OEM AGREEMENT
BETWEEN
INTERNATIONAL BUSINESS MACHINES
CORPORATION
AND
STORAGE TECHNOLOGY CORPORATION
JUNE 7, 1996
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TABLE OF CONTENTS
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BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SCOPE OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. COMPONENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. AGREEMENT ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . 9
6. PURCHASE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 1996-1998 ** Volumes . . . . . . . . . . . . . . . . . . . 10
6.2 1999 ** Volumes/Pricing . . . . . . . . . . . . . . . . 10
6.3 Qualified Upgrades . . . . . . . . . . . . . . . . . . . . . 12
6.4 Credits . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Liquidated Damages/ ** Payments . . . . . . . . . . . . . 12
6.6 Other StorageTek Distribution . . . . . . . . . . . . . . . 14
6.7 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 Additional StorageTek Sales . . . . . . . . . . . . . . . . 16
7. PRICING & PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . 17
7.5 ** Price . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 ** Payments . . . . . . . . . . . . . . . . . . . . . . . . 17
7.7 FRU Prices . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Lowest Cost Sourcing . . . . . . . . . . . . . . . . . . . . 19
7.9 Taxes/Duties . . . . . . . . . . . . . . . . . . . . . . . . 19
7.10 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . 19
7.11 Snapshot Feature . . . . . . . . . . . . . . . . . . . . . . 20
8. IBM SALES TO STORAGETEK . . . . . . . . . . . . . . . . . . . . . . 20
9. QUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1 Manufacturing Testing . . . . . . . . . . . . . . . . . . . 21
9.2 Engineering Changes . . . . . . . . . . . . . . . . . . . . 21
9.3 Quality Levels . . . . . . . . . . . . . . . . . . . . . . . 24
9.4 Quality Assurance . . . . . . . . . . . . . . . . . . . . . 28
9.5 ISO 9000 Certification and Use of Subcontractors . . . . . . 28
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10. PRODUCT LEAD TIMES AND FORECAST . . . . . . . . . . . . . . . . . . . 29
10.4 Current Quarter . . . . . . . . . . . . . . . . . . . . . . 31
10.5 StorageTek's Capacity/Allocation . . . . . . . . . . . . . . 31
11. PURCHASE ORDERS, ALTERATIONS & RESCHEDULING . . . . . . . . . . . . 32
12. CONSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13. DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.1 On-time Delivery . . . . . . . . . . . . . . . . . . . . . . 36
13.2 Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13.3 Title/Risk of Loss . . . . . . . . . . . . . . . . . . . . 38
13.4 Packaging . . . . . . . . . . . . . . . . . . . . . . . . . 38
14. EQUIPMENT WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.10 Licensed Programs, Microcode and Maintenance Code Warranty 40
15. FRUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.4 FRU Rework Procedures and Prices . . . . . . . . . . . . . . 42
16. FIELD SERVICE & SUPPORT . . . . . . . . . . . . . . . . . . . . . . 42
16.1 Installation Support . . . . . . . . . . . . . . . . . . . . 42
16.2 Training . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.3 Service of Equipment . . . . . . . . . . . . . . . . . . . . 44
16.4 Emergency and Expert Maintenance Coverage . . . . . . . . . 44
16.5 Labor Rate Table . . . . . . . . . . . . . . . . . . . . . . 44
16.6 New Product Development Center Support . . . . . . . . . . . 44
16.7 Maintenance and Installation Tools . . . . . . . . . . . . . 45
16.8 Maintenance and Technical Support . . . . . . . . . . . . . 45
16.9 ** Access . . . . . . . . . . . . . . . . . . . . . . . . . 47
17. MARKETING RIGHTS & SUPPORT . . . . . . . . . . . . . . . . . . . . . 47
17.2 Marketing Support Organization . . . . . . . . . . . . . . . 47
17.3 Training . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.4 Additional Initial Training . . . . . . . . . . . . . . . . 47
17.5 Ongoing Training . . . . . . . . . . . . . . . . . . . . . . 47
17.6 Marketing Materials . . . . . . . . . . . . . . . . . . . . 48
17.7 Marketing Tools . . . . . . . . . . . . . . . . . . . . . . 48
17.8 Systems Engineering Support . . . . . . . . . . . . . . . . 49
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18. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 49
19. TRADEMARK & ADVERTISING . . . . . . . . . . . . . . . . . . . . . . 50
19.1 Trademark and Design Rights . . . . . . . . . . . . . . . . 50
19.2 Advertising/Disclosure . . . . . . . . . . . . . . . . . . . 50
20. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 51
21. ASSIGNMENT & CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . 51
22. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . 51
22.1 Escalation Process . . . . . . . . . . . . . . . . . . . . . 51
22.2 Mediation Process . . . . . . . . . . . . . . . . . . . . . 52
23. TERMINATION/REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 53
23.1 Termination by Mutual Consent . . . . . . . . . . . . . . . 53
23.2 Termination by Bankruptcy . . . . . . . . . . . . . . . . . 53
23.3 Termination for Cause . . . . . . . . . . . . . . . . . . . 53
23.4 Material Breach . . . . . . . . . . . . . . . . . . . . . . 55
23.5 License . . . . . . . . . . . . . . . . . . . . . . . . . 55
23.6 Manufacturing Make or Have Made Rights . . . . . . . . . . . 55
23.7 Termination for Convenience . . . . . . . . . . . . . . . . 56
23.8 Termination for Burdensome Condition . . . . . . . . . . . . 56
23.9 Wind Down . . . . . . . . . . . . . . . . . . . . . . . . . 57
23.10 ** After Termination . . . . . . . . . . . . . . . . . . . 58
24. INDEMNIFICATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 58
24.1 Intellectual Property Indemnity . . . . . . . . . . . . . . 58
24.2 General Indemnity . . . . . . . . . . . . . . . . . . . . . 58
24.3 Obligations of IBM . . . . . . . . . . . . . . . . . . . . . 59
25. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
25.1 New York Law . . . . . . . . . . . . . . . . . . . . . . . . 59
25.2 Limitation of Actions . . . . . . . . . . . . . . . . . . . 60
25.3 Limitation of Liability . . . . . . . . . . . . . . . . . . 60
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26. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
26.1 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 60
26.2 Relationship of the Parties . . . . . . . . . . . . . . . . 60
26.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 61
26.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 62
26.5 Headings and Attachments . . . . . . . . . . . . . . . . . . 62
26.6 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 62
26.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
26.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . 62
26.9 Weekends and Holidays . . . . . . . . . . . . . . . . . . . 62
26.10 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . 63
26.11 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 63
26.12 Order of Precedence . . . . . . . . . . . . . . . . . . . . 63
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EXHIBITS, ATTACHMENTS, APPENDICES
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Exhibit 1 - Prices
Attachment 1 - Product Prices
Attachment 2 - Volume Recovery Tables
Appendix A - 1996 ** Payment Table
Appendix B - 1997 ** Payment Table
Appendix C - 1998 ** Payment Table
Appendix D - 1999 ** Payment Table
Attachment 3 - Upgrade Pricing
Exhibit 2 - Specifications
Attachment 1 - Manufacturing Test Specifications
Attachment 2 - Product Specifications
Exhibit 3 - IBM Developer Agreement Between IBM and StorageTek: Base Agreement
Attachment 1 - Statement of Work
Appendix A - Functional, Technical and Quality Specifications
Schedule 1 - Iceberg Items
Schedule 2 - Kodiak Items
Schedule 3 - IXFP and IXOF Items
Schedule 4 - Iceberg Performance Commitments for 7/96
Schedule 5 - Iceberg Performance Commitments for 6/97
Schedule 6 - Kodiak Performance Commitments for 10/96
Schedule 7 - Kodiak Performance Commitments for 10/1/97
Schedule 8 - Capacity Ratio Specification
Appendix B - Completion and Acceptance Criteria
Schedule 1 - Monterey System Test
Schedule 2 - Current Volume Assumptions
Appendix C - [Intentionally Left Blank]
Appendix D - Certificate of Originality
Appendix E - IBM Source Code Custody Agreement
Appendix F - Performance Assessment Workload (PAWS)
Appendix G - Product Development Plan
Attachment 2 - Description of Licensed Works
Appendix A - IBM LIC Terms
Appendix B - StorageTek LIC Terms
Exhibit 4 - Consignment Agreement
Exhibit 5 - FRU Prices/Lead Times
Exhibit 6 - Data Items
Exhibit 7 - List of Countries for IP Indemnity
Exhibit 8 - Examples of Calculations of IBM Volume Credit Due to RAS Criteria
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
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OEM AGREEMENT
This agreement is made and entered into as of June 7, 1996, by and between
International Business Machines Corporation, having an office for the
transaction of business at 5600 Cottle Road, San Jose, California 95193
(hereinafter called "IBM" or "Monterey"), and Storage Technology Corporation,
having an office for the transaction of business at 2270 South 88th Street,
Louisville, Colorado 80028 (hereinafter called "StorageTek," "STK" or "Oahu").
StorageTek and IBM may be individually referred to herein as a "Party" and
collectively as the "Parties."
BACKGROUND
StorageTek manufactures and sells, among others, certain Equipment as more
fully described below. IBM wishes to purchase such Equipment from StorageTek
on an Original Equipment Manufacturer (OEM) basis at large volume prices in
order to resell or lease such Equipment to its customers throughout the world,
both directly and indirectly through its distributors, Subsidiaries, and other
channels. In order to secure access to IBM's distribution channels, to provide
StorageTek with the opportunity to reach more customers, to provide more
product choices for customers and also due to IBM's willingness to invest a
substantial amount in product research and development and in product
engineering, StorageTek is willing to sell such Equipment to IBM at such prices
if IBM will purchase a substantial amount of the Products and Upgrades,
advertise and market the Products and Upgrades, provide maintenance and repair
service for the Equipment sold or leased by it, maintain an inventory of spare
parts and take certain other related actions.
The provisions of this section are intended to generally explain the reasons
that StorageTek and IBM have entered into this Agreement, but do not constitute
a portion of the contractual obligations, terms or conditions agreed to by the
Parties, which are set forth in the following sections of this Agreement.
WITNESSETH THAT:
In consideration of the mutual premises and covenants herein contained, the
Parties hereto agree as follows:
1. DEFINITIONS
1.1 "Agreement" shall mean this OEM Agreement, its
Exhibits, their Attachments, their Appendices and
their Schedules.
1.2 "Agreement Administrator" shall have the meaning set
forth in Section 5.
1.3 "Annual Volumes" shall have the meaning set forth in
Section 6.1.
1.4 "APAR" shall mean a completed form entitled
"Authorized Program Analysis Report," that is used by
IBM to report suspected Code or documentation errors
in a
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Licensed Program (including updates or enhancements
thereto) and to request their investigation and
correction.
1.5 "Audit Rights" (Section 7.5c) shall mean a Party's
right to have Price Waterhouse, Arthur Andersen or
Ernst & Young, or their lawful successors, audit the
other Party's books and records on reasonable prior
notice for the purpose of making a factual
determination of whether a specified event has
occurred. The Parties shall request the firms in the
order set forth above, and shall only request the
second or third listed firm if the earlier listed
firms decline to serve. In carrying out such audit
responsibilities, said accounting firm shall use
generally accepted accounting principles (hereafter
"GAAP"), as consistently applied by the audited
party. The auditor's working papers shall not be
made available to the Party requesting the audit.
1.6 "Base Iceberg Package" shall have the meaning set
forth in the IDA.
1.7 "Burdensome Condition" (Section 23.8) shall mean: **
1.8 "Change of Control" (Section 21) shall mean: **
1.9 "Commit Date" shall have the meaning set forth in
Section 13.1i.
1.10 "Contract Coordinators" (Section 5) shall mean those
individuals described in Section 11.1 of the
Statement of Work (Attachment 1 to Exhibit 3).
1.11 "Cost Exclusions" (Section 9.3f) shall mean those
parts costs that are incurred by IBM for (i) FRUs
returned for warranty credit, (ii) FRU removals
which are not in accordance with FRU removal
procedure to the extent that such removals exceed
StorageTek's actual experience during the first six
(6) months of 1996, (iii) defective IBM Drives, and
(iv) FRUs replaced due to a confirmed IBM Drive or
any other IBM-supplied component failure (without a
defect in the associated StorageTek FRU package).
1.12 "Count Key Data Systems" (Section 6.6a) shall mean
storage subsystems or solutions which present a count
key data or extended count key data image to the
host.
1.13 "Day(s)," "month(s)," "quarter(s)" and "year(s)"
shall mean calendar days, months, quarters or years,
unless otherwise specified.
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and Exchange Commission under an application for confidential treatment.
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1.14 "Delivery," "Delivered," "Deliver" (Section 2.1) or
other forms of the term shall mean the physical
transfer of Equipment by StorageTek to an
IBM-specified common carrier, freight forwarder, or
IBM's agent at StorageTek's plant of manufacture.
1.15 "Devices" (Section 6.2) shall mean products which
would be **
1.16 "Disclosing Party" shall have the meaning set forth
in Section 20.
1.17 "Drives" shall have the meaning set forth in Section
12.1.
1.18 "Effective Date" shall have the meaning set forth in
Section 3.
1.19 "Emergency Engineering Change" shall have the meaning
set forth in Section 9.2b.
1.20 "Equipment" (Section 2) shall mean Products, Upgrades
and FRUs.
1.21 "Error Free Installation" (Section 9.3b) shall mean
installations of Products and Upgrades Delivered that
both (i) Plug and Play; and (ii) meet the following
criteria: (a) arrives configured according to IBM's
written instructions; (b) has all of the correct
documentation, cables and accessories included; and
(c) is Delivered in the correct packaging and with
the shipping documents. Such criteria shall
specifically not include any failures caused by IBM
or the customer, or for which IBM or the customer is
responsible, including without limitation, I/O
control program generations, shipping damage, failure
(for any reason) of Drives or other IBM-supplied
components.
1.22 "Estimated Volumes" shall have the meaning set forth
in Section 7.6a.
1.23 "FAST" shall mean Iceberg, as described in the
Specifications.
1.24 "FASTER" shall mean Kodiak, as described in the
Specifications.
1.25 "FRU" (Section 6.2) shall mean any part, assembly or
subassembly of Products, Devices or Upgrades supplied
by StorageTek that are designed to be replaceable in
the field.
1.26 "Gigabyte" or "GB" shall mean one billion bytes of
storage.
1.27 "IBM Customer Engineering" shall have the meaning set
forth in Section 16.2.
1.28 "IBM Total" shall have the meaning set forth in
Section 7.6c.
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1.29 "IDA" (Section 2.2) shall refer to the IBM Developer
Agreement, which is attached hereto as Exhibit 3.
1.30 "IDC Methodology" shall have the meaning set forth in
Section 7.6b.
1.31 "Impact Error" (Section 9.3a) shall mean an incident,
as reasonably determined by IBM, that either results
in: (1) the loss of data, or (2) the loss of access
to data resulting in an application interrupt (e.g.,
an abnormal program ending or "abend" or inability to
bring up an application) or system interrupt (e.g., a
system outage or requirement to initiate an initial
program load command in order to resolve or clear an
error condition). Any Impact Error due to improper
use of the Equipment by the customer, or an IBM agent
or employee will be excluded.
1.32 "Invention" shall mean any idea, design, concept,
process, technique, invention, discovery or
improvement, whether or not patentable, either
conceived or reduced to practice solely by one or
more employees of one of the Parties or its
Subsidiaries (Inventing Party) or jointly by one or
more employees of IBM or its Subsidiaries and one or
more employees of StorageTek or its Subsidiaries
(Joint Invention) in the performance, and during the
term, of this Agreement.
1.33 "Level 1" support are those activities that assist
the user in resolving "how to" and operational-type
questions, as well as technical questions on
installation procedures.
1.34 "Level 2" support are those activities that require
additional research and analysis of a user problem.
The Problem Management System database is checked to
locate a duplicate of the problem being reported and
the previous solution applied to that problem.
1.35 "Level 3" support are those activities that require
duplication of the user problem, analysis of APAR or
PMR records and distribution of a fix to resolve the
user problem.
1.36 "Licensed Programs" shall mean IXFP, IXOF and the
Snapshot Feature (as defined in Section 1.13 of the
DLW).
1.37 "Liquidated Damages" shall mean those damages
described in Section 6.5.
1.38 "Machine Month" or "MM" (Section 9.3a) shall mean a
measurement, established at the end of such calendar
month, of the number of units of Product installed
and operational during a month at an end user's
location, prorated on a daily basis (e.g., the sum of
the total number of machine days [i.e., number of
machines installed and operational at an end user's
location on a particular day] in a calendar month,
divided by the number of days in that month).
1.39 "Maintenance Code" shall be as defined in the DLW.
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1.40 "Major Enhancements" shall be as defined in the IDA.
1.41 "Mandatory Engineering Changes" shall have the
meaning set forth in Section 9.2.
1.42 "Maximum Percentage" shall have the meaning set forth
in Section 10.2.
1.43 "Megabyte" or "MB" shall mean one million bytes of
storage.
1.44 "Microcode" shall have the meaning set forth in the
Description of Licensed Works.
1.45 "Minimum Percentage" shall have the meaning set forth
in Section 10.2.
1.46 "Minimum Volumes" shall have the meaning set forth in
Section 6.5.
1.47 ** Price" shall have the meaning set forth in
Section 7.5.
1.48 "New FRU Cost" (Section 7.7a) shall mean StorageTek's
price for FRUs, as specified in Section 7.7a.
StorageTek will provide IBM a schedule setting forth
this cost for each FRU (the current version set forth
in Exhibit 5 to this Agreement, FRU Prices and Lead
Times) which list will be adjusted semiannually (in
January and July).
1.49 "New Product Development Center Support" shall have
the meaning set forth in Section 16.6.
1.50 "Non-RMM Device" shall have the meaning set forth in
Section 1.11 of the DLW.
1.51 "Notification Date" shall have the meaning set forth
in Section 6.2a.
1.52 "Object Code" shall have the meaning set forth in the
SOW.
1.53 "Plug and Play" means that a unit of Product or
Upgrade, when installed following StorageTek's
recommended installation procedures, operates without
experiencing any functional failures during
installation and passes all installation verification
tests, that internal diagnostic routines execute
successfully and generally that each such unit of
Product or Upgrade is observed to operate properly
and in accordance with the Specifications (as the
same may be changed in any applicable Product
Development Plan) through the installation of such
unit. A functional failure is defined as any
repair/replacement/adjustment corrective action that
is required to install or make the subsystem
functional that is not specified as part of the
installation instructions.
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1.54 "PMR" shall mean a problem management report that is
used by IBM to report machine failures.
1.55 "Product(s)" (Section 6.1) shall mean the products
purchased from StorageTek by IBM and consist of the
StorageTek-manufactured Iceberg, Kodiak and Arctic
Fox high performance storage subsystems, including
any Deliverables, Enhancements and Maintenance
Modifications hereafter made pursuant to the IDA, and
controllers, A-boxes, B-boxes, Microcode and Licensed
Works, and which are further described in Exhibit 2,
Specifications, and Appendices A and B to Attachment
1 of Exhibit 3. Products also include related
documentation and other supporting materials.
1.56 "Product Engineering Services" shall mean the support
and services as described in Section 3.7 of the SOW.
1.57 "Qualified Upgrades" shall have the meaning set forth
in Section 6.3.
1.58 "Quarterly Cost" (Section 6.2b(1) shall mean **
1.59 "Quarterly Volumes" shall have the meaning set forth
in Section 6.2.
1.60 "QUICK" shall mean Arctic Fox.
1.61 "RAS criteria" shall have the meaning set forth in
Section 9.3a.
1.62 "Receiving Party" shall have the meaning set forth in
Section 20.
1.63 "Recovery Payments" shall have the meaning set forth
in Section 7.6.
1.64 "Remainder Percentage" shall have the meaning set
forth in Section 10.2.
1.65 "Service Call" (Section 9.3a) shall mean any service
call due to a failure condition resulting from either
a subsystem hardware or Microcode error (including
the Microcode portion of Snapshot Feature) (e.g., 01,
02 and 04 service codes).
1.66 "Service Call Rate" (Section 9.3a) shall mean a rate
which is calculated as follows:
number of service 180 GB for Iceberg or
calls during month 360 GB for Kodiak
------------------ X ----------------------
number of average capacity
Machine Months in GB per machine
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and Exchange Commission under an application for confidential treatment.
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1.67 "Severity Level" shall mean a designation (i.e.,
Severity 1, Severity 2, Severity 3 and Severity 4)
assigned to errors that is intended to indicate the
seriousness of the error based upon the impact that the
error has on the user's operation.
1.68 "Severity 1" is a "critical problem"; the product is
unusable or an error severely impacts a customer's
operation. Severity 1 requires maximum effort to
resolve a critical problem until an emergency fix is
developed, implemented and made generally available to
IBM's customers who experience such problem.
1.69 "Severity 2" is a "major problem"; important function is
not available resulting in operations being severely
restricted.
1.70 "Severity 3" is a "minor problem"; inability to use a
function occurs, but it does not seriously affect the
user.
1.71 "Severity 4" is a "minor problem" that is not
significant to the user's operation; the user may be
able to circumvent the problem.
1.72 "Source Code" shall have the meaning as set forth in the
SOW.
1.73 "Specifications" (Section 2.1) shall mean the
descriptions contained in Appendices A and B to
Attachment 1 of Exhibit 3 and Exhibit 2, Specifications.
1.74 "Standard Parts Cost" (Section 9.3f) shall mean the
following with respect to the following specific periods
of this Agreement:
a. First twelve months of the Agreement: ** of the
New FRU Cost plus ** of the Used FRU Cost for
each FRU, plus actual freight; and
b. Thereafter: ** of the New FRU Cost plus ** of
the Used FRU Cost for each FRU, plus actual
freight.
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
7
<PAGE> 15
1.75 "StorageTek Installed Base" shall mean ** prior to the
Effective Date and ** distributed by StorageTek
pursuant to the terms of Section 6.7 and 6.8, below.
1.76 "Subsidiary" (Section 6.6) shall mean a corporation,
company, limited liability company or other entity:
a. more than fifty percent (50%) of whose outstanding
shares or securities (representing the right to
vote for the election of directors or other
managing authority) are, now or hereafter, owned or
controlled, directly or indirectly, by a party
hereto; or
b. which does not have outstanding shares or
securities, as may be the case in a partnership,
joint venture, or unincorporated association, but
more than fifty percent (50%) of whose ownership
interest representing the right to make the
decisions for such corporation, company or other
entity is, now or hereafter, owned or controlled,
directly or indirectly, by a party hereto;
but such corporation, company or other entity shall be
deemed to be a Subsidiary only so long as such ownership
or control exists.
1.77 **
1.78 "Terabyte" or "TB" (Section 6.1) shall mean one trillion
bytes of storage which is accessible to the customer.
For calculating storage capacities of purchases of **
1.79 "Upgrade(s)" (Section 6.2b) shall mean additional
features or functions, including but not limited to
Major Enhancements, which improve performance or
increase capacity of previously sold or leased Products
or Devices.
1.80 "Used FRU Cost" (Section 7.7a) shall mean the price of
rework for FRUs as determined by Section 15.4. This
cost as of the execution of this Agreement is set forth
in Exhibit 5 to this Agreement, FRU Prices and Lead
Times, which will be adjusted semiannually (in January
and July).
1.81 Capitalized terms not otherwise defined in the OEM
Agreement shall have the definitions set forth elsewhere
in the Agreement.
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
8
<PAGE> 16
2. SCOPE OF AGREEMENT
2.1 StorageTek agrees to develop IBM requested enhancements to the
Equipment, to provide continuing engineering and marketing and
service support for the Equipment, and to manufacture, test,
sell and Deliver Equipment to IBM and desires that IBM supply
Drives for use in such Equipment all in accordance with the
Specifications, procedures and conditions contained in this
Agreement.
2.2 IBM (i) agrees to fund the continuing engineering on, and the
future development of, specific enhancements to the Equipment
as set forth in the IDA, (ii) intends to add value to such
Equipment by consigning IBM Drives to StorageTek for inclusion
in the Equipment, and (iii) has the right to market and sell
Equipment purchased from StorageTek, all in accordance with
the terms of this Agreement.
2.3 Changes to Specifications, procedures and conditions contained
in the Agreement, its Exhibits, their Attachments and their
Schedules may be made from time to time upon mutual written
agreement, specifically identifying this Agreement and stating
an intent to make such changes.
3. TERM OF AGREEMENT
Unless earlier terminated, the term of this Agreement shall be for a
period from the date first set forth above (hereinafter "Effective
Date"), through December 31, 1999.
4. COMPONENTS
Because the Equipment purchased by IBM from StorageTek is likely to be
associated with the IBM brand, IBM wishes to be assured that such
Equipment, when sold to its customers, will have the quality that its
customers expect from items so branded. Accordingly, IBM believes
that, to the extent that StorageTek can utilize components in such
Equipment that are manufactured by or for IBM under its high quality
standards, it would be desirable for StorageTek to obtain such
components from IBM for use in manufacturing the Equipment. **
5. AGREEMENT ADMINISTRATOR
Each Party will identify an Agreement Administrator no later than June
15, 1996, who shall have overall responsibility for managing this
Agreement for such Party. Until such time, the Agreement
Administrators are set forth below. The Agreement Administrators may
not amend the terms of this Agreement. In addition to other
responsibilities as may be agreed,
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
9
<PAGE> 17
such Administrators or any successor named by the Party designating such
Administrator, will complete as soon as possible after the Effective Date, and
will update throughout the term of this Agreement their respective entries in
Exhibit 6, "Data Items." The Administrators shall also be responsible for the
exchange of data, as provided in this Agreement.
The Agreement Administrators are:
For StorageTek: **
For IBM: **
6. PURCHASE COMMITMENTS
6.1 1996-1998 ** VOLUMES
IBM intends to purchase a specified volume of Products and
Qualified Upgrades during 1996, 1997 and 1998 from StorageTek
** (hereafter ** ). The ** Volumes, based upon the
capacity, in Terabytes, of Products and Qualified Upgrades
purchased by IBM and credited to IBM pursuant to other
provisions of this Agreement, are ** Terabytes in 1996,
** Terabytes in 1997, and ** Terabytes in 1998. If IBM's
purchases and credits do not equal or exceed the **
Volume, then IBM will make Recovery Payments as set forth in
Section 7.6, and, in certain circumstances, IBM will be
obligated to pay Liquidated Damages as set forth in Section
6.5b or 6.5c.
6.2 1999 ** VOLUMES/PRICING
IBM may continue to purchase Products and Upgrades from
StorageTek during 1999 according to the process detailed
below:
a. On or before ** the Parties will ** then IBM must
notify StorageTek according to the following schedule
**
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
10
<PAGE> 18
<TABLE>
<CAPTION>
Notification Date | For Shipment in
--------------------------------------------------
<S> <C> <C>
** | **
** | **
** | **
** | **
</TABLE>
b. Prices which StorageTek shall charge to IBM for Products
in 1999 will be based on price quotes. Thirty (30) days
prior to each Notification Date described in paragraph
6.2a, above, StorageTek shall provide a price quote to
IBM for Products to be shipped to IBM in the
corresponding ** as indicated above. Such price shall
be the greater of:
(1) **
(2) **
IBM's purchase volumes for ** (hereafter " **
Volumes") shall depend on the price determined as set
forth above.
If StorageTek provides the cost described in paragraph
6.2b(1), above, as its price, IBM's ** Volumes shall
be ** Terabytes of Products and Upgrades. If
StorageTek provides the price described in paragraph
6.2b(2), above, as its price, IBM's ** Volumes shall
be ** Terabytes of Products and Upgrades.
c. Prices provided to IBM by StorageTek pursuant to
paragraph 6.2b, above, shall be based on StorageTek's
**
d. Notwithstanding the above, if IBM fails to notify
StorageTek prior to ** of its desire to purchase
Products for ** 1999, and if, on or before **
IBM decides that it wishes to continue to purchase
Products ** 1999, then, ** 1999 only, IBM may
elect to purchase such Products at the price quoted
pursuant to paragraph 6.2b, above ** by providing a
noncancelable purchase order for such units of Products
as IBM may require.
e. If IBM does not attain its ** Volumes for any
quarter, then IBM shall pay a ** Volume Recovery
Payment computed in accordance with Exhibit 1,
Attachment 2, Appendix D. IBM's payment of these
Recovery Payments shall be the sole and exclusive remedy
to StorageTek for IBM's failure to purchase the **
Volumes pursuant to this Agreement.
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
11
<PAGE> 19
f. If IBM does not attain its ** Volumes for ** then
StorageTek may use IBM Materials ** to sell or
distribute Devices and Major Enhancements therefor,
subject, however, to the applicable provisions of the
Description of Licensed Works Transaction Document.
6.3 QUALIFIED UPGRADES
** if the total of IBM's purchases and credits is more than
** then the capacity of any and all Upgrades purchased
during such year as measured in Terabytes shall be credited
toward IBM's attainment of its ** Volumes in such year.
If the total of IBM's purchases and credits is ** Terabytes
or less ** then IBM may credit a maximum of ** Terabytes
of Upgrade purchases ** in determining attainment of its
** Volumes. Such Upgrades shall be hereafter referred to as
"Qualified Upgrades." Upgrades ** will count toward
achievement of the ** Volumes to the extent that the
capacity of Upgrades purchased and credited does not exceed
** of the total capacity purchased and credited.
6.4 CREDITS
IBM's ** Volumes are subject to credits based upon
StorageTek's failure to meet agreed-to specifications relating
to quality, availability, supply, delivery, technical
milestones and other such items to the extent that such
credits are provided for elsewhere in this Agreement. As
applied herein, credits shall be additive to any actual
purchase of Equipment by IBM.
6.5 LIQUIDATED DAMAGES/ ** PAYMENTS
IBM intends, through a combination of purchases of Equipment
from StorageTek and credits to volumes as provided elsewhere
in this Agreement, to achieve a minimum of ** Terabytes
("Minimum Volumes") of its ** Volumes in **
a. If, ** IBM has not purchased its Minimum Volumes,
then, except as otherwise provided in Sections 6.6a,
6.6b and 21, StorageTek may elect to terminate this
Agreement and receive from IBM ** pursuant to
Sections 6.5b or 6.5c, below. StorageTek will provide IBM
with notice of such failure by ** in which a shortfall
occurs. IBM shall have the option to avoid such
termination and ** respectively; provided that IBM has
received at least twenty (20) days' prior written notice
of such shortfall. Such ** If IBM ** subject to
Section 23.9, StorageTek
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
12
<PAGE> 20
may terminate this Agreement effective upon notice,
which must be provided no later than ** of such year.
b. If IBM's total volume of purchases ** is less than
its Minimum Volumes, and StorageTek elects to terminate
this Agreement ** but no later than ** pursuant to
Section 6.5a above, then IBM will pay to StorageTek:
(1) ** in the amount of ** ; plus
(2) The net sum of any ** as determined in
accordance with Section 7.6d, provided, however,
that such ** shall not exceed the sum of **
; plus
(3) Any ** provided, however, that no additional
** shall be due ** and, provided further,
that ** shall not exceed the sum of ** .
c. If IBM's total volume of purchases for ** is less than
its Minimum Volumes, and StorageTek elects to terminate
this Agreement ** but no later than ** pursuant to
Section 6.5a above, then IBM will pay to StorageTek:
(1) ** in the amount of ** ; plus
(2) The net sum of any ** as determined in
accordance with Section 7.6d; provided, however,
that such ** shall not exceed the sum of ** .
d. If IBM terminates this Agreement for convenience **
then, except as otherwise provided in Sections 6.6a,
6.6b and 21, IBM will pay ** as described in
Section 7.6, below, to the extent not already paid,
** plus the sum of **
e. If IBM terminates this Agreement for convenience between
** then, except as otherwise provided in Sections 6.6a,
6.6b and 21, IBM will pay to StorageTek:
(1) ** in the amount of **
(2) The net sum of any ** provided, however, that
no additional ** shall be due ** .
f. **
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
13
<PAGE> 21
g. The Parties acknowledge and agree that the foregoing
** amount is not a penalty but represents a good
faith estimate by the Parties of the amount of damages
incurred by StorageTek upon the occurrence of the
events set forth in Sections 6.5b through 6.5e. The
Parties have entered into this provision after each
Party has had the opportunity to consult counsel, and
pursuant to a mutual intent to avoid the expenses of
any dispute resolution process.
6.6 OTHER STORAGETEK DISTRIBUTION
a. StorageTek and its Subsidiaries may, at their sole
discretion, sell, lease or otherwise distribute Devices
and products competitive with Equipment to third
parties, provided, however, that neither StorageTek nor
its Subsidiaries are ** and, provided further, that,
except for situations as described in Section 6.7,
below, if StorageTek chooses to use, sell, lease or
otherwise distribute, either directly or indirectly:
(1) any ** or
(2) **
then, unless the sale is excepted pursuant to Section
6.8, below, IBM shall be ** its obligations and
liabilities related to ** as well as any obligation
to pay any ** in the year in which the sale
occurred and thereafter. StorageTek shall also have no
right to terminate this Agreement for failure of IBM to
meet its ** and shall immediately notify IBM in
writing that such use, sale, lease or other
distribution has occurred, and shall indicate that IBM
** the foregoing obligations. IBM shall also have
the right to ** . Each Party may also terminate **
b. If StorageTek licenses, transfers, sells or assigns to a
third party all or a portion of a Licensed Work ** then
IBM shall be ** its obligations and liabilities
related to ** , as well as any obligation to ** in
the year in which the sale occurred and thereafter.
StorageTek shall also have ** for failure of IBM to
meet its ** and shall immediately notify IBM in
writing that such license, transfer, sale or assignment
has occurred, and shall indicate that IBM ** the
foregoing obligations. IBM shall also have the right to
** Each Party may also terminate **
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** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
14
<PAGE> 22
c. If IBM learns of facts that indicate that StorageTek is
selling, leasing or otherwise distributing the products
described in Section 6.6a, above, directly or
indirectly, to customers other than IBM, or has
licensed, transferred, sold or assigned the Licensed
Works described in Section 6.6b, above, then upon
written notice by IBM to StorageTek:
(1) StorageTek shall investigate the facts and
circumstances relating to the incident
thoroughly, and share the results, but not the
customer-specific details, with IBM. If both
Parties agree that no such sale, lease or other
distribution occurred or no such license was
granted, then the rights and obligations of the
Parties shall not change. If the Parties are
unable to agree on the facts relating to such
incident, then the matter will be handled
pursuant to the dispute resolution process
described in Section 22.
(2) if StorageTek or its Subsidiaries has made a
sale, lease or other distribution to third
parties, as described in Section 6.6a, above, or
has licensed, transferred, sold or assigned the
Licensed Works to a third party, as described in
Section 6.6b, above, other than IBM, then IBM's
obligations shall be modified as set forth in
such sections.
6.7 EXCEPTIONS
a. Sales, leases, or other distribution or use of Devices
by StorageTek or its Subsidiaries in the following
situations are excepted from the provisions of Section
6.6, and will be credited toward calculation of IBM's
purchase volume for the purpose of determining whether
IBM has achieved its ** Volumes:
(1) Sales, leases or other distribution of ** .
For the purpose of determining the ** which
shall be credited to IBM's ** Volumes, **
(2) Sales of Devices by StorageTek or its
Subsidiaries **
(a) **
(b) **
and further provided that, in the case of (a) or
(b), shipments made prior to ** will not be
credited to IBM's ** Volumes; and
(3) **
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
15
<PAGE> 23
b. Uses, sales, leases or other distribution of Equipment
or Devices by StorageTek or its Subsidiaries in the
following situations are excepted from the provisions of
Section 6.6a, **
(1) Sales or leases by StorageTek or it Subsidiaries
of Equipment that **
(2) Use of Equipment or Devices internally by
StorageTek or its Subsidiaries **
(3) Use of Equipment or Devices internally by
StorageTek **
(4) Sales or leases of used Equipment, Devices or
Count Key Data Systems **
(5) Sales or use of FRUs for maintenance purposes
only. However, nothing in this clause 6.7b(5)
shall be interpreted as granting StorageTek an
implied license to distribute FRUs that are or
contain IBM Materials or other IBM Code not
licensed under this Agreement.
(6) Sales or leases of Arctic Fox and Arctic Fox
Upgrades, **
(7) Sales of Non-RMM Devices, **
(8) Use of Count Key Data Systems that are not
Equipment or Devices by StorageTek or its
Subsidiaries.
6.8 ADDITIONAL STORAGETEK SALES
In the event that StorageTek or its Subsidiaries makes sales
which are not within the scope of the sales enumerated in
Section 6.7, above, IBM shall nevertheless continue its
obligations for future ** and ** if the total units of
Product, Upgrades, Count Key Data Systems and Devices sold by
StorageTek and its Subsidiaries, and not included under Section
6.7, above, in any consecutive ** period, does not exceed **
units; provided that under no circumstances shall any units of
Product, Upgrades, Count Key Data Systems and Devices sold by
StorageTek and its Subsidiaries pursuant to this Section 6.8,
include ** . IBM will receive credit against the attainment
of its ** Volumes in an amount equal to two times the amount
of Terabytes sold pursuant to this Section 6.8. For the
purposes of determining the capacity that shall be so credited,
** will be used.
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
16
<PAGE> 24
7. PRICING & PAYMENT TERMS
7.1 Prices charged to IBM by StorageTek for Products sold
hereunder in 1996, 1997 and 1998 shall be as set forth in
Attachment 1 to Exhibit 1 to this Agreement. These prices
include necessary cables, software, packaging, packing and
shipping materials and such other items (excluding manuals) as
StorageTek currently includes in its Product shipments.
Manuals normally included with Product shall also be included
through September 31, 1996. Prior to such date the Parties
will meet to discuss methods by which StorageTek could assist
in preparing or having such manuals prepared at IBM's expense.
7.2 Prices charged to IBM for Upgrades shall be as set forth in
Attachment 3 to Exhibit 1 to this Agreement.
7.3 In the case of Products or Upgrades manufactured by StorageTek
in Europe, an additional charge equivalent to ** will be
added by mutual agreement to the prices set forth in
Attachments 1 and 3 to Exhibit 1, which charge initially shall
be ** .
7.4 Prices charged for Products in 1999 shall be as set forth in
Section 6.2.
7.5 ** PRICE
Notwithstanding any other provisions in this Agreement, in no
event will any price charged by StorageTek to IBM exceed **
Prices, as defined below:
a. **
b. **
c. **
7.6 RECOVERY PAYMENTS
a. If IBM fails to purchase volumes from StorageTek equal
to its ** Volumes ** IBM will pay to StorageTek a
sum referred to herein as a Recovery Payment. This
amount shall be calculated, ** . The amount of such
Recovery Payments shall be calculated at least ** and
shall be based on ** (hereinafter " ** Volumes").
If the parties cannot agree on such ** Volumes, then
they shall resolve the dispute pursuant to Section 22.
No later than the last day of such quarter, IBM will pay
to StorageTek or StorageTek will pay to IBM the
estimated net sum of any Recovery Payment due to the
other Party. For ** such ** Recovery Payment
shall not be reconciled to actual volumes of
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
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<PAGE> 25
shipments and credits. For ** such ** Recovery
Payment shall ** of the following year. Such
Recovery Payment shall not exceed the sum of ** in
any year.
b. Definition of IBM Total. As used in Appendices B and C
of Attachment 2 to Exhibit 1 hereto, "IBM Total" shall
mean (1) ** IBM volumes of all ** sold by IBM **
expressed in Terabytes, ** using the methodology that
is consistent with ** then current outlook report for
** or, if such data is not available, as otherwise
mutually agreed; and (2) for ** , subject to
StorageTek's Audit Rights, the total ** during such
year.
c. 1996. The Recovery Payment for 1996 shall be **
d. 1997-1998. The Recovery Payment for 1997 and 1998
shall be **
e. 1999. The Recovery Payments, if any, for 1999 shall be
**
f. Notwithstanding anything to the contrary in this Section
7.6, in the event that StorageTek terminates this
Agreement based on IBM's failure to purchase its **
Volumes or if IBM terminates this Agreement for
convenience, then **
7.7 FRU PRICES
Prices charged by StorageTek to IBM for new FRUs will be **
of such FRUs and the multiples set forth in Section 7.7a,
below. For the purpose of this section and Section 15.4, cost
shall be determined by using ** . The standard cost will be
reviewed ** and any differences in cost will be adjusted in
the following period. Compliance with this section shall be
subject to IBM's Audit Rights.
a. Multiples for New FRUs.
(1) During 1996 the multiple is **
(2) During the remaining term of this Agreement the
multiple is **
(3) After the termination of this Agreement the
multiple is **
b. FRU Rework. Prices for FRUs returned by IBM will be
determined in accordance with Section 15.4.
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
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<PAGE> 26
7.8 LOWEST COST SOURCING.
The Parties agree that it is in their mutual interest for
StorageTek to obtain parts for new production and maintenance
purposes at the lowest practicable cost. If IBM identifies a
potential alternative source for any part, StorageTek will
make a good faith reasonable effort to qualify the
alternative. If such bid is comparable with the quality,
terms and conditions and offers a better price compared to the
then current source of such parts, and awarding such
alternative source a supply contract pursuant to such bid does
not adversely impact the terms of StorageTek's purchases of
other parts from the then current source, then the lower cost
will be used in determining prices to IBM for Equipment
whether or not StorageTek actually obtains the part or parts
from such alternative source.
7.9 TAXES/DUTIES
The prices for Equipment supplied under this Agreement are
exclusive of any customs charges and duties and sales, use,
privilege, excise and similar taxes levied by the USA, foreign
territories, or any other governmental entity on the Products,
their export, import, shipment, purchase or sale. IBM shall
pay and be responsible for the payment of any such taxes
(excluding taxes based upon StorageTek's net income) or
duties; and, to the extent legally required, StorageTek shall
collect any applicable taxes unless IBM establishes its
exemption therefrom. If StorageTek is required to pay any
such taxes or duties, IBM will reimburse StorageTek pursuant
to StorageTek's invoice.
IBM hereby represents to StorageTek that it is purchasing the
Products hereunder for the purpose of resale, rent, lease or
in-house use, and, if required by applicable law, IBM will
furnish StorageTek with pertinent and valid sales and use tax
exemption certificates.
7.10 PAYMENT TERMS
a. StorageTek will invoice IBM for Equipment on or after
the date on which such Equipment is Delivered. If any
unit of Equipment is Delivered and is not suitable to be
installed, then the Equipment shall not be considered as
Delivered until such time that such Equipment is
rendered suitable for installation. IBM or its designee
will exercise reasonable efforts to install Equipment
that it receives. IBM will promptly notify StorageTek
when such Equipment is not suitable for installation.
Subject to Section 13.1k, payment terms will be the
number of days from date of receipt of a correct invoice
by IBM as shown in the following table:
19
<PAGE> 27
<TABLE>
<CAPTION>
Invoice Date Payment Term
|
-------------------- -----------------------
<S> <C> <C>
1996 | ** days
1997 or later | ** days
</TABLE>
b. StorageTek's invoices must state the IBM purchase order
number, description of the item(s) being invoiced,
quantity shipped, ship date, unit price, total amount
due and the remit-to address. StorageTek will mail or
deliver invoices to the address indicated on the
purchase order.
c. Payment of an invoice by IBM under IBM purchase order(s)
will not be construed as and will not constitute an
acceptance of Product failing to conform to
specifications or agreed upon quality levels, nor will
any payment to StorageTek be construed as or constitute
a waiver of any of IBM's legal rights or remedies.
d. StorageTek will invoice, and IBM will pay, in US Dollars
to the address listed on StorageTek's invoice. All
payments will be made by wire transfer of immediately
available funds.
7.11 SNAPSHOT FEATURE
IBM will license the Snapshot Feature as set forth in the
Description of Licensed Works for the license fees set forth
in Attachment 3 to Exhibit 1 hereto.
8. IBM SALES TO STORAGETEK
8.1 StorageTek, in its sole discretion, may acquire Equipment from
IBM ** . The prices for the first ** units of Products
will be ** . The prices for all other units of Products will
not exceed ** . The
prices for Upgrades will not exceed ** . Such Equipment may
be sold by StorageTek ** . Sales by IBM to StorageTek will
be pursuant to ** with a one (1) day transit period, except
that all Equipment supplied pursuant to this section by IBM to
StorageTek shall be provided ** . Moreover, StorageTek
shall not be subject to ** for such units.
8.2 IBM agrees to sell StorageTek the Upgrades it reasonably
requires to meet the ongoing remarketing obligations
StorageTek has as of the ** with respect to ** . The
prices for Upgrades ** which IBM will charge Storagetek
shall be commercially reasonable and not exceed ** of IBM's
average selling price ** but under no circumstance shall
such prices be any less than ** of the price charged to IBM
by StorageTek per MB of Product as set forth in Section 7.
Any such Upgrades, when
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
20
<PAGE> 28
purchased by IBM from StorageTek, will be counted as IBM's
volumes in calculating IBM's attainment of its ** , and
will not be subject to the limitations of Section 6.3, and
will be counted in addition to the Qualified Upgrades.
9. QUALITY
9.1 MANUFACTURING TESTING
Prior to Delivery, StorageTek shall conduct a mutually
agreed-upon preshipment manufacturing test at its plant on
each unit of Equipment. Notwithstanding such preshipment
manufacturing testing, all Equipment must conform to the
Specifications. StorageTek will provide IBM on a quarterly
basis with a complete, summarized record of inspection and
tests performed on each unit of Equipment during the term of
the Agreement. Detailed records of inspection and tests (in
manual and electronic form) performed for each unit of
Equipment shall also be kept by StorageTek for three (3)
years. Upon IBM's request, StorageTek will provide IBM with
access to an electronic copy of the specific test results for
each unit of Equipment within two (2) business days after
receipt of such request.
IBM's representative may, if it so requests and at its sole
expense, witness the preshipment tests carried out by
StorageTek, provided such request is made at least three (3)
days prior to the scheduled Delivery of the items being
tested. Any such observation by IBM shall be subject to
StorageTek's reasonable safety and security rules and shall be
conducted to the extent feasible on a noninterference basis.
IBM may also conduct its own testing to the extent feasible on
a non- interference basis either at StorageTek's plant, its
own facilities or IBM's customers' facilities, at IBM's own
expense, to confirm that the Equipment meets the
Specifications. Any testing performed at StorageTek's plant
shall be subject to StorageTek's reasonable safety and
security rules.
9.2 ENGINEERING CHANGES
a. Mandatory Engineering Changes. If changes that may
affect the form, fit, function, interface, reliability
or serviceability of the Equipment (including
interchangeability with previously purchased FRUs) are
required in order to make the Equipment sold hereunder
conform to the Specifications ("Mandatory Engineering
Changes"), StorageTek shall first obtain IBM's approval.
If it is mutually agreed that the change is to be made,
StorageTek shall make the changes at no charge to IBM in
all units of Equipment which are not yet delivered to
IBM. If such changes are required to make delivered
units of Equipment conform to those Specifications, they
shall be supplied in the form of mandatory field change
kits at no charge to IBM in accordance with the
procedure set forth below.
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<PAGE> 29
IBM shall supply labor to install, subject to Section
9.3h, all Mandatory Engineering Changes in delivered
units of Equipment.
Field change kits resulting from Mandatory Engineering
Changes described above will be administered as follows:
(1) StorageTek will promptly send an engineering
change notice (ECN) to IBM prior to Delivery of
the first shipment of Equipment that contains a
Mandatory Engineering Change. IBM shall issue a
no-charge purchase order for all mandatory field
change kits that IBM desires. Such kits and any
Equipment returned which are covered by the
Mandatory ECNs shall be shipped freight prepaid
by StorageTek, at no charge to IBM.
(2) StorageTek will ship the mandatory field change
kits according to the schedule that is set forth
in clause (4), below, and issue a no-charge
invoice to IBM for all parts ordered and shipped
as a part of the mandatory field change kits.
(3) Subject to the terms of Section 15.3, IBM will
use reasonable efforts to see that repairable
parts (displaced by field change kits) from
Equipment are packaged separately from other
parts returned. IBM will send Products to
StorageTek, freight prepaid, and Upgrades and
FRUs, freight collect.
(4) For each Mandatory Engineering Change the parties
will agree upon an appropriate round- robin
process for distributing field change kits to the
field and securing the return of displaced FRUs
for rework by StorageTek.
b. Emergency Engineering Changes. Notwithstanding Section
9.2a, above, StorageTek may issue any engineering change
necessary to remedy an Equipment-down situation at a
customer of IBM or to make any unit of the Equipment
safe (an "Emergency Engineering Change") upon notice to
IBM but without any prior evaluation or approval by IBM;
provided, however, that StorageTek agrees to follow the
procedures as set forth in Section 9.2a in order to
implement a permanent solution to resolve the safety or
down situation that arose precipitating the need for the
engineering change.
As to any affected Equipment from time to time in IBM's
inventory or control, or already accepted by IBM, IBM
shall use reasonable efforts to promptly accomplish the
installation of such Emergency Engineering Change. In
the event of installation of Emergency Engineering
Changes by IBM hereunder, StorageTek shall implement a
corrective action plan, including the provision of
information, materials, tools and parts necessary to
effect the installation of such Emergency Engineering
Changes on the affected Equipment (all without cost to
IBM), subject to Section 9.3h.
22
<PAGE> 30
c. Optional Engineering Changes. In addition to Mandatory
Engineering Changes, it is recognized by the Parties
that there may be optional changes requested by either
IBM or StorageTek, which are not required to make the
units of Equipment conform to the Specifications. The
cost of implementing such changes (including kits and
labor) on delivered Equipment shall be divided between
the parties as they mutually agree. StorageTek will
deliver field change kits for such changes to IBM, as
specified in IBM's purchase order, which purchase order
shall be given by IBM to StorageTek within such time
period as the Parties shall mutually agree.
d. Procedures Regarding Proposed Engineering Changes. In
connection with any engineering changes proposed
pursuant to Section 9.2a, above, StorageTek will forward
to IBM, at IBM's request, a minimum of two (2) samples
of each such proposed engineering change, as well as the
details of any proposed change, to enable IBM to
determine whether to approve such change, including:
(1) the effect of the change on the form, fit,
function, interface, reliability or
serviceability of the Equipment;
(2) StorageTek's reference number for the proposed
change;
(3) StorageTek's identification of the item to be
changed and whether any items should be returned;
(4) description of and reason for the change with
sufficient engineering detail and applicable
validation data, as endorsed by StorageTek's
quality control process, to enable the proposal
to be assessed;
(5) the date and, if available at the time,
StorageTek's serial number from which StorageTek
proposes to implement the change;
(6) whether retroactive action is proposed and, if
so, the details of any necessary field action and
the initial availability of FRUs (on Engineering
Changes, StorageTek will advise IBM about the
effect on (a) outstanding orders for Equipment;
(b) units of Equipment which are at the time of
such proposed change in for repair or
replacement; and (c) the next batch of units of
Equipment to be delivered from StorageTek's plant
on which the Engineering Change should be
implemented);
(7) intended alterations to FRUs, documentation,
tools and other relevant material supplied or to
be supplied to IBM; and
(8) whether any parts will become obsolete as a
result of the change.
23
<PAGE> 31
Except for any Emergency Engineering Changes, StorageTek
is required to obtain IBM's prior written approval for
each Engineering Change before StorageTek's
implementation of the same.
e. Revalidation. Upon implementation of each engineering
change, StorageTek agrees to perform revalidation
testing at no charge to IBM to ensure that the Equipment
so changed meets the Specifications.
f. Obsolete Upgrades and FRUs. If StorageTek makes any
Mandatory, Emergency or StorageTek-initiated Engineering
Change which renders any Upgrades and FRUs obsolete
(i.e., unusable), StorageTek shall replace the obsolete
Upgrades and FRUs at no charge to IBM in accordance with
the procedures set forth in Section 9.2a, above. No
returns are authorized for field change kits that are
requested as a result of an optional IBM- initiated
engineering change which renders any Upgrade or FRU
obsolete.
9.3 QUALITY LEVELS
a. RAS Criteria. StorageTek shall maintain (i)
throughout the term of this Agreement, and (ii)
for a period of ** after the date of last
Delivery of each type of Product (provided IBM
pays for the Product Engineering Services unless
it is not required to do so and StorageTek is
still providing Product Engineering Services for
its own distribution of Equipment or Devices);
the following reliability, availability and
service ("RAS") levels for the Products:
SERVICE CALL CALCULATION
<TABLE>
<CAPTION>
Effective
RAS Criteria Date Iceberg Kodiak
------------ ----------- ------- ------
<S> <C> <C> <C>
Service Call Rate ** ** **
Guardband ** **
</TABLE>
For measuring Service Calls, the calculation of a
Machine Month is based on the use of a 180 GB and 360 GB
machine configuration for Iceberg and Kodiak,
respectively.
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
24
<PAGE> 32
IMPACT ERROR CALCULATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
IMPACT ERRORS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
** ** ** ** ** ** **
- --------------------------------------------------------------------------------------------------------
ICEBERG -- ** ** ** ** **
- --------------------------------------------------------------------------------------------------------
KODIAK -- -- ** ** ** ** **
- --------------------------------------------------------------------------------------------------------
GUARDBAND -- ** ** ** ** ** **
- --------------------------------------------------------------------------------------------------------
</TABLE>
Such rates will be calculated based on the total number
of Impact Errors that occur during a calendar quarter
divided by the total number of Machine Months during
said quarter for Iceberg and Kodiak, respectively.
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
OCTOBER NOVEMBER DECEMBER TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
End of Month
- --------------------------------------------------------------------------------------------------------
Install Base ** ** ** **
- --------------------------------------------------------------------------------------------------------
Impact Errors ** ** ** **
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Failure Rate **
- --------------------------------------------------------------------------------------------------------
</TABLE>
Impact Error measurements for Kodiak will not count
toward any criteria until the earlier of: (i) the first
quarter in which ** units of Kodiak have been
installed by IBM, or (ii) the second quarter of 1997,
provided that at least ** units have been installed by
IBM as of the last day of such quarter.
Impact Error measurements for Iceberg will not count
toward any criteria until ** units of Iceberg have
been installed by IBM.
The RAS measurements shall exclude impacts or failures
of Products where a microcode or engineering change is
available which, if installed, would have prevented the
impact or failure from occurring; provided, however,
that such microcode or engineering change was made
available by StorageTek for
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
25
<PAGE> 33
installation pursuant to a nonemergency (i.e., generally
distributed) engineering change at least three (3)
months prior to the date of an Impact Error or Service
Call. The RAS measurements will exclude any Impact
Errors and Service Calls that arise from ** concurrent
Drive failures in the same array, and any Service Calls
and Impact Errors for units of Iceberg and Kodiak
installed as part of the ESP, as defined in the SOW.
For the first ninety (90) days following the
availability of a Major Enhancement, IBM will exercise
reasonable efforts to install within 30 days engineering
changes that StorageTek designates as "critical."
Calculations of the actual Service Call Rate and Error
Rate will be made based on U.S. installations only.
b. Error Free Installation Criteria. StorageTek shall
maintain a ** Error Free Installation rate for
Products and Upgrades (separately calculated) until the
date on which IBM no longer markets Products and
Upgrades. These measurements will be calculated
separately for Products and Upgrades. This rate assumes
that an average IBM-customer subsystem installation is
comprised of an Iceberg subsystem, or a Kodiak control
unit and one connecting storage cabinet. If the average
IBM-customer installation for the Kodiak Product
involves more than one connecting storage cabinet, then
the ** rate for Kodiak will be reduced by ** for
each connecting storage cabinet in calculating such
average.
c. Levels for Future Functions. Features or functions
added after the initial shipment in volume of Iceberg
and Kodiak will be measured against specific
reliability, availability and service criteria that is
to be documented and addressed in each applicable
product development plan and related specification for
the future feature or function, but in any event they
must meet the Iceberg and Kodiak criterion as specified
herein.
d. Guardband. StorageTek shall not be considered to be
failing to meet the criterion unless the percentage by
which IBM's actual measurements exceeds the criterion is
at least higher than the Guardband percentage set forth
above in Section 9.3a for Service Calls or Impact
Errors.
e. Action Plan. If StorageTek fails to meet the Service
Call Rate, Impact Error Rate, or Error Free Installation
Rate, then StorageTek shall promptly investigate the
cause of the failures, and generate and provide to IBM
within ten (10) days a root cause failure analysis that
describes the cause of the failures. StorageTek will
promptly develop and implement an action plan acceptable
to IBM to resolve such failures, which plan shall
include remedies for failure to
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
26
<PAGE> 34
meet the Service Call Rate, Impact Error Rate, or Error
Free Installation Rate in such action plan.
StorageTek shall provide all support necessary to meet
an agreed upon repair turnaround time that is
established in the action plan to maintain IBM's
customers' satisfaction. StorageTek's plan may include,
but is not limited to increased repair capacity (i.e.,
labor, equipment, facilities); expedited freight; and
providing new, repaired and/or upgraded buffer stock to
IBM's stocking locations, distributors and customer
sites.
f. Price Reduction for FRU Costs. StorageTek shall provide
a price reduction to IBM ** after the date of last
Delivery of each type of Products in an amount that is
equal to ** ("Excess FRU Cost"). The calculation of
this price reduction shall specifically exclude ** .
The price reduction provided hereunder may ** . Any
claim to such price reduction will be deemed waived if
not made by IBM no later than ** days after the **
in which such Excess FRU Cost occurred.
g. Reporting of FRU Consumption. IBM will provide a
quarterly report to StorageTek that summarizes
IBM-reported fault symptom information for the
consumption of FRUs in repair actions that are
undertaken by IBM in the United States. The summarized
information in this report will be adjusted by IBM to
exclude those items which qualify as Cost Exclusions.
This information is considered to be IBM confidential,
and StorageTek agrees to keep such information
confidential under the terms of the Agreement for
Exchange of Confidential Information between the
Parties.
h. Credit for Labor Costs. The target for labor required
for repair actions (including ** during a Machine
Month. StorageTek shall provide a credit to IBM **
after the date of last Delivery of Product, upon
StorageTek's receipt of appropriate supporting
documentation, for average labor costs per Machine Month
incurred by IBM in connection with repair actions that
are in excess of ** of that ** target ("Excess Labor
Cost"). The amount of this credit will be calculated by
multiplying the number of hours in excess of ** of
that ** target by a rate of ** per hour. In the
event that IBM incurs labor costs in excess of ** of
that ** target ** . The calculation of Excess Labor
Cost will be based on ** . The credit provided
hereunder may ** . Any claim to such credit will be
deemed waived if not made by IBM no later than **
days after the ** in which such Excess Labor Cost
occurred.
i. Attainment. The RAS criteria will be separately
calculated and applied to Iceberg and Kodiak. If
StorageTek fails to meet the established RAS criteria
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
27
<PAGE> 35
for Service Calls or Impact Error rates set forth in
Section 9.3a for Iceberg and Kodiak in any calendar
quarter (after taking into consideration the applicable
Guardbands), then StorageTek shall be given until the
end of the next succeeding quarter to implement the
action plan described in Section 9.3e, above.
If the RAS criteria is missed again during such next
quarter, then **
**
9.4 QUALITY ASSURANCE
StorageTek shall maintain at its sole cost and expense an
effective quality control system to maintain under continuous
control the entire process of design, manufacture and FRU
repairs, including the packaging and shipping of Equipment.
This system shall include checks to verify that all
requirements of the Specifications are satisfied.
StorageTek is responsible to insure that workmanship,
construction and other standards specified by this system
satisfy the requirements of the Specifications. StorageTek's
quality assurance shall be applied in a manner that will
maintain a consistent level of quality. StorageTek's quality
control procedures and instructions shall be made available to
StorageTek's employees, agents, contractors and
subcontractors, and to IBM, at the place of manufacture.
Upon request, IBM may conduct inspections on a
non-interference basis at StorageTek's manufacturing and
repair plants at any time during normal working hours provided
that, within 24 hours if an emergency situation exists or at
least three (3) days under non-emergency situations, prior
written notice is given by IBM. StorageTek will use
reasonable efforts to accommodate visits on shorter notice.
Such inspection may, at IBM's option, include the witnessing
of tests and inspection of Equipment, whether completed or
not. StorageTek will promptly take appropriate corrective
action with regard to any deficiencies found by IBM and
reasonably agreed to by StorageTek.
9.5 ISO 9000 CERTIFICATION AND USE OF SUBCONTRACTORS
StorageTek shall maintain ISO 9000 certification, and use
statistical process control systems to monitor quality, for
its manufacturing and development processes for Equipment
supplied to IBM during the term of the Agreement.
StorageTek shall ensure that its subcontractors that are
involved with the manufacturing and development of Equipment
shall maintain ISO 9000 certification,
__________________________________
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
28
<PAGE> 36
and use similar statistical process control systems to monitor
quality. StorageTek shall also ensure that its suppliers who
provide parts, assemblies or subassemblies that are used in the
manufacturing and development of Equipment shall maintain ISO
9000 certification or use reasonable process control systems to
monitor quality.
It is the sole responsibility of StorageTek to select and
manage its suppliers. StorageTek will make available to IBM,
upon request, a list of all suppliers that are used to supply
parts or components in StorageTek's manufacturing process for
Equipment. StorageTek agrees to use its best efforts to
notify IBM of any additions or changes made in its suppliers.
If IBM reasonably determines that there is a supplier that may
be of concern to it, then StorageTek shall develop and
implement a mutually agreeable plan to address IBM's concerns.
StorageTek shall provide, upon written request by IBM, all
information pertaining to the measurements of quality that are
made for Equipment, and generated or derived from StorageTek's
statistical process control systems.
StorageTek is solely responsible for the quality of Equipment
supplied to IBM. Review and approval by IBM of StorageTek's
or any of its subcontractor's quality process systems does not
relieve StorageTek of this responsibility.
StorageTek agrees to notify IBM of any planned significant
changes that may adversely affect its manufacturing processes
or could adversely affect the form, fit, function, quality,
reliability, serviceability or safety of the Equipment to be
supplied to IBM no later than ninety (90) days before planned
implementation.
10. PRODUCT LEAD TIMES AND FORECAST
10.1 IBM will provide a monthly build forecast to StorageTek for a
** period (or a period equal to the remaining term of this
Agreement if less than ** ). The current quarter forecast
will be broken down by week and by Delivery location.
Volumes, specified in units of Product and Upgrades by
Delivery location, for the quarter following the then-current
quarter will be established and provided to StorageTek no
later than ** prior to the start of any given quarter. At
such time, the forecast for the upcoming quarter will be
binding, subject to the quarterly volume modifications
referred to in Sections 10.2 and 10.3. Except as otherwise
provided in the preceding sentence, volume forecasts are
provided as good faith estimates of IBM's anticipated
requirements for Products and Upgrades for the periods
indicated based on current market conditions and do not
constitute commitments to purchase any fixed quantity of
Products.
- ----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
29
<PAGE> 37
10.2 StorageTek agrees to supply, and IBM agrees to take Delivery
of, during any current quarter, and to pay in accordance with
Section 7, above, for not less than the Minimum Percentage (as
shown in the table below) of the units forecasted as of the
date the volumes became binding as provided in Section 10.1.
StorageTek agrees to use the Remainder Percentage (as shown in
the table below) to satisfy the next quarter's orders.
StorageTek will hold additional units in excess of the
Remainder Percentage provided that IBM purchases and pays for
such additional units. Any units of inventory not required
under this section to be purchased and delivered in the
then-current quarter will be applied to and delivered to
fulfill the next-following quarter's volume requirements
before any new orders for such next-following quarter are
fulfilled.
1996 1Q-3Q 1997 4Q 1997-end
---- ---------- -----------
Minimum Percentage ** ** **
Remainder Percentage ** ** **
With ** prior written notice, IBM may elect to adjust the
flexibility for ** to correspond to the other elements of
the above table, as well as the Maximum Percentage described
for the same quarters in Section 10.3, below, by changing the
payment terms set forth for those quarters in Section 7.10
from 45 to 30 days.
Initial purchases of Iceberg Product shall exclusively be **
until such time as IBM has purchased up to **
10.3 IBM may also require StorageTek to deliver during the current
quarter, for which IBM shall pay in accordance with Section 7,
above, up to the Maximum Percentage as shown in the table
below of the units forecasted as of date the volumes became
binding as provided in Section 10.1, except as adjusted as set
forth in the penultimate paragraph of Section 10.2, above.
Q4 1996 1Q-3Q 1997 4Q 1997-end
------- ---------- -----------
Maximum Percentage ** ** **
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
30
<PAGE> 38
10.4 CURRENT QUARTER
Subject to Sections 10.2 and 10.3, in order to assist
StorageTek in planning its manufacturing operations, IBM will
provide modifications to the previously submitted weekly
schedules in the current forecast, as follows:
FLEXIBILITY NOTICE REQUIRED
TARGET (in days from anticipated
Delivery date)
----------- -------------------------
+/- ** within **
+/- ** within **
+/- ** within **
+/- ** within **
+/- ** within **
+/- ** beyond **
All volume increases will be allowable per the matrix above up
to StorageTek's maximum capacity. StorageTek's initial maximum
capacity is stated in the following table:
CAPACITY IN UNITS OF PRODUCT PER WEEK, FOR:
Iceberg Kodiak
------- ------
1996 ** | **
1997 ** | **
1998 ** | **
Upon mutual agreement, StorageTek will add additional capacity
if IBM increases its forecasted volumes beyond the current
maximum capacity with at least six months' prior written
notice to StorageTek. StorageTek agrees to use reasonable
efforts to accommodate variations greater than those stated
above, including but not limited to accepting assistance from
IBM.
10.5 STORAGETEK'S CAPACITY/ALLOCATION
a. StorageTek expressly represents that StorageTek has, as
of the Effective Date of this Agreement, and will
maintain throughout the term of this Agreement, adequate
product and manufacturing capacity to fulfill in a
timely fashion all its existing contractual commitments
as well as the quantities committed to in this Agreement
by IBM (when taking into account Section 10.4) and any
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
31
<PAGE> 39
commitments StorageTek subsequently enters into, without
allocation of production among its customers. However,
if StorageTek is unable to meet its Delivery commitments
and must allocate its capacity, inventory, test
equipment, resources, use of personnel, parts,
components, supplier resources and capabilities, etc.,
that are used to produce Equipment, then StorageTek
agrees to:
(1) act in good faith; and
(2) allocate its capacity, supplier resources and
capabilities, inventory, test equipment,
resources, use of personnel, parts, components,
and available supply of Equipment to fill orders
for IBM in the following order of priorities:
(i) ** ; and
(ii) **
b. StorageTek will allocate parts, components and materials
in accordance with the following priorities:
(1) Code A FRUs order/requirements are filled first;
and
(2) then a fair allocation between manufacturing
orders and nonemergency maintenance parts
order/requirements.
11. PURCHASE ORDERS, ALTERATIONS & RESCHEDULING
11.1 IBM may submit purchase orders at any time; provided, however,
that subject to Section 11.6, any order shall be binding on
both Parties if such order is within the forecast range set
forth in Sections 10.2 and 10.3, and is submitted not less
than ten (10) business days before IBM's requested date of
Delivery. IBM may request that StorageTek deliver in fewer
than ten (10) business days and StorageTek may agree to do so.
11.2 This Agreement does not constitute a purchase order. IBM may
issue purchase orders from time to time during the term of
this Agreement in either electronic (EDI) or written form.
Authorization to StorageTek to perform any work or produce any
Equipment under this Agreement will be through IBM purchase
orders only. Alterations to the quantity, delivery date,
engineering level, or other items on purchase orders may be
made by IBM from time to time, subject to StorageTek's
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
32
<PAGE> 40
agreement. Purchase orders will be considered noncancelable
within ten (10) days of the scheduled Delivery date.
11.3 IBM shall submit its purchase orders to StorageTek at the
address set forth in the Notices section of this Agreement.
IBM's purchase orders will include:
a. IBM's part, model or feature numbers, configuration and
description of Equipment;
b. quantity required;
c. unit or item price and total order price;
d. required delivery date(s);
e. delivery instructions (including a carrier who will
accept delivery at StorageTek's address); and
f. reference to this Agreement.
Unless otherwise specifically agreed to in writing, additional
terms and conditions on IBM's purchase orders or on
StorageTek's acknowledgment, whether in conflict with this
Agreement or not, are superseded hereby and are of no force
and effect.
11.4 StorageTek agrees to accept conforming IBM purchase orders and
to manufacture, supply and Deliver Equipment in accordance
with the terms and conditions of this Agreement. StorageTek
agrees to provide written acknowledgment of IBM's purchase
orders within two (2) days, for volumes within IBM's forecast,
or within five (5) days, for volumes in excess of IBM's
forecast, as measured from StorageTek's actual receipt of the
purchase order (without regard to the Notices section of this
agreement, except for EDI) which purchase order may be made
verbally and/or in advance of StorageTek's receipt of a hard
copy confirming such order. If StorageTek's acknowledgment is
not received by IBM within the two (2) or five (5) day period,
as described above, from the date of receipt of the purchase
order from IBM, then the purchase order, including the
requested delivery date(s) will be deemed to be accepted by
StorageTek. StorageTek may not reject any IBM purchase order
that conforms to the requirements of this Agreement and covers
quantities forecasted by IBM, as described in Section 10.
11.5 Orders for FRUs needed on a "Code A" basis (i.e.,
emergency-customer down) will be shipped by StorageTek within
twenty-four (24) hours at a price not to exceed the lesser of
** of the price in Exhibit 5 or such price plus ** , with
IBM designating
- -----------------------------------
** Confidential portions omitted and filed separately with the Securities
and Exchange Commission under an application for confidential treatment.
33
<PAGE> 41
the carrier and being responsible for freight and insurance
costs. However, IBM will not pay any premium (i.e. pay only
100%) for Code A FRUs necessitated because StorageTek has
failed to deliver nonemergency FRU orders within the lead
times set forth in Exhibit 5.
11.6 IBM may cancel purchase order(s) or any portions thereof for
any reason by notifying StorageTek in writing at least ten
(10) days prior to the scheduled Delivery date. Cancellation
will be effective upon StorageTek's receipt of the wri