OEM AGREEMENT
BETWEEN
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
STORAGE TECHNOLOGY CORPORATION
DECEMBER 18, 1997
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TABLE OF CONTENTS
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BACKGROUND...............................................................................................................1
1. DEFINITIONS.......................................................................................................1
2. SCOPE OF AGREEMENT................................................................................................8
3. TERM OF AGREEMENT.................................................................................................8
4. COMPONENTS........................................................................................................9
5. AGREEMENT ADMINISTRATOR...........................................................................................9
6. PURCHASES.........................................................................................................9
6.1 [**] Purchases............................................................................................9
6.2 [**] Pricing.............................................................................................10
7. PRICING & PAYMENT TERMS..........................................................................................12
7.5 [**] Price...............................................................................................13
7.6 SnapShot Feature.........................................................................................13
7.7 FRU Prices...............................................................................................14
7.8 Lowest Cost Sourcing.....................................................................................14
7.9 Taxes/Duties.............................................................................................15
7.10 Payment Terms............................................................................................15
8. IBM SALES TO STORAGETEK..........................................................................................16
9. QUALITY..........................................................................................................18
9.1 Manufacturing Testing....................................................................................18
9.2 Engineering Changes......................................................................................19
9.3 Quality Levels...........................................................................................21
9.4 Quality Assurance........................................................................................27
9.5 ISO 9000 Certification and Use of Subcontractors.........................................................27
10. PRODUCT LEAD TIMES AND FORECAST..................................................................................28
10.4 Current Quarter..........................................................................................29
10.5 StorageTek's Allocation..................................................................................30
11. PURCHASE ORDERS, ALTERATIONS & RESCHEDULING......................................................................30
12. CONSIGNMENT......................................................................................................33
13. DELIVERY.........................................................................................................34
13.1 On-time Delivery.........................................................................................34
13.2 Carrier..................................................................................................38
13.3 Title/Risk of Loss.......................................................................................39
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13.4 Packaging................................................................................................39
14. EQUIPMENT WARRANTY...............................................................................................39
14.10 Licensed Programs, Microcode and Maintenance Code Warranty...............................................41
15. FRUs.............................................................................................................43
15.4 FRU Rework Procedures and Prices.........................................................................43
16. FIELD SERVICE & SUPPORT..........................................................................................43
16.1 Training.................................................................................................43
16.2 Emergency and Expert Maintenance Coverage................................................................44
16.3 New Product Development Center Support...................................................................44
16.4 Maintenance and Installation Tools.......................................................................44
16.5 Maintenance and Technical Support........................................................................44
16.6 Retain Access............................................................................................47
17. MARKETING RIGHTS.................................................................................................47
17.1 Ongoing Training.........................................................................................47
17.2 Marketing Materials......................................................................................48
17.3 Marketing Tools..........................................................................................48
18. REPRESENTATIONS AND WARRANTIES...................................................................................49
19. TRADEMARK & ADVERTISING..........................................................................................50
19.1 Trademark and Design Rights..............................................................................50
19.2 Advertising/Disclosure...................................................................................50
20. CONFIDENTIALITY..................................................................................................50
21. ASSIGNMENT & CHANGE OF CONTROL...................................................................................51
22. DISPUTE RESOLUTION...............................................................................................52
22.1 Escalation Process.......................................................................................52
22.2 Mediation Process........................................................................................53
23. TERMINATION/REMEDIES.............................................................................................53
23.1 Termination by Mutual Consent............................................................................53
23.2 Termination by Bankruptcy................................................................................53
23.3 Termination for Cause....................................................................................54
23.4 Material Breach..........................................................................................56
23.5 [**] License.............................................................................................57
23.6 Manufacturing Make or Have Made Rights...................................................................57
23.7 Termination for Convenience..............................................................................59
23.8 Termination for Burdensome Condition.....................................................................59
23.9 Wind Down................................................................................................61
23.10 [**] After Termination...................................................................................61
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24. INDEMNIFICATION RIGHTS...........................................................................................61
24.1 Intellectual Property Indemnity..........................................................................61
24.2 General Indemnity........................................................................................62
24.3 Obligations of IBM.......................................................................................63
25. GOVERNING LAW....................................................................................................64
25.1 New York Law.............................................................................................64
25.2 Limitation of Actions....................................................................................64
25.3 Limitation of Liability..................................................................................64
26. GENERAL..........................................................................................................65
26.1 Compliance with Laws.....................................................................................65
26.2 Relationship of the Parties..............................................................................65
26.3 Notices..................................................................................................65
26.4 Counterparts.............................................................................................67
26.5 Headings and Attachments.................................................................................67
26.6 Amendment................................................................................................67
26.7 Waiver...................................................................................................67
26.8 Severability.............................................................................................67
26.9 Weekends and Holidays....................................................................................68
26.10 Force Majeure............................................................................................68
26.11 Survival.................................................................................................68
26.12 Order of Precedence......................................................................................68
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EXHIBITS, ATTACHMENTS, APPENDICES
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Exhibit 1 - Prices
Attachment 1 - Product Prices
Attachment 2 - 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 - SnapShot, IXFP and IXOF Items
Schedule 4 - Iceberg Performance Commitments for [**]
Schedule 5 - Iceberg Performance Commitments for [**]
Schedule 6 - Kodiak Performance Commitments for [**]
Schedule 7 - Kodiak Performance
Commitments for [**] and After
Schedule 8 - Capacity Ratio Specification
Appendix B - Completion and Acceptance Criteria
Schedule 1 - Monterey System Test
Appendix C - Not Used
Appendix D - Certificate of Originality
Appendix E - IBM Source Code Custody Agreement
Appendix F - Performance Assessment Workload (PAWS)
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 - List of Countries for IP Indemnity
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OEM AGREEMENT
This agreement is made and entered into as of December 18, 1997, 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." This Agreement amends, supersedes and replaces in
its entirety the OEM agreement dated June 7, 1996, as amended, between the
Parties, and will have prospective force and effect. However, this Agreement
shall not affect IBM's obligation to pay for any Equipment ordered by IBM under
a purchase order and accepted by StorageTek prior to the date of the Agreement's
execution by authorized representatives of the Parties.
BACKGROUND
StorageTek manufactures and sells, among other things, certain
Equipment as more fully described below. IBM wishes to purchase such Equipment
from StorageTek on an Original Equipment Manufacturer (OEM) basis 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 the prices set forth
herein if IBM will purchase, 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 "APAR" shall mean a completed form entitled "Authorized
Program Analysis Report," that is used by IBM to report
suspected Code or
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documentation errors in a Licensed Program (including
updates or enhancements thereto) and to request their
investigation and correction.
1.4 "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.
1.5 "Base Iceberg Package" shall have the meaning set forth in the
IDA.
1.6 "Burdensome Condition" (Section 23.8) shall mean: [**]
1.7 "Change of Control" (Section 21) shall mean the acquisition by
an entity of more than [**] of the [**], the sale of all or
substantially all of the assets of StorageTek, or any
consolidation, merger or other reorganization [**] is not the
continuing or surviving corporation or pursuant to which
shares [**] would be converted into cash, securities or other
property.
1.8 "Commit Date" shall have the meaning set forth in Section
13.1i.
1.9 "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).
1.10 "Day(s)," "month(s)," "quarter(s)" and "year(s)" shall mean
calendar days, months, quarters or years, unless otherwise
specified.
1.11 "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.
1.12 "Devices" shall mean products which would be [**].
1.13 "Disclosing Party" shall have the meaning set forth in Section
20.
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1.14 "Drives" shall have the meaning set forth in Section 12.1.
1.15 "Emergency Engineering Change" shall have the meaning set
forth in Section 9.2b.
1.16 "Equipment" (Section 2) shall mean Products, Upgrades and
FRUs.
1.17 "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.
1.18 "FAST" shall mean Iceberg, as described in the Specifications.
1.19 "FASTER" shall mean Kodiak, as described in the
Specifications.
1.20 "FRU" (Section 6.2) shall mean any part or component of
Products, Devices or Upgrades supplied by StorageTek that are
designed to be replaceable in the field.
1.21 "Gigabyte" or "GB" shall mean one billion bytes of storage.
1.22 "IDA" (Section 2.2) shall refer to the IBM Developer
Agreement, which is attached hereto as Exhibit 3.
1.23 "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.
1.24 "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.
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1.25 "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.
1.26 "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.
1.27 "Level 3" support are those activities to distribute a fix to
resolve a user problem.
1.28 "Licensed Programs" shall mean IXFP, IXOF and the Snapshot
Feature (as defined in Section 1.13 of the DLW).
1.29 "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).
1.30 "Maintenance Code" shall be as defined in the DLW.
1.31 "Major Enhancements" shall be as defined in the IDA.
1.32 "Mandatory Engineering Changes" shall have the meaning set
forth in Section 9.2.
1.33 "Megabyte" or "MB" shall mean one million bytes of storage.
1.34 "Microcode" shall have the meaning set forth in the
Description of Licensed Works.
1.35 "[**] Price" shall have the meaning set forth in Section 7.5.
1.36 "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).
1.37 "Non-RMM Device" shall have the meaning set forth in Section
1.11 of the DLW.
1.38 "Object Code" shall have the meaning set forth in the SOW.
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1.39 "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.
1.40 "PMR" shall mean a problem management report that is used by
IBM to report machine failures.
1.41 "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.
1.42 "Product Engineering Services" shall mean the support and
services as described in Section 3.7 of the SOW.
1.43 "Quarterly Cost" (Section 6.2) shall mean the sum of [**] plus
[**], and for [**] for the [**] quarter, plus the [**];
provided, however, that [**] plus [**] and the [**] plus [**].
1.44 "QUICK" shall mean Arctic Fox.
1.45 "RAS criteria" shall have the meaning set forth in Section
9.3a.
1.46 "Receiving Party" shall have the meaning set forth in Section
20.
1.47 "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).
1.48 "Service Call Rate" (Section 9.3a) shall mean a rate which is
calculated as follows:
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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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1.49 "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.
1.50 "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.
1.51 "Severity 2" is a "major problem"; important function is not
available resulting in operations being severely restricted.
1.52 "Severity 3" is a "minor problem"; inability to use a function
occurs, but it does not seriously affect the user.
1.53 "Severity 4" is a "minor problem" that is not significant to
the user's operation; the user may be able to circumvent the
problem.
1.54 "Source Code" shall have the meaning as set forth in the SOW.
1.55 "Specifications" (Section 2.1) shall mean the descriptions
contained in Appendices A and B to Attachment 1 of Exhibit 3
and Exhibit 2, Specifications.
1.56 "Standard Parts Cost" (Section 9.3f) shall mean [**] of the
New FRU Cost plus [**] of the Used FRU Cost for each FRU, plus
actual freight.
1.57 "STK DASD" (Section 7.5c) shall mean any DASD product
developed, manufactured, or supplied by StorageTek at any time
prior to the expiration of the Final Judgment dated December
___, 1997, including but not limited to Iceberg, Kodiak, the
products marketed by IBM as RAMAC Virtual Array and RAMAC
Scalable Array, and any future versions, models or generations
of any of the aforementioned products (regardless of name or
designation). The term "STK DASD" does not include Virtual
Storage Manager, any future versions, models or generations
thereof (regardless of name or other product designation), or
any existing or future StorageTek Nearline storage products,
or any used DASD.
1.58 "StorageTek Installed Base" shall mean [**] prior to the [**].
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1.59 "Subsidiary" 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.
1.60 [**]
1.61 "Terabyte" or "TB" shall mean one trillion bytes of storage
which is accessible to the customer. For calculating storage
capacities of purchases of [**]
1.62 "Upgrade(s)" shall mean a subassembly that increases the
capacity or performance of Products or Devices.
1.63 "Used FRU Cost" (Section 7.7a) shall mean the price of rework
for FRUs as determined by Section 15.4. This cost is set forth
in Exhibit 5 to this Agreement, FRU Prices and Lead Times,
which will be adjusted semiannually (in January and July).
1.64 Capitalized terms not otherwise defined in the OEM Agreement
shall have the definitions set forth elsewhere in the
Agreement.
2. SCOPE OF AGREEMENT
2.1 Subject to the terms of the Agreement, StorageTek agrees to
develop IBM requested enhancements to the Equipment, to
provide continuing engineering and technical assistance to IBM
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
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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 through
December 31, 2000.
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. On receipt of IBM's written
request, StorageTek agrees if such [**], it will [**]. StorageTek
agrees to [**] if IBM [**], and if such [**], and such [**].
5. AGREEMENT ADMINISTRATOR
Each Party will identify during the term of the Agreement an Agreement
Administrator who shall have overall responsibility for managing this
Agreement for such Party. Except for any changes that are made to the
Statement of Work and agreed to in writing by an authorized
representative from IBM's procurement function and StorageTek's
Agreement Administrator, the Agreement Administrators may not amend the
terms of this Agreement. The Agreement Administrators are [**] for
StorageTek, and [**] for IBM.
6. PURCHASES
6.1 [**] PURCHASES
IBM intends to purchase Products and Upgrades during the
remainder of 1997 and [**]. In consideration for StorageTek's
commitment to accept IBM's purchase orders during [**] in
accordance with this Agreement, and StorageTek's associated
investment in parts, labor, facilities, etc., during such
year, IBM will make a payment to StorageTek of [**] during
[**].
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6.2 [**] PRICING
On or before [**], the Parties will [**].
[**], then if IBM submits a binding forecast in accordance
with Section 10.1 between [**] of Products and Upgrades (of
which [**] of IBM's forecast for Upgrades will count towards
such forecast range) for the [**] or any [**], and if IBM has
submitted a binding forecast for [**] or more in accordance
with Section 10.1 for each prior [**] during [**], then IBM
shall be entitled to purchase [**] during the applicable [**]
at a price that [**] the [**]:
(1) [**]; or
(2) The [**]
If IBM submits a binding forecast in accordance with Section 10.1 [**]
and [**] of Products and Upgrades (of which [**] of IBM's forecast for
Upgrades will count towards such forecast range), for the [**] or any
[**] [**], and if IBM has submitted a binding forecast for [**] or more
in accordance with Section 10.1 for each prior [**], then IBM shall be
entitled to purchase [**] during the applicable [**] at a price that
[**] the [**]:
(1) [**]; or
(2) [**]
If IBM submits a binding forecast in accordance with Section 10.1 for
[**] or more of Products and Upgrades (of which [**] of IBM's forecast
for Upgrades will count towards such forecast range), for the [**] or
any [**], and if IBM has submitted a binding forecast for [**] in
accordance with Section 10.1 for each prior [**], then IBM shall be
entitled to purchase [**] during the applicable [**] at a price that
[**] the [**]:
(1) [**]; or
(2) [**]
The prices for [**] for [**] shall [**] the prices that [**] for each
[**] set forth in Attachment 1 to Exhibit 1 of this Agreement. The
prices for [**] shall [**] set forth in Attachment 2 to Exhibit 1 of
this Agreement.
Provided that IBM has previously submitted binding forecasts in
accordance with Section 10.1 for [**] in each prior [**] during [**],
IBM will also [**] of Products and Upgrades [**] by submitting a
binding forecast for the [**] of [**] in accordance with Section 10.1
of the Agreement, and thereafter issuing a [**] , at least [**] before
the beginning of the [**] of [**], for Products and Upgrades to be
Delivered during the [**] of [**], or subsequent [**] during [**] if
such order [**]. The prices for [**] of Products and Upgrades will be
[**] the Parties. If the Parties [**] on the [**] for Products and
Upgrades for [**], such [**] shall be set
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forth in an Attachment of an Exhibit to this Agreement. If the Parties
are [**] on [**], the [**] for Products and Upgrades ordered under the
[**] shall [**] for Products and Upgrades that is associated with the
[**] of forecasted volumes. All Products ordered under [**] will be
subject to a [**] for [**] and [**]; provided, however, that IBM may
request and obtain [**] in accordance with the terms of this Agreement
before their Delivery. Such [**] shall be [**] any right of IBM to [**]
under Section 23.9 of this Agreement.
Notwithstanding anything to the contrary, if the Parties are unable to
[**] on the [**] for [**] to be Delivered by StorageTek to IBM during
[**] and StorageTek [**] determines that it would be [**] and [**] to
IBM during [**] , then StorageTek [**] to [**] during [**] [**] that it
supplies under this Agreement. If StorageTek [**] from [**] during [**]
that it supplies under this Agreement, StorageTek shall notify IBM in
writing of its [**] of [**] by no later than [**], and [**] by
submitting a binding forecast for the [**] of [**] in accordance with
Section 10.1 of the Agreement, and thereafter issuing a [**] at least
[**] before the [**] of the [**] of [**] for Kodiak Products to be
Delivered during the first quarter of 1999. The prices for this [**]
shall [**] for each [**] set forth in Attachment 1 to Exhibit 1 of this
Agreement. All [**] ordered under [**] will be subject to a [**];
provided, however, that IBM may request [**] in accordance with the
terms of this Agreement before their Delivery.
7. PRICING & PAYMENT TERMS
7.1 Prices charged to IBM by StorageTek for Products to be sold
hereunder in the [**] of [**] and the [**] shall be as set
forth in Attachment 1 to Exhibit 1 to this Agreement, and any
related future written amendments thereto agreed to by
authorized representatives of the Parties. These prices
include such software, packaging, packing and shipping
materials and other items as StorageTek currently includes in
its [**] for [**]
7.2 Prices charged to IBM by StorageTek for Upgrades to be sold
hereunder in the [**] of [**] and the [**] shall be as set
forth in Attachment 2 to Exhibit 1 to this Agreement, and any
related future written amendments thereto agreed to by
authorized representatives of the Parties.
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 2 to Exhibit 1, which charge shall be:
For [**] = [**]; For [**] through [**] = [**]; and For [**]
and beyond = [**].
7.4 Prices charged for Products and Upgrades for [**] may [**]
and, if [**], such prices shall be set forth in an Attachment
of an Exhibit to this Agreement.
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<PAGE> 17
7.5 [**] PRICE
Notwithstanding any other provisions in this Agreement, in no
event will any price charged by StorageTek to IBM exceed "[**]
Price," as defined below:
a. The prices, [**] offered by StorageTek to IBM for
[**] ordered by IBM under [**] placed on or before
[**] under this Agreement shall be [**]. The prices,
[**] offered by StorageTek to IBM for [**] by IBM
under [**] and/or [**] under this Agreement shall be
[**] after [**] to [**].
b. If StorageTek offers, on or before [**], to any [**]
purchasing [**] at the [**] more [**] than are
offered to IBM for [**] hereunder; or if StorageTek
offers to [**] [**] for [**] to [**] on or [**]
and/or [**] than are offered to [**]; then StorageTek
agrees to notify IBM in writing within [**] of making
such offer, and StorageTek agrees to [**] to IBM the
[**] prices, [**].
c. Notwithstanding anything to the contrary, under no
circumstances shall StorageTek be [**] to offer to
IBM any prices [**] for [**] that StorageTek has
offered to a[**] from StorageTek.
StorageTek grants IBM Audit Rights for purposes of
confirming that IBM is receiving [**] Prices. If the auditor
determines that IBM did not receive such prices, then in
addition to the remedies provided above, StorageTek will
reimburse IBM its costs for the audit. Audits will not exceed
two in any 12-month period.
7.6 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 2 to Exhibit 1 hereto.
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 ("New FRU Cost"). 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.
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<PAGE> 18
a. Multiples for New FRUs.
(1) During the term of this Agreement the multiple
is [**].
(2) 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.
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.
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<PAGE> 19
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:
<TABLE>
<CAPTION>
Invoice Date Payment Term
<S> <C>
4Q of 1997 [**] days
1998 [**] days
1999 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.
8. IBM SALES TO STORAGETEK
IBM will offer for sale to StorageTek the [**] IBM disk drives that are
used in the [**] and [**] and sold to IBM under the Agreement, or
similar IBM disk drive replacements therefor, for use in [**] (whether
or not considered to be a [**] under this Agreement) and the [**] [**]
throughout the term that this Agreement is in effect, for a [**]
thereafter, and [**] [**] to [**].
Notwithstanding anything to the contrary, in the event of a termination
of this Agreement pursuant to Sections 21, 23(e), 23.7 or 23.8 , for a
period of [**] after such termination or [**], whichever occurs first,
IBM will offer for sale to StorageTek the same IBM disk drives that are
used in the [**] and [**] and sold to IBM under the Agreement, or
similar IBM disk drive replacements therefor, for use in [**] (whether
or not considered to be a [**] under this Agreement) and the [**].
Upon [**] notice, IBM will notify StorageTek of its planned withdrawal
from general availability of the IBM disk drives that StorageTek
chooses to purchase. If a similar IBM disk drive replacement therefor
is not available, then subject to [**] and prior written notice from
StorageTek no later than [**] after StorageTek's receipt of IBM's
notice, IBM will allow StorageTek, at its option, to
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<PAGE> 20
either (i) [**] IBM disk drives before their planned withdrawal date;
or (ii) [**] contained in the IBM withdrawal notification letter.
IBM disk drives will be made available for sale by IBM to StorageTek
solely in accordance with the terms of its existing [**] and this
Section 8 of the Agreement.
Throughout the term of this Agreement and for a period [**], and in the
event of a termination of this Agreement pursuant to Sections 21,
23(e), 23.7 or 23.8, [**] or through [**], whichever occurs first, the
price to be charged to StorageTek for IBM disk drives to be sold during
a [**] shall be [**]. Pricing for StorageTek's purchase of IBM disk
drives during a [**] will be based on [**] disk drives for such [**]
under IBM's terms and conditions set forth in [**] and this Section 8.
StorageTek will integrate or incorporate IBM disk drives into [**]
(whether or not considered to be a [**] under this Agreement) and the
[**] that are to be sold [**]. StorageTek will be deemed to have
accepted IBM disk drives [**] after StorageTek receives them unless
written notice of rejection therefor is sent to IBM during such period
by StorageTek. IBM will inform StorageTek of changes to the product
specifications of IBM disk drives sold to StorageTek under [**] and
this Section 8 that may affect form, fit or function within [**] prior
to delivery of such IBM disk drives to StorageTek; provided, however,
that IBM may make any changes to the [**] of IBM disk drives without
prior notification if such changes are made to [**] issue, or to comply
with governmental regulations or laws. For all claims that are not
excluded by Section 10(a), or subject to other terms, of [**] and this
Section 8, IBM's liability for [**] shall be [**] or [**].
Upon request, IBM will offer StorageTek up to a [**] warranty on the
IBM disk drives it wishes to purchase; provided, however, that IBM [**]
offers the same period of warranty on such IBM disk drives to other
[**] . IBM may [**] the pricing it provides to StorageTek for
differences in warranty terms. Such pricing will, however, be
consistent with the pricing that is established [**] for the [**] who
receive the same length of warranty on IBM disk drives and the [**] for
their existing commitments to purchase comparable quantities over such
[**] under other standard [**] terms and conditions.
If StorageTek is unable to obtain IBM [**] for use in [**] from [**],
through [**], then StorageTek shall promptly notify IBM in writing and
upon receipt of such written notification and subject to availability,
IBM will make reasonable efforts to [**].
The terms of this Section 8 will survive the [**] or [**] of this
Agreement. In addition, in the event of an inconsistency between the
terms of this Section 8 and the terms of the [**], the terms of this
Section 8 shall prevail.
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<PAGE> 21
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.
IBM shall supply labor to install, subject to Section
9.3h, all Mandatory Engineering Changes in delivered
units of Equipment.
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<PAGE> 22
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
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<PAGE> 23
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.
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)
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<PAGE> 24
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.
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 [**], 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>
RAS Criteria [**] [**]
<S> <C> <C>
Service Call Rate [**] [**]
[**] [**] [**]
</TABLE>
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<PAGE> 25
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.
IMPACT ERROR CALCULATION
<TABLE>
<CAPTION>
IMPACT ERRORS
------------------------------------------------
<S> <C> <C>
[**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
</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 first quarter in which
[**] units of Kodiak 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
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
[**] or more 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
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<PAGE> 26
within 30 days engineering changes that StorageTek
designates as "critical."
Calculations of the actual Service Call Rate and
Impact Error Rate will be made based on U.S.
installations only.
IBM will notify StorageTek in writing of an Impact
Error within [**] after an Impact Error occurs. In
order to assist IBM in this notification process,
StorageTek will provide IBM with [**] to StorageTek's
[**]. IBM acknowledges that the [**], and IBM agrees
to keep such information confidential and in
accordance with the AECI between the Parties. If
detailed information about an Impact Error is needed,
then StorageTek will notify IBM in writing of its
need to obtain such information [**] after IBM
reports an Impact Error to StorageTek. Upon receipt
of StorageTek's written request for detailed
information, IBM will obtain and supply to StorageTek
the requested information, if and as available, [**]
after the receipt of StorageTek's written request.
StorageTek will analyze the available information and
determine whether an Impact Error occurred.
StorageTek will then communicate its decision in
writing as to whether it believes an Impact Error has
or has not occurred to IBM. If StorageTek believes
that an Impact Error has not occurred, then it will
provide in writing to IBM, [**] after StorageTek's
receipt of the available information, a reason for
StorageTek's belief that an Impact Error has not
occurred and shall [**]. If IBM fails to notify
StorageTek in writing of an Impact Error or to
provide written information that is available, within
the established time periods, then the [**]. If
StorageTek fails to request information in writing
from IBM, to provide in writing to IBM a reason for
its belief that an Impact Error has not occurred, or
to [**] in writing to the [**], within the
established periods, then the [**].
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
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<PAGE> 27
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 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 [**] StorageTek. 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
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<PAGE> 28
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 [**] and those repair
actions related to [**], but excluding labor required
for [**] is [**] for each [**] during a Machine
Month. StorageTek shall provide a credit to IBM on a
[**] basis up through [**] 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 and the Parties determine that
the incurrence of [**], then a [**] action will be
developed and implemented. This plan shall include
[**]. The calculation of Excess Labor Cost will be
based on [**] and [**]. The credit provided hereunder
may [**] be used by [**], first, by [**] against any
[**] during the [**]; second, against [**]; or third,
[**] after [**]. 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
for Service Calls or Impact Error rates set forth in
Section 9.3a for Iceberg or Kodiak in any calendar
quarter (after taking into consideration the
applicable Guardbands), then StorageTek shall be
given until the end of the immediately succeeding
quarter to implement the action plan described in
Section 9.3e, above.
If the RAS criteria is missed again during an
immediately succeeding [**], then an amount equal to
[**] by which the RAS experience for such period was
more than the target RAS criterion set forth in
Section 9.3a., above, for a [**] with [**] shall be
[**] and [**] purchases and any [**] obtained under
this Agreement [**] such [**] to determine the [**]
of [**] to be acquired during [**]. In the event that
this [**] results in a [**] of [**] and [**]
purchases and any [**] obtained under this Agreement
during [**] that is [**], then IBM shall [**] and
[**] in an [**] Section 9.3a., above, for each [**]
toward [**] over [**].
If the Parties agree on a [**] for [**] purchases and
the RAS criteria is missed again during an
immediately succeeding [**], then IBM [**] and/or
[**]. The amount of [**] that IBM
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<PAGE> 29
will obtain will be calculated by [**] set forth in
Section 9.3a, above, for a miss associated with [**].
However, if IBM reaches [**] whereby [**], or if [**]
by the Parties, then IBM will [**] and [**] that is
equal to the [**] and [**] [**] (i) the [**]; and
(ii) [**].
The Parties agree that [**], which will be [**] by
the Parties, shall be available with regard to a RAS
criteria miss [**]. Notwithstanding anything to the
contrary, no [**] or [**] shall be given to IBM with
respect to any RAS criteria miss for [**] until [**];
or for [**] during [**] and any [**].
The [**] that IBM is [**] will be calculated
separately for "Service Calls" and "Impact Errors."
Such separate amounts will be aggregated to determine
the amount of the credit that IBM is entitled to
receive and [**] of [**] and [**].
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
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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, 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
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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.
10.2 StorageTek agrees to supply, and IBM agrees to issue purchase
orders for and take Delivery of, during any current quarter,
and to pay for in accordance with Section 7 above, [**] of the
[**] units forecasted for the [**] in the binding forecast
provided by IBM to StorageTek pursuant to Section 10.1. Unless
IBM [**] in the [**] by issuing purchase orders therefor,
StorageTek agrees to use such [**] to satisfy the next
quarter's orders. Any units 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 forecast before any new orders for such
next-following quarter are fulfilled.
10.3 After IBM provides a binding forecast to StorageTek pursuant
to Section 10.1, IBM may also require StorageTek to Deliver
during the current quarter by issuing purchase orders for [**]
and [**], for which IBM shall pay in accordance with Section
7, above, up to [**] of the units forecasted as of date the
volumes became binding as provided in Section 10.1.
10.4 CURRENT QUARTER
Subject to Sections 10.2 and 10.3, solely to assist StorageTek
in planning its manufacturing operations for units that are
forecasted for the current quarter, IBM will provide
modifications to the previously submitted weekly schedules in
the current forecast, as follows:
<TABLE>
<CAPTION>
FLEXIBILITY NOTICE PERIOD
TARGET (in days from anticipated
Delivery date)
--------------
<S> <C> <C>
+/-[**] within [**]
+/-[**] within [**]
+/-[**} within [**]
</TABLE>
StorageTek shall [**] in accordance with the binding forecast
unless IBM issues purchase orders for [**]. Any modifications
that IBM makes to the [**] shall not affect IBM's obligation
to purchase [**] that were originally forecasted for the [**]
unless IBM submits binding purchase orders for additional
units of [**] and [**]. In addition, under no circumstances
shall StorageTek be required to Deliver to IBM per the matrix
above more than [**] of [**] or [**] during the [**] , and the
[**].
10.5 STORAGETEK'S ALLOCATION
a. If StorageTek is unable to meet its Delivery
commitments and must allocate its capacity,
inventory, test equipment, resources, use
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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 [**],
among IBM and other customers based upon the
delivery dates requested in purchase orders
received by StorageTek from IBM and other
customers.
For a given date, StorageTek will allocate production
for shipment to IBM and other customers on a [**]
basis.
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,
which delivery shall hereafter be referred to as "Expedite
Shipment."
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
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:
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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 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 Except for any [**] issued by IBM to StorageTek for [**] to be
Delivered after the [**] this Agreement, IBM may cancel
purchase order(s) or any portions thereof for any reason by
notifying StorageTek in writing at least
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ten (10) days prior to the scheduled Delivery date.
Cancellation will be effective upon StorageTek's receipt of
the written cancellation notice from IBM. StorageTek will
immediately cease building such units for the affected
purchase order(s) in accordance with the cancellation notice.
IBM will have no liability for canceled purchase orders other
than as set forth in Section 10.2.
11.7 If for any reason StorageTek is unable to Deliver as required
by accepted IBM purchase order(s), and fails to correct such
inability within [**] of such failure, IBM will have the right
to cancel such purchase order(s) or portions thereof by
notifying StorageTek in writing. If IBM cancels purchase
orders under this Section 11.7, IBM's only obligation will be
to pay for Products or Upgrades already Delivered at the time
of IBM's cancellation notice.
11.8 Due to ongoing and unpredictable market conditions, StorageTek
agrees to permit IBM, upon written notice to StorageTek, to
require StorageTek to reconfigure units of Products and
Upgrades as follows:
a. Configuration changes that do not change a unit model
number may be made without additional cost until [**]
before scheduled Delivery; and
b. Any other configuration changes may be made at any
time (including Product and Upgrades that require
reconfiguration after Delivery) and such
configuration changes will be [**]. StorageTek and
IBM will agree in advance on a schedule of lead times
and costs that will apply to such configurations.
11.9 Subject to Section 10, IBM may reschedule purchase order(s) or
any portions thereof for any reason by notifying StorageTek in
writing at least [**] prior to the Delivery Date specified on
the purchase order(s).
11.10 For the last quarter of this Agreement, the purchase orders
submitted by IBM to StorageTek shall be noncancelable unless
StorageTek is manufacturing Devices.
11.11 Except as otherwise provided in [**] Products and Upgrades
that are supplied to IBM hereunder will consist of new parts
and components. FRUs that IBM returns will be reworked by
StorageTek to an equivalent-to-new reliability level. Such
reworked FRUs will not be used in any new Products or Upgrades
Delivered to IBM hereunder, but may instead be returned to IBM
as reworked FRUs.
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12. CONSIGNMENT
12.1 IBM will consign certain disk drives ("Drives") to StorageTek
for use in Equipment. Except as otherwise provided in [**] of
the IDA, Drives supplied by IBM to StorageTek shall only be
used by StorageTek to build Equipment for IBM and shall remain
the property of IBM. This Section 12 shall not apply to [**]
StorageTek pursuant to the terms of Section 8 of this
Agreement.
12.2 StorageTek agrees to adhere to the terms and conditions of the
IBM Consignment Agreement, attached hereto as Exhibit 4,
provided, however, that the terms of this Section 12 prevail
over those of Exhibit 4.
12.3 IBM agrees to consign Drives to StorageTek in accordance with
a mutually agreed Profile based on at least a five-day buffer
ahead of StorageTek's build cycle, and including a yield
factor based upon the previous quarter's experience and
calculated using a mutually agreed formula. Any Drives, or
other IBM-supplied parts and components, that are not used by
StorageTek due to integration fall-out will be returned to IBM
within ten (10) days after such fall-out.
12.4 If IBM fails to provide consigned Drives to StorageTek in
accordance with Section 12.3, and StorageTek's manufacturing
line is down such that StorageTek cannot meet its Delivery
dates to IBM, then StorageTek will agree, per Section 10.2, to
hold up to [**], as the case may be, of such undelivered and
forecasted Products and Upgrades, without Drives, in inventory
for up to [**]. If the amount of such Products and Upgrades
held in inventory exceeds [**] of the forecasted volumes then
StorageTek will notify IBM, and IBM will [**].
12.5 If IBM Drives are not available for an extended period of
time, IBM may request assistance from StorageTek in securing
drives from other drive manufacturers in lieu of using IBM
Drives. StorageTek agrees, on a best effort basis, to assist
in securing the most cost effective, high quality alternative,
and with the agreement of IBM, to take the steps necessary to
integrate such drives into the Product. In such event, the
parties will agree in advance on an equitable division of
StorageTek's cost of securing, qualifying and integrating such
drives, including any cost relating to inventory or required
firm purchase commitments even if such substitution is only
temporary in nature.
12.6 StorageTek agrees to return to IBM freight collect any Drives
in StorageTek's inventory, within five (5) days of receipt of
IBM's written (or EDI) request.
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<PAGE> 36
13. DELIVERY
13.1 ON-TIME DELIVERY
a. StorageTek shall use its best efforts to ensure that
every scheduled Delivery date is met. StorageTek must
notify IBM in advance if a scheduled Delivery date
will not be met. StorageTek will make every
reasonable effort at its expense to ensure the
earliest possible Delivery date and quantities for
late Equipment, including, but not limited to,
overtime and expedite charges. "On schedule" means
[**]. Unless delay is caused by IBM's delay in its
supply of Drives or IBM-supplied parts and
components, StorageTek will arrange for premium
transportation and pay, at StorageTek's sole cost and
expense, for the difference between normal
transportation and such premium transportation,
including, but not limited to, air transportation and
expedited freight charges. StorageTek also agrees to
provide, at IBM's request, an action plan to correct
late shipments and to resolve any Delivery problems.
b. If, during any [**] period, StorageTek fails, on a
one-time basis only, to Deliver more than [**], but
not more than [**], of the units of [**] and [**]
that are scheduled for Delivery in a calendar month
by their scheduled Delivery dates, then StorageTek
shall be required to expedite shipment of such units
in accordance with Section 13.1. If more than [**] of
such units of [**] and [**] are Delivered late in
[**], then an amount equal to [**] the number of [**]
that were [**] [**] in excess of [**] shall be added
to [**] and [**] purchases and credits obtained under
this Agreement during [**] (i.e., as though IBM had
already purchased such [**]) to determine the [**] to
be [**] during [**] . In the event that this [**]
results in a combined volume of [**] and [**]
purchases and credits obtained under this Agreement
during [**] that is [**], then IBM shall receive a
[**] and [**] in an amount equal to [**] under this
Section 13, On-time Delivery; provided, however, that
under no circumstances shall IBM receive any [**]
hereunder after the combined total of [**] and [**]
purchases and credits [**] [**] obtained under this
Agreement exceeds [**] during the [**].
c. If StorageTek fails to Deliver more than [**] of the
units of [**] and [**] that are scheduled for
Delivery by their scheduled Delivery dates in the
[**] , and except for units subject to the [**]
provision defined in 13.1b, above, then an amount
equal to [**] the number of [**] that were [**] shall
be [**] and [**] obtained under this Agreement during
[**] to determine [**] of future units of [**] to be
acquired during [**]. In the event that this [**]
results in a combined volume of [**] and [**]
purchases and credits obtained under this Agreement
during [**] that is [**], then IBM shall [**] to be
[**] in an amount equal to [**] under this Section
13, On-time Delivery; provided, however, that under
no circumstances shall IBM receive any [**] hereunder
after the combined total of
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<PAGE> 37
[**] and [**] purchases and credits [**] obtained
under this Agreement exceeds [**] during the [**].
d. If, in the [**] following any [**] in which a [**]
was made under this Section 13.1, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] shall be [**] to [**] and [**]
purchases and credits obtained under this Agreement
during [**] [**] to determine [**] of future units of
[**] to be acquired during [**] . In the event that
this [**] results in a combined volume of [**] and
[**] purchases and credits obtained under this
Agreement during [**] that is [**], then IBM shall
receive a [**] and [**] in an amount equal to [**]
under this Section 13, On-time Delivery; provided,
however, that under no circumstances shall IBM
receive any [**] hereunder after the combined total
of [**] and [**] purchases and credits in [**]
obtained under this Agreement [**] during the [**].
e. If, in the next following month, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] that were [**] by StorageTek shall be
[**] and [**] purchases and credits obtained under
this Agreement during [**] to determine [**] of
future units of [**] to be acquired during [**]. In
the event that this addition results in a combined
volume of [**] and [**] purchases and credits
obtained under this Agreement during [**] that is
[**] , then IBM shall receive a [**] and [**] in an
amount equal to [**] under this Section 13, On-time
Delivery; provided, however, that under no
circumstances shall IBM receive any [**] hereunder
after the combined total of [**] and [**] purchases
and credits in [**] obtained under this Agreement
[**] during the [**].
f. If, in the next following month, and for each
additional consecutive month, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] that were [**] by StorageTek shall be
[**] and [**] purchases and credits obtained under
this Agreement during [**] to determine [**] of
future units of [**] to be acquired during [**] . In
the event that this addition results in a combined
volume of [**] and [**] purchases and credits
obtained under this Agreement during 1998 that is
[**], then IBM shall receive a [**] and [**] in an
amount equal to [**] under this Section 13, On-time
Delivery; provided, however, that under no
circumstances shall IBM receive any [**] hereunder
after the combined total of [**] and [**] purchases
and credits in [**] [**] during the [**].
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g. Notwithstanding anything to the contrary in this
Section, and in lieu of credits provided in other
paragraphs of this Section, if, in any calendar
month, and subject to Section 13.1b. above,
StorageTek fails to Deliver more than [**] of the
units of [**] [**] and [**] that are scheduled for
Delivery by their scheduled Delivery dates, then an
amount equal to [**] the number of [**] that were
[**] by StorageTek shall be added to [**] and [**]
purchases and credits obtained under