All Product sold hereunder shall
be delivered to WATCHGUARD Ex Works (Incoterms 1990) SMART's manufacturing
facility. In the absence of written instructions from WATCHGUARD, SMART shall
select the common carrier but shall not thereby assume any liability in
connection with the shipment of Product, nor shall the common carrier be
construed to be the agent of SMART. Title of the Product shall pass from SMART
to WATCHGUARD when the Product is made available by SMART to the common carrier
or to WATCHGUARD if the Product is to be picked up by WATCHGUARD, and as of and
after that time, WATCHGUARD shall bear any and all risk of loss of or damage to
the Product.
4.7 Rescheduling. WATCHGUARD may reschedule each shipment of Product
ordered pursuant to this Agreement not more than once, provided that
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WATCHGUARD gives SMART at least thirty (30) calendar days written notice in
advance of the original scheduled shipment date (the "Original Scheduled
Shipment Date"), and that the rescheduled shipment date is no later than sixty
(60) calendar days after the Original Scheduled Shipment Date.
4.8 Limited Warranty. Except as otherwise provided herein, SMART
warrants that any Product sold pursuant to this Agreement shall be free from
defects in material and workmanship, and shall materially conform to the Product
specifications specified in Exhibit A to this Agreement, or hereafter agreed to
by the parties in a written instrument executed by an authorized officer of
SMART, for a period of one (l) year from the initial date SMART delivers said
Product to WATCHGUARD. SMART and WATCHGUARD shall work together in good faith
to develop acceptable test procedures and test criteria for the Product. After
the earlier of the first three (3) months of production or three thousand
(3,000) Products manufactured, SMART warrants that the Product failure rate
attributable solely to SMART shall not be higher than ten percent (10%) of, in
the aggregate, any consecutive one thousand (1,000) units shipped by SMART,
i.e., one hundred (100) units or more. Thereafter, SMART warrants that the
Product failure rate attributable solely to SMART shall not be higher than five
percent (5%) of, in the aggregate, any consecutive one thousand (1,000) units
shipped by SMART, i.e., fifty (50) units or more. WATCHGUARD must report
failure mechanisms to SMART with all accompanying data to assist SMART to cure
said failure. SMART and WATCHGUARD shall work together in good faith to
determine the cause of any failures and to modify the test procedures to cure
any problems. The warranty contained in this Section 4.8 does not cover
malfunctions, failures or defects resulting from misuse, abuse, accident,
neglect, improper or inadequate maintenance, alteration, modification, improper
installation or repairs by any party other than SMART. The warranty extends
only to the original purchaser, WATCHGUARD, and may not be assigned. The
liability of SMART, and the remedies available to WATCHGUARD, under this limited
warranty shall be limited to replacing, or repairing, or refunding the purchase
price of (at SMART's sole discretion and option) any defective Product which is
returned to SMART in accordance with the Warranty Return Procedure specified
below. EXCEPT AS SET FORTH IN THIS SECTION, SMART MAKES NO WARRANTIES OF ANY
KIND, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND EXPRESSLY DISCLAIMS ANY SUCH
WARRANTIES INCLUDING WITHOUT LIMITATION ANY EXPRESS, STATUTORY OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4.9 Warranty Return Procedure. Prior to shipping any Product back to
SMART, WATCHGUARD shall ensure that such Product is defective, and shall obtain
a Return Material Authorization ("RMA") number from SMART.
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WATCHGUARD shall include the RMA number on the outside packaging of such
returned Product, and shall also include with such returned Product a written
statement bearing the RMA number and specifying the defect for which the Product
is being returned. WATCHGUARD shall pay the shipping costs for returning the
Product to SMART, and shall assume any and all risk of loss of or damage to said
Product during shipping. If SMART elects to repair or replace the Product, SMART
shall pay the shipping costs to return said Product to the location from which
it was returned by WATCHGUARD, but WATCHGUARD shall bear any and all risk of
loss of or damage to said Product at all times after said Product is made
available by SMART to the common carrier or to WATCHGUARD if said Product is to
be picked up by WATCHGUARD. Any Product which has been returned, but which SMART
determines not to be defective, or which has defects resulting from misuse,
abuse, accident, neglect, improper or inadequate maintenance, alteration,
modification, improper installation or repairs by any party other than SMART,
shall be returned to WATCHGUARD at WATCHGUARD's sole expense and risk. Title to
any Product returned under warranty shall at all times remain with WATCHGUARD
unless and until SMART either replaces such Product, or credits WATCHGUARD's
account for the price of such Product in lieu of repair or replacement, at which
time title to said Product shall pass to SMART. Any repair or replacement of any
Product hereunder shall not extend the warranty period for said Product.
5. CONFIDENTIALITY
Each party hereto agrees that all trade secrets, intellectual property,
code, inventions, algorithms, schematics, test vectors, lists of suppliers,
know-how and ideas and all other business, technical and financial information
it obtains from the other party which is identified in writing or orally as
"Confidential" and/or "Proprietary," or which would logically be considered
"Confidential" and/or "Proprietary," is the confidential and proprietary
property (the "Confidential Property") of the disclosing party. Except as
expressly permitted herein, the receiving party (i) shall hold in strictest
confidence and not use for any purpose (except as contemplated hereunder) or
disclose to any party (other than employees or agents on a need-to-know basis)
any Confidential Property of the disclosing party, (ii) shall take reasonable
protective measures (no less than the measures it takes to protect its own
Confidential Property) to safeguard such Confidential Property, and (iii) shall
bind in writing any and all of its employees or agents with access to such
Confidential Property to the terms and conditions of this Section 5. All
Confidential Property disclosed hereunder shall remain the exclusive property of
the disclosing party. Upon termination or expiration of this Agreement or upon
written request, any and all Confidential Property disclosed hereunder shall be
promptly returned to the disclosing party. The restrictions hereunder shall
survive the termination or expiration of this Agreement. Each party
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acknowledges that the breach of this Section 5 would cause immediate and
irreparable harm to the other party and agrees that in the event of such breach,
said non-breaching party shall be entitled, in addition to any other available
right or remedy, to seek equitable relief without the necessity of proving
actual damages and without the necessity of posting a bond or other security.
The receiving party shall not be obligated under this Section 5 with respect to
Confidential Property the receiving party can document:
5.1 is or has become readily publicly available without restriction
through no fault of the receiving party or its employees or agents; or
5.2 is received without restriction from a third party lawfully in
possession of such information and lawfully empowered to disclose such
information; or
5.3 was rightfully in the possession of the receiving party without
restriction prior to its disclosure by the other party; or
5.4 is independently developed by employees or consultants of the
receiving party without access to such Confidential Property; or
5.5 is required to be disclosed by law, a government agency or order of a
court, provided that the receiving party provides prompt written notice of such
disclosure so as to afford the disclosing party an opportunity to intervene and
prevent or limit the disclosure.
6. INFRINGEMENT
6.1 Notification of Third Party Infringement. Each party shall inform
the other promptly in writing of any alleged infringement by a third party of
any Developed Technology of which such party becomes aware, and of any available
evidence thereof. WATCHGUARD shall have the right, but shall not be obligated,
to prosecute at its own expense all infringements of the Developed Technology
and, in furtherance of such right, SMART hereby agrees that WATCHGUARD may
include SMART as a party plaintiff in any such suit, without expense to SMART.
The total cost of any such infringement action commenced solely by WATCHGUARD
shall be borne by WATCHGUARD. No settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the prior
written consent of an authorized representative of SMART, which consent shall
not be unreasonably withheld. Any recovery of damages by WATCHGUARD for each
such suit may be retained entirely by WATCHGUARD; provided, however that SMART
may at its option elect to pay up to half of the expenses of any such suit and
in such case any recovery of damages shall be applied first in satisfaction of
any unreimbursed
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expenses and legal fees of both parties and then divided between WATCHGUARD and
SMART, in each case on a pro rata basis according to the percentage of expenses
borne by each party prior to the recovery.
6.2 SMART Option to Prosecute Infringement. If within one (1) month
after having been notified of any alleged infringement, WATCHGUARD shall have
been unsuccessful in persuading the alleged infringer to desist and shall not
have brought and shall not be diligently prosecuting an infringement action, or
if WATCHGUARD shall notify SMART at any time prior thereto of its intention not
to bring suit against any alleged infringer, or if the statute of limitation is
about to end, then, and in those events only, SMART shall have the right, but
shall not be obligated, to prosecute at its own expense any action for
infringement of the Developed Technology, and in such event SMART shall be
entitled to retain for itself all recoveries and SMART may, for such purposes
use the name of WATCHGUARD as a party plaintiff.
6.3 Declaratory Judgment Actions. In the event that a declaratory
judgment action alleging invalidity or non-infringement of any of the Developed
Technology shall be brought against either or both of WATCHGUARD or SMART, said
party shall give notice to the other of any such action and the parties shall
cooperate in good faith to determine how best to defend such action. If the
parties cannot agree on how to defend any such action, either party may on its
own defend any action brought against it, provided that no settlement, consent
judgment or other voluntary final disposition may be entered into without the
prior written consent of an authorized representative of the other party, which
consent shall not be unreasonably withheld.
6.4 Cooperation in Prosecuting Actions. In any infringement suit as
either party may institute or defend to enforce or defend the Developed
Technology pursuant to this Agreement, the other party hereto shall, at the
request and expense of the litigating party cooperate in all respects and, to
the extent possible, have its employees and independent contractors testify when
requested and make available, under appropriate protective orders and other
safeguards, relevant records, papers, information, samples, specimens and the
like.
7. INDEMNITY AGAINST INFRINGEMENT
7.1 SMART's Indemnity Obligation. Except as otherwise provided herein,
SMART shall indemnify, defend and hold harmless WATCHGUARD and its subsidiaries
from and against (i) any and all claims, demands, actions, suits, litigation,
proceedings and the like alleging that the use or sale of the Product infringes
upon or
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misappropriates any third party's patent, trademark, trade secret, copyright,
mask work or other intellectual property rights ("IP Claims"), and (ii) any and
all liens, liabilities, judgments, damages, costs, expenses (including
reasonable attorney's fees) and the like arising out of or related to any IP
Claim covered under this Section 7.1; provided, however, that the foregoing
indemnity and defense obligation is conditioned on each of the following: (i)
prompt written notice by WATCHGUARD to SMART of any IP Claim for which indemnity
is claimed hereunder, (ii) complete control of the defense and settlement
thereof by SMART, and (iii) complete cooperation by WATCHGUARD in such defense
at SMART's expense. SMART shall have no obligation whatsoever pursuant to this
Agreement or otherwise (i) for or with respect to IP Claims arising out of or
related to designs, instructions, specifications or intellectual property not
developed by SMART or not furnished by SMART including without limitation
WATCHGUARD's contribution to the Developed Technology, (ii) for or with respect
to IP Claims arising out of or related to the combination of the Product with
any hardware, products, equipment, materials, text, graphics, software or the
like supplied by a party other than SMART, (iii) for or with respect to IP
Claims arising out of or related to the modification of the Product by a party
other than SMART, (iv) for or with respect to IP Claims arising out of or
related to WATCHGUARD's failure to substitute any replacement Product, or part
thereof, supplied by SMART pursuant to Section 7.3 herein, or (v) for any
settlement entered into without the prior written consent of an authorized
representative of SMART. Notwithstanding the foregoing, WATCHGUARD may defend
and/or settle any IP Claim for which SMART materially fails to perform its
indemnity obligation under this Section 7.1 without adversely affecting
WATCHGUARD's indemnity rights under this Section 7.1.
7.2 WATCHGUARD's Indemnity Obligation. Except as otherwise provided
herein, WATCHGUARD shall indemnify, defend and hold harmless SMART and its
subsidiaries from and against (i) any and all IP Claims arising out of or
related to designs, instructions, specifications or intellectual property
developed by WATCHGUARD or furnished by WATCHGUARD including without limitation
WATCHGUARD's contribution to the Developed Technology, (ii) any and all IP
Claims arising out of or related to the combination of the Product with any
hardware, products, equipment, materials, text, graphics, software or the like
supplied by a party other than SMART, (iii) any and all IP Claims arising out of
or related to the modification of the Product by a party other than SMART, and
(iv) any and all liens, liabilities, judgments, damages, costs, expenses
(including reasonable attorney's fees) and the like arising out of or related to
any IP Claim covered under this Section 7.2; provided, however, that the
foregoing indemnity and defense obligation is conditioned on each of the
following: (i) prompt written notice by SMART to WATCHGUARD of
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any IP Claim for which indemnity is claimed hereunder, (ii) complete control of
the defense and settlement thereof by WATCHGUARD, and (iii) complete cooperation
by SMART in such defense at WATCHGUARD's expense. WATCHGUARD shall have no
obligation whatsoever pursuant to this Section 7.2 for any settlement entered
into without the prior written consent of an authorized representative of
WATCHGUARD. Notwithstanding the foregoing, SMART may defend and/or settle any IP
Claim for which WATCHGUARD materially fails to perform its indemnity obligation
under this Section 7.2 without adversely affecting SMART's indemnity rights
under this Section 7.2.
7.3 Injunctive Actions. If during the course of any IP Claim that SMART
is required to indemnify WATCHGUARD hereunder the use or sale of the Product is
finally enjoined, SMART shall, at SMART's option and expense, use commercially
reasonable efforts to do one of the following (in addition to its obligations
under Section 7.1 herein): (i) procure for WATCHGUARD the right to use or sell,
as applicable, the Product, (ii) replace the Product or the affected part
thereof with equivalent non-infringing technology, (iii) modify the Product or
the affected part thereof to make it non-infringing but equivalent, or (iv)
within thirty (30) calendar days of SMART's receipt of said Product, refund to
WATCHGUARD an amount equal to the price paid by WATCHGUARD for said Product less
any prior discounts or credits granted to WATCHGUARD and less an allowance for
use and obsolescence (computed by amortizing WATCHGUARD's purchase price for
said Product evenly over a five (5) year period commencing upon the shipping
date from SMART to WATCHGUARD of said Product) and damage, if any.
7.4 Limitation of Indemnity. THE INDEMNITY CONTAINED IN THIS SECTION 7
STATES THE ENTIRE LIABILITY OF EITHER PARTY TO THE OTHER WITH RESPECT TO ANY AND
ALL MISAPPROPRIATION OR INFRINGEMENT BY THE PRODUCT, OR ANY PARTS THEREOF, OF
ANY PATENTS, TRADEMARKS, TRADE SECRETS, COPYRIGHTS, MASK WORKS OR OTHER
INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY AND IS EXPRESSLY IN LIEU OF ALL
WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, IN
REGARD THERETO. THE REMEDIES OF THE PARTIES SHALL BE LIMITED TO THOSE PROVIDED
HEREIN TO THE EXCLUSION OF ANY AND ALL OTHER REMEDIES.
8. LIMITATION OF LIABILITY
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTION 7 AND EXCEPT AS ARISING
OUT OF OR RELATED TO THE PURCHASE
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COMMITMENT SET FORTH IN SECTION 4, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR
RELIANCE DAMAGES, LOSSES OR EXPENSES (INCLUDING WITHOUT LIMITATION LOSS OF
PROFIT, OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES) RELATING TO OR
ARISING OUT OF THIS AGREEMENT, HOWEVER CAUSED, AND WHETHER BASED ON CONTRACT,
TORT, EQUITY OR ANY OTHER THEORY OF LIABILITY WHATSOEVER, EVEN IF SUCH PARTY WAS
NOTIFIED OR OTHERWISE AWARE OF THE POSSIBILITY OF SUCH DAMAGES, LOSSES OR
EXPENSES. THE LIMITATIONS CONTAINED IN THIS SECTION SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED UNDER ANY TERM
OF THIS AGREEMENT. IN NO EVENT SHALL SMART'S TOTAL LIABILITY TO WATCHGUARD
EXCEED THE AGGREGATE AMOUNT PAID BY WATCHGUARD TO SMART FOR THE PRODUCT.
9. TERM AND TERMINATION
9.1 Term. This Agreement shall become effective as of the Effective Date
and shall continue until terminated as provided in this Section 9.
9.2 Termination. This Agreement may be terminated immediately upon
written notice by either party in the event the other party (i) institutes or
there is instituted against it any proceeding under any bankruptcy, protection
of rights of creditors or insolvency laws, (ii) institutes or there is
instituted against it any proceeding for liquidation or winding up, (iii)
becomes insolvent, (iv) makes an assignment for the benefit of creditors, (v)
has a receiver appointed with respect to any substantial part of its assets or
business, (vi) ceases to function as a going concern or to conduct its operation
in the normal course of business, (vii) fails to provide reasonable adequate
assurances of future performance of its obligations under this Agreement within
twenty (20) calendar days following a demand from the other party for such
assurances, or (vii;) fails to perform any of the obligations imposed upon it
under the terms and conditions of this Agreement so as to be in material breach
hereunder and fails to cure such breach within thirty (30) calendar days after
written notice from the non-breaching party. In addition, this Agreement may be
terminated by mutual written agreement between the parties.
9.3 Termination by WATCHGUARD. WATCHGUARD shall be entitled to terminate
this Agreement upon written notice to SMART and payment of a buy-out fee (the
"Buy-Out Fee") as calculated below. If WATCHGUARD has purchased and
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paid for ten thousand (10,000) or fewer Products from SMART, the Buy-Out Fee
shall be [ * ]. If WATCHGUARD has purchased and paid for more than ten thousand
(10,000) Products from SMART, the Buy-Out Fee shall be [ * ].
9.4 Rights After Termination. No termination or expiration of this
Agreement shall (i) relieve either party from any obligations hereunder which
have accrued on or before the effective date of such termination or expiration
including without limitation any obligation to pay to the other party any sum
owed pursuant to this Agreement, (ii) affect any rights of either party with
respect to any breach of this Agreement, or (iii) cancel any purchase order for
the Product placed by WATCHGUARD and accepted by SMART pursuant to this
Agreement. If this Agreement terminates or expires, the provisions of Section 1
"Definitions," Section 3 "Rights in Intellectual Property," Section 4.5
"Payment," Section 4.6 "Shipment, Title and Risk of Loss," Section 4.8 "Limited
Warranty," Section 4.9 "Warranty Return Procedure," Section 5 "Confidentiality,"
Section 6 "Infringement," Section 7 "Indemnity Against Infringement," Section 8
"Limitation of Liability," Section 9 "Term and Termination" and Section 10
"General Provisions" shall survive and continue unless they otherwise expire in
accordance with their terms. In addition if this Agreement is terminated as a
result of WATCHGUARD's material breach of this Agreement, but not otherwise, the
provisions of Section 4.1 "Purchase Commitment" shall survive and continue
unless terminated by SMART.
10. GENERAL PROVISIONS
10.1 Integration. This Agreement, the exhibits hereto and the documents
referenced herein, if any, constitute the entire understanding, express or
implied, oral or written, between WATCHGUARD and SMART with respect to the
subject matter hereof and supersede any and all prior agreements, discussions
and understandings, express or implied, oral or written, between WATCHGUARD and
SMART with respect to the subject matter hereof. Each party hereto represents
and warrants to the other that it is entering into this Agreement based on the
terms and conditions contained herein and that it is not entering into this
Agreement because of other terms and conditions, including without limitation
representations, covenants, inducements and promises, not contained herein.
10.2 Conflicting Terms. The parties hereto agree that the terms and
conditions contained in either party's printed or electronic documents shall not
apply to the purchase and/or sale of the Product and that the terms and
conditions set forth herein shall govern all such transactions; provided,
however, that the terms and conditions typed or hand written on the face of a
purchase order, acknowledgment or other document relating to the Product
quantities, prices, ship-to locations and
----------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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<PAGE>
shipment dates shall, if accepted by both parties hereto, also apply to all such
transactions and shall augment the terms and conditions set forth herein to the
extent that such terms and conditions are not inconsistent with this Agreement.
10.3 Force Majeure. Other than the obligation to pay any amount owed
hereunder, neither party hereto shall be in default or liable for any delay or
failure to comply with this Agreement if such delay or failure is due to causes
beyond its control for the shorter of the period such causes are beyond its
control or six (6) months, provided that such party notifies in writing the
other party of the existence of such causes.
10.4 Assignment and Delegation. Neither party hereto shall sell,
transfer or assign any of its rights hereunder (other than the right to receive
payments), or delegate or subcontract any of its obligations hereunder without
the prior written consent of an authorized representative of the other party;
provided, however, that upon written notice to the other party either party
hereto may sell, transfer or assign its rights hereunder, and delegate or
subcontract its obligations hereunder, without obtaining the prior written
consent of an authorized representative of the other party, to a successor to
its business by reason of merger, the sale of substantially all of its assets or
other form of acquisition, provided that such assignee agrees in writing to be
bound by this Agreement. Any act in derogation of the foregoing shall be null
and void. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
10.5 Choice of Law. The parties hereto agree that this Agreement shall
not be construed, enforced or governed by the United Nations Convention on
Contracts for the International Sale of Goods; rather this Agreement is entered
into in the State of California and shall be construed, enforced and governed
solely in accordance with the laws of the State of California without giving
effect to any choice of law provisions thereof.
10.6 Jurisdiction and Venue. The jurisdiction and venue of any action
with respect to the subject matter of this Agreement shall be either (i) the
state or federal courts for the County of Santa Clara or the County of Alameda
in the state of California or (ii) the state or federal courts for the County
of King in the state of Washington, and each of the parties hereto submits
itself to the jurisdiction and venue of either such courts for the purpose of
any such action.
10.7 Notice. Any notice, consent or request required or permitted to be
given under or in connection with this Agreement shall be in writing and shall
be considered
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<PAGE>
to be given when placed in registered or certified mail, postage prepaid,
addressed to the party for whom it is intended at the address written above and
to the attention of the person executing this Agreement or at such other address
or to such other person as SMART or WATCHGUARD may designate to the other party
in accordance with this Section 10.7 from time to time. Any notice or request
required or permitted to be given under or in connection with this Agreement if
given otherwise than by registered or certified mail shall be considered to be
given when delivered.
10.8 Severability. If any term or provision of this Agreement is held to
be illegal, invalid, unenforceable or in conflict with any law of any
governmental entity with jurisdiction over this Agreement, this Agreement shall
continue in force and be interpreted and modified as necessary to give best
effect to the intentions of the parties as expressed herein to the fullest
extent permissible.
10.9 Taxes. WATCHGUARD shall pay any and all taxes and charges assessed
in connection with this Agreement including without limitation sales, use and
excise taxes. This does not include any federal, state or local income taxes
imposed on SMART or any other or similar taxes based on SMART's gross or net
income.
10.10 Export Controls. This Agreement is expressly made subject to any
laws, regulations, orders or other restrictions on the export from the United
States of America of any technology, products incorporating technology or
information pertaining thereto which may be imposed from time to time by the
Government of the Untied States of America or any agency thereof.
Notwithstanding anything contained in this Agreement to the contrary, WATCHGUARD
shall not export or re-export, directly or indirectly, any technology, products
incorporating technology or information pertaining thereto to any country for
which the Government of the United States of America or any agency thereof
requires an export license or other governmental approval at the time of export
or re-export without first obtaining such license or approval.
10.11 Import and Export. SMART shall provide all information under its
control which is necessary or useful for WATCHGUARD to obtain any import or
export licenses required for WATCHGUARD to receive or ship the Product.
WATCHGUARD shall pay any and all import or export licenses, fees, taxes, duties
and the like.
10.12 United States Government Contract Provisions and Clauses. In the
event any Products purchased hereunder are sold, or are incorporated into
products that are sold, under a United States Government contract, any and all
provisions or clauses required to be passed on to SMART pursuant to said
contract are hereby
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<PAGE>
rejected by SMART and shall not be deemed included herein or binding on SMART
unless and until specifically accepted in a writing executed by an authorized
representative of SMART.
10.13 Headings. Headings used herein are for reference only and shall
not affect the interpretation of the terms and conditions of this Agreement.
10.14 Waivers and Amendments. The rights and obligations of the parties
under this Agreement may be amended, changed, modified, waived or discharged
(either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely) only
by a written instrument effecting such amendment, change, modification, waiver
or discharge signed by an authorized representative of the party against whom
enforcement is sought.
10.15 Delays or Omissions. The parties hereto agree that no delay or
omission to exercise any right, power or remedy accruing to any party upon any
breach or default of the other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach or default, or any acquiescence therein, or of any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. The parties further agree that any waiver, permit,
consent or approval of any kind or character of any breach or default under this
Agreement must be in a writing signed by an authorized representative of the
party against whom enforcement is sought and shall be effective only to the
extent specifically set forth in such a writing.
10.16 Relationship of the Parties. In fulfilling its obligations under
this Agreement, each party shall be acting as an independent contractor.
Nothing contained in this Agreement shall be deemed or construed as creating any
other relationship between the parties including without limitation that of a
joint venture or a partnership. The employees of each party shall not be
considered the employees of the other party for any purpose. Neither party nor
its employees shall have the authority to bind or make commitments on behalf of
the other party for any purpose, nor shall either party or its employees hold
itself or themselves out as having such authority. Each party shall assure that
its employees or other persons whose services it may require comply with all of
the terms and conditions of this Agreement.
10.17 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument; provided, however, that this Agreement shall be
of no force
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<PAGE>
or effect until executed by both parties. Facsimile signature pages shall be
considered originals.
10.18 Mediation. If any dispute arises out of or is related to this
Agreement, the parties hereto agree first to try in good faith to settle the
dispute by mediation. In the event of such a dispute, either party may initiate
the mediation by so requesting, in a writing delivered to the other party.
Within ten (10) calendar days of such a request for mediation, the parties
hereto shall confer for the purpose of selecting a mutually agreeable mediator.
If the parties hereto have not been able to agree upon a mediator within twenty
(20) calendar days of the request for mediation, either party may request that
the Judicial Arbitration and Mediation Services (JAMS) appoint a mediator. Said
mediation shall take place in the County of Santa Clara, California.
10.19 Litigation Expenses. The prevailing party in any action or
proceeding to enforce or interpret any part of this Agreement shall be entitled
to recover its reasonable expenses including without limitation attorney's fees
(including fees on any appeal).
10.20 Exhibits. The following exhibits which are attached hereto are by
this reference made a part hereof: (i) Exhibit A - Product, (ii) Exhibit B -
Statement of Work, and (iii) Exhibit 3 - Price.
10.21 No Third Party Beneficiaries. The parties hereby acknowledge that
this Agreement is made solely and exclusively for the benefit of the parties
hereto and with no intent to benefit any third party.
10.22 Basis of the Bargain. EACH PARTY HERETO RECOGNIZES AND AGREES THAT
THE WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS CONTAINED IN THIS
AGREEMENT ARE MATERIAL BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE
BEEN TAKEN INTO ACCOUNT AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE
GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND IN THE DECISION BY EACH PARTY TO
ENTER INTO THIS AGREEMENT.
10.23 Read and Reviewed. Each party hereto represents and warrants to
the other that (i) it has read, reviewed and understands the entire contents of
this Agreement, and (ii) it has engaged, as it sees fit, legal counsel to review
and advise it regarding this Agreement.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Development and
Supply Agreement to be executed by its duly authorized representative as of the
date first set forth above.
WATCHGUARD TECHNOLOGIES, INC. AND ITS SMART MODULAR TECHNOLOGIES, INC.
SUBSIDIARIES
By: /s/ Christopher G. Slatt By: /s/ Ajay Shah
--------------------------- ---------------------------
Name: Christopher G. Slatt Name: Ajay Shah
------------------------- -------------------------
Title: President and CEO Title: President and CEO
------------------------ ------------------------
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<PAGE>
EXHIBIT A
PRODUCT
PC-compatible CPU board with IDE Flash disk, three 10/100 Ethernet ports,
and a single PCI expansion slot. No ISA or floppy connectors. Approx. size
9.5" x 8.7".
A. CPU
[ * ]
B. Chipset
[ * ]
C. Memory
[ * ]
D. Ethernet
1. (3) Ethernet ports 10 Base/100 Base TX [ * ]
[ * ]
E. Real Time Clock
[ * ]
F. Ports and Connectors
1. Single PCI Connector
[ * ]
G. LEDs
[ * ]
H. Power Supply
[ * ]
I. Environmental
[ * ]
----------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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<PAGE>
EXHIBIT B
STATEMENT OF WORK
1. Engineering Specifications - [by: Jan. 7, 1998]
. List of the features and functionality provided by the proposed design
. Outline of the key specifications
. Implementation guidelines
. Design Review I
2. Architecture Design - [by: Feb. 20, 1998]
. Schematic entry in Viewlogic of CPU system
. BIOS Specifications and Adaptation
. Netlist generation for PCB design
. Bill Of Materials -- FINAL
. Design Review 2
3. PCB Design- [by: Feb. 27, 1998]
. Placement of components and connectors
. Design Review 3
. Routing
. Generation of PCB Fab Data
. Design Review 4
4. Prototype PCB Fabrication and materials procurement - [by: March 6, 1998]
. 10 prototypes
5. Prototype PCB Assembly - [by: April 15, 1998]
. Assembly of the prototype board
6. Development of the Diagnostic Software - [by: April 15, 1998]
7. Design verification and testing - [by: April 30, 1998]
. Design Review 5
8. Manufacturing release - [by: May 31,1998]
. Complete changes
. Generate ECO
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<PAGE>
. Design Review 6
After the prototype Products are delivered, SMART will provide ongoing
Engineering Development and Support of the Product as may be reasonably
requested by WATCHGUARD. For such work exceeding six (6) weeks' effort, SMART
may provide a scheduled statement of work for such Engineering Development and
Support, which will be negotiated by both parties.
For all Engineering work completed by SMART, there will be a set of
Documentation Deliverables to WATCHGUARD which fully and accurately describe the
Product and include, as appropriate:
1. Schematic Drawings.
2. Printed Circuit Board Layout in Gerber format.
3. Surface mount device placement in ASCII format.
4. Bill of Materials: components, quantity and source.
5. Product Verification Test Reports (Design/Prototype/Product test
results).
6. Summary Manufacturing Test Procedures.
These deliverables are subject to WATCHGUARD review and acceptance, which
will not be unreasonably withheld.
SMART will cooperate with WATCHGUARD and its industrial design firms and
product assemblers (the "Project Contributors") and coordinate SMART's
development and supply activities under this Agreement with the work performed
by the Project Contributors.
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<PAGE>
EXHIBIT C
PRICE
Quantity of Products Purchased* Product price per unit
------------------------------- ----------------------
10,000 or more [ * ]
* In the event that WATCHGUARD purchases fewer than ten thousand (10,000)
units of Product by July 1, 1999, SMART may charge WATCHGUARD a restocking fee
("Restocking Fee") that shall be computed as follows:
[ * ]
WATCHGUARD shall pay SMART the Restocking Fee in U.S. dollars within thirty
(30) calendar days of invoice therefor.
1. As used in this Agreement, "Product Lot Size Quantities" means the
number of units ordered for a specific shipment date on any purchase order.
Product Lot Size Quantities greater than or equal to 250 units shall not incur a
manufacturing setup charge. Product Lot Sizes Quantities less than 250 units
shall incur a manufacturing setup charge of [ * ] per lot. The minimum Product
Lot Size Quantity shall be 50 units.
2. The above Product prices per unit are based on estimated April 1, 1998
market costs of the Microprocessor, PCI chipset, Flash memory, DRAM and Ethernet
chipset used in the assembly of the Product (collectively the "Components"). If
at any time during the term of this Agreement the aggregate market cost of the
Components increases or decreases greater than ten percent (10%), then, at
either party's request, the Product prices per unit shall be reviewed at the
beginning of each calendar quarter starting July 1, 1998, and adjusted by the
parties in good faith to reflect the change in the cost of the Product. If the
parties mutually agree upon a modification of the Product prices, this Exhibit C
shall be amended to reflect such modified Product prices.
----------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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