REPLICATION AGREEMENT

 

This Replication Agreement (“Agreement”) is made and entered into this 1 ^st day of July, 2005 (“Effective Date”), by and between MICROSOFT LICENSING, GP, a Nevada, U.S.A. general partnership (“MS”), and Zomax Incorporated, a corporation of U.S.A. (“COMPANY”).

 

 

INTRODUCTION

 

The parties recognize that Customers license Microsoft Corporation Software from MS, that such Software is updated from time to time by MS, and that COMPANY has facilities to reproduce such Software. This Agreement grants COMPANY such rights as needed to perform Replication Services for Customers.

 

AGREEMENT

 

The parties agree as follows:

 

1.       DEFINITIONS .           For purposes of this Agreement, the following terms shall have the following meanings:

 

(a)     “All Transaction Journal” or “ATJ” shall mean the reconciliation of the reports of Software shipments as submitted according to the instructions identified on Exhibit A.

 

(b)     “APM” shall mean the associated software material Components included in Software as provided by MS to COMPANY from time to time which may include, but not be limited to, a Microsoft registration card,  a Microsoft end user license agreement and warranty card.

 

          (c)     “ARK(s)” shall mean the Authorized Replication Kit supplied only by MS or its authorized mastering Site(s) that contains Software Components, including, but not limited to, Stampers, which are necessary for the replication of Software.

 

(d)     “BOM” shall mean the Bill of Materials document provided to COMPANY by MS via MS’s RSM systems, which shall identify all Components comprising each type of Software including, but not limited to, the specific APM to be included with each type of Software.  The BOM may be modified from time to time by MS at its sole discretion.

 

(e)     “Certificate(s) of Authenticity (“COA(s)”)” shall mean all Microsoft anti-piracy devices including, but not limited to, the personal computer Certificate(s) of Authenticity (“COA(s)”), corporate sticker, and self-adhesive Certificate(s) of Authenticity (“Adhesive COA(s)”).  MS shall retain at all times management responsibility for COA anti-piracy devices.

 

(f)      “COMPANY” shall include any subsidiary of COMPANY, provided that COMPANY hereby guarantees its subsidiary’s performance under this Agreement, the subsidiary agrees in writing with COMPANY to be bound by the terms of this Agreement, and that COMPANY provides written notice to MS of the name and address of each subsidiary before the subsidiary exercises any rights under this Agreement.  A “subsidiary” is a company in which, on a class by class basis, more than fifty percent (50%) of the stock entitled to vote for the election of directors is owned or controlled by COMPANY, but only so long as such ownership or control exists.

 

          (g)     “Components” shall mean those parts listed on the BOM and included in the manufacture and/or assembly of Software.  Components are designated as such in RSM.

 

          (h)     “Customer” shall mean (i) OEM(s) (ii) other Authorized Replicators (“AR(s)”) that have current and valid license agreements with MS or have been approved in writing by MS, and/or (iii) MS.

 

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(i)       “Customer Agreement(s)” shall mean the MS/OEM Agreement for purposes of the OEMs.

 

          (j)      “DLK” or “Disk Label Kit” shall mean the master kit that contains the artwork and print specifications for the CD-ROM, DVD-ROM, and/or disk labels.

 

          (k)     “FDR(s)” shall mean the Final Documentation Release that contains the artwork, print specifications, and other master files for the production of printed documentation.

 

          (l)      “Kit(s)” shall mean the various kits provided to COMPANY by MS for purposes of replicating the Software in accordance with the Specifications, including, but not limited to, the disk label kit that contains the CD-ROM/DVD-ROM and/or disk labels which COMPANY shall be required to place on the Software, the registration card kit, the end user license agreement kit, and/or the warranty kit.  Additional kits may be added and the existing kit(s) may be modified from time to time by MS at its sole discretion.

 

          (m)    “Microsoft” shall mean Microsoft Corporation, a Washington corporation that is a supplier of and holds certain rights in and to the Software identified in this Agreement.

 

          (n)     “MS/OEM Agreement” shall mean a valid license agreement between an OEM and MS.

 

          (o)     “MS Authorized Replicator Policy and Procedures Manual ” shall mean the electronic or hard copy manual that provides Authorized Replicators with instructions regarding how to manufacture Software and implement policies, procedures and specifications associated with the Authorized Replicator program.

 

(p)     [**]

 

          (q)     [**]

 

(r)      “OEM(s)” shall mean the original equipment manufacturer that holds a current and valid license agreement with MS for any or all Software pursuant to the MS/OEM Agreement and is located in the Territory.

 

          (s)     [**]

 

          (t)      [**]

 

          (u)     “Replication Services” shall mean the services performed by COMPANY under the rights granted to COMPANY by MS hereunder and such other value-added services as provided by COMPANY.

 

          (v)     [**]

 

          (w)    [**]

 

          (x)      “Site(s)” shall mean the COMPANY location(s) identified (i) on Exhibit B or (ii) on a secure website authorized and maintained by MS.

 

          (y)     “Software” shall mean the copyrighted and/or patented Microsoft software described in the RSM BOM viewer, including, where applicable, the specified user documentation Components of Software.  “Software” or “Software Documentation” shall mean the software or documentation Components of Software.  For purposes of the licensing agreement, Software shall be considered a complete OEM package consisting of Microsoft licensable software, COA and APM.

 

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          (z)      “Software Release” shall mean a release of Software which is designated by MS in its sole discretion as a change in the digit(s) to the left of the decimal point in Software version number [(x).xx].

 

(aa)   “Specification(s)” shall mean the method by which the Components comprising each type of Software identified in the BOM are assembled in accordance with MS’s requirements, as is more specifically described in the MS Authorized Replicator Policy and Procedures Manual .

 

          (bb)   “Stamper(s)” shall mean the metal replication master used in an injection molding machine from which optical media are created. This definition shall include those Stampers which produce edge-to-edge and inner mirror band hologram images.

 

          (cc)   “Sub-contractor” shall mean (i) a third party performing support, manufacturing, assembly or any other good or service used to produce component products or services, (ii) an AR also performing subcontractor work for other ARs, and/or (iii) a subsidiary, affiliate or related business entity to an existing AR that is performing services or providing goods related to subcontracted work and is approved in writing by MS.

 

          (dd)   “Territory” shall mean those regions (as defined in the MS Authorized Replicator Policy and Procedures Manual ) listed on Exhibit E.

 

          (ee)   [**]

 

          (ff)  “Update Release” shall mean a release of Software which is designated by MS in its sole discretion as a change in the digit(s) to the right of the tenths digit in Software version number [x.x(x)].

 

          (gg)   “Version Release” shall mean a release of Software which is designated by MS in its sole discretion as a change in the tenths digit in Software version number [x.(x)x].

 

 

2.       LICENSE GRANT .

 

          (a)     In consideration of COMPANY’s performance of Replication Services under the terms of this Agreement, MS grants COMPANY the following nonexclusive license rights:

 

(i)      to use ARKs, DLKs, FDRs, and the applicable Kits internally for the purpose of reproducing Software in document and object code form and in accordance with the RSM BOM(s) and Specifications for delivery to Customers in the Territory;

 

(ii)     to assemble Software in accordance with BOM(s) for delivery to Customers in the Territory; and

 

(iii)    to use the RSM software in object code form for internal purposes only in the performance of Replication Services and delivery of Software.  COMPANY shall not subcontract the operation of, or sublicense, the RSM software to any other entity except in accordance with Section 7(f) below.

 

(b)     [**]

 

          (c)     The license grant of Section 2(a), above, shall also apply, where applicable, to MS- or OEM-requested adaptations to Software authorized by MS or in accordance with the MS/OEM Agreement, provided that MS has given COMPANY advance written approval for such Software adaptation.

 

(d)     COMPANY shall not in whole or in part copy, modify, reverse engineer, create derivative works of, or translate Software.

 

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          (e)     COMPANY’s license shall extend to, and each type of Software shall be deemed to include, only Software listed in the RSM BOM viewer with “released” status.

 

          (f)      COMPANY shall replicate, assemble and deliver to OEMs only those types of Software in the RSM BOM viewer.

 

          (g)     COMPANY acknowledges that all rights not expressly granted, without limitation, are reserved by MS, including, but not limited to, Software and/or Software Documentation.

 

 

3.       INVESTMENT IN [**] AND GRANT OF [**] SOFTWARE LICENSE .

 

          (a)     [**]

 

          (b)     MS hereby grants COMPANY a limited, non-exclusive, non-transferable, personal sub-license to install and use the [**] software, including any third party procedural systems, during the term of this Agreement solely for the purpose of operating the [**] only for MS in accordance with the terms and conditions of this Agreement.  COMPANY shall not subcontract the operation of, or sublicense, the [**]  software to any other entity.

 

          (c)     COMPANY shall use the [**] software and any associated third party procedural systems in accordance with the instructions provided by MS from time to time.  [**] software use shall require stable and reliable Internet access to the [**] web site.  COMPANY shall provide adequate training to its [**] users on the [**] process and must ensure that such users adhere to all security regulations regarding the secure handling of the COAs as defined in the MS Authorized Replicator Policy and Procedures Manual .

 

          (d)     COMPANY is responsible for maintenance of [**].  Furthermore, COMPANY must enter into a service agreement with an MS-approved service provider to cover such requirements as defined in the MS Authorized Replicator Policy and Procedures Manual within thirty (30) days of the [**].

 

          (e)     [**]

 

          (f)      EXCEPT AS EXPRESSLY AUTHORIZED ABOVE, COMPANY SHALL NOT: (i) COPY, IN WHOLE OR IN PART, [**] SOFTWARE; (ii) MODIFY THE [**] SOFTWARE; (iii) REVERSE ENGINEER ALL OR ANY PORTION OF THE [**] SOFTWARE; OR (iv) CREATE DERIVATIVE WORKS OF THE [**] SOFTWARE.  COMPANY acknowledges that the [**] software constitutes trade secrets, patents and/or copyrightable material of third parties.  COMPANY agrees not to disclose, provide, or otherwise make available such trade secrets or copyrighted material in any form to any third party.  COMPANY agrees to implement strict security measures in compliance with the MS Authorized Replicator Policy and Procedures Manual to protect such trade secrets and copyrighted material.

 

          (g)     [**]

 

 

4.       REPORTS AND RECORDS .

 

(a)     COA and APM Reporting :

 

(i)      [**]

 

(ii)     COMPANY shall also perform a COA and COA bearing Software transaction reconciliation on a daily basis, and submit an ATJ report to MS on a daily basis in accordance with the instructions identified in Exhibit A.

 

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          (b)     Software Components Record Management.   COMPANY shall manage all Software Component records in accordance with the MS Authorized Replicator Policy and Procedures Manual and the following conditions:

 

(i)      COMPANY shall maintain accurate and complete shipping/transfers-out records of Software Components shipped by or for COMPANY;

 

(ii)     for Software Components damaged during the ordinary course of COMPANY’s business, COMPANY shall maintain a log that includes the number of the damaged Software Components, the date such Software Components were damaged, the Software name(s) associated with the damaged Software Components, and the cause of damage.  All Software must be maintained at the COMPANY Site for inspection by MS.   Microsoft or MS must approve and witness the disposition of all Software; and

 

(iii)    for Software Components received from a [**] in error (e.g., damaged, quantity does not match transaction record, Software does not match [**] transaction documentation), COMPANY shall:

 

(A)                                                                               alert the [**] and appropriate MS OEM Supply Chain Operations Manager to the discrepancy;

 

(B)     if a Return Material Authorization (“RMA”) is issued by the [**], promptly return the Software Components received in error; and

 

(C)     COMPANY shall maintain records of RMA, quality assurance/receiving rejection, and transaction documentation of all rejected and/or returned Software Components.

 

(c)     Reports Regarding Software Supply to Customer(s) .  COMPANY shall provide MS, upon request, with a manually produced report summarizing and identifying all information associated with the Customer requisition order and corresponding COMPANY supply order relating to each transaction of Software to or from Customer. COMPANY is required to accept requisition orders from OEMs in written form.  This includes written requisition orders, faxed requisition orders, or EDI requisition orders.  Requisition orders over the phone are not allowed unless followed up with a written requisition order.  All requisition orders must contain at least the Customer name, Customer license number, issue date, part numbers, quantities, and a requisition order number.  COMPANY is required to issue a delivery note with each transaction.  The delivery note must contain at least the COMPANY name, the delivery date, the part numbers, quantities, and requisition order number(s) from the OEM.  The delivery note is required to be signed by the Customer or its bona fide agent and one (1) copy returned to COMPANY (with one (1) copy remaining with the Customer).  COMPANY must keep this delivery note on file for a minimum of two (2) years.  Additionally, COMPANY shall provide MS, upon request, with a manually produced report identifying the Customer requisition order information associated with each return of Software from Customer.

 

(d)     Record Retention for Audit Purposes .

 

(i)      During the term of this Agreement and for three (3) years thereafter, COMPANY shall maintain reports and other detailed records referenced in this Section 4 (the “Reports and Records”) in readily accessible locations.  Reports and Records shall include, but may not be limited to, all records (including complete financial statements and requisition order records) relating to the reconciliation of Software Components, acquisition, reproduction, delivery, supply to Customers, other disposition and inventory level of each copy of each Software by or for COMPANY, COMPANY subsidiaries and Sub-contractors.  COMPANY shall provide MS with immediate access

 

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to current Reports and Records for a minimum period of two (2) years from the date of such Reports and Records.  COMPANY shall provide MS with a maximum of twenty-four (24) hour access to archived Reports and Records.  All archived Reports and Records shall be retained in an electronic format.

 

(ii)       COMPANY shall maintain a computerized system of records to enable COMPANY to identify the Customer receiving any copy of Software.  COMPANY shall make such records information available to MS within twenty-four (24) hours of such request.

 

 

5.       AUDIT AND INSPECTIONS .

 

(a)     [**]

 

(b)     [**]

 

(c)     In addition to the provisions of this Section 5, MS may, without notice, inspect COMPANY’s procedures at COMPANY’s premises in order to verify COMPANY’s compliance with any terms of this Agreement, including, but not limited to, Sections 7(a) and 9(a).  Any such inspection shall be conducted during regular business hours at COMPANY’s offices.  Should material discrepancies be discovered in the course of the inspection, or in the event an inspection leads to an audit due to material discrepancies, COMPANY shall pay for all reasonable travel-related and other applicable costs incurred by MS in performing such inspection.  Should inventory discrepancies (found in the [**] and all inventory information made available to COMPANY through the RSM system), negligence or other infractions by COMPANY warrant a non-scheduled inspection by MS, COMPANY shall pay for all reasonable travel-related and other applicable costs incurred by MS in performing such inspection.

 

          (d)     COMPANY shall submit to audit(s) by MS from time to time in order to verify COMPANY’s compliance with the terms and conditions of this Agreement.  If material discrepancies are discovered or COMPANY does not pass such audit(s), COMPANY agrees to pay all costs for such audit(s) together with any costs incurred to bring any COMPANY Site(s) into strict compliance with this Agreement.

 

          (e)     During the terms of this Agreement and for three (3) years thereafter, MS shall have the right to audit the Reports and Records identified in Section 4 above.

 

 

6.       DELIVERY AND SUPPORT .

 

(a)     Neither MS nor its suppliers shall have any liability for failure to deliver Software and or COAs by any particular date.

 

(b)     [**]

 

(c)     This Agreement does not include the provision by MS of technical support in COMPANY’s performance of Replication Services.  COMPANY will report to MS in writing any deviations from specifications of Software FDR, DLK, ARK or Kit.  MS agrees to use reasonable efforts to correct such deviations in subsequent releases of Software; however, MS is under no obligation to do so.

 

(d)     MS will use reasonable efforts to supply COMPANY with Software Specifications referencing page and media counts which are defined in the RSM BOM viewer at the time of Software release.

 

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7.       LICENSE RESTRICTIONS .

 

(a)     COMPANY shall deliver Software and COAs only to Customers located in the Territory, as defined in Exhibit E.  COMPANY may add to its existing Territory only at the discretion of MS.  Company may add Sites in new Territories only upon approval from MS.  COMPANY shall deliver to a Customer in the Territory only those types of Software that such Customer has licensed pursuant to the Customer Agreements. COMPANY shall confirm that all Customers to which COMPANY delivers Software have a valid Customer Agreement for Software ordered by such Customer by referencing, on the date of Software transaction, the [**] or other MS electronically produced daily report, as determined by MS. COMPANY shall download, on a daily basis, the above-referenced MS [**] or other MS electronically produced daily report, as determined by MS.  COMPANY shall not deliver Software or COAs to any Customer that MS has put on transaction hold as identified in the [**], or on the daily report identified in this Section 7(a).  MS may require that COMPANY refuse to fill a Customer’s orders for Software due to such Customer’s failure to comply with any terms of the Customer Agreements. COMPANY shall not otherwise deliver Software or COAs.

 

          (b)     [**]

 

          (c)     COMPANY shall not reverse engineer, decompile or disassemble any Software.

 

          (d)     COMPANY shall not in any way modify the content of BOM(s), disks, Software Documentation and/or Software without the express written permission of MS.

 

          (e)     [**]

 

          (f)      COMPANY shall perform Replication Services, (including, but not limited to the reproduction, duplication, copying or otherwise permitting the assembly of Software), only at the Sites.  All replication and/or assembly Sites approved by MS are shown on Exhibit B or on a secure website authorized and maintained by MS. Additional COMPANY and/or COMPANY subsidiary Sites may be added, but the addition of such Site(s) is subject to MS’s prior written approval and, in the case of a COMPANY subsidiary, the full execution of the COMPANY subsidiary agreement between MS and such COMPANY subsidiary as shown on Exhibit C.  COMPANY may close a Site only after providing MS with thirty (30) days notice of such intended closure.  COMPANY guarantees its subsidiary’s fulfillment of the applicable obligations imposed on