<PAGE>
As filed with the Securities and Exchange Commission on October 20, 1999
Registration No. 333-86759
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------
COBALT NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
California 3670 77-0440751
(before reincorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
Delaware 555 Ellis Street
(after reincorporation) Mountain View, CA 94043
(State or other jurisdiction of (650) 623-2500
incorporation or organization)
</TABLE>
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Kenton D. Chow
Chief Financial Officer
555 Ellis Street
Mountain View, CA 94043
(650) 623-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Please send copies of all communications to:
<TABLE>
<S> <C>
Robert P. Latta, Esq. Kevin P. Kennedy, Esq.
Wilson Sonsini Goodrich & Rosati Shearman & Sterling
Professional Corporation 1550 El Camino Real
650 Page Mill Road Menlo Park, CA 94025
Palo Alto, CA 94304 (650) 330-2200
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
--------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale
of the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 23,978
NASD Filing Fee.................................................. 9,125
Nasdaq National Market Listing Fee............................... 95,000
Printing Costs................................................... 275,000
Legal Fees and Expenses.......................................... 350,000
Accounting Fees and Expenses..................................... 250,000
Blue Sky Fees and Expenses....................................... 5,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 31,897
----------
Total...................................................... $1,050,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
As permitted by Section 204(a) of the California General Corporation Law, the
Registrant's Amended and Restated Articles of Incorporation eliminate a
director's personal liability for monetary damages to the Registrant and its
shareholders arising from a breach or alleged breach of the director's
fiduciary duty, except for liability arising under Sections 310 and 316 of the
California General Corporation Law or liability for (i) acts or omissions that
involve intentional misconduct or knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best interests
of the Registrant or its shareholders or that involve the absence of good faith
on the part of the director, (iii) any transaction from which a director
derived an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the Registrant or its shareholders, (v) acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (vi)
interested transactions between the corporation and a director in which a
director has a material financial interest, and (vii) liability for improper
distributions, loans or guarantees. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize a
corporation to indemnify its directors, officers, employees and other agents in
terms sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Articles of Incorporation and Bylaws contain provisions
covering indemnification to the maximum extent permitted by the California
General Corporation Law of corporate directors, officers and other agents
against certain liabilities and expenses incurred as a result of proceedings
involving such persons in their capacities as directors, officers employees or
agents, including proceedings under the Securities Act or the Securities
Exchange Act of 1934, as amended. Prior to the effective date of this Offering,
the Registrant will enter into indemnification agreements with its directors
and executive officers.
In connection with its reincorporation in Delaware, the Registrant will be
subject to Section 145 of the Delaware General Corporation Law ("Section 145").
Section 145 permits indemnification of
II-1
<PAGE>
officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 also provides that a corporation has the power
to maintain insurance on behalf of its officers and directors against any
liability asserted against such person and incurred by him or her in such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of Section 145. Upon shareholder approval of such
reincorporation, Article VI, Section 6.1, of the Registrant's Bylaws will
provide for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
not prohibited by the Delaware General Corporation Law. The rights to indemnity
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she
is or was a director or officer of the Registrant (or was serving at the
Registrant's request as a director or officer of another corporation) shall be
paid by the Registrant in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Registrant as authorized by the
relevant section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be personally liable for monetary damages
for breach of the directors' fiduciary duty as directors to the Registrant and
its stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant for acts or omission not in good faith or involving
international misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of Stock repurchases or redemptions that are unlawful under Section
174 of the Delaware General Corporation Law. The provision also does not affect
a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into indemnification agreements with each of its directors and
executive officers. Generally, the indemnification agreements attempt to
provide the maximum protection permitted by Delaware law as it may be amended
from time to time. Moreover, the indemnification agreements provide for certain
additional indemnification. Under such additional indemnification provisions,
however, an individual will not receive indemnification for judgments,
settlements or expenses if he or she is found liable to the Registrant (except
to the extent the court determines he or she is fairly and reasonably entitled
to indemnity for expenses), for settlements not approved by the Registrant or
for settlements and expenses if the settlement is not approved by the court.
The indemnification agreements provide for the Registrant to advance to the
individual any and all reasonable expenses (including legal fees and expenses)
incurred in investigating or defending any such action, suit or proceeding. In
order to receive an advance of expenses, the individual must submit to the
Registrant copies of invoices presented to him or her for such expenses. Also,
the individual must repay such advances upon a final judicial decision that he
or she is not entitled to indemnification.
The Registrant intends to enter into additional indemnification agreements
with each of its directors and executive officers to effectuate these indemnity
provisions and to purchase directors' and officers' liability insurance.
In addition to the foregoing, the Underwriting Agreement contains certain
provisions by which the Underwriters have agreed to indemnify the Registrant,
each person, if any, who controls the
II-2
<PAGE>
Registrant within the meaning of Section 15 of the Securities Act, each
director of the Registrant, each officer of the Registrant who signs the
Registration Statement, with respect to information furnished in writing by or
on behalf of the Underwriters for use in the Registration Statement.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
Item 15. Recent Sales of Unregistered Securities.
Since our incorporation in October 1996, we have sold and issued the
following securities:
(1) In May and June 1997 the Registrant issued and sold 4,181,426 shares
of Common Stock to employees for $4,181 pursuant to Section 4(2) of the
Securities Act.
(2) In August 1997, the Registrant issued and sold 471,338 shares of
Common Stock to three employees for $471 pursuant to Section 4(2) of the
Securities Act.
(3) From August to November 1997, the Registrant issued and sold
3,572,401 shares of Series A Preferred Stock to 13 investors for $3.6
million pursuant to Section 4(2) of the Securities Act.
(4) In March and April 1998, the Registrant issued and sold 800,000
shares of Common Stock to one employee for $80,000 pursuant to Section 4(2)
of the Securities Act.
(5) In July 1998, the Registrant issued and sold 3,698,910 shares of
Series B Preferred Stock to 21 investors for $8.0 million pursuant to
Section 4(2) of the Securities Act.
(6) In February 1999, the Registrant issued and sold 100,000 shares of
Common Stock to one employee for $50,000 pursuant to Section 4(2) of the
Securities Act.
(7) In May 1999, the Registrant issued and sold 9,813,507 shares of
Series C Preferred Stock to 60 investors for $36.3 million pursuant to
Section 4(2) of the Securities Act.
(8) In August, September and October 1999, the Registrant issued and sold
76,250 shares of Series A Preferred Stock upon the exercise of warrants to
seven stockholders for aggregate consideration of $76,250 pursuant to
Section 4(2) of the Securities Act.
(9) In August 1999, the Registrant issued and sold 11,559 shares of
Series B Preferred Stock upon the exercise of a warrant to one stockholder
for aggregate consideration of $25,000 pursuant to Section 4(2) of the
Securities Act.
(10) In August 1999, the Registrant issued and sold 6,756 shares of
Series C Preferred Stock upon the exercise of a warrant to one stockholder
for aggregate consideration of $24,997 pursuant to Section 4(2) of the
Securities Act.
(11) Pursuant to Rule 701 promulgated under the Securities Act, from
October 18, 1996 to October 1, 1999, the Registrant issued and sold 390,905
shares of Common Stock to employees and consultants for aggregate
consideration of $56,809 upon the exercise of stock options pursuant to the
Registrant's Employee Stock Plan.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1* Form of Merger Agreement between Cobalt Networks, Inc., a California
corporation, and Cobalt Networks, Inc., a Delaware corporation
3.1* Certificate of Incorporation of the Registrant, as currently in
effect
3.1.1* Form of Amended and Restated Certificate of Incorporation of
Registrant
3.1.2* Form of Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made under this Registration
Statement
3.2* Bylaws of the Registrant
3.3* California Restated Articles of Incorporation
3.4* California Bylaws
4.1* Specimen Common Stock Certificate
4.2* Second Amended and Restated Investors' Rights Agreement, dated April
30, 1999, by and among the Registrant and certain stockholders of
the Registrant
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers
10.2* Amended and Restated 1997 Employee Stock Plan
10.2.1* Form of Option Agreement under the Employee Stock Plan
10.3* 1999 Employee Stock Purchase Plan
10.3.1* Form of Subscription Agreement under the 1999 Employee Stock
Purchase Plan
10.4* 1999 Director Option Plan
10.4.1* Form of Option Agreement under 1999 Director Plan
10.5* Form of Executive Officer Employment Agreement
10.6* Consulting Agreement dated August 30, 1996 by and between the
Registrant and Techfarm Management, Inc.
10.7* Lease Agreement dated August 5, 1998 between Registrant and Renault
& Handley Solar Ellis Joint Venture for 555 Ellis Street, Mountain
View, California office
10.7.1* Assignment of lease dated September 2, 1998 between Registrant and
Netscape Communications, Inc.
10.7.2* Sublease dated October 28, 1996 between Netscape Communications,
Inc. and Banta Corporation
10.7.3* Addendum One to sublease dated November 6, 1996 among Netscape
Communications, Inc., Banta Corporation and Renault & Handley Solar
Ellis Joint Venture
10.7.4* Lease dated August 10, 1993 ("Master Lease") between Banta Digital
Services, Inc. and Renault & Handley Solar Ellis Joint Venture
10.8* Employee Option Agreement dated July 15, 1998 between the Registrant
and George M. Korchinsky
10.9* Employment Offer Letter dated July 20, 1999 from the Registrant to
Gary Martell
10.10* Separation Agreement dated July 28, 1999 by and between the
Registrant and Robin Porter
10.11+ Turnkey Service and Purchase Agreement dated August 31, 1999 by and
among the Registrant and SMTC Manufacturing Corporation
10.12* Promissory Note and Security Agreement dated August 20, 1999 between
the Registrant and Stephen W. DeWitt
10.13+ Gateway Master Supply Agreement dated September 16, 1999 between the
Registrant and Gateway, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.14* Employment Agreement dated August 31, 1999 between the Registrant
and Vivek Mehra
21.1* Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2* Form of Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed
+ Confidential treatment requested
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this Amendment no. 2 to this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Mountain View, State of California on October 20, 1999.
/s/ Stephen W. DeWitt
By: _________________________________
Stephen W. DeWitt
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen W. DeWitt President, Chief Executive October 20, 1999
______________________________________ Officer and Director
Stephen W. DeWitt (Principal Executive
Officer)
/s/ Kenton D. Chow Vice President Finance and October 20, 1999
______________________________________ Chief Financial Officer
Kenton D. Chow (Principal Financial and
Accounting Officer)
Gordon A. Campbell* Chairman of the Board of October 20, 1999
______________________________________ Directors
Gordon A. Campbell
Jordan A. Levy* Director October 20, 1999
______________________________________
Jordan A. Levy
*By: /s/ Stephen W. DeWitt
____________________________________
Stephen W. DeWitt
Attorney-in-fact
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1* Form of Merger Agreement between Cobalt Networks, Inc., a California
corporation, and Cobalt Networks, Inc., a Delaware corporation
3.1* Certificate of Incorporation of the Registrant, as currently in
effect
3.1.1* Form of Amended and Restated Certificate of Incorporation of
Registrant
3.1.2* Form of Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made under this Registration
Statement
3.2* Bylaws of the Registrant
3.3* California Restated Articles of Incorporation
3.4* California Bylaws
4.1* Specimen Common Stock Certificate
4.2* Second Amended and Restated Investors' Rights Agreement, dated April
30, 1999, by and among the Registrant and certain stockholders of
the Registrant
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers
10.2* Amended and Restated 1997 Employee Stock Plan
10.2.1* Form of Option Agreement under the Employee Stock Plan
10.3* 1999 Employee Stock Purchase Plan
10.3.1* Form of Subscription Agreement under the 1999 Employee Stock
Purchase Plan
10.4* 1999 Director Option Plan
10.4.1* Form of Option Agreement under 1999 Director Plan
10.5* Form of Executive Officer Employment Agreement
10.6* Consulting Agreement dated September 30, 1996 by and between the
Registrant and Techfarm Management, Inc.
10.7* Lease Agreement dated August 5, 1998 between Registrant and Renault
& Handley Solar Ellis Joint Venture for 555 Ellis Street, Mountain
View, California office
10.7.1* Assignment of lease dated September 2, 1998 between Registrant and
Netscape Communications, Inc.
10.7.2* Sublease dated October 28, 1996 between Netscape Communications,
Inc. and Banta Corporation
10.7.3* Addendum One to sublease dated November 6, 1996 among Netscape
Communications, Inc., Banta Corporation and Renault & Handley Solar
Ellis Joint Venture
10.7.4* Lease dated August 10, 1993 ("Master Lease") between Banta Digital
Services, Inc. and Renault & Handley Solar Ellis Joint Venture
10.8* Employee Option Agreement dated July 15, 1998 between the Registrant
and George Korchinsky
10.9* Employment Offer Letter dated July 20, 1999 from the Registrant to
Gary Martell
10.10* Separation Agreement dated July 28, 1999 by and between the
Registrant and Robin Porter
10.11+ Turnkey Service and Purchase Agreement dated August 31, 1999 by and
among the Registrant and SMTC Manufacturing Corporation
10.12* Promissory Note and Security Agreement dated August 20, 1999 between
the Registrant and Stephen W. DeWitt
10.13+ Gateway Master Supply Agreement dated September 16, 1999 between the
Registrant and Gateway, Inc.
10.14* Employment Agreement dated August 31, 1999 between the Registrant
and Vivek Mehra
21.1* Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2* Form of Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- -------
* Previously filed
+ Confidential treatment requested
<PAGE>
EXHIBIT 10.11
TURNKEY SERVICE AND PURCHASE AGREEMENT
This Agreement is effective as of August 31, 1999 and is between Cobalt
Networks, Inc., a California corporation ("Cobalt"), having offices located at
555 Ellis Street, Mountain View, CA, 94043 and SMTC Manufacturing Corporation, a
California corporation ("SMTC"), having office at 2302 Trade Zone Blvd, San
Jose, CA 95131.
RECITALS
A. Cobalt is a developer and marketer of network appliances and SMTC is a
provider of turnkey contract manufacturing and order fulfillment services to
technology companies.
B. Cobalt wishes to utilize A services to manufacture Cobalt's network
appliance products and fulfill orders for such products and SMTC wishes to
provide such services to Cobalt.
In consideration of the premises and mutual covenants contained herein, the
parties agree as follows:
1. DEFINITIONS
1.1 "Assembly" means a hardware reference design and associated
--------
documentation which provides the design and associated bill of materials
for a Cobalt network appliance product to enable SMTC to manufacture such
product for Cobalt and package such product for shipment to customers.
1.2 "Board" means a fully assembled printed circuit board subassembly for
-----
a Cobalt network appliance product.
1.3 "A" means an engineering change order or notice from Cobalt
---
requiring a change in the Assembly for a particular Cobalt network
appliance product.
1.4 "Finished Good" means a fully assembled Cobalt network appliance
-------------
product packaged and ready to ship to a customer.
1.5 "Intellectual Property Rights" means all intellectual or proprietary
----------------------------
rights, including but not limited to, copyrights, moral rights, patent
rights (including patent applications and disclosures), rights of privacy,
mask work rights, and trade secret rights, recognized in any country or
jurisdiction in the world.
1.6 "Product" means a particular Cobalt network appliance product listed
-------
on Appendix A, which Appendix also sets forth the initial prices and
----------
material costs applicable to each such Product.
1.7 "Manufacturing Site" means the SMTC manufacturing site selected by
------------------
mutual agreement of Cobalt and SMTC to manufacture and assemble Boards. The
initial manufacturing site will be the SMTC facility in San Jose, CA.
2.0 APPOINTMENT
2.1 Appointment. Cobalt hereby appoints, and SMTC hereby accepts
-----------
appointment, as an independent, nonexclusive contract manufacturer and
order fulfillment service for all Cobalt Products.
<PAGE>
3.0 SPECIAL PURCHASE ORDER PROCEDURE FOR FIRST 90 DAYS
3.1 Special Purchase Order. On the effective date of this Agreement,
----------------------
Cobalt shall place a firm written purchase order (the "Special Purchase
Order") to purchase Finished Goods for delivery to Cobalt customers during
the first 90 days of this Agreement (the "Initial Term"). The purchase
order will specify the number of Finished Goods of a particular Product
which Cobalt desires to purchase, the requested date(s) for availability of
such Finished Goods for delivery to Cobalt customers and the prices
applicable to such Finished Goods. The Special Purchase Order is non-
cancelable.
3.2 Rescheduling; Increased Quantities. Cobalt may reschedule the monthly
----------------------------------
portion of the Special Purchase Order once per month by giving written
notice to SMTC, provided that the rescheduled date for availability to
Cobalt customers is within thirty (30) days of the originally scheduled
date. During the Initial Term, Cobalt may increase the quantity of Finished
Goods ordered for a particular month upon written notice to SMTC prior to
the end of the preceding month; provided, however, that SMTC will not be
obligated to accept any portion of a purchase order which is more than
100% above the amount originally ordered for a particular month. SMTC will
confirm acceptance of this increase in writing within 5 days. For the
purposes of this Agreement, months shall be calculated from the effective
date of this Agreement.
4.0 BUILD-TO-ORDER AND ORDER FULFILLMENT
4.1 Rolling Forecast. On the effective date of this Agreement and on each
----------------
monthly anniversary thereafter, Cobalt shall provide SMTC with a six (6)
month rolling forecast of requirements for Boards for each Product in the
form attached hereto as Appendix B (the "Forecast"). The Forecast will be
----------
non-binding; provided, however, that commencing with the Forecast delivered
on the third monthly anniversary of this Agreement, the first month of each
Forecast will be binding. Cobalt is liable for all completed Boards covered
by Notices (defined in Section 4.3) and work in process Boards covered by a
binding Forecast. A list of the completed Boards covered by Notices and the
work in process Boards shall be provided by SMTC if requested in writing by
Cobalt.
4.2 Manufacturing; Inventory of Assembly Components. During the term of
-----------------------------------------------
this Agreement, SMTC shall direct its Manufacturing Site to manufacture and
configure Finished Goods per Notices and have Finished Goods available for
delivery to Cobalt's customers at all times. SMTC agrees to provide upside
flexibility of [***] additional demand during [***] period, based on a
[***] average of rolling demand forecasts provided to SMTC by Cobalt. SMTC
shall at all times maintain sufficient quantities of Assembly components in
inventory to timely manufacture such Finished Goods determined by Cobalt
Notices. In addition, during each month for which the Forecast has become
binding, SMTC shall order a sufficient number of the long lead time items,
including those items set forth on Appendix C, within the lead times as
----------
would enable it to manufacture a number of Finished Goods in the second and
third months of such Forecast corresponding to the number of Boards in the
Forecast for such months. SMTC shall stock pile Boards at the Manufacturing
site for assembly into Finished Goods per Cobalt Notice. SMTC shall use its
best efforts to reduce the Assembly component supplier lead times and shall
promptly notify Cobalt of any change in such lead times. Cobalt may elect
to purchase Assembly components and consign them to SMTC for assembly into
Finished Goods.
4.3 Customer Supplied Components. In the event that Cobalt supplies
----------------------------
components to SMTC, these components are being purchased by SMTC with
terms of payment of [***] days. The pricing for such customer
supplied components are set forth in Appendix A. In the event that the
----------
components have not been consumed by Cobalt
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
requirements within [***] of receipt, SMTC has the right to return these
parts to Cobalt for immediate credit or, as an alternative, to mutually
agree to extend payment terms for an additional period until all components
are consumed in assemblies shipped to Cobalt. Cobalt remains liable for the
Cobalt unique components until they are consumed by assemblies build and
shipped by Cobalt.
4.4 Order Fulfillment. Cobalt shall have sole responsibility for
-----------------
soliciting and accepting orders from its customers for Finished Goods and
shall invoice its customers directly for Finished Goods ordered from
Cobalt. Cobalt shall provide SMTC with an order tracking number, customer
name, shipping address, method of shipping and promised delivery date for
each order accepted by Cobalt from a customer of the Products in the form
of notice or any other mechanism agreed to by Cobalt and SMTC (a "Notice").
SMTC shall fulfill each customer order to meet the promised delivery date
set forth in the Notice form. SMTC shall provide a variety of shipping
options for Cobalt's customers and shall ship Finished Goods to customers
at the most favorable rate available to SMTC for the chosen shipping
option. To the extent that Cobalt's customer has specific shipping
instructions or routing guides, SMTC shall ship Finished Goods to Cobalt's
customers in accordance with the specific shipping instructions or routing
guides. All freight, federal, state, and local sales, use, excise, and
similar taxes and charges arising in connection with the sale and delivery
of the Products to Cobalt's customers shall be borne by Cobalt. All
expenses relating to interfacing Cobalt's MRP system with SMTC shall be
borne by SMTC.
4.5 System Interfaces. SMTC shall be responsible for the expenses related
-----------------
to the interface between Cobalt's MRP system and SMTC's systems, including
all data transmission lines mutually agreed upon and any related costs for
wiring required at the SMTC manufacturing facility. SMTC shall not be
responsible for the cost of any Cobalt specific hardware, such as servers,
computers and printers.
4.6 Inspection. Cobalt shall inspect the first production run of Boards
----------
and Finished Goods at the Manufacturing site and verify conformance
requirements, which may include Cobalt engineering or manufacturing
inspection. After Cobalt has reviewed the first Boards and authorized their
release to production, SMTC shall use its best efforts to ensure that the
Manufacturing Site maintains conformance to Assembly requirements.
SMTC will provide incoming and outgoing inspection, assembly and test
methods consistent with generally accepted industry standards and/or Cobalt
specific inspection requirements mutually agreed to by both parties. The
incoming inspection includes, but is not limited to, component level
inspection.
4.7 Designated Suppliers. SMTC will issue purchase orders for Assembly and
--------------------
Boards to Suppliers Listed on Appendix D, and for Assembly components to
---------
the suppliers listed on Cobalt Approved Vendor List. SMTC shall only
purchase Assembly components specified and approved by Cobalt. Any changes
in Assembly components or suppliers are subject to Cobalt's advance written
consent.
4.8 Returns. SMTC shall not accept any returns of Finished Goods from
-------
Cobalt customers unless authorized by Cobalt in writing pursuant to
the return material authorization procedures set forth on Appendix E.
----------
SMTC shall maintain a cross-ship warehousing area to handle returns and
cross shipments required to replenish failed units. Data on this stock
shall be reported weekly. SMTC shall provide serialization and failure
analysis data to Cobalt for design and customer feedback. In the event of
epidemic failures [to be defined by Cobalt and SMTC], SMTC will reimburse
Cobalt for all reasonable costs associated with maintaining customer
goodwill if the failures are due to a manufacturing defect including, but
not limited to, product logistics, expediting of repairs, and negotiations
with component suppliers
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
with prior mutual agreement between the parties. In any event, Cobalt shall
not be entitled to and SMTC shall not be liable for indirect, special,
incidental, or consequential damages of any nature, including but not
limited to loss of profit, promotional or manufacturing expenses, overhead,
injury to reputation or loss of Cobalt customer networks. If the failures
are not due to a SMTC manufacturing defect, SMTC will assist Cobalt as
required in the areas of logistics, expediting of repairs, and negotiations
with component suppliers and will charge for these activities on a cobalt
pre-approved, written basis.
4.9 Product Changes and Discontinuation. Cobalt reserves the right to
-----------------------------------
modify or change the Assembly for any of the Products by providing an ECO
to SMTC; provided that Cobalt shall be obligated to reimburse SMTC for the
cost of any applicable charge, including restocking charge, due to the
return of replaced or superceded Assembly components to a vendor or, if
SMTC is unable to return replaced or superceded Assembly components listed
in Appendix C to a vendor, Cobalt shall be obligated to accept such
delivery of, and reimburse SMTC for, such Cobalt unique components. Cobalt
acknowledges that ECOs may result in price changes and changes in the
delivery schedules of Boards and/or Finished Goods. SMTC shall notify
Cobalt of any changes in delivery schedules caused by SMTC's suppliers
under ECO or otherwise. SMTC agrees to respond to Cobalt with the impact of
any ECO on the price, delivery, one time costs and quality of an Assembly
within the following schedule, based on the urgency of the change upon
receipt of the order or notice:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
ECO PRIORITY CODE SMTC RESPONSE TIME
------------------------------------------------------------------------------------------------------
<S> <C>
Emergency 1 business day
------------------------------------------------------------------------------------------------------
Routine 1 business week
------------------------------------------------------------------------------------------------------
</TABLE>
SMTC and Cobalt will review and mutually agree upon the material impact of
any ECO. All Finished Goods and work-in-process requiring treatment by any
ECO will be considered rework. Cobalt may negotiate price changes caused by
an ECO directly with SMTC. Cobalt shall bear the costs of any assembly
rework or delays prior to delivery if such rework or delay is due to Cobalt
design of Assembly, engineering changes or products or parts that have been
supplied to and/or purchased by SMTC from Cobalt. Such products are listed
in Appendix F.
---------
5.0 Payment Terms
5.1 Prices. The initial prices for each Product are set forth on Appendix
------ --------
A. Cobalt may add additional Products to Appendix A during the term of this
- -----------
Agreement. Cobalt shall pay SMTC for each Finished Product shipped by SMTC
to a customer [***] from the date of invoice.
5.2 Price Changes. SMTC shall immediately notify Cobalt in writing of any
-------------
change in price of any Assembly component that increases the total cost of
a Finished Good by more than [***] or any increase of more than [***] in
price of any Assembly component with a cost of [***] or more. In such
event, Cobalt and SMTC shall negotiate an appropriate price change. If
Cobalt and SMTC are unable to agree to a new price, SMTC and/or Cobalt may
delete the affected items from the Assembly and Cobalt may elect to
purchase Assembly components and consign them to SMTC for assembly into
Finished Goods.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
In the event that Cobalt consigns Assembly components to the SMTC, pursuant
to this section, the applicable prices shall be reduced by the listed
material cost of such deleted Assembly components as indicated in Appendix
--------
A.. SMTC shall warehouse any consigned Assembly components from Cobalt and
-
be liable for theft or shrinkage of such Assembly components. SMTC shall
receive a fee for warehousing and handling any Assembly components
consigned by Cobalt as set forth in Appendix A.
----------
5.3 Price Review on Hard Drives and Memory. Cobalt and SMTC agree to
mutually review pricing on hard drives and memory on a monthly basis. SMTC
will provide pricing for these commodities to Cobalt on or before the
20/th/ day of each calendar month. Acceptance of revised pricing for these
hard drive and memory commodity components is by mutual agreement between
Cobalt and SMTC by no later than the 25/th/ day of each calendar month. The
selling price of assemblies affected by revised hard drive or memory costs
will be adjusted for the calendar month following the cost revision. Any on
hand raw material, work in process, finished goods inventories or material
in transit will have the appropriate debt or credit applied based on the
monthly pricing review.
5.4 Cost Reductions. During the term of this Agreement and any renewal
---------------
period, SMTC shall make reasonable efforts to reduce the cost of each
Product by a minimum of [***] per calendar quarter, excluding Cobalt
consigned Assembly Components. Cobalt and SMTC shall each designate a
representative to coordinate such cost reduction efforts. Cobalt and SMTC
shall review Product cost and quality monthly for existing products and
shall mutually establish costs for new Product(s) as released from Cobalt.
In the event that this Agreement is renewed, Cobalt and SMTC shall
establish the initial costs for the Products during the renewal terms 30
days prior to the start of the renewal period.
5.5 Special Provision for Non Cancelable Items and Boards. In the event
-----------------------------------------------------
that this Agreement is terminated for any reason, Cobalt shall reimburse
SMTC for the non-cancelable Assembly components within the leadtimes set
forth on Appendix C, completed and work-in-process Boards covered by a
----------
binding Forecast, Finished Goods that are in RMA stockroom or under RMA
repair, and past due rework charges outstanding.
5.6 Special Performance Bonuses and Penalties. Cobalt and SMTC agree that
-----------------------------------------
available-to-promise("ATP"), on time delivery of Finished Goods ("OTD")and
out-of-box audit ("OBA") are critical to Cobalt's customers satisfaction.
SMTC's compensation under this Agreement shall be adjusted monthly after
the Initial Term based on the foregoing criteria in accordance with the
following matrix:
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Type of Cobalt Customer Criteria Cobalt Req. Monthly
ship date (mo. Bonus
ave)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OEM type customer (larger OTD late or Less than 1 day Add [***]
volumes with scheduled early OBA
delivery over time) Yield Greater than 99.95 Add [***]
- ----------------------------------------------------------------------------------------
Direct Sales (smaller ATP Less than 2 days Add [***]
immediate ship orders) OBAYield Greater than 99.95% Add [***]
- ----------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Type of Cobalt Customer Criteria Penalty
not met
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
OEM type customer (larger Greater than 1 day Subtract [***] for every day late
volumes with scheduled or early
delivery over time) Less than 99.95 Subtract [***] for every .05% yield
- ---------------------------------------------------------------------------------------------------
Direct Sales (smaller Greater than 2 days Subtract [***] for every day late
immediate ship orders) Less than 99.95 Subtract [***] for every .05% yield
- ---------------------------------------------------------------------------------------------------
</TABLE>
All time based criteria shall be measured from the time Cobalt submits a
customer's order to SMTC until such customer's Finished Good(s) leaves
SMTC's premises or designated point of distribution. Compensation shall be
adjusted monthly and calculated as a percentage of the total cost of Boards
and Assembly components procured by SMTC for the Finished Goods shipped to
a particular type of customer during a particular month and based on the
average number of days late/early all shipments to such type of customer
were in a particular month. A sample calculation is contained in Appendix
--------
H. Bonus payments shall be paid quarterly. Penalties shall be payable by
offsetting amounts due SMTC under this Agreement. There is a [***] limit as
to the OTD penalty that may be imposed in a particular quarter. There is a
[***] limit to the ATP penalty that may be imposed in a particular month.
There is a [***] limit to the OBA Yield that may be imposed in a particular
month. Cobalt may conduct OBA audits of packaged Finished Goods at SMTC
shipping facility during normal business hours.
6.0 QUALITY AND GENERAL REPORTING REQUIREMENTS
6.1 SMTC shall provide the following reports or information to Cobalt:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
REPORT / INFORMATION FREQUENCY
-------------------- ---------
- ---------------------------------------------------------------------------------
<S> <C>
Available to Promise Report Daily
- ---------------------------------------------------------------------------------
Final Assembly Schedule Twice Weekly
- ---------------------------------------------------------------------------------
FGI Receiving / Shipping Log Daily
- ---------------------------------------------------------------------------------
MFG WIP reports (by board type & system level) Twice Weekly
- Qty in 1st OP.
- Qty in 2nd OP.
- Qty in Box Build
- Qty in test
- Qty in Debug
- ---------------------------------------------------------------------------------
YIELD reports (by board type & system Ivl) Weekly
- Inspection
- 1/st/ Functional
- ---------------------------------------------------------------------------------
</TABLE>
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------
<S> <C>
RMA Reports Weekly
- Number of units returned
- Turnaround time
- Failure report
- Circuit Location of fault
- ------------------------------------------------------------------------------------------------------
- Materials PPV report Monthly
- ------------------------------------------------------------------------------------------------------
Labor Variance report Monthly
- ------------------------------------------------------------------------------------------------------
</TABLE>
7.0 COBALT DELIVERABLES
7.1 Unless otherwise agreed, Cobalt shall provide SMTC all information
required for the manufacture of Cobalt products. Cobalt will also provide
SMTC all unique test equipment, test procedures, and software code for
loading of production disk drives and programmable devices. The above
information, software code, and equipment remain the proprietary property
of Cobalt.
8.0 NEW PRODUCT INTRODUCTION AND DESIGN SUPPORT
8.1 Relations with SMTC. SMTC will coordinate with Cobalt in the design
-------------------
and procurement of all tooling and fixtures required for the build and
assembly process. Cobalt shall bear the cost of all capital expenditures
for Cobalt-unique tooling and fixturing. All Cobalt owned equipment and
tools shall be marked with a Cobalt control number prior to installation at
SMTC. If SMTC purchases such equipment or tools on Cobalt's behalf, Cobalt
will provide the appropriate control numbers for marking.
8.2 New Products. SMTC and Cobalt will jointly perform a detailed design
------------
for manufacturing, design for assembly and design for test analysis on new
products and assemblies. Upon [***] written notice, SMTC shall provide a
[***] business day turnaround for prototypes for new products at no
additional charge. SMTC shall source and kit components for Cobalt
prototype system level bills of material within [***] days for new product
designs and [***] days for existing product design modifications from
written notification from Cobalt. SMTC shall provide a [***] turnaround
on prototype repairs.
9.0 TERM AND TERMINATION
9.1 Term. The initial term of this Agreement shall be one (1) year
----
commencing on the effective date, unless terminated in accordance with the
provisions of this Section 9. This Agreement shall be automatically renewed
at the end of each one year period unless either party terminates this
Agreement pursuant to Section 9.2 or 9.3. In the event that this Agreement
is terminated for any reason, Cobalt may place a one time purchase order
for a mutually agreed to quantity of Finished Goods and/or Boards.
9.2 Termination. This Agreement may be terminated at any time, without
-----------
cause, by either party upon giving the other party at least ninety (90)
days written notice, or by either party on ninety (90) days notice if there
is failure to agree on a price increase according to Section 5..2. Such
termination shall be effective on the date stated in such notice.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
7
<PAGE>
9.3 Termination for Cause. This agreement may be terminated immediately
---------------------
for cause by either party in the event the other party (i) files a
voluntary petition in bankruptcy, (ii)has an involuntary petition of
bankruptcy filed against it which is not discharged within 60 days, (iii)
makes a general assignment for the benefit of creditors, (iv)is unable to
pay its debts as they become due, (iv) has a receiver appointed on account
of its insolvency or (v) fails to pay amounts due under agreed upon terms
and conditions hereunder so as to be in default and fails to cure any such
default within thirty (30) days after written notice.
9.4 Effect of Termination. In the event of any termination or expiration
---------------------
of this Agreement, the parties shall, within thirty (30) days after such
termination or expiration, return or destroy all copies of any Confidential
Information provided hereunder in such party's possession or control and,
upon request, shall furnish to such other party an affidavit or declaration
signed by an officer of such party certifying that such delivery or
destruction has been fully effected. Notwithstanding termination of this
Agreement, Cobalt shall be liable within lead times for the Cobalt unique
non-cancelable items listed in Appendix C, Boards covered by a binding
Forecast, Finished Goods in an RMA stockroom or under RMA repair, and past
due rework charges outstanding.
9.5 Survival of Obligations. The following provisions shall survive any
-----------------------
termination or expiration of this Agreement: Section 5.4 (Special Provision
for Non-Cancelable Items and Boards), Section 9.4 (Effect of Termination),
Section 9.5 (Survival of Obligations), Section 12 (Confidentiality and
Intellectual Property Rights), Section 14 (SMTC Limited Warranty and
Limitations of Liability), and Section 17 (General Provisions).
10. FORCE MAJEURE
10.1 Force Majeure. Neither party shall be liable for failure to fulfill
-------------
its obligations under this Agreement, or for delays in delivery, due to
causes beyond its reasonable control, including-but not limited to - acts
of God or nature, acts or omissions of civil or military authority,
Government priorities, fires, strikes, floods, epidemics, quarantine
restrictions, riots, war, and delays in transportation. The time for
performance of any such obligation shall be extended for the time period
lost by the reason of the delay. Cobalt, SMTC and the SMTC shall use their
best efforts to recover from any such delay.
11. INSURANCE
11.1 Insurance. SMTC shall maintain adequate insurance no less than
---------
$2,000,000 against fire, theft and damage for the inventory of Finished
Goods, work-in-process, and Assembly component inventories that Cobalt is
liable for. Cobalt shall maintain adequate insurance against fire, theft,
and damage to cover any Cobalt consigned material, test fixtures, capital
equipment, and other Cobalt material in the hands of SMTC.
11.2 Due Care. The parties agree to take all reasonable precautions to
--------
prevent injury to any persons or damage to property during the terms of
this Agreement and shall defend, indemnify, and hold (each other, its
officers, directors, agents and employees) harmless from and against any
and all claims, losses, expenses (including reasonable attorney's fees),
demands, or judgements ("Claims") which result from or arise out of: (1)
the presence of the other or equipment or tools used by either in the
performance of this Agreement on the property of the other; or (2), the use
of equipment, tools, or facilities ("Equipment") whether or not any Claims
are based upon the condition of the equipment or any agent's, or employee's
alleged negligence in permitting its use.
12. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY RIGHTS
8
<PAGE>
12.1 Confidential Information. "Confidential Information" means
------------------------
confidential and proprietary information of either party ("Disclosing
Party") that is disclosed to the other party ("Receiving Party") pursuant
to this Agreement, including, but not be limited to any trade secrets,
knowledge, data or other information of the disclosing party relating to
products, research-and development activities, processes, software,
concepts, know-how, designs, test data, customer lists, business plan,
marketing plans, which in the case of written information is marked
"confidential" or "proprietary", and which in the case of information
disclosed orally is identified at the time of the disclosure as
confidential and proprietary and will be summarized and confirmed in
writing as such by the Disclosing Party within ten (10) days after the
disclosure. Confidential Information shall not include information that:
(i) is generally available to the public through no fault or breach of the
Receiving Party; (ii) the Receiving Party can demonstrate to have had
rightfully in its possession prior to disclosure by the Disclosing Party;
(iii) is independently developed by the Receiving Party without the use of
any Confidential Information; (iv) the Receiving Party rightfully obtains
from a third party who has the right to transfer or disclose it; or (v) is
required to be disclosed by an order of a court or governmental agency,
provided that the Receiving Party shall have first given notice to the
Disclosing Party to allow the Disclosing Party to make a reasonable effort
to obtain a protective order or other confidential treatment for the
Confidential Information.
12.2 Nondisclosure. Each party shall not disclose, publish, or
-------------
disseminate the Confidential Information of the other party to anyone other
than those of such Receiving Party's employees and consultants with a need
to know, or as may by required by legal process, and each party agrees to
take reasonable precautions, but in no event less than due care, to prevent
any unauthorized use, disclosure, publication, or dissemination of the
other party's Confidential Information; provided that each party to whom
such Confidential Information is disclosed agrees to be bound by the
provisions of Sections 12.1 and 12.2. Each party agrees to accept the other
party's Confidential Information for the sole purpose of carrying out such
Receiving Party's authorized activities under this Agreement. Each party
agrees not to use the Confidential Information of the other party otherwise
for its own or any third party's benefit other than as contemplated herein
without the prior written approval of an authorized representative of the
Disclosing Party in each instance.
12.3 Intellectual Property Rights. As between the parties, except as
----------------------------
otherwise provided in this Agreement, all Intellectual Property
embodied in the Products, Assemblies and the Finished Goods belong to
and will remain exclusively with Cobalt. During the term of this
Agreement, SMTC shall have a non-exclusive license to use the
Intellectual Property soley for the purposes contemplated by this
Agreement.
12.4 Confidentiality of this Agreement. The terms of this Agreement shall
---------------------------------
be deemed to be the confidential information of each party. In the
event of a disclosure of this Agreement or its terms required by law,
including a disclosure required by the Securities and Exchange
Commission, the disclosing party shall use all reasonable efforts to
obtain confidential treatment of materials so disclosed.
13. CERTIFICATIONS
13.1 Certifications. SMTC shall maintain all necessary certifications,
--------------
including without limitation ISO9000 and UL certification status, and
verify SMTC's certifications, including its ISO9000 and UL certification
status, on a periodic basis and shall notify Cobalt immediately in
9
<PAGE>
writing upon loss of any such certifications. SMTC shall use its best
efforts to obtain, and cause SMTC to obtain, BABT certification and other
similar certifications required by Cobalt.
14. SMTC LIMITED WARRANTY AND LIMITATIONS OF LIABILITIES
14.1 Warranty. SMTC warrants to Cobalt that Assembly components purchased
--------
pursuant to this Agreement will conform to the manufacturer's
specifications for such products and that any value-added work performed by
SMTC on any such products will conform to applicable Cobalt specifications
relating to such work. IN PARTICULAR, SMTC MAKES NO WARRANTY RESPECTING THE
MERCHANTABILITY OF THE FINISHED GOODS OR BOARDS OR THEIR SUITABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OR USE.
14.2 Transfer of Warranty. SMTC will grant to Cobalt a minimum fifteen
--------------------
(15) month transferable manufacturer's warranty and any indemnification
that SMTC receives from the manufacturer. SMTC will also transfer to Cobalt
whatever warranties and indemnities SMTC receives from the manufactures of
the Assembly components, subject to any manufacturer imposed restrictions.
With respect to Assembly components that do not meet applicable
manufacturer's specifications, SMTC's liability is limited (at SMTC's
discretion) to (1.) Refund of Cobalt purchase price for such products
(without interest); (2.) Repair of such products, or; (3.) Replacement of
such products provided, however, such products must be returned to SMTC,
transportation charges collect to SMTC. Cobalt shall not, in any event, be
entitled to, and SMTC shall not be liable for indirect, special,
incidental, or consequential damages of any nature including - without
being limited to -loss of profit, promotional or manufacturing expenses,
overhead, injury to reputation or loss of Cobalt customer networks.
Cobalt's recovery from SMTC from any claim shall not exceed SMTC's purchase
price for such Assembly components and shipping charges if applicable,
irrespective of the nature of the claim, whether in contract, tort,
warranty, or otherwise.
14.3 Finished Goods Warranty. SMTC warrants that the Finished Goods sold
-----------------------
under this Agreement will be free from manufacturing defects for a period
of eighteen (18) months from date of shipment to customer (OEM,
Distributor, VAR, reseller, or direct sales). The warranty period for
returned Finished Goods shall be the balance of the original warranty
period or ninety (90) days, whichever is greater. The warranty is void if
product(s) have been subjected to abuse, misuse, accident, alteration,
neglect, operation outside of parameters or environments specified in
Cobalt's product specifications or unauthorized repair, installation, or
alterations by anyone other than SMTC. if SMTC and Cobalt jointly determine
that a Finished Good under warranty product is irreparable, or SMTC no
longer possesses the tools and equipment necessary to perform the repairs,
SMTC shall have the option to refund the cost of replacement.
15. GENERAL
15.1 Assignment. Neither party may assign its rights or delegate its
----------
obligations under this Agreement, either in whole or in part, without the
prior written consent of the other party other than an assignment by either
party of this Agreement by merger, acquisition, or sale of all or
substantially all of its assets. Any attempted assignment or delegation
without such prior consent will be null and void. The rights and
liabilities of the parties under this Agreement will bind and inure to the
benefit of the parties' respective successors and permitted assigns.
15.2 Relationship of Parties. The parties to this Agreement are
------------------------
independent contractors and this Agreement will not establish any
relationship of partnership, joint venture, employment, franchise, or
agency between the parties. Except as provided in
10
<PAGE>
this Agreement neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written
consent.
15.3 Notices. Any notice or payment required or permitted to be made or
-------
given by either party hereto pursuant to this Agreement will be deemed
delivered on the date of issuance if sent by such party to the other party
by mail certified, return receipt requested, commercial courier, personal
delivery, or a similar reliable delivery method with proof of delivery,
addressed to the addresses set forth above or to such other address as a
party shall designated by written notice given to the other party.
Electronic mail and facsimile may be used; provided, that any document so
delivered is also reduced to hard copy and delivered by one of the
foregoing methods.
15.4 Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the State of California without reference to or
application of conflict of law rules.
15.5 Export Administration Act and Related Laws. To the extent that the
------------------------------------------
export, resale and re-export of the Finished Goods is subject to the U.S.
Export Administration Act of 1979, as amended (the "Export Act"), and the
regulations promulgated thereunder, and any other regulation of any
jurisdiction with respect to export or import, SMTC will comply with its
obligations under the Export Act and such regulations.
15.6 Severability. if any part of this Agreement is found to be invalid
------------
or unenforceable by a court of competent jurisdiction, then it will be
enforced to the maximum extent permitted by law and the remaining
provisions shall remain in full force and effect. Furthermore, the parties
agree to substitute for the invalid or unenforceable provision a valid and
enforceable provision which most closely approximates the intent and
economic effect of the invalid or unenforceable provision.
15.7 Waiver. The waiver of any breach of any provision of this Agreement
------
shall not constitute a waiver of any subsequent breach of the same other
provisions herein. To be effective, a Waiver must be in writing and signed
by the waiving party.
15.8 Rights of Third Parties. Nothing contained in this Agreement,
-----------------------
express or implied, shall be deemed to confer any rights or remedies upon,
nor obligate any of the parties hereto, to any person or entity other than
such parties, unless expressly stated to the contrary.
15.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable and all of which together
shall constitute one instrument.
15.10 Headings. All section headings provided herein are for convenience
--------
only, and shall not be used as a basis for construction or interpretation
of this Agreement.
15.11 Entire Agreement. This Agreement, including the Appendices hereto
----------------
which are expressly incorporated herein by reference, constitutes the
complete and exclusive understanding and agreement between the parties and
supersedes all prior understandings and agreements, whether written or
oral, with respect to the subject matter hereof. This Agreement may not be
altered, modified, amended, changed, rescinded or discharged, in whole or
in part, except by written agreement executed by both parties.
Acceptance of this Agreement shall be indicated by signature of
authorized persons of both parties below:
11
<PAGE>
SMTC, Inc. Cobalt Networks, Inc.
By:/s/ Gary Walker By: /s/ Gary Martell
------------------- --------------------------
Printed: Gary Walker Printed: Gary Martell
------------- ----------------------
Title: Vice President Title: Chief Operating Officer
--------------- ------------------------
Date: September 3, 1999 Date: September 3, 1999
----------------- -------------------------
Address: 2302 Trade Zone Lane Address: 555 Ellis Street
---------------------- -----------------------
San Jose, CA 95131 Mountain View, CA 94043
---------------------- -----------------------
Phone: (408) 934-7100 Phone: (650) 623-2500
------------------------ -------------------------
12
<PAGE>
List of Appendices
------------------
Appendix A Products, prices, and material costs
Appendix B Form of Forecast
Appendix C Cobalt Unique Parts and Leadtimes
Appendix D List of suppliers
Appendix E Returns Policy
Appendix F Cobalt Supplied Products
Appendix G Changes to Contract
Appendix H Sample calculation of Bonus and Penalty structure
13
<PAGE>
APPENDIX A
PRICING FOR TURNKEY SERVICE AND PURCHASE AGREEMENT
This Appendix constitutes the pricing structure for the contract between SMTC
and Cobalt as of the effective date. The charges consist of three major
categories: Materials, Turnkey Material Cost Charges, Customer Supplied
Component Material Cost, Customer Supplied Component Material Cost Turnkey
Charge, Labor and SMTC Profit on Materials.
Definitions
- -----------
Material Cost - shall consist of all Assembly components necessary to build a
Cobalt product as indicated on the product specific bill of material. These
components are procured and/or supplied by SMTC and are not consigned customer
supplied components.
Customer Supplied Components - shall consist of all assembly components procured
and/or supplied by Cobalt necessary to build a Cobalt product as indicated on
the product specific bill of material. These components are procured and/or
supplied by Cobalt and are not procured and/or supplied by SMTC.
Bill of Material - The Cobalt bill of material is the summary of all necessary
assembly components necessary to build any specific Cobalt product.
Material Turnkey Charge - indicates the percentage SMTC shall charge Cobalt in
addition to the material cost.
Customer Supplied Component Turnkey Charge - shall consist of the percentage
SMTC shall charge Cobalt for warehousing and handling consigned customer
supplied components, such as [***].
Labor - shall consist of SMTC's labor costs necessary to build any Cobalt
product. These labor costs are mutually agreed upon between SMTC and Cobalt on a
[***] basis.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
Pricing Model
- -------------
Material Cost: Cost of material procured and/or
supplied by SMTC as described above.
Material Turnkey Charge: Percentage of Cobalt Bill of Material
cost as indicated in the volume table
below. Initially this is [***]
of the material cost.
Customer Supplied Components
Material Cost: Cost of materials procured and/or
supplied by Cobalt as described above.
Customer Supplied Material Turnkey
Charge: Percentage of Cobalt Bill of Material
cost for those specific components
supplied by the customer as indicated in
the volume table below. Initially this
is [***] of the material cost.
Labor: Mutually agreed upon labor tht SMTC is
to charge Cobalt for a specific Cobalt
product. Labor costs are to be reviewed
by both Cobalt and SMTC on a quarterly
basis.
SMTC Profit on Materials: SMTC's profit margin as a percentage of
Material Cost procured and/or supplied
by SMTC. The material cost that this
percentage excludes the Material Turnkey
Charge. Initially this is [***] of
Material Cost. There is [***]SMTC profit
on Customer Supplied Component Materials
Cost.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Volume Pricing Table (based on SMTC procured and/or supplied material)
- --------------------
[***]
Example (This calculation is for illustration purposes only)
[***]
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
16
<PAGE>
[***]
Product:
[***]
- --------------------------------------------------------------------------------
COBALT BILL OF MATERIAL COST ROLL UP - [***]
AS OF: [***]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cobalt Part Number Description QPA Cost Ext. Cost
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <X> <C> <C> <C>
FINAL ASSEMBLIES
[***] [***] [***] [***]
SUB ASSEMBLIES
[***] [***] [***] [***]
</TABLE>
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
17
<PAGE>
APPENDIX B
FORM OF FORECAST
<TABLE>
<CAPTION>
Cobalt Networks Inc., Product Forecast
AS OF:
8/23/99 19 98 JAN 99' FEB MAR APR MAY JUN
- -------------------------------------------------- ----------------------------------------------------------
FG Q4 YR Q1 Q2
- -----------------------------
LOC
--------
MIN B
- -------------------------------------------------- ------------------------------------------------------------
----------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------- ----------------------------------------------------------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- -------------------------------------------------- ----------------------------------------------------------
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] FRCST [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------- ----------------------------------------------------------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- -------------------------------------------------- ----------------------------------------------------------
- --------------------- ------------- ----------------------------------------------------------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF:
8/23/99 JUL AUG SEP OCT NOV DEC
- --------------------- --------------------------- -----------------------------
Q3 Q4 YR Q1
1999 2000
- --------------------- ------------------------------------------------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------------------------------------------------------- -------- --------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------------------------------------------------------- -------- --------
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------------------------------------------------------- -------- --------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------------------------------------------------------- -------- --------
- --------------------- ------------------------------------------------------------- -------- --------
TOTAL [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
- --------------------- ------------------------------------------------------------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
NOTES:
<S> <C>
1. This forecast includes new product introduction of [***] time frame
2. Changes from [***]
3. Changes from [***]
4. Changes from [***]
5. Changes from [***]
Actual orders for product in May 99' was [***] systems. Backlog of [***] units carried into June
Actual orders for product in June 99' was [***] systems. Backlog of [***] units carried into July
Actual orders for product in July 99' was [***] systems. Backlog of [***] units carried into August
</TABLE>
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
18
<PAGE>
APPENDIX C
COBALT UNIQUE MATERIALS
<TABLE>
<CAPTION>
APPENDIX C
COBALT UNIQUE MATERIALS LIST
6/22/99
- ----------------------------------------------------------------------------------------------------------------------------------
Cobalt Part Number Description 1 Supplier Item cost LEAD TIME
(in weeks)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***] COVERED BY BINDING FORECAST
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL UNIQUE COMPONENTS $[***]
- ---------------------------------------------------------------------------------------------------------------------
[***] COVERED BY BINDING FORECAST
- ----------------------------------------------------------------------------------------------------------------------------------
[***]
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL UNIQUE [***] $[***]
- --------------------------------------------------------------------------------------------------------------------------
UNIQUE COMPONENTS THAT ARE INCLUDED IN THE COST OF ABOVE ROLLED-UP ASSYS
- ------------------------------------------------------------------------------------------------------------------------------------
[***]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
19
<PAGE>
APPENDIX D
LIST OF SUPPLIERS
Cobalt directs SMTC to use the Manufacturing site(s) as listed below in
performance of this agreement:
1. Name: Service Mount Technology Centre
Address: 2302 Trade Zone Blvd, San Jose, California 95131
2. Name:
Address:
3. Name:
Address:
20
<PAGE>
Appendix E
RETURN MATERIALS AUTHORIZATION PROCESS
[***]
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
21
<PAGE>
APPENDIX F
COBALT SUPPLIED PRODUCTS
Product Supplied from Cobalt to SMTC
PART # DESCRIPTION COBALT PART # MFR PART # REVISION
- ------------------ ------------- ---------- --------
[***] [***] [***] [***]
[***] [***] [***] [***]
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
22
<PAGE>
APPENDIX G
CHANGES TO CONTRACT
The following changes or additions to the attached agreement have been agreed
upon by both SMTC and Cobalt:
23
<PAGE>
APPENDIX H
SAMPLE CALCULATION OF BONUS/PENALTY STRUCTURE
1. All times are measured from time of notice to time shipped from dock.
2. Example: [***] OEM units OTD at [***] day, [***] Direct ship [***] [***]
than [***] days, [***] greater than [***] SMTC would receive a bonus of
[***] by SMTC for that assembly. If [***] was [***], and [***] units were
shipped that [***], SMTC would receive a [***] bonus of [***]
ATP bonus of [***]
OBA bonus of [***] for a total of an $[***] bonus for the month.
3. Example: If the monthly average of [***] is [***] for all [***] and the
[***] for [***] is lower than [***], but [***] exceeds [***] and is measured
for the [***] at [***] ([***] in excess of need) for total monthly direct
shipments of [***], the calculation would be as follows:
OBA bonus: [***]
OTD bonus [***]
ATP [***]
Amounts normalized by [***].
3. Example of how [***] is calculated. On [***] in the month that are
shipped to direct customers (not scheduled [***] shipments), for [***] of
the month, the published [***] is [***], on [***] of the [***] the [***]
is published at [***], but for [***] of the month, the published [***]
days, therefore the average [***] is [***] and the [***] is applied as
[***]. If [***] of [***], and [***] of [***], the [***] would be
calculated as [***] and the penalty would be [***]. If [***] the [***],
and [***], the monthly average [***] would be calculated as [***] and the
[***] would be [***]. Amounts normalized by [***]
4. On time delivery reports are measured and calculated as in Example 3 above,
except measure from the time the order is scheduled to ship to time actual
shipment occurs from SMTC dock. Transit time issues from the freight
carrier to customer dock are not part of this calculation. For [***]
metric, [***] or [***] are measured in absolute value. If [***] are [***],
the [***] is applied. If [***] are [***] and [***], the [***] is deemed
[***].
5. [***] is measured by the [***] on Finished Goods. [***] averages will be
compiled into a monthly [***] specifying [***] average.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.13
Gateway Confidential
[LOGO OF GATEWAY]
MASTER SUPPLY AGREEMENT
THIS MASTER SUPPLY AGREEMENT (the "Agreement") is entered into effective as
of September 16, 1999 ("Effective Date"), by and between Gateway, Inc., a
Delaware corporation, 610 Gateway Drive, North Sioux City, SD 57049, and its
subsidiaries as determined by Gateway, Inc. (collectively, "Gateway"), and
Cobalt Networks, Inc., a California corporation, 555 Ellis Street, Mountain
View, California 94043 ("Cobalt").
1 Background and Definitions
1.1 The purpose of this Agreement is to establish the terms and conditions
under which Cobalt will provide certain Products (as defined in Attachment A and
listed in Paragraph 5 of an Attachment B in the form attached to this Agreement)
to Gateway. Such provision shall be as set forth in this Agreement, including
the attachments hereto and the Orders (as defined in Attachment A) hereunder.
The term "Products" as defined and used in capitalized form herein, does not
include any other products of Cobalt. This Agreement does not constitute a
purchase order.
1.2 Definitions. As used in this Agreement, capitalized terms shall have
------------
the meanings set forth in this Agreement or in Attachment A.
1.3 As determined by Gateway, this Agreement shall apply to Gateway's
subsidiaries and other affiliates. If an affiliate of Gateway places an Order
under this Agreement, such affiliate, and not Gateway or its other affiliates,
shall be responsible for such Order.
1.4 Relationship with Customers
---------------------------
1.4.1 This Agreement is intended to allow Gateway to provide certain
products to Gateway's customers, either based on or consisting of, as determined
by Gateway, the Products provided by Cobalt under this Agreement. Cobalt
acknowledges that a primary goal of the rights granted to Gateway, and
obligations of Cobalt, under this Agreement is for Cobalt's involvement in the
development of such Gateway products to be transparent to Gateway's customers,
except as may be specifically instructed by Gateway to Cobalt to the contrary in
writing. Cobalt acknowledges that the intent of the preceding sentence is that
such customers perceive that they are dealing with Gateway only. Without
limiting the generality of the foregoing, Cobalt shall not direct any
communication to a Gateway customer or include any information in a Product that
would enable the customer to identify Cobalt's involvement. Further, Cobalt
shall not contact Gateway's customers or otherwise use or disclose any
information obtained from Gateway or Gateway's customers concerning such
customers for any purpose, and Cobalt shall not market or distribute any
products or services of Cobalt or any third party to Gateway's customers.
Gateway reserves the right to require Cobalt to disclose to Gateway's customers
Cobalt's involvement in the Products and services hereunder.
1.4.2 Cobalt shall maintain a [***] telephone number dedicated to
receiving support calls from Gateway personnel on a [***] basis concerning
Gateway products derived from or consisting of the Products. Should a Gateway
customer make an inquiry to Cobalt directly, Cobalt shall refer such customer to
a Gateway representative as designated by Gateway and explain to Gateway the
circumstances under which such customer contacted Cobalt directly.
1.4.3 Cobalt shall include Gateway contact information as specified by
Gateway in each Product and the associated Documentation. Cobalt shall also
include contact information for support as designated by Gateway. Cobalt shall
perform modifications to the Products as required in writing by Gateway. Unless
expressly directed otherwise in writing by Gateway, Cobalt shall not include any
Cobalt trade marks, services marks, trade names, logos, branding or other
references to Cobalt on or in any Product, Documentation or packaging.
1.5 Cobalt shall not, directly or indirectly, develop, sell, or otherwise
provide the Products covered by this Agreement to or for any competitor of
Gateway nor enter into any agreement to do so. For the purposes of this
Agreement, the term "competitor of Gateway" means any company or other entity
that develops, assembles, manufactures, markets or sells any product or service
that competes [***] with the products or services offered by Gateway.
2 Products and Orders
2.1 Cobalt shall provide to Gateway the Products described in Gateway's
Orders. All Orders shall be subject to the terms and conditions of this
Agreement and the terms and conditions contained in the Order. The terms of this
Agreement shall control any express conflict between the terms of this Agreement
and the terms stated in the Order; provided that, the Order shall control
specific terms such as the description of the Product, delivery schedule, and
quantity. No modification of an Order by Cobalt, nor any terms or conditions
contained in any acknowledgement issued by Calico, shall be binding on Gateway.
If Gateway determines that a proposed modification is appropriate, Gateway shall
either cancel the modified Order and issue a new Order, or issue a change order.
The Products shall conform to the warranties set forth in Article 8.
2.2 The prices and/or pricing formula for the Products listed on
Attachment B shall be applicable to all Orders issued under this Agreement.
Mutually agreed to modifications and changes to quantities and delivery
schedules will be set forth in the individual Orders for such Products. The
parties may add or remove Products under this Agreement or change such pricing
terms by mutually executing a written amendment in the form of Attachment B.
2.3 Cobalt shall manufacture the Products to conform to the Specifications
furnished by Gateway. Cobalt shall comply with the Product Quality Guidelines in
Attachment C. The parties shall hold business review meetings no less than
quarterly to evaluate the overall performance of each of the parties and the
status of continuous improvement projects.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
2.4 [***]
3 Delivery of Products
3.1 Cobalt shall deliver the Products to the location specified by Gateway
on the delivery dates and in the quantities stated in the applicable Order.
Each Product as delivered shall conform to the warranties set forth in Article 8
and shall include Documentation in accordance with Section 8.1.c. Products shall
be available to Gateway on a worldwide basis.
3.2 Unless otherwise specified in the Order, Products shall be delivered
to Gateway [***]; Gateway shall have the right to reject any nonconforming
delivery upon receipt by Gateway at the final agreed point of delivery. The
costs for transportation and insurance shall be expressly accounted for in the
determination of prices to be paid to Cobalt under Attachment B or the Order. If
no such provision is made in Attachment B or the Order, Cobalt shall promptly
reimburse Gateway for all such costs.
3.3 Cobalt will [***] at the times specified in Gateway's orders. [***] If
Cobalt fails to deliver within [***] days of the specified delivery date, Cobalt
will pay for [***] or Gateway may cancel the affected Order without penalty.
3.4 Gateway shall be entitled, without penalty or other liability, to
reschedule or cancel Product order quantities on any existing Order in the
following percentages:
<TABLE>
<S> <C> <C>
0-30 days [***] reschedule [***] cancellation
31-60 days [***] reschedule [***] cancellation
61-90 days [***] reschedule [***] cancellation
91 days out [***] reschedule [***] cancellation
</TABLE>
3.5 Gateway and Cobalt will work together with regard to the rescheduling
and cancellation of Products to be delivered to Gateway in order to maintain and
achieve the maximum flexibility for Gateway. Without limiting the generality of
the preceding sentence, Cobalt agrees to use commercially reasonable efforts to
mitigate any Gateway liability for Product cancellations that are higher than
the percentages noted above by returning to its suppliers, finding alternative
purchasers or otherwise using any applicable materials, parts, or subassemblies,
that pertain to any cancelled Orders.
3.6 Upon Gateway's request, Cobalt shall comply with Gateway's Center for
Product Replenishment procedure as communicated in writing by Gateway. Cobalt
will, together with Gateway, establish means by which Product can be expedited
to designated Gateway destinations.
3.7 Cobalt and Gateway will monitor transportation pricing and service on
a quarterly basis. In the event that Gateway consents to Calico's use of any
carrier other than a Gateway-designated carrier to be used, Gateway will not be
responsible for freight charges in excess of amounts in excess of what Gateway
could reasonably expect to pay using Gateway's own designated carriage.
3.8 Cobalt shall complete the form of International Trade Information
supplied by Gateway and furnish it to Gateway not later than 10 business days
after the execution of any Order. Cobalt acknowledges and agrees that Gateway
requires such information to comply with its legal obligations. Cobalt shall
provide Gateway with timely written notice of changes to any of the information
provided to Gateway pursuant to this Section 3.8, and shall provide Gateway a
revised form to reflect any such changes. Cobalt agrees to indemnify and hold
Gateway harmless against any Claims arising from or related to errors or
omissions or Cobalt's failure to disclose pertaining to Cobalt-certified import
or export data.
4 Invoices and Payment
4.1 Cobalt shall submit detailed invoices for Products set forth on
Gateway's Orders. Such invoices shall include line item detail of any cost of
merchandise, cost of freight (other than costs paid by Gateway), and incidental
costs when invoicing Gateway. Cobalt shall submit such invoices to Gateway's
location indicated on the applicable Order. Such invoices shall reference
Gateway's purchase order number and will contain such other information as
Gateway may reasonably request.
4.2 Gateway shall not be obligated to pay any amounts not properly
invoiced in accordance with this Agreement. The invoice payment terms for the
Orders shall be [***] days from Gateway's receipt of the invoice. If payment is
made within [***] from Gateway's receipt of the invoice, Gateway shall be
entitled to a [***] on the amount due. Gateway may make such payments by check
or by electronic transmittal to Cobalt's designated account.
4.3 Cobalt represents and warrants that all of the prices, warranties,
benefits and other terms set forth hereunder are equivalent to or no less
favorable than the terms offered by Cobalt at any time to its other customers
and distributors of similar products. [***]
4.4 Unless otherwise agreed upon by Gateway in writing, Gateway shall only
be responsible for paying the costs described on Attachment B based on Gateway's
Orders. [***] for any costs associated with compliance with all laws and
regulations concerning imports and exports, including but not limited to any
license or other fees, taxes, duties, customs, tariffs, and government imposed
surcharges. Cobalt shall cooperate with Gateway in order to reduce to a minimum
any taxes, duties, and other fees associated with the import or export of
Products to Gateway's locations. Gateway shall have the right to [***] Cobalt
shall pay any taxes resulting from this Agreement. Upon Cobalt's request,
Gateway shall provide Cobalt a resale exemption certificate, if applicable.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
Gateway Confidential
4.5 Cobalt shall keep accurate and complete records concerning this
Agreement. Gateway reserves the right to inspect and audit such records. Such
inspections and audits shall not occur more than [***] unless Cobalt's
performance necessitates additional inspections and audits to ensure compliance
with this Agreement. Such audits will be performed by an independent third party
at Gateway's expense, except that, if Cobalt is found to not be in material
compliance with this Agreement, Cobalt shall reimburse Gateway for all costs
associated with the audit. Each audit will be conducted at Cobalt's place of
business upon at least [***] prior written notice from Gateway , except that no
such notice shall be required if Gateway has reason to believe that Cobalt has
breached this Agreement. The results of such audit shall be kept confidential by
the auditor, and, if conducted by a third party, only Cobalt's relevant
discrepancies with this Agreement shall be reported to Gateway.
5 Term and Termination
5.1 The term of this Agreement shall commence on the Effective Date and
shall continue for five years, unless earlier terminated in accordance with this
Agreement. Upon expiration of the initial term, this Agreement shall
automatically renew for successive one year periods, unless either party gives
written notice of nonrenewal at least 60 days prior to the expiration of the
then-current term or unless otherwise terminated in accordance with this
Agreement.
5.2 Either party shall have the right to terminate this Agreement without
further notice if a material breach of this Agreement by the other party remains
uncured more than 30 days after the breaching party receives written notice of
such breach.
5.3 Either party shall have the right to terminate this Agreement upon
written notice if the other party (i) becomes insolvent, (ii) makes any
assignment for the benefit of creditors, (iii) enters into any compromise with
creditors or a general agreement for referral of payment with its creditor, (iv)
makes or suffers to be made any transfer to any person, trustee, receiver,
liquidator, or referee for the benefit of creditors, (v) files a voluntary
petition in bankruptcy, (vi) suffers an involuntary petition in bankruptcy to be
filed against it, (vii) files any petition in any reorganization, arrangement,
compromise, readjustment, liquidation, or dissolution or similar relief for
itself, or (viii) becomes unable to pay its debts generally as they become due.
5.4 Upon termination of this Agreement, each party shall promptly return
to the other all information, materials, and other properties of the other
received in connection with this Agreement; provided that, Gateway shall not be
obligated to return any Products received prior to termination. Gateway's
license for any Software Product shall survive termination of this Agreement
unabridged for the longer of (a) a period sufficient for Gateway to distribute
its current inventory of such Software Product and to fulfill outstanding
Gateway customer orders, or (b) 180 days, unless such termination resulted from
a material breach by Gateway of restrictions under the terms of this Agreement
limiting such license. Gateway's license for any other Software and
Documentation (meaning Software and Documentation distributed with or as parts
of other Products, and not Software Products and associated Documentation) shall
survive the termination of this Agreement to the extent necessary for Gateway to
distribute such Products in its possession. Gateway's license to all Software
and Documentation shall survive termination in an abridged form to the extent
necessary for Gateway to support such Software and other Products for itself and
its customers. End-user licenses granted pursuant to this Agreement shall not
be diminished or abridged by termination of this Agreement.
6 Rights in Information
6.1 License
-------
6.1.1 Cobalt grants to Gateway a non-exclusive, worldwide right and
license during the term of this Agreement and any renewals hereof to (a) use,
execute, perform, modify, display, promote, market, and reproduce the Software
and Documentation; (b) distribute and sub-license the Software and Documentation
and Gateway's modifications thereto, to customers of Gateway in connection with
other Products covered by this Agreement, or, [***] (c) display and distribute
the Software and Documentation for evaluation purposes and to include portions
of the Software and Documentation in its promotional materials for Gateway's
products; and (d) cause any of the foregoing to be done by contractors retained
by Gateway. For Software that is not included as a separate Product on
Attachment B or an amendment thereto, Gateway's license shall be limited to
using and distributing such Software and associated Documentation in connection
with the Product in which it is included under this Agreement.
6.1.2 Deliverables. Cobalt shall deliver the latest version of the
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Software and Documentation to Gateway on golden master CD-ROMs/DVD-ROMs, or
other media designated by Gateway and suitable for duplication. Cobalt shall
furnish the Documentation to Gateway in electronic source form. Cobalt will use
reasonable efforts to cooperate with Gateway to ensure that the Software is
compatible with Gateway hardware and standard operating systems and
environments. In furtherance of this cooperation, Cobalt agrees to add Gateway
as one of its beta sites. Cobalt will provide all Enhancements to Gateway at no
additional charge within a reasonable time after they are available, but in no
event later than [***] before Cobalt makes such Enhancements generally
available. Gateway shall have the right to distribute Enhancements to its
customers [***] Cobalt shall advise Gateway of any New Release at least 90 days
prior to the scheduled release date of such New Release. Cobalt also agrees to
provide Gateway, [***] a golden master CD-ROM/DVD-ROM of each New Release at
least [***] before Cobalt releases it for general availability. If Cobalt fails
to comply with the preceding two sentences, Cobalt shall [***] incurred by
Gateway to offer a New Release on the general availability date for such New
Release established by Cobalt. Cobalt agrees that Gateway can offer its
customers a New Release at any price, if any, Gateway may deem appropriate.
6.1.3 Source Code Escrow. Cobalt shall, [***] expense, maintain on
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deposit with a nationally recognized bank, trust company or escrow company,
machine readable copies of current versions of all Escrow Material. If, on the
Effective Date, Cobalt has entered into an escrow agreement regarding the Escrow
Materials with a nationally-recognized bank, trust company or escrow company,
Cobalt shall provide a copy of such escrow agreement to Gateway upon execution
of this Agreement. Gateway shall have the right to be a beneficiary of such
escrow agreement. If Cobalt (i) ceases, for any reason, to support any Product,
(ii) ceases to do business, and its business and support of the Product are not
continued by another corporation or entity which assumes and performs Cobalt's
obligations under this Agreement, or (iii) undertakes or has instituted against
it any action described in Section 5.3, then the Escrow Material shall be
delivered and released to Gateway. In such event, Cobalt grants Gateway the
right to use, execute, modify, and reproduce the Escrow Material or any portion
thereof for the purpose of supporting its customers who have acquired the
Product from Gateway.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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6.1.4 Disclosure and Reporting Obligations. Gateway relies upon Cobalt to
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advise Gateway of any intellectual property of third parties used by Cobalt in
the Products, and any restrictions or licenses required for Gateway to integrate
Cobalt Products into Gateway's computer systems or otherwise distribute such
Products. All such third party intellectual property, and the applicable
restrictions, requirements and obligations related thereto, are set forth in
Attachment B. Cobalt has a continuing obligation to notify Gateway immediately
of any changes to such information in Attachment B by written notice to
Gateway's Authorized Representative.
6.1.5 No royalties or other fees shall be due to Cobalt except the fees
stated in Attachment B. In addition, no fees shall be payable to Cobalt for any
Software or Documentation (a) used solely for testing systems; (b) shipped as
replacements for copies found to be defective; (c) used for demonstrations to
prospective customers; (d) provided to Gateway as sample copies under this
Agreement; (e) provided to Gateway as samples for training under this Agreement;
or (f) used internally by Gateway.
6.2 Confidential Information
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6.2.1 Information disclosed in connection with this Agreement shall be
covered by the Confidential Disclosure Agreement dated May 24, 1999 between
Gateway and Cobalt. The authorized uses of such information under Paragraph 5 of
such Confidential Disclosure Agreement are hereby expanded to include the
activities covered by this Agreement. Neither party shall publicly announce or
disclose the existence of this Agreement or its terms and conditions or
advertise or release any publicity regarding this Agreement without the prior
written consent of the other party.
6.2.2 Privacy. Cobalt acknowledges the importance Gateway places on
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protecting the privacy of its customers. Accordingly, Cobalt shall use its best
efforts to safeguard any individually identifiable data acquired from or about
Gateway's customers, including without limitation, names, addresses, or credit
information, against unauthorized access or use. In addition, Cobalt shall not,
without Gateway's prior written consent, use, sell, license, lease or otherwise
transfer such data to any third party, or export such data to any location
outside of the country in which Cobalt acquired such data. In the event Gateway
agrees to allow Cobalt to use Gateway customer data to send marketing materials
to customers, Cobalt shall: (i) allow each customer to access any data Cobalt
may have regarding such customer; (ii) allow each customer to correct any
incorrect or incomplete data regarding such customer; (iii) comply with any
request by a customer to remove such customer's name from the customer lists
maintained by Cobalt; and (iv) upon receipt of a request from described in
clause (iii), provide no further marketing materials to such customer. Upon the
expiration or earlier termination of this Agreement, Cobalt shall return to
Gateway all lists and other data regarding Gateway's customers then in Cobalt's
possession. Cobalt shall not retain any copies of such data in hard copy or
electronic form.
6.2.3 Cobalt shall not export or re-export any information, materials or
products received from Gateway except with Gateway's prior written consent and
in compliance with all applicable U.S. export control regulations, specifically
including but not limited to the U.S. Export Administration Regulations.
6.2.4 Upon Cobalt's reasonable request, Gateway shall provide [***]
for the sole purpose of [***]. Such information shall be Confidential
Information of Gateway and subject to the terms and conditions of this
Section 6.2.
6.3 Intellectual Property Rights
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6.3.1 All modifications and Enhancements made to the Products and
Documentation by, on behalf of, or according to Specification provided by
Gateway are Confidential Information of Gateway and are the sole property of
Gateway. All such modifications and Enhancements shall be deemed "works made
for hire" and shall be owned exclusively by Gateway by operation of law. To the
extent any such modification or Enhancement may not, by operation of law, be
deemed a "work made for hire," Cobalt hereby assigns to Gateway all right,
title, and interest in and to such modification or Enhancement, including all
copyrights and other intellectual property rights inherent therein or related
thereto. No rights or license are granted to Cobalt for such proprietary
modifications and Enhancements. The foregoing shall not restrict Cobalt's use
or distribution of Cobalt's intellectual property existing prior to this
Agreement, but shall restrict Cobalt's use and distribution of the results of
such modification or Enhancement of such pre-existing intellectual property.
6.3.2 Trademarks. Cobalt grants to Gateway a worldwide, royalty-free right
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and license to use in the production, marketing and distribution of the
Products, all program names, trade names, and trademarks, including those of
Cobalt and third parties, used in connection with the Products. To the extent
that the Specification for a Product provides for the inclusion by Cobalt of
Gateway Marks in such Product or associated materials, Gateway grants to Cobalt
the right to use such Marks strictly in accordance with such Specification and
in accordance with any usage guidelines and policies furnished by Gateway for
such Marks. The parties agree that the Specification shall expressly address the
use of Gateway Marks if the intent is for the Product to include Gateway Marks.
Consistent with Section 1.4, such intent is assumed unless otherwise expressly
provided to the contrary in the Specification. If such contrary provision is not
made in the Specification, Cobalt shall comply with any directions further
provided by Gateway concerning the use of Gateway Marks in connection with the
Products, and the failure to do so shall be considered a material breach of this
Agreement. Cobalt shall not use any Gateway Mark for any other purpose and shall
not affix any Gateway Mark to any product other than the Products sold to
Gateway hereunder. Cobalt agrees that it will not assert any right, title or
interest in any Gateway Mark, nor shall it use any Marks that are confusingly
similar to any Gateway Mark.
7 Support, Maintenance and Training
7.1 Cobalt shall provide all maintenance and industry-standard support for
the Products, including modifications and Enhancements made for Gateway. Cobalt
will not accept requests for support from Gateway's customers or dealers
concerning the Products. Cobalt shall direct such customers to Gateway in
accordance with Section 1.4.4. Gateway shall not be obligated to provide Cobalt
with customer names or identifications.
7.2 Cobalt shall respond to calls by Gateway's representatives concerning
all problems encountered by Gateway, its customers, or resellers. Cobalt shall
establish an information technology infrastructure for the purposes of sharing
response
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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information in a timely and efficient manner. Cobalt shall use its best efforts
in responding to any questions or complaints from, or problems and other issues
encountered by, Gateway, its customers, or resellers.
7.3 Cobalt's support obligations hereunder shall include but not be
limited to providing Gateway and, through Gateway, Gateway's customers with:
a All Corrections, as soon as the Corrections are available and in
accordance with the "time is of the essence" parameters set forth in Section
7.3.b, but in no event later than the general availability of such Corrections.
Cobalt agrees that the licenses granted to Gateway in Section 6.1 include the
right to distribute Corrections by any means Gateway may deem appropriate,
including without limitation, distribution over the Internet, from a Bulletin
Board Service, or other electronic means, provided that such distribution shall
be limited to customers who have previously acquired the Product from Gateway.
b Assistance in isolating all Errors in any Product, and promptly provide
Corrections to Gateway in accordance with the "time is of the essence"
parameters set forth below:
i For Errors that result in an emergency condition that causes a critical
impact to the user's schedule or makes performance or continued performance of
any feature or function in the Product impossible or unpractical (a "Priority
Level 1 Error"), Cobalt shall use commercial best efforts to provide Corrections
[***] hours of the earlier of Cobalt discovering the Error or being informed
of the Error.
ii For Errors that significantly affect the user's schedule or which make
the performance or continued performance of any feature or function of the
Product difficult and cannot be circumvented or avoided on a temporary basis by
the user (a "Priority Level 2 Error"), Cobalt shall use commercial best efforts
to provide Corrections [***] hours of the earlier of Cobalt discovering the
Error or being informed of the Error.
iii For Errors that allow performance of the Product to continue without
difficulty or loss of data by easy circumvention or avoidance by the user (a
"Priority Level 3 Error"), Cobalt shall use commercially reasonable efforts to
provide Corrections within [***] of the earlier of Cobalt discovering
the Error or being informed of the Error.
iv For Errors that can be easily avoided or circumvented by the user (a
"Priority Level 4 Error"), Cobalt shall use commercially reasonable efforts to
provide Corrections [***] days of the earlier of Cobalt discovering
the Error or being informed of the Error.
c All information and materials reasonably requested by Gateway's
technical support representatives for the purposes of supporting the Products
and addressing operational issues for Gateway and its customers. Cobalt shall
comply with all procedures and mechanisms reasonably established and
communicated by Gateway for the purposes of facilitating such support.
7.4 Training. Cobalt shall provide, at [***] expense, up to [***] class
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hours of training at a Gateway-designated facility during Gateway's regular
business hours on each Product for Gateway's sales and technical support
personnel. Cobalt grants Gateway permission to videotape any and all training
sessions for use at its facilities worldwide and to use and distribute such
videotapes in further training of Gateway personnel. Thereafter, Cobalt agrees
to provide reasonable training for New Releases.
8 Warranties, Returns and Epidemic Failures
8.1 Cobalt represents, warrants and covenants as follows:
a The Products will perform in accordance with all Gateway-approved
Specifications and Documentation.
b The Products, all components of the Products, and the media upon which
any Software or Documentation is furnished, will (a) be new, (b) be free from
Defects in manufacture, materials and design, and (c) function properly under
ordinary use.
c The Documentation for each Product shall (i) be accurate and complete
with respect to the Products covered; (ii) describe in reasonable detail the
procedures associated with the covered Product; and (iii) enable users of
ordinary skill to make full use of such Product.
d Each Product (i) is designed to, and shall, operate without error or
loss of function prior to, during, and after the calendar year 2000 A.D.; (ii)
shall correctly perform all operations (including, but not limited to
calculating, comparing, sorting and sequencing) on, and produce correct and
accurate results from, and consisting of, date data, regardless of (A) the
current century, (B) the century reflected or referenced in such date data, and
(C) the source of such date data; (iii) shall process, calculate, compare, sort
and sequence all dates in a format allowing entry or processing of dates with a
four digit year, where the first two digits designate the century and the second
two digits designate the year within the century; (iv) shall correctly
recognize, process and calculate dates for "leap" years without failure; and (v)
shall correctly infer the century value upon encountering date data which does
not specify the century.
e Cobalt has tested the Products, Documentation and any media furnished by
Cobalt to confirm the absence of any computer viruses and any methods for
disrupting the normal operation of, or gaining access to, the Products or other
computing resources. Such Products, Documentation and media are free of any such
viruses, methods and other harmful code.
f The Products do not pose a threat to the safety of any person.
Gateway shall have the right to communicate any information to any third party
if Gateway deems such communication necessary to prevent injury or damage
associated with any safety hazard which Gateway reasonably believes to be
present in or related to any Product. Cobalt shall immediately correct any
safety hazard in any Product and take all necessary measures to prevent injury
to any person or property by any such safety hazard. Cobalt shall be solely
responsible for all expenses associated with the correction of such a safety
hazard.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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g To the best of Cobalt's knowledge, based on its qualitative determination,
the Product or parts it provides to Gateway under this Agreement do not contain
asbestos or PCBs, nor were they manufactured with CFCs. Cobalt covenants that
it shall not introduce into the Product or any replacements any materials that
contain asbestos or PCBs, nor shall it manufacture any Product with CFCs.
Cobalt shall use its best efforts to ensure that the suppliers of any parts used
by Cobalt to produce the Products do not use asbestos, PCBs or CFCs.
h Cobalt shall use its best efforts to use reusable and recyclable packaging
for all Products whenever possible.
8.2 In the event of a breach of any of the warranties under Section 8.1,
Cobalt shall, at Gateway's option, either: (1) provide a Correction without loss
of functionality or performance at no expense to Gateway; (2) provide a
replacement without loss of functionality or performance at no expense to
Gateway; or (3) refund or credit Gateway for all amounts paid by Gateway
hereunder for the Product.
8.3 Warranty Returns and Epidemic Failures. For purposes of this Agreement,
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"Warranty Returns" shall be defined as Products that have been delivered to
Gateway or by Gateway to its customers and rejected due to Defect(s). An
"Epidemic Failure" occurs when the same Defect or failure occurs repeatedly in a
Product, as more fully described in Attachment D. Warranty Returns and Epidemic
Failures shall be handled in accordance with Attachment D.
8.4 Cobalt will comply with guidelines for total cost adjustments based on
Defects, Errors, Epidemic Failures, and DPPM as contemplated by Attachment B and
other warranty issues, as reasonably determined by Gateway under the
circumstances and communicated in writing to Cobalt.
8.5 Noninfringement. Cobalt further represents, warrants and covenants as
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follows. Cobalt possesses all requisite rights and authority to enter into this
Agreement and fulfill its obligations hereunder. Cobalt has not entered and
shall not enter into any agreement which would conflict with Calico's
obligations hereunder or otherwise have the effect of limiting Cobalt's ability
to fulfill its obligations under this Agreement. Title to all Products purchased
by Gateway, no matter where delivered, shall be free and clear of all liens,
encumbrances, security interests, or other adverse interests or claims. Cobalt
is the lawful owner of the Products and has the authority to grant the rights
set forth in this Agreement. Neither the Products nor Gateway's exercise of
rights with respect thereto shall infringe any patent, copyright, trade secret,
trademark, or other intellectual property rights of any third party.
8.6 Cobalt acknowledges that the Products may be used in connection with
other Products or systems or as components of a system which includes other
components. Such use shall not constitute an unauthorized alteration or change
of the Product.
8.7 Cobalt further represents, warrants and covenants as follows:
a All services, including but not limited to any professional services,
maintenance or support, provided under this Agreement will be performed in a
timely, professional and workmanlike manner and will be in accordance with
industry standards.
b Cobalt has not, and covenants that it will not, offer or give any payments,
gifts, gratuities, or anything of value to any Gateway employee or
representative, except for ordinary and reasonable business courtesies in
appropriate circumstances. A "business courtesy" is something that is
unsolicited, modest in value (generally not more than $50 in the U.S. in the
case of gifts), and does not influence or appear to influence the business
decision of the recipient. If Cobalt breaches this Section 8.7.b, Gateway shall
have the right to recover from Cobalt the greater of (A) liquidated damages in
an amount equal to the amount of the payment or gift, or (B) any losses incurred
by Gateway as a result of such payment or gift. Gateway shall also have the
right to recover any expenses, costs and fees incurred in enforcing this Section
8.7.b. Any finding by a court of competent jurisdiction that such liquidated
damages are invalid, illegal or unenforceable shall not affect Gateway's right
to pursue all other remedies available at law or in equity.
8.8 Gateway shall have no obligation to pay for Products which are not
accepted or which are reasonably determined by Gateway to be in breach of this
Agreement. Cobalt will pay all costs associated with the return of any Products.
Gateway shall have the right [***]. Cobalt shall reimburse Gateway for any costs
incurred in handling warranty/quality issues. Remedies set forth in this Article
8 for breach of warranty shall not limit any other remedies available at law or
in equity.
8.9 NEITHER PARTY MAKES ANY WARRANTIES OTHER THAN THE WARRANTIES SET FORTH
IN THIS AGREEMENT.
9 Service Parts. Cobalt agrees to provide Gateway [***] days' written notice
prior to the discontinuance of any Product purchased by Gateway pursuant to this
Agreement. Upon notification by Cobalt, Cobalt shall allow Gateway to make a
final purchase of such discontinued Product at prices agreed to between the
parties. Cobalt acknowledges and agrees that Gateway's final purchase of such
Product may be in a quantity significantly higher than those reflected in any
prior Orders or forecasts from Gateway regarding such Product, and Cobalt shall
use commercially reasonable efforts to deliver the quantity specified in
Gateway's final Order. During the term of this Agreement, and for 12 months
after the termination of this Agreement, Cobalt shall make available to Gateway
(a) services and parts (including, if no longer available, a functionally
equivalent part of no lesser quality than the original part) at a mutually
agreed upon price; and (b) custom plastics, custom packing material, and other
custom components for use by Gateway in providing on-going Product support.
10 Product Recall
10.1 In the event that any of the Products are found by Cobalt, Gateway, or
any governmental agency or court having jurisdiction over such Product, to
contain a safety hazard or other Defect or condition that requires or would make
advisable a rework or recall of such Product, such party shall promptly
communicate all relevant facts to the other party. Cobalt shall promptly
undertake all corrective actions, including those required to meet all
obligations imposed by laws, regulations, or orders, and shall file all
necessary papers, corrective action programs, and other related documents
required under applicable law or regulation; provided that
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Gateway shall reasonably cooperate with and assist Cobalt in any such filing and
correction action, at Cobalt's expense; and, provided further, that nothing in
this Section 10.1 shall preclude Gateway from taking such action as may be
required of it under any applicable law or regulation or business purpose.
Cobalt shall perform and provide all necessary repairs, modifications, or
replacement to the Product at its sole expense.
10.2 The parties recognize that it is possible that other Cobalt-manufactured
products might contain the same safety hazard, Defect or other condition
described in Section 10.1. Gateway and Cobalt agree that any recall involving
any Product purchased by Gateway shall be treated separately and distinctly from
similar results of Cobalt's brand products; provided that such separate and
distinct treatment is lawful and that Cobalt shall in no event fail to provide
at least the same protection to Gateway with regard to such Product as Cobalt
provides to its other customers in connection with a recall of such Product or
other Cobalt products. Each party shall consult the other prior to making any
statements to the public or a governmental agency concerning issues relating to
any product recall of a Product, except where such consultation would prevent
timely notification required to be given under any such law or regulation.
11 Indemnities
11.1 Cobalt agrees to indemnify, protect, defend, and hold harmless Gateway
and its directors, officers, employees, distributors, dealers, affiliates,
insurers, and customers ("Indemnified Parties") during the term of this
Agreement and any time thereafter against any Claim (a) arising out of or
relating to the death of or injury to any person or any damage to tangible
property caused by Cobalt or its employees or other representatives; (b)
alleging or asserting, in whole or in part, facts that, if true would constitute
a breach of any of the warranties made by Cobalt under this Agreement; or (c)
alleging or asserting, in whole or in part, negligence or other fault on the
part of Cobalt in the design, testing, development, manufacture, marketing, or
selling of a Product or undertaking any other actions with respect to a Product
or parts thereof, or (d) involving product liability, strict product liability,
or any variation thereof.
11.2 Without limiting the foregoing, Cobalt shall vigorously pursue the
defense or settlement of any such Claim, and Cobalt shall be solely responsible
for, and shall pay, any and all damages, losses, costs, settlements, judgements,
and expenses (including, but not limited to, court costs and reasonable
attorneys' fees) arising out of or related to any such Claim.
11.3 If Gateway is enjoined from using any Product, Cobalt shall, at its own
expense, use its best efforts to procure the right for Gateway to exercise all
rights granted under this Agreement. If such efforts are not successful, upon
Gateway's request, Cobalt shall promptly either (a) replace the infringing
Products with non-infringing products that have substantially the same quality,
performance, and functionality; (b) modify any infringing Product so it becomes
non-infringing without loss of performance or functionality; or (c) refund to
Gateway the amounts paid for such Products.
11.4 Gateway shall [***] design or other special requirements specified in
writing by a duly authorized representative of Gateway and actually incorporated
into a Product in the exact manner specified by Gateway. The foregoing does not
apply to any features, functions or components already included in the Product
or the Product as a whole.
12 Insurance
12.1 Cobalt shall secure and maintain at its own expense, and shall require
the same of its agents and approved subcontractors, the following insurance with
companies satisfactory and acceptable to Gateway and shall furnish to Gateway
certificates evidencing such insurance prior to commencing work under this
Agreement and thereafter as required by Gateway. Said certificates shall
contain a provision whereby the policy and/or policies shall not be canceled or
altered without at [***] prior written notice to Gateway. With the exception of
Workers' Compensation, every contract of insurance obtained by Cobalt hereunder
shall name Gateway as an additional insured. Cobalt shall maintain the following
minimum insurance coverages continuously for the term of this Agreement and for
[***] thereafter:
a Workers' Compensation and Employer's Liability Insurance covering
Company Employees which shall fully comply with the statutory
requirements of all state laws as well as federal laws which may
be applicable.
b Employee Dishonesty/Blanket Insurance with a combined single and
aggregate [***].
c Comprehensive General Liability Insurance with a general aggregate
of [***].
d Errors and Omissions Insurance with a minimum combined single and
aggregate limit of [***].
e Product Liability Insurance with a combined single and aggregate
limit of [***].
f Umbrella Liability Insurance coverage with a minimum combined
single and aggregate limit of [***].
12.2 Cobalt hereby represents and warrants that it has the above coverages in
effect as of the Effective Date. Cobalt represents and warrants, and the officer
executing this Agreement on behalf of Cobalt hereby certifies, that the above
stated amounts are the maximum limits currently in effect under each such
policy, and that such limits apply in general and not just for the purposes of
Gateway as an additional insured. In the event Cobalt is unable to maintain any
of the above minimum insurance coverages, [***].
13 Limitations of Liability.
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13.1 NEITHER PARTY SHALL BE LIABLE FOR SPECIAL, EXEMPLARY OR PUNITIVE
DAMAGES. COBALT SHALL NOT BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL OR INDIRECT
DAMAGES, EXCEPT WHERE A MATERIAL BREACH OF COBALT'S OBLIGATIONS TO DELIVER
PRODUCTS IN ACCORDANCE WITH ARTICLE 2 OF THIS AGREEMENT, OR A MATERIAL BREACH BY
COBALT OF THE RESTRICTIONS UNDER THIS AGREEMENT ON USE OR DISCLOSURE OF
GATEWAY'S CONFIDENTIAL INFORMATION, OR COBALT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT CAUSED SUCH DAMAGES. GATEWAY SHALL NOT BE LIABLE FOR CONSEQUENTIAL,
INCIDENTAL OR INDIRECT DAMAGES, AND GATEWAY'S LIABILITY SHALL NOT EXCEED THE
AMOUNTS DUE UNDER ARTICLE 4, EXCEPT WHERE A MATERIAL BREACH BY GATEWAY OF THE
RESTRICTIONS UNDER THIS AGREEMENT ON USE OR DISCLOSURE OF COBALT'S CONFIDENTIAL
INFORMATION CAUSED SUCH DAMAGES. THE FOREGOING LIMITATIONS SHALL NOT APPLY
WHERE SUCH DAMAGES ARE AWARDED TO A THIRD PARTY AND SUCH THIRD PARTY'S CLAIM IS
COVERED BY AN OBLIGATION OF INDEMNITY UNDER THIS AGREEMENT.
13.2 Force Majeure. In the event that either party is prevented from
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performing or is unable to perform any of its obligations under this Agreement
due to any Act of God, fire, casualty, flood, war, strike, lockout, epidemic,
destruction of production facilities, riot, insurrection, or any other cause
beyond the reasonable control of the party invoking this Section 13.2, such
party's performance shall be excused, and the time for the performance shall be
extended for the period of delay or inability to perform due to such
occurrences; provided, that such party shall use its best efforts to mitigate
the effects of such occurrences, and such party shall give prompt written notice
to the other party thereof. However, if such inability to perform continues for
30 days, the other party may terminate this Agreement without penalty and
without further notice.
14 Dispute Resolution. All disputes under this Agreement shall be resolved in
accordance with Attachment F.
15 Notices. Notices and other communications under this Agreement shall be in
writing and sent by certified mail, return receipt requested, addressed to the
other party at its address first set forth above, provided that either party may
change its address by written notice thereof. Notices to Gateway shall be
directed to the attention of Vice President of Supply Management and copied via
facsimile to [***]. Notices to Gateway shall also be copied to Gateway Law
Department to the attention of General Counsel. Notices to Cobalt shall be
directed to the attention of General Counsel or CFO and copied via facsimile
to [***].
16 Assignments and Subcontracting
16.1 Neither party shall have the right to assign this Agreement or any
rights hereunder without the prior written approval of the other party; provided
that, Gateway shall have the right to assign this Agreement in connection with a
merger, reorganization or sale of substantially all of the assets of Gateway.
16.2 Cobalt shall not engage any subcontractor for the purposes of performing
any of Cobalt's obligations under this Agreement without Gateway's prior written
approval of the subcontractor and the agreement between Cobalt and such
subcontractor.
17 Protective Covenants. Cobalt acknowledges that the Products and services
provided under this Agreement are critical to Gateway's business and
relationships with its customers. Cobalt agrees that it shall not enter into any
transaction or business association, or engage in any activity, that could
adversely affect Cobalt's ability to fulfill its obligations under this
Agreement. Cobalt shall notify Gateway in writing at least [***] prior to any
proposed (a) merger, consolidation or sale of substantially all of Cobalt's
assets, or (b) material change in the scope of Cobalt's business or the methods
and procedures used to conduct its business. In such event, Gateway shall have
the right to terminate this Agreement in accordance with Section 5.3. Cobalt
shall furnish all information requested by Gateway concerning Cobalt's financial
condition and performance under this Agreement. Cobalt shall notify Gateway in
advance of any financial problems and any other issues or developments that
could adversely affect Cobalt's ability to fulfill its obligations under this
Agreement. Cobalt shall make representatives of its senior management available
promptly at Gateway's request to discuss any issues contemplated by this Section
17.
18 Interpretation
18.1 All rights and remedies, whether conferred hereunder, or by any other
instrument or law will be cumulative and may be exercised singularly or
concurrently. Failure by either party to enforce any term will not be deemed a
waiver of future enforcement of that or any other term.
18.2 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof. Any modification or addition to this
Agreement proposed by a party shall have no effect unless the other party
specifically acknowledges such modification or addition in writing.
Notwithstanding the foregoing, Cobalt acknowledges that Gateway is a commercial
contractor doing business with the U.S. Government. Cobalt shall comply with the
following clauses of the Federal Acquisition Regulations ("FAR") (48 C.F.R.
Chapter 1): (a) 52.222-26 Equal Opportunity; (b) 52.222-36 Affirmative Action
for Handicapped Workers; and (c) 52.222-35 Affirmative Action for Special
Disabled and Vietnam ERA Veterans. Gateway reserves the right to flow down
additional FAR clauses as necessary to support Gateway's obligations to the U.S.
Government, and to such extent, such clauses shall be incorporated herein by
reference and binding on Cobalt. Without limiting the foregoing, Cobalt
acknowledges that commercial catalogue pricing or market pricing analysis may be
required.
18.3 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of [***] without resort to conflict of
law principles. The United Nations Convention on the International Sale of
Goods shall not govern or otherwise apply to the transactions contemplated under
this Agreement.
18.4 Neither party is constituted an agent, partner, franchisee, employee or
servant of the other for any purpose. Each party shall conduct its business in
its own name and shall be solely responsible for its acts, conduct and expenses
and the acts, conduct and expenses of its employees and agents. Neither party
shall have the authority to bind, represent or commit the other party. Nothing
in this Agreement shall be deemed or construed to create a joint venture,
partnership or agency relationship between the parties for any purpose.
18.5 The provisions of this Agreement are severable. If any provision of
this Agreement is determined by a court of competent jurisdiction to be invalid,
illegal or unenforceable, such determination shall not affect the validity of
the remaining provisions.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
8
<PAGE>
18.6 The headings provided in this Agreement are for convenience only and
shall not be used in interpreting or construing this Agreement.
18.7 This Agreement is in the English language only, which shall be
controlling in all respects. No translation, if any, of this Agreement into any
other language shall be of any force or effect in the interpretation of this
Agreement or in a determination of the intent of either party hereto. All
business transactions, documentation and communications whether oral or written
concerning this Agreement will be done in the English language.
18.8 The parties' respective rights, obligations and duties which by their
nature extend beyond the expiration or termination of this Agreement shall
survive any expiration or termination of this Agreement.
To signify their mutual intent to be legally bound by this Agreement, Gateway
and Cobalt have caused their authorized representatives to execute this
Agreement as of the Effective Date.
GATEWAY, INC. COBALT NETWORKS, INC.
By: /s/ Eric B. Howell By: /s/ Gary Martell
------------------------- -------------------------
Name: Eric B. Howell Name: Gary Martell
----------------------- ----------------------
Title: V.P. & Group Counsel Title: C.O.O.
---------------------- ----------------------
9
<PAGE>
Gateway Confidential
ATTACHMENT A
Definitions
Each of the following terms shall have the meanings described:
1 "Claims" means assertions, claims, suits, actions or proceedings, and any
damages, liabilities, fines, penalties or other expenses related thereto.
2 "Confidential Information", as used in this Agreement shall mean components,
types of systems, new product development, technical information, data,
formulas, patterns, compilations, programs, devices, methods, techniques,
marketing plans, business procedures, customer and supplier lists, agreements
with any suppliers, financial data, projections, supplements, techniques, or
know-how, processes or other proprietary or confidential or intellectual
property information which is received from the other under this Agreement,
which is transmitted from the other party in written form and which, if
disclosed to the general public, would cause harm to the transmitting party.
3 "Correction" means any bug fix, patch, workaround or other revision to the
Product or Documentation, other than an Enhancement, that fixes an Error.
4 "Defect" means a deficiency, imperfection or insufficiency in the Product
such that it is not fit for ordinary purposes for which it was purchased, sold
or used.
5 "Documentation" means all (1) instruction or user manuals for a Product,
including but not limited to technical specifications, user manuals, data
sheets, facsimile materials, training materials, brochures, and catalogs; and
(2) packaging copy and artwork for the Product.
6 "Epidemic Failures" means Product failures or Defects which exceed the
Defective Parts Per Million (DPPM) threshold established in Attachment B.
7 "Enhancement" means any improvement, addition, enhancement, or other
modification to the Software or Documentation, other than a Correction, that
improves function, adds one or more new features or functions, or otherwise
improves performance, including all translated national language versions of the
Software or Documentation that are not available as of the Effective Date.
8 "Error" means any (a) mistake, problem, compatibility or other error that
causes an incorrect functioning or non-functioning of the Product, or otherwise
causes the Product to fail to perform as warranted; or (b) incorrect or
incomplete statement or diagram in Documentation.
9 "Escrow Material" means the source code, macros, specialized routines,
procedures and documentation, and any improvements, revisions, upgrades,
enhancements, and updates thereto, that are sufficient to allow for the complete
restoration and utilization of the machine executable code of the latest version
of the Software.
10 "Mark" shall mean any product name, trade name, logo, or other trademark of
Gateway or Cobalt.
11 "New Release" means any Upgrade, Updated Release or Version Release, as
those terms are defined below.
12 "Orders" means those purchase orders that Gateway provides to Cobalt under
this Agreement.
13 "Products" means the Software and equipment which shall be provided by
Cobalt to Gateway under this Agreement as Ordered by Gateway. The Products
covered by this Agreement are set forth in Attachment B. Such Products include
all components contained therein and associated Documentation. Without limiting
the foregoing, equipment Products include any Software required to operate such
equipment.
14 "Software" means the source code and object code, all Documentation, all
national language versions of the foregoing, and any Enhancement, Correction, or
New Release. The Software includes Software Products and programs that are
included in other Products.
15 "Software Product" means any Software that is expressly listed on Attachment
B.
16 "Specifications" means the specifications furnished by Gateway or provided
by Cobalt with respect to the Products.
17 "Unit" means CDs, registration card, manuals and license agreement, shrink-
wrapped together.
18 "Updated Release" means a release of Product which is designated by Cobalt
in its sole discretion as a change in the digit(s) to the right of the tenths
digit in the Product version number, and which may contain one or more
Enhancements or Corrections.
19 "Upgrade" means a release of the Product which is designated by Cobalt, in
its sole discretion, as a change in the digit(s) to the left of the decimal
point in the Product version number and a replacement copy of the Product
provided to an existing end user of the Product. An Upgrade may contain one or
more Enhancements or Corrections. The packaging for an Upgrade shall indicate
that it is intended as an "upgrade" only (or similar wording) and not for use by
a new customer. Copies of the Product that are not strictly in conformance
herewith shall not be considered Upgrades
20 "Version Release" means a release of Product which is designated by Cobalt
in its sole discretion as a change in the tenths digit in the Product version
number, and which may contain one or more Enhancements or Corrections.
10
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Gateway Confidential
ATTACHMENT B
Products
1 All prices shall be in U.S. Dollars. The prices include all fees for
licenses.
2 Cobalt shall provide to Gateway a twelve-month Product cost forecast.
3 The parties may mutually agree to amend this Attachment B by a written
amendment mutually executed by the parties' Authorized Representatives set forth
below, referencing this Agreement and this Attachment B. No alterations of the
terms of the Agreement shall be effective unless executed by a duly authorized
representative of Gateway's Law Department. Changes to the Authorized
Representatives designated will be effected by formal Amendment to this
Attachment B.
4 AUTHORIZED REPRESENTATIVES:
Gateway Cobalt
------- ------
Business Mgr. or Sr. Business Mgr.
Phone: 605.232.XXXX
FAX:
Email:
Address: 610 Gateway Drive, M/S:
City, State ZIP North Sioux City, SD, USA 57049
5 Products covered:
Cobalt P/N Gateway P/N Item Description DPPM GOAL
---------- ----------- ---------------- ---------
[***]
6 GW P/N Unit Pricing:
Unit Pricing by Quarter Insurance $ per Unit
----------------------- --------------------
Q1 - 1999 [***] [***]
Q2 - 1999 [***] [***]
Q3 - 1999 [***] [***]
Q4 - 1999 [***] [***]
Unit Freight Costs:
Destination [***] Shipment Size units [***] Shipment Size units [***]
7 Third Party Intellectual Property (for purposes of Section 6.1.5):
Item Owner Restrictions
---- ----- ------------
8 Specifications. The complete baseline Specifications, drawings and technical
--------------
release information for all Products acquired under this Agreement are set forth
below. The format for the presentation of the Specifications and technical
release data for Products shall substantially conform to FCC requirements. CD
ROM or other appropriate media may be used in lieu of a hard-copy Specification
and technical data, provided that such media is properly described in this
Attachment B or an amendment hereto in accordance with the provisions of this
Attachment B and such media is furnished to Gateway.
[***]
GATEWAY, INC. COBALT NETWORKS, INC.
By: By:
------------------------- -------------------------
Name: Name:
----------------------- ----------------------
Title: Title:
---------------------- ----------------------
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE>
Gateway Confidential
ATTACHMENT C
Product Quality Guidelines
1 Gateway has established the Supplier Quality Engineering (SQE) Program. The
function of the SQE Program is to ensure that Gateway's suppliers meet all
performance requirements. If quality issues arise, [***]. Cobalt shall support
and respond to [***], based on the [***] of the issue. Cobalt shall comply with
the established process quality and performance goals [***] for a continuous
quality improvement program. Performance goals will be established between
Cobalt and Gateway SQE for each commodity type based on [***].
2 Cobalt shall perform [***] on all Products. [***] shall be completed and
results submitted to Gateway's supplier engineer responsible for the Product.
[***] are to be reported with respect to the original [***].
3 Upon [***], Cobalt [***] shall submit a capability analysis which reflects
[***]. The capability analysis shall be based on [***].
4 Product reliability must be confirmed by [***], which consists of [***]
testing. For purposes of this Agreement "[***]" means a combination of [***] in
high and low conditions. [***] shall be performed at [***] beyond
the mutually agreed upon design specification limitations set by [***].
5 The [***] shall specify the [***] of each Product. Cobalt shall provide a
calculated [***] amount and demonstrate the [***] for each Product by [***].
6 Cobalt shall perform a [***] test using standards reasonably established by
[***] for testing, unless [***] test procedure. Testing shall include all [***]
of the Product [***].
7 [***] will be completed pursuant to [***]and will be routed to the
appropriate [***] in [***], or other designated location. [***] coordinator will
ensure that all [***] are managed from submission to notice of approval.
8 [***] approval is the responsibility of Cobalt, and Cobalt shall ensure
that all newly designed or changed Products meet [***] in conjunction with [***]
standards as contained in the [***] for the Product and with standards for other
countries as may be required by [***]. Cobalt shall ensure that all engineering
changes that affect the original test grant are tested and that [***] status is
maintained. Cobalt represents and warrants that Cobalt has obtained the
necessary regulatory approvals for the Product as set forth in the [***]. Cobalt
must provide approved [***] information to Gateway as received from the [***].
9 Product purchased pursuant to this Agreement, as well as any Product that is
[***] technology, shall meet all established [***] for that commodity and
technology.
10 Gateway requires its suppliers to complete the SQE program successfully in
order to [***]. Cobalt shall follow Gateway's [***] and otherwise work with
Gateway to achieve [***] as a [***]. Cobalt acknowledges and agrees that the
criteria for [***] have been [***].
11 Incoming [***] testing will be based on technology and testing requirements
[***]. Cobalt shall provide a [***] of [***] as requested by Gateway.
12 Cobalt will provide dedicated engineering and technical resources including,
but not limited to, [***] support and [***] for all Product purchased by Gateway
pursuant to this Agreement.
13 None of the foregoing shall limit any warranties or affect the quality level
of Product ordered by Gateway.
CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
12
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Gateway Confidential
ATTACHMENT D
Warranty Returns and Epidemic Failures
1 Warranty Returns
----------------
a All Warranty Returns will require a Return Material Authorization (RMA)
number, which Cobalt will issue within two business days upon receipt of a
written notice from Gateway identifying the Defective Products and the quantity
thereof. If Gateway does not receive the RMA number within [***] business days,
Gateway will issue an RMA number that will be honored by Cobalt.
b Cobalt will pay freight one way associated with the return of Defective
Product to Cobalt. Notwithstanding anything to the contrary herein, in the
event a Defective Product has been discovered and additional Products with the
same Defect are already in transit, Gateway reserves the right to return all
such Products prior to customs clearance at Cobalt's expense and to cancel any
outstanding purchase orders for the affected Products.
c All Warranty Returns shall be returned to Cobalt within [***] days
of issuance of the RMA notice. All Warranty Returns shall be for credit, unless
Gateway notifies Cobalt in writing that Gateway will debit such Warranty Returns
against outstanding invoices payable to Cobalt.
d Cobalt will acknowledge receipt of returned Product and the quantities
received within [***] business days of receipt of the returned Product from
Gateway. If Cobalt fails to give written acknowledgment of receipt and
quantities received within the time stated, Cobalt shall be deemed to have
received from Gateway the Products and quantities listed on the vendor return
form.
e Cobalt shall support Gateway product return addresses for each Gateway
region: Americas, Asia Pacific (APAC) and Europe / Middle East / Asia (EMEA).
f Cobalt accepts financial responsibility for all warranty related
support costs incurred by Gateway associated with the handling of quality
Defects incurred within the warranty period, when such Defects exceed the DPPM
established in Attachment B. Seller agrees to reimburse Gateway upon receipt of
an invoice or debit memo. If a debit memo is issued in lieu of an invoice,
seller agrees that such monies may be deducted from any outstanding invoices yet
to be paid. Gateway expects vendors to consistently improve their Product
quality. While zero Defects may not be attainable, the Defective Parts Per
Million (DPPM) goal for commodities covered by this Agreement (see Attachment B)
will be reduced over time to constantly improve quality.
2 Epidemic Failures
-----------------
a Isolated incidences of Product Defect or failure are to be dealt with in
accordance with the standard Warranty Return procedures set forth in Paragraph 1
of this Attachment D. However, Epidemic Failures shall be handled in accordance
with this Paragraph 2. For the purposes of this Agreement, an "Epidemic Failure"
shall be defined as a single failure type, if the failure occurs in [***]
percent of any Product shipped or Total Installed Base (total of Cobalt
Product(s) installed in our systems) under this Agreement to Gateway during any
[***] period. As an integrator and original equipment manufacturer of
Personal Computer systems, Gateway employs a "just-in-time" manufacturing
methodology and does not have a wealth of supplier components in reserve.
Gateway's manufacturing approach is reiterated here to emphasize that an
Epidemic Failure in a component can be catastrophic and paralyze our production.
Time is of the essence concerning Epidemic Failures and Gateway will strictly
enforce the following procedures.
b Cobalt accepts full responsibility for Product Defects. Cobalt shall
respond to formal written corrective action request (CAR). There are three (3)
types of CARs: "Critical" (an identified safety Defect, non-shippable, causes
line shutdown, [***] of field failure, cannot be sorted); "Major" (not
identified as a safety hazard, causes line shutdown, can be sorted); or "Minor"
(not identified as a safety hazard, no line shutdown situation, can be sorted).
Upon notification or receipt of samples for a failure analysis, Cobalt must
respond with corrective actions in accordance with the following "time is of the
essence" periods: Critical failures -- within [***] business days; Major
failures -- within [***] business days; and Minor failures -- within [***]
business days.
c Cobalt's corrective actions shall consist of a replacement without loss
of specified features or performance of the affected Product. Cobalt shall
provide parts for the upgrades, perform or have performed all associated labor,
and pay for shipping of all replacement Products to Gateway or end user as the
case may be.
[***] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
13
<PAGE>
Gateway Confidential
ATTACHMENT E
Dispute Resolution
1 For the purposes of this Attachment E, each party shall designate in writing
to the other the following individuals: Primary Representative, Senior Officer,
and Chief Executive Officer or Chief Operating Officer. The Senior Officer
designate shall not be an attorney. Each party may change such designated
representatives by advance written notice to the other party. Except as
otherwise provided in Paragraph 11 of this Attachment E, neither party shall
commence any action at law or in equity against the other party arising out of
the subject matter of this Agreement until the procedures set forth in this
Attachment E have been completed.
2 The party raising any dispute shall notify the other party in writing of the
dispute. Such notice shall describe the issues concerning such dispute and shall
be referred to in this Paragraph 2 as a "Dispute Notice". The submitting party
shall include with a Dispute Notice backup material reasonably sufficient to
substantiate the dispute and the amount claimed thereunder.
3 The Primary Representatives of the parties, working with the Senior Officers
as necessary, shall attempt to resolve the dispute. The parties must mutually
agree to the resolution.
4 If the parties fail to resolve the dispute under Paragraph 3 within 30 days
from submittal of the Dispute Notice, the dispute, including all supporting
documentation and the positions taken by the parties during the steps
contemplated by Paragraphs 2 and 3 above, shall be submitted for resolution to
each party's respective Chief Executive Officer or Chief Operating Officer. The
Chief Executive Officers or Chief Operating Officers shall attempt to resolve
the dispute. The parties must mutually agree to the resolution.
5 If the parties fail to resolve the dispute under Paragraph 4 within 30 days
from submittal of the dispute to the Chief Executive Officers or Chief Operating
Officers, either party shall have the right to submit such dispute for final,
binding resolution by the National Arbitration Forum under its rules and in
accordance with this Attachment E.
6 The dispute shall be decided by one neutral arbitrator.
7 The scope of the question to be decided by the arbitrator shall be narrowly
construed and shall be limited to the express issue presented. The arbitrator
shall have no authority to award damages beyond the limitations set forth in
this Agreement.
8 The party prevailing as to the entire claim shall have its costs and the
other costs of arbitration, including the arbitrator's fees, if any, paid by the
other party. If neither party prevails entirely, the arbitrator may apportion
such costs in accordance with the disposition of the matter.
9 The decision of the arbitrator shall be final and binding upon the parties,
except as to the propriety of the scope of the award and disposition; and
provided that the decision of the arbitrator must not be against public policy,
nor may it be arbitrary or capricious, as determined by whether it is fairly
supported by the evidence presented (including the failure, if any, of either
party to comply with the agreed-upon arbitration procedures), which shall mean
that the decision of the arbitrator must be such that it cannot be said that no
reasonable person could reasonably and logically have reached such result based
upon the said evidence.
10 Should either party bring a Dispute in a forum other than NAF, the
arbitrator may award the other party its reasonable costs and expenses,
including attorneys' fees, incurred in staying or dismissing such other
proceedings or in otherwise enforcing compliance with this Attachment E. This
arbitration agreement is made pursuant to a transaction involving interstate
commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. Section
1, et seq.
11 This Attachment E shall not prevent or delay either party from instituting
formal proceedings to (a) avoid the expiration of any applicable limitations
period, (b) preserve a superior position with respect to other creditors, or (c)
seek injunctive relief to prevent an irreparable harm, including but not limited
to harm caused by a breach of confidentiality.
14
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated October 11, 1999, relating to the financial statements of
Cobalt Networks, Inc., which appears in such Registration Statement. We also
consent to the reference to us under the headings "Experts" in such
Registration Statement.
/s/ PriceWaterhouseCoopers LLP
- -------------------------------
PriceWaterhouseCoopers LLP
San Jose, California
October 20, 1999
