INTERNATIONAL DISTRIBUTOR AGREEMENT

EXHIBIT 10.3

INTERNATIONAL
DISTRIBUTOR AGREEMENT

This Distributor Agreement (the “Agreement”) is made and effective as of November 30, 2004 by and between Micro Linear Corporation, having its principal place of business at 2050 Concourse Drive, San Jose, CA  95131 (hereinafter referred to as “MANUFACTURER”) and Clavis, a division of Macnica, Inc. 1-6-3 Shin Yokohama, Kohoku-ku, Yokohama, 222-8561, Japan (hereinafter referred to as “DISTRIBUTOR”).

          In consideration of the mutual promises herein contained, the MANUFACTURER and DISTRIBUTOR agree as follows:

1.       APPOINTMENT

          A.          Subject to the terms stated herein, MANUFACTURER appoints DISTRIBUTOR, and DISTRIBUTOR hereby accepts such appointment, as an authorized MANUFACTURER’S distributor for the Products in the territory (as defined in Section 3A below).

          B.          The relationship of MANUFACTURER and DISTRIBUTOR established by this Agreement is that of independent contractors.  Nothing contained in this Agreement shall be construed to give either party the power to direct and control the day-to-day activities of the other, or constitute the parties as partners, joint ventures, co-owners or otherwise as participants in a joint or common undertaking.  DISTRIBUTOR, its agents, and employees are not the representative of MANUFACTURER for any purpose except as expressly set forth in the Agreement.  They have no power or authority as agent, employee, or in any other capacity to represent, act for, bind, or otherwise create or assume any obligation on behalf of MANUFACTURER for any purpose whatsoever.  All financial obligations associated with DISTRIBUTOR’S business are the sole responsibility of DISTRIBUTOR.  All sales and other agreements between DISTRIBUTOR and its customers are DISTRIBUTOR’S exclusive responsibility and shall have no effect on DISTRIBUTOR’S obligations under this Agreement.  DISTRIBUTOR shall be solely responsible for, and shall indemnify and hold MANUFACTURER free and harmless from any and all claims, damages, or lawsuits arising solely out of the acts of DISTRIBUTOR, its employees, and its agents.

2.       DEFINITION OF “PRODUCTS”

          A.          The term “Products” shall mean all products offered for sale by MANUFACTURER as set forth and described in MANUFACTURER’S current published Distributor Price List.

          B.          Additional Products may be added to this agreement, including products specified in MANUFACTURER’S Published Price List but not approved for DISTRIBUTOR stocking, by mutual agreement between the parties.

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3.       DEFINITION OF “TERRITORY”

          A.          The term “Territory” shall mean the geographic area known as Japan and in addition shall include subsidiaries of Japanese customers located in Singapore Taiwan, Hong Kong, China and South Korea in those instances where the design win was transacted with their respective Japanese parent companies.   Manufacturer and Distributor agree, however, that coverage of this geographic area shall be non-exclusive and that Manufacturer and Distributor shall agree in a separate writing on the customers to be serviced by Distributor  under the terms of this Agreement.

4.       TERM

           The term of this Agreement shall commence upon the Effective Date set forth for the initial period of one year and shall be automatically renewed unless terminated by either party giving at least thirty (30) days written notice per Section 28 (Twenty-Eight) of this agreement.

5.       DISTRIBUTOR ACTIVITIES

          A.          DISTRIBUTOR agrees to actively and diligently solicit the trade in the territory, and in general make all reasonable efforts to sell MANUFACTURERS Products.

          B.           During the term of this Agreement, DISTRIBUTOR shall have the right within the Territory to indicate to the public that it is an authorized DISTRIBUTOR of the Products and to advertise such items under the trademarks, service marks, and trade names that MANUFACTURER may adopt from time to time (“MANUFACTURER’S Trademarks”).  DISTRIBUTOR shall not alter or remove any MANUFACTURER’S Trademarks applied to the Products.  Nothing herein shall grant to DISTRIBUTOR any right, title or interest in MANUFACTURER’S Trademarks.  All uses of MANUFACTURER’S Trademarks by DISTRIBUTOR shall inure to the benefit of MANUFACTURER.  At no time during the term of this Agreement shall DISTRIBUTOR challenge or assist others in challenging MANUFACTURER’S Trademarks or the registration thereof nor attempt to register any trademarks, service marks or trade names confusingly similar to those of MANUFACTURER.

          C.          Upon termination of this Agreement, DISTRIBUTOR shall forthwith cease any further use of any trademark, service mark, or trade name for which consent to use had been granted by MANUFACTURER.

          D.          DISTRIBUTOR agrees to examine, or cause to be examined, all Products shipped by MANUFACTURER promptly upon receipt thereof, and to immediately file or cause to be filed a claim with the carrier upon delivery for any damage to or shortage in the Products, and to notify MANUFACTURER within ten (10) days after receipt of the Products of any such claim pertaining thereto.

          E.          DISTRIBUTOR agrees to comply with all applicable laws and regulations currently existing in the territory relating to the Products.

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          F.          DISTRIBUTOR will pass on to its customers MANUFACTURER’S warranty with respect to all products purchased by customers.  DISTRIBUTOR will not pass on to its customers any warranty that exceeds the scope of MANUFACTURER’S written warranty.  DISTRIBUTOR shall indemnify and hold MANUFACTURER harmless from and against any and all claims and liabilities, costs, and expenses (including the reasonable fees of attorneys and other professionals) incurred by, or threatened against, MANUFACTURER in connection with any representation by DISTRIBUTOR or DISTRIBUTOR’S personnel or agents inconsistent with or broader than the warranties and disclaimers set forth in this Agreement.

          G.          DISTRIBUTOR shall use its reasonable best efforts, consistent with prudent business practice, to maintain a representative inventory of Products in reasonable sufficient quantities to provide reasonably adequate and timely delivery to DISTRIBUTOR’S customers.

          H.          DISTRIBUTOR and its employees shall participate, when and to the extent appropriate, in such training programs as may be offered by Supplier, to the extent that such participation does not materially detract from the conduct of DISTRIBUTORS business.

          I.          DISTRIBUTOR, at its election, may translate MANUFACTURER promotional materials into local languages.  DISTRIBUTOR will promptly provide MANUFACTURER with a soft and hard copy of all translated materials and revisions thereto for MANUFACTURER’S approval, which approval shall not be unreasonably withheld or delayed.  DISTRIBUTOR may publish or distribute such translated materials only after MANUFACTURER has approved their use in writing.  The copyright on all such translations shall be owned by MANUFACTURER by virtue of the “work for hire” doctrine or shall be transferred to MANUFACTURER.

6.       MANUFACTURER OBLIGATIONS

          A.          MANUFACTURER shall maintain a policy of engaging in Product merchandising and advertising on a worldwide basis to provide a continuing demand for MANUFACTURER Products.  MANUFACTURER will, at its sole discretion, include DISTRIBUTORS name in such advertising from time to time, with prior approval.

          B.          MANUFACTURER shall furnish DISTRIBUTOR with price lists, sales literature, books, catalogues, product briefs, advanced product information, data sheets, and the like, as MANUFACTURER may prepare for national distribution at no cost to DISTRIBUTOR. MANUFACTURER shall also provide DISTRIBUTOR with such technical and sales support as may be necessary to assist DISTRIBUTOR in effectively carrying out its activities under this Agreement.

          C.          MANUFACTURER agrees that its facilities will be regularly and actively employed to the mutual benefit of MANUFACTURER and DISTRIBUTOR and to assist DISTRIBUTOR in whatever manner is deemed proper by MANUFACTURER for the sale of Products.

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          D.          MANUFACTURER shall ship, mark and pack all Military Products in accordance with the relevant specifications.

          E.          MANUFACTURER shall refer to DISTRIBUTOR: customers and potential customers for quantities of the Products customarily handled by distributors.

          F.          MANUFACTURER shall establish and maintain such quality control procedures, electrostatic discharge sensitivity procedures, testing of Products and other customary programs as are necessary to ensure that the Products, as manufactured and sold to DISTRIBUTOR, are of the highest quality and reliability.

7.       MANUFACTURER - DISTRIBUTOR LIABILITY

          A.          Neither MANUFACTURER nor DISTRIBUTOR shall be liable for failure to perform any obligation under this Agreement if such failure is caused by circumstances not directly under the party’s control, including failures resulting from force majeure, acts of God, acts of public authorities, war and war measures, strikes, fires, or failures or delays of suppliers or carriers.

          B.          MANUFACTURER’S TOTAL LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR THE SALE OF ANY PRODUCT SHALL NOT EXCEED THE DISTRIBUTOR PRICE FOR THE PRODUCT GIVING RISE TO THE LIABILITY.  IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS BY ANYONE.  IN NO EVENT SHALL MANUFACTURER BE LIABLE TO DISTRIBUTOR OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES OR LOST PROFITS, HOWEVER CAUSED, WHETHER PURSUANT TO A THEORY IN BREACH OF CONTRACT, NEGLIGENCE, OR OTHERWISE, AND WHETHER OR NOT MANUFACTURER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.  THE ESSENTIAL PURPOSE OF THIS PROVISION IS TO LIMIT THE POTENTIAL LIABILITY OF MANUFACTURER ARISING OUT OF THIS AGREEMENT AND DISTRIBUTION OF PRODUCTS.

8.       COMPLIANCE WITH LAWS

          A.          DISTRIBUTOR will comply with all laws and governmental regulations, which prohibit export or diversion of MANUFACTURERS products to certain countries, and not knowingly assist or participate in any such diversion or other violation of applicable U.S. laws and regulations.

          B.          DISTRIBUTOR understands and acknowledges that MANUFACTURER is subject to regulation by agencies of the U.S. Government, including the U.S. Department of Commerce, which prohibits export or diversion of certain products and technology to certain countries.  Any and all obligations of MANUFACTURER to provide products or documentation or any media in which any of the foregoing is contained, as well as any technical assistance, shall be subject in all respects to MANUFACTURER’S compliance with such United States laws and regulations as shall from time to time govern the license and delivery of technology and products abroad by persons subject to the jurisdiction of the United States, including the Export Administration Act of 1979, as amended, any successor legislation, and the Export Administration Regulations issued by the Department of Commerce, Bureau of Export Administration.

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          C.          Without limiting the foregoing, DISTRIBUTOR certifies that unless prior written authorization is obtained from the United States Bureau of Export Administration or the Export Administration Regulations explicitly permit the re-export without such written authorization, it will not export, re-export, or transship, directly or indirectly, the Products to country groups D-1 or E-2 (as defined in the Export Administration Regulations), which currently consist of Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia, China (PRC), Cuba, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Laos, Latvia, Libya, Lithuania, Moldova, Mongolia, North Korea, Romania, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan and Vietnam, or to Iran, Iraq or Syria or to any other country as to which the U.S. Government has placed an embargo against the shipment of products, software or technology which is in effect during the term of this Agreement.  This Section 8.C. shall survive any termination of this Agreement.

          D.          DISTRIBUTOR shall at all times during the term of the Agreement have in effect all licenses, permits, and authorizations from all governmental agencies necessary to the performance of its obligations hereunder, and shall comply with all applicable laws, rules, and regulations affecting its activities hereunder.

9.       TERMS OF PAYMENT

          A.          MANUFACTURER will invoice DISTRIBUTOR upon shipment of each order. Payment for all products shipped and invoiced by MANUFACTURER are due by the 20^th of the month following the month of shipment.

          B.          All payments shall be made in the currency set forth in MANUFACTURER’S Distributor Price List.  DISTRIBUTOR represents and warrants that no currency control laws applicable in the Territory prevent the payment to MANUFACTURER of any sums due under this Agreement.   In the event that any such laws come into effect and the local government of the Territory does not permit that payment be made in the currency described above, DISTRIBUTOR will notify MANUFACTURER immediately, and if so instructed by MANUFACTURER, deposit all monies due MANUFACTURER to the account of MANUFACTURER in a local bank of MANUFACTURER’S choice in the Territory.

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10.     APPLICATION OF CREDITS

          A.          MANUFACTURER reserves the right to apply any outstanding credits due to DISTRIBUTOR as a set-off against any debit due from DISTRIBUTOR to MANUFACTURER.

          B.          In the event DISTRIBUTOR is entitled to a credit from MANUFACTURER hereunder, and the amount of such credit exceeds DISTRIBUTOR’S obligation to MANUFACTURER at the time, MANUFACTURER shall forthwith pay the amount of such excess to DISTRIBUTOR.

11.     REPORTS

          A.          Inventory Reports -

                        The DISTRIBUTOR will submit a monthly inventory report covering all of MANUFACTURERS products on hand in each stocking location.  This is to be supplied along with the Point of Sales (“POS”) report described in paragraph 11B.

          B.          POS Reports -

                        DISTRIBUTOR agrees to submit monthly reports to MANUFACTURER showing total sales of MANUFACTURER Products by complete part number, quantity sold, unit price, price extension, and customer identification and location.  Each monthly report shall be submitted by the fifteenth (15th) of the month immediately following the close of the preceding business month.

12.     PRICES

          A.          The prices to be paid by DISTRIBUTOR for Products purchased for resale shall be those prices set forth in MANUFACTURER’S established Distributor Price List in effect at the time of shipment from the Factory.  For special prices negotiated with the MANUFACTURER, all sales are final.

          B.          Prices quoted in MANUFACTURER’S Distributor Price List do not include Federal, State, Local, Sales, Use, Value Added (VAT), Excise, Customs, Import or similar taxes or duties imposed by any governmental agency that has jurisdiction over the import, export, or purchase over the Products.  DISTRIBUTOR shall be liable for and shall pay all applicable taxes, duties, license fees or other charges incident to the sale of Products when MANUFACTURER has the legal obligation to collect such taxes.  The appropriate amount shall be added to MANUFACTURER’S invoice and paid by DISTRIBUTOR unless DISTRIBUTOR provides MANUFACTURER with a valid tax exemption certificate authorized by the appropriate taxing authority.  In the event that DISTRIBUTOR is required by law to make deductions or withholdings from payments to MANUFACTURER, then DISTRIBUTOR shall pay such additional amounts to MANUFACTURER as may be necessary to assure that the actual amount received by MANUFACTURER after deduction or withholding (and after payment of any additional taxes due as a consequence of such additional amount) shall equal the amount that would have been received if such deduction or withholding were not required.

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          C.          All prices shall be subject to change or withdrawal at the discretion of MANUFACTURER with sixty (60) day advance notice, subject to the provisions of Section 14.  Notice of any changes in prices shall be given DISTRIBUTOR by furnishing new Distributor Price Lists or written advises.

          D.          MANUFACTURER represents and warrants that the prices and discounts, if any, extended to DISTRIBUTOR in connection with the Products comply with all applicable laws and are not, and will not be, less favorable than those extended to other purchasers of similar quantities of Products from MANUFACTURER, or other distributors.

13.     F.O.B.

          A.          All prices are F.O.B. MANUFACTURER’S domestic shipping facility.

          B.          The mode of shipment from MANUFACTURER to the DISTRIBUTOR will be as directed by the DISTRIBUTOR.  MANUFACTURER will ship via the best way consistent with the delivery schedule and MANUFACTURER’S requirement for traceability.

14.     PRICE CHANGES AFFECT ONLY STANDARD PRODUCT SOLD AT STANDARD DISTRIBUTOR COST

          A.          Price Increases -

          Prior to the effective date of a price increase, DISTRIBUTOR may order Products for delivery within the term of this Agreement.  All Products shipped under orders submitted by DISTRIBUTOR prior to the effective date of any price increase will be shipped and invoiced at the price in effect at the time of order placement.

          B.          Price Decreases -

          In the event MANUFACTURER decreases the price of any Product, DISTRIBUTOR shall be entitled to a credit equal to the difference between the price paid for the Product by DISTRIBUTOR, less any prior credits granted by MANUFACTURER on such Products, and the new decreased price for the Product, multiplied by the quantity of such Product in DISTRIBUTOR’S inventory on the effective date of the decrease.  Similar price adjustment, if appropriate, will also be made on all Products in transit to DISTRIBUTOR on the effective date of the price decrease and, for sixty (60) days after such effective date, on all Products returned to DISTRIBUTOR.  DISTRIBUTOR shall submit to MANUFACTURER, within sixty (60) business days following the effective date of such price decrease or the date DISTRIBUTOR actually receives notice thereof, whichever occurs later, a report of the Products subject to the price decrease.  All Products shipped after the effective date of any price decrease will be shipped and invoiced at the price in effect at the time of shipment.

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15.     ORDERS

          A.          Orders for Products placed by DISTRIBUTOR shall be accepted subject to those terms set forth in this Agreement.  Any terms and conditions presented on orders placed by DISTRIBUTOR, which are in conflict with this Agreement, shall be inapplicable to the sale without the express written approval of MANUFACTURER.

          B.          Orders shall describe the Products ordered, the quantities, shall request delivery dates, shall set forth prices and shall provide shipping instructions.  MANUFACTURER will acknowledge each such order in writing at the earliest possible date, but in any event within ten (10) business days following receipt.  In such acceptance, MANUFACTURER will confirm the requested shipment date or specify an acknowledged shipment date.  If the acknowledged shipment date is more than thirty (30) days later than DISTRIBUTOR’S requested shipment date, DISTRIBUTOR, at its election, may cancel the order with