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VOLUME PURCHASE AGREEMENT
This Volume Purchase Agreement, dated as of April 8, 1999, is made by
and between Komag, Incorporated, a Delaware corporation ("Komag") and Western
Digital Corporation, a Delaware corporation ("WDC").
BACKGROUND
A. Komag and WDC are entering into an Asset Purchase Agreement of even
date herewith pursuant to which Komag is acquiring certain assets used in the
production of certain product components (the "Asset Purchase Agreement").
B. The parties acknowledge that this Volume Purchase Agreement is part
of a significant strategic relationship, in which Komag is purchasing assets
from WDC to produce media and WDC is agreeing to purchase certain of its
requirements of media from Komag, and Komag is agreeing to supply such
requirements to WDC, to enable Komag to spread costs for media over a greater
volume, and to enable Komag to incur the significant research and development
costs associated with the historically rapid technology advances and short
product cycles for media, and to enable WDC to obtain favorable pricing on a
consistent supply of high-quality, state-of-the-art media, all to the mutual
benefit of Komag and WDC.
C. WDC desires to purchase, and Komag desires to sell to WDC, certain
products manufactured using such acquired assets as well as other products
manufactured by Komag, all in accordance with the terms of this Volume Purchase
Agreement.
NOW THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, as well as a portion of the stock issued
pursuant to the Asset Purchase Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
For the purposes of this Volume Purchase Agreement, unless the context
otherwise requires, the following terms will have the respective meanings set
out below and grammatical variations of such terms will have corresponding
meanings:
1.1 "A-Build" of a WDC product has the meaning assigned thereto in
WDC's classifications as of the Effective Date, and is the product "build" (e.g.
A-0 build, A-1 build), developed before the Pilot Build or PMT Build has been
developed.
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1.2 "Active Program" means a Program for a Product that is being
purchased and sold under this Agreement that has not yet undergone an End of
Life.
1.3 "Actual Media Requirements" shall have the meaning set forth in
Section 4.2.
1.4 "Affiliate" of a party means any entity that directly or indirectly
controls, is under common control with, or is controlled by, such party. As used
in this definition, "control" means possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
beneficial ownership of securities or other ownership interests, by contract or
otherwise).
1.5 "Component" means a component of a WDC product.
1.6 "Days" means consecutive calendar days.
1.7 "Delivery Date" or "Scheduled Delivery Date" means the agreed date
of delivery of Products as specified in Pull Requests.
1.8 "Disentanglement" means a period of no more than [***] Days after
termination of this Agreement to allow for (a) the transfer by Komag to WDC of
any non-proprietary documentation of work processes and data that would be
needed to allow WDC to continue to obtain Media comparable to the Products from
alternate manufacturers; (b) the prompt and orderly conclusion of all work under
this VPA, including without limitation the acknowledgment of Purchase Orders and
the fulfillment of any Pull Requests during such [***]-Day period; (c) [***];
and (d) the prompt ramp-up to full volume production by an alternative provider
or alternative providers of Media for WDC's requirements; provided, however,
that nothing in (a) through (d) will be construed to require Komag to disclose
or license any proprietary information or other intellectual property to any
third party.
1.9 "Effective Date" means the Closing Date, as such term is defined in
the Asset Purchase Agreement.
1.10 "End of Life" has the meaning set forth in Exhibit D.
1.11 "Exhibit" means an attachment to this VPA. Exhibits are
incorporated herein by reference thereto.
1.12 "FGI" has the meaning set forth in Section 5.1.
1.13 "Fiscal Quarter" means the fiscal quarters of WDC set forth on
Exhibit A.
1.14 "Force Majeure Event" means an act of nature, civil disruption,
power outage, public enemy, government action, or freight embargo beyond the
control of a party.
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1.15 "Inactive Program" means a Program that has undergone an End of
Life.
1.16 "JIT Hub Inventory Watermark" means a quantity of Units equal to
the product of two times the quotient of (a) WDC's most recent forecasted
requirements for the four full calendar weeks following the week in which the
computation is made, divided by (b) four.
1.17 "JIT Hubs" has the meaning set forth in Section 5.3.
1.18 "Lead Time" means, for purposes of this VPA, the minimum length of
time prior to a specific Delivery Date that Komag must receive a Pull Request to
ensure delivery by such date.
1.19 "Material Default" shall mean the occurrence of any of the
following:
1.19.1 Failure of Komag to deliver (subject to Section 6.6) in
a given Fiscal Quarter the lesser of (a) [***]% of the WDC Actual Media
Requirements during such Fiscal Quarter; (b) [***]% of the Units in the Purchase
Order for such Fiscal Quarter delivered by WDC under Section 5.2; (c) the number
of Units of "Fiscal Quarterly Purchase Requirements" in the chart below for the
year in which such Fiscal Quarter falls; and (d) the number of Units equal to
(i) Units [***] in such Fiscal Quarter; plus (ii) Units [***]. However, any such
failure prior to [***], will not be deemed a Material Default to the extent such
failure is attributable to the failure of any Acquired Assets (as such term is
defined in the Asset Purchase Agreement) to be year 2000 compliant;
--------------------------------------------------------------------------------
FISCAL QUARTERLY
PERIOD PERIOD PURCHASE
BEGINNING ENDING REQUIREMENTS
--------------------------------------------------------------------------------
Effective Date Effective Date plus [***] [***] Units
months
--------------------------------------------------------------------------------
Effective Date plus [***] Effective Date plus [***] [***] Units
months months
--------------------------------------------------------------------------------
Effective Date plus [***] Effective Date plus [***] [***] Units
months months
----------------------------- ----------------------------- --------------------
1.19.2 A material breach by either party (other than breach of
a payment obligation of WDC under Section 6.5) of any obligation, covenant, or
condition under this Agreement that is susceptible of cure, and the failure by
the breaching party to cure such breach within 30 Days after the breaching party
has received notice of such default (which notice must explicitly assert a
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Material Default under Section 1.19.2 of this VPA), provided that if the cure
requires more than 30 Days, the breaching party fails to (i) promptly take
action to cure such breach as quickly as reasonably possible; or (ii) cure such
breach within 60 Days after the breaching party has received notice of such
default;
1.19.3 A failure of WDC to meet its payment obligations under
Section 6.5, and the failure by WDC to meet such obligations within 30 Days
after WDC has received notice of Komag's intent to discontinue shipping Product
pursuant to Section 6.6; or
1.19.4 An assignment or attempted assignment in violation of
Section 12.4.
1.20 "Matrix Build" of a WDC product has the meaning assigned thereto
in WDC's classifications as of the Effective Date, and is a request by WDC for
Media samples with a specified combination or combinations of coercivity and Mrt
values.
1.21 "Media" means recording disks, manufactured by any entity, as used
in data storage devices.
1.22 "Pilot Build" of a WDC product has the meaning assigned thereto in
WDC's classifications as of the Effective Date, and is typically the large build
of a new WDC product in development before it is released to a WDC production
facility.
1.23 "PMT Build" of a WDC product has the meaning assigned thereto in
WDC's classifications as of the Effective Date, and is typically the first large
build of a new WDC product after it has been released to a WDC production
facility.
1.24 "Price" means the amount charged for Products, as specified in
Section 6.1.
1.25 "Product" means the Media manufactured by Komag.
1.26 "Program" means a WDC product classification, currently including,
for example, "Hunter" and "Rebel" disk drives. A Program may include various
capacities, numbers of disks per drive, drive performance specifications, or
drive interfaces (such as SCSI or ATA).
1.27 "Pull Request" means a request made by WDC to Komag for delivery
of Products from a JIT Hub.
1.28 "Purchase Order" means a purchase order placed by WDC to Komag for
Products as contemplated by this VPA.
1.29 "Purchase Requirements" means the number of Units WDC is required
to purchase and Komag is required to sell under Section 4.1.
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1.30 "Replacement Products" has the meaning set forth in Exhibit D.
1.31 "RMA" means returned material authorization.
1.32 "Section" means a numbered section of this VPA.
1.33 "Specifications" means designs, drawings, prints and written
descriptions, specification reviews and requirements for Products that have been
developed by WDC and Komag as of the date of this VPA, or which may be developed
by WDC and Komag during the term of this VPA.
1.34 "Stop Ship Order" means a stop ship order under WDC's established
stop ship procedure ▇▇-▇▇▇▇▇▇-▇▇▇, resulting from a Product failing quality
parameters.
1.35 "Subcontract" means an arrangement through which a disk drive
supplier has disk drives made or assembled by a subcontractor, and such
subcontractor provides such drives to the supplier for sale to third parties.
1.36 "Target FGI" has the meaning set forth in Section 5.3.
1.37 "Unit" means a single Product.
1.38 "VPA" means this Volume Purchase Agreement, including the
Exhibits.
1.39 "WIP" means work in process, as such term is generally understood
in the Media industry.
ARTICLE 2: AGREEMENT STRUCTURE
2.1 Background. Komag and WDC agree that this VPA creates a high degree
of mutual dependence between Komag and WDC. Each party agrees to diligently
cooperate with the other party to accomplish the objectives of this VPA.
2.2 Agreement Components. This VPA consists of this VPA (including its
Exhibits), Purchase Orders and Pull Requests. If there is a conflict among the
terms and conditions of the various documents or an ambiguity created by
differences therebetween, the order of precedence will be (i) this VPA
(excluding its Exhibits), (ii) Exhibits, and (iii) Purchase Orders and Pull
Requests.
2.3 Purchase Order. Purchase Orders will be used to convey the Purchase
Orders Price and number of Units, and accordingly Purchase Orders must contain
the following: part number, Price, Units ordered, customer name, ship to address
(destination), ▇▇▇▇ to address, and Purchase Order number. Delivery Dates shall
be determined in accordance with Section 5.2. The parties acknowledge that such
Purchase Orders, as well as confirming documents, acknowledgments, forms,
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invoices and the like used in the ordinary course of business may contain other
terms and conditions. The parties agree that this VPA will take precedence over
any such document or other communication, representation or understanding
whether oral or written and that any term or condition relating to the subject
matter of this VPA that is inconsistent with this VPA (whether in contradiction
to, in addition to, or that would result in any ambiguity with respect to any
term or condition in this VPA) will be deemed deleted and be of no force,
including, but not limited to, any term or condition purporting to supersede
this VPA in whole or in part or purporting to make any offer, acceptance, term,
condition or other action conditional upon acceptance of, or indicating
agreement to, any inconsistent term or condition. The foregoing may not be
modified or waived except by written agreement of the parties, specifically
referencing this VPA, and signed by officers of both parties. The parties agree
that, without limiting Section 12.1, the foregoing shall not be superseded,
altered, or overridden by any provision in the Uniform Commercial Code as it may
have been adopted by any competent jurisdiction.
2.4 Exhibits. The following Exhibits are incorporated into this VPA by
reference and deemed to be a part hereof:
Exhibit A: WDC Fiscal Quarters
Exhibit B: Initial Prices
Exhibit C: Qualification Sample Prices
Exhibit D: Supplier Warranty and Replacement Product Terms
ARTICLE 3: PRODUCT QUALIFICATION AND DEVELOPMENT
3.1 Qualification Process. Each of the parties shall use commercially
reasonable efforts to qualify Komag's Products on all Programs. Such efforts
will require qualification of Products in combination with other Components
(such as multiple combinations of Media and recording heads), as well as the
subsequent qualification of WDC's disk drives incorporating such combinations at
each WDC customer. Subject to Section 4.3, WDC agrees that Product
qualifications must include sufficient WDC Programs, Component combinations and
customers to allow WDC to meet its Purchase Requirements for Products under this
VPA, taking into account that a Product may fail to qualify in a Program or
Components combination, or for a customer, from time to time.
3.2 Qualification Locations. Following the Effective Date, Komag
intends to manufacture Products under this Agreement using in-line and static
sputtering processes at factory locations in Santa ▇▇▇▇▇ and San Jose,
California, and in Penang, Malaysia. Both parties recognize that WDC must
qualify Products for its Programs specifically by process and factory location
in accordance with industry practice.
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3.2.1 Initial Period. To permit a consolidation of WDC's Santa
▇▇▇▇▇ facilities into Komag's manufacturing operations in the most expeditious
manner, (i) WDC and Komag each agree during an initial transition period, not to
exceed [***] months following the Effective Date, to use commercially reasonable
efforts to [***]
3.2.2 Subsequent Period. After the initial transition period
described in Section 3.2.1, (i) WDC and Komag each shall use commercially
reasonable efforts to [***]
3.3 Qualification Samples. The prices for qualification sample Products
during the first three years of the term of this VPA are indicated in Exhibit C.
3.4 Cure of Failure. In the event the parties fail to qualify Products
pursuant to Section 3.1, or to resolve a Stop Ship Order, the parties will use
their best efforts to cure such failure until the midpoint of life of the Active
Program. Thereafter, the parties will be obligated to continue to exert such
efforts only as mutually agreed.
ARTICLE 4: PRODUCT PURCHASE AND SALE COMMITMENTS
4.1 Minimum Purchases and Sales. WDC shall purchase Media from Komag,
and Komag shall sell Media to WDC, in the amounts and for the periods specified
in the following table:
------------------------------------------------------------------------------------------------
PERIOD BEGINNING PERIOD ENDING PURCHASE REQUIREMENTS
------------------------------------------------------------------------------------------------
Effective Date Effective Date plus [***] The lesser of [***] Units and
months [***]% of WDC's Actual Media
Requirements.
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Effective Date plus [***] Effective Date plus [***] The lesser of [***] Units and
months months [***]% of WDC's Actual Media
Requirements.
------------------------------------------------------------------------------------------------
Effective Date plus [***] Effective Date plus [***] The lesser of [***] Units and
months months [***]% of WDC's Actual Media
Requirements.
------------------------------------------------------------------------------------------------
4.2 Actual Media Requirements. For the avoidance of doubt,
4.2.1 "Actual Media Requirements" when used in Section 4.1
includes [***]
4.2.2 "Actual Media Requirements" when used in Section 4.1
does not include [***]
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4.2.3 "Actual Media Requirements" when used in Section 4.1
includes [***]
4.3 Composition of Demand. [***].
4.4 Quarterly Milestones. The Purchase Requirements are annual
requirements. However, without limiting either party's obligations under Section
4.1, WDC shall use commercially reasonable efforts to purchase, and Komag shall
use commercially reasonable efforts to sell to WDC, in each Fiscal Quarter, a
number of Units consistent with WDC's forecast referenced in Section 5.1.
4.5 Additional Demand. WDC may, but will not be obligated to, request
that Komag provide Units in excess of the Purchase Requirements. Purchase Orders
for such additional Units may be issued at any time by WDC, but will be subject
to acceptance by Komag in its sole discretion. Pricing and other terms for such
excess Units shall be separately negotiated and not subject to the Prices and
terms set forth in this VPA.
ARTICLE 5: PURCHASE OF PRODUCTS BY WDC
5.1 Forecasts and Planning Schedules. By the Effective Date, WDC shall
provide to Komag a current written forecast of demand for Products WDC expects
to purchase during the first twelve months of the term of this VPA. Thereafter
during the term of this VPA, on a monthly basis, WDC shall provide an updated
forecast for any quantities of such Product WDC expects to purchase in the
following twelve months. The most recently issued forecast will supersede all
previous forecasts. No less than five Days from receipt of each of the monthly
WDC forecasts, Komag shall confirm supply for a rolling three month period
(current month plus two). During the term of this VPA on a monthly basis, Komag
shall provide to WDC a current written summary of the Product finished goods
inventory ("FGI") intended for WDC. This summary shall list by Komag
manufacturing site and JIT Hub location the amounts and types of FGI being held
by Komag for each of WDC's Programs.
5.2 Issuing Purchase Orders and Pull Requests. WDC shall, at least 30
Days before the beginning of each Fiscal Quarter, submit to Komag a Purchase
Order for such Fiscal Quarter for all Units WDC has forecasted it may require
during such Fiscal Quarter. No less than two Business Days after receipt of each
Purchase Order, Komag shall issue an acknowledgement confirming the quantity and
other terms thereof. WDC shall transmit a Pull Request by facsimile or other
agreed upon means to communicate to Komag, at the applicable JIT Hub, the part
number, quantity and Delivery Date and time of each Product required. WDC's
transmission of a Pull Request is authorization for Komag to ship and invoice
WDC against the Purchase Order for the part numbers and quantities set forth in
the Pull Request. Komag shall deliver Product from the JIT Hub upon receipt of
the Pull Request, in accordance with Lead Times. WDC and Komag shall, prior to
the commencement of each Fiscal Quarter, establish mutually acceptable Lead
Times for Pull Requests, which Lead Times shall in no event exceed eight hours.
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5.3 Komag Production and Inventory. During the term of this VPA, WDC
will be issuing forecasts and Purchase Orders and Komag will be producing FGI to
meet WDC's needs shown in the Purchase Orders. WDC's forecast for a certain
Fiscal Quarter are not commitments by WDC to buy a specific amount of Product in
a specific period of time. Komag will use WDC's forecast for planning of its
production capacity to support WDC. Unless given written authorization by a WDC
Materials manager to make a temporary exception, Komag shall manage and limit
its production of FGI so that on any given date FGI does not exceed WDC's most
current forecasted requirements of FGI for the subsequent four week period (the
"Target FGI"). Komag shall maintain Products in inventory for WDC at locations
close to WDC factories ("JIT Hubs"). Provided WDC has issued a relevant Purchase
Order, Komag shall, promptly after the Effective Date, use commercially
reasonable efforts to establish a level of Product inventory for each Program at
each JIT Hub equal to the JIT Hub Inventory Watermark and to replenish each
reduction requested by WDC from such inventory within four weeks from the date
of such reduction.
5.4 End of Life. WDC shall use commercially reasonable efforts to
notify Komag as soon as possible before the termination of each Program.
5.5 Liability on Cancellation. Subject to WDC's obligations under
Section 4, WDC shall have the right to cancel Purchase Orders for Products
(except the final Purchase Order issued under Section 9.1) , in whole or in
part, placed in accordance with the provisions of this VPA upon written notice
to Komag. WDC's maximum liability to Komag for FGI upon such cancellation shall
be limited to [***].
Notwithstanding the foregoing, during the ramp period of any Product,
not to exceed six weeks, the parties shall first meet and agree on the number
equal to "IW" for the purpose of calculating liability under this Section 5.5
for any cancellation of a Purchase Order which occurs during any portion of such
a ramp period. Komag shall (i) use all commercially reasonable efforts to find a
substitute buyer and mitigate any potential loss; (ii) participate in an audit
of lead time efficiency as reasonably requested by WDC; and (iii) negotiate with
WDC to adjust the above formula for reductions in the lead time to fabricate
Media that are achieved by Komag.
ARTICLE 6: PRICE AND PAYMENT TERMS FOR PRODUCTS
6.1 Product Pricing. The initial Unit Prices WDC will pay for Products
purchased during the first [***] months of the term of this VPA are set forth in
Exhibit B. Commencing with the first [***] after such [***] period, the parties
shall, beginning no later than [***] Days before the beginning of such [***],
negotiate Prices for the Products on a [***] basis (the "Prices"). The parties
shall conclude such negotiations no later than [***] Days before the beginning
of such [***]. Komag shall, no later than [***] Days before the beginning of
each such [***], notify WDC of the agreed-upon Prices applicable to such [***]
by means of a pricing letter. [***] Notwithstanding the foregoing, the parties
agree that the review of such prices and terms shall not require the parties
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6.2 Pricing Disputes. In the event the parties cannot agree upon
pricing as described in Section 6.1, either party may, upon written notice to
the other, submit such dispute to the Chief Executive Officer of Komag; and the
Chief Executive Officer of WDC, or their respective designees, who shall meet to
attempt to resolve the dispute by good faith negotiations. In the event the
parties are unable to come to agreement upon Prices within 5 Days after such
notice is given, either party may proceed with arbitration as follows. The
parties will submit the matter of pricing to binding arbitration in San
Francisco, California, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA"). Each party shall appoint one
arbitrator, and the two arbitrators thus appointed will appoint a third
arbitrator. The parties shall instruct the arbitrators to make a determination
of pricing using the standards set forth in Section 6.1, but in no event outside
of the range of the "bid" and "asked" prices established by the respective
positions of the parties in the last good faith negotiations prior to referral
to arbitration. The parties shall also instruct them to come to a decision
within 20 Days after submission of the dispute to arbitration. During the
pendency of such arbitration, the Prices in effect immediately before the
arbitration shall remain in effect. If a price change is awarded, the party, if
any, which owes a balance shall pay such balance; and in the event such party
fails to pay such balance within ten Days after the date of the award, interest
will accrue beginning ten Days after the date of the award, at the maximum rate
permitted by law in California. Each party shall bear its own arbitration costs
and expenses; provided, however, that the arbitrators may modify the allocation
of fees, costs and expenses in the award in those cases where fairness dictates
other than each party bearing its own fees, costs and expenses. The award shall
be final and binding on the parties, and judgment on the award may be entered in
and enforced by any court of competent jurisdiction.
6.3 Taxes and Duties. Unless otherwise specifically provided herein,
the amount of any present or future sales, revenue, excise or other tax
applicable to the Products, will be added to the Price and will be paid by WDC,
or in lieu thereof WDC shall provide Komag with a tax exemption certificate
acceptable to the taxing authorities. In the event Komag is required to pay any
such tax, fee, or charge, at the time of sale or thereafter, WDC shall reimburse
Komag therefor. Notwithstanding the foregoing, WDC will not be responsible for
any taxes on Komag's income.
6.4 Tax Minimization. The parties acknowledge that Komag's Malaysian
manufacturing operations, including the tax holiday status of such operations,
provide a path to the industry's lowest cost structure. To ensure that both
parties derive benefit from this advantageous manufacturing location, the
parties shall adopt business practices (e.g. sales terms, title passage,
importer of record, and warehousing practices) that maximize the benefits of
Komag's tax holiday position in Malaysia to the extent not inconsistent with
WDC's reasonable business objectives.
6.5 Payment Terms. For shipments through Komag's designated JIT Hub,
Komag shall invoice WDC upon delivery of Product to the receiving dock of WDC's
manufacturing locations in Malaysia and Singapore. For shipments direct to WDC,
Komag will invoice upon shipment. Terms for payment of all invoices will be net
[***] Days from date of invoice. In the event payment is not received by Komag
within such period, Komag shall notify WDC and WDC shall make prompt
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payment of the amount due. WDC will be liable for interest on any overdue
payment under any such invoice, up to the maximum legal rate in California.
Notwithstanding the foregoing, payment terms shall be payment in advance in the
event of the bankruptcy or insolvency of WDC or in the event any proceeding is
brought (a) voluntarily by WDC under the bankruptcy or insolvency laws; or (b)
involuntarily against WDC under the bankruptcy or insolvency laws, and not
dismissed within 90 Days.
6.6 Late Payments. If (a) WDC's account with Komag is past due in any
amount, by more than [***] Days; (b) WDC does not make payment in advance as
required under Section 6.5; or (c) if WDC's account with Komag is past due in
any amount in excess of the greater of (i) $[***]; and (ii) [***]% of WDC's
total accounts receivable balance under this Agreement; by more than [***] Days;
then Komag may discontinue shipping Products upon [***] Days' advance written
notice to WDC and opportunity for WDC to cure within such [***]-Day period.
Units that Komag does not ship in accordance with this Section 6.6 shall not
count towards the Units purchased by WDC to fulfill its Purchase Requirements,
until such Units are shipped by Komag. The parties agree that a senior officer
designated by each party will meet to resolve any issues relating to overdue
amounts.
ARTICLE 7: SHIPMENT AND DELIVERY OF PRODUCTS
7.1 Shipment of Product. Except as otherwise specified with respect to
direct shipments under Section 6.5, Delivery will be made DDU (i.e., the ICC
standard shipping term for delivery duty unpaid), and liability for loss or
damage to Products will pass to WDC upon Komag's delivery of the Products to
WDC. As between the parties, Komag will bear the cost for insurance relating to
delivery of the Products. For deliveries within Malaysia or Singapore, Western
Digital Malaysia SDN. BHD. or Western Digital (Singapore Pte. Ltd.),
respectively, will be the "importer of record" for GST purposes. The Products
shall be delivered to WDC from a Komag JIT Hub to a WDC factory. Komag may
deliver the Products in installments subject to Section 5.2. Unless otherwise
agreed, all Products will be packaged, and packed in accordance with Komag's
normal practices. All Product packages shall be labeled in accordance with
applicable customs regulations. Komag may ship, determine freight forwarder, and
provide delivery support by the method it deems most advantageous. WDC shall
ensure that the freight forwarder selected by Komag may use WDC's
"Manufacturer's Export Status" for shipments on behalf of WDC to Singapore, so
long as the parties mutually agree. Transportation charges are included in the
Unit Price. Komag shall deliver, upon request from WDC, appropriate import
certificates for duties paid on Media purchased from Komag, imported by Komag
into the United States and delivered to WDC in the United States.
7.2 On Time Delivery. Komag shall use commercially reasonable efforts
to maintain 100% on-time delivery of each Pull Request from a JIT Hub.
7.3 Late Delivery. Komag shall notify WDC immediately if for any reason
Komag fails to comply or anticipates that it may fail to comply with the terms
of a Pull Request (including, but not limited to, failure to meet a Delivery
Date or delivery of less than the ordered Units). In the event of
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a late delivery, the parties will cooperate in good faith to minimize the
disruption caused to WDC by such late delivery.
7.4 Export Regulations. WDC and Komag shall comply with all export
control laws and regulations applicable to the export or reexport of Products or
any related technology. The party undertaking such export or reexport shall be
responsible for obtaining any required documents, authorizations and approvals
prior to any such export or reexport.
ARTICLE 8: WARRANTIES AND INTELLECTUAL PROPERTY INFRINGEMENT
8.1 WDC General Warranties. WDC has the corporate power and authority
to own its properties and to carry on its business as now being conducted and as
contemplated to be conducted. WDC is duly qualified to do business and in good
standing as a foreign corporation under the laws of each jurisdiction in which
the failure to be so qualified would have a material adverse effect on WDC.
8.2 Product Limited Warranty. Komag's warranty for Products under this
Agreement, and the remedies for breach of such warranty, will be as set forth in
Exhibit D.
8.3 Disclaimer. THE WARRANTIES AND OBLIGATIONS OF THIS SECTION 8 AND
EXHIBIT D WILL BE EXCLUSIVE AND IN LIEU OF ANY AND ALL OTHER WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGMENT, ALL OF
WHICH ARE HEREBY EXPRESSLY DISCLAIMED.
8.4 Infringement Indemnity
8.4.1 Indemnification. Komag shall defend any claim, suit or
proceeding brought against WDC to the extent such suit or proceeding is based on
a claim that any Product furnished hereunder, alone and not in combination with
any other product, constitutes an infringement of any U.S. patent or U.S.
copyright, provided WDC gives Komag prompt notice of any such claim, suit or
proceeding, in writing and authorizes Komag to settle or defend any such claim,
suit or proceeding and assists Komag in so doing (at Komag's expense) upon
request by Komag. Komag shall pay WDC's reasonable attorneys fees and all
damages and costs awarded against WDC arising out of such claim, suit or
proceeding.
8.4.2 Limited Remedies. If the use of a Product is enjoined,
Komag shall, in its sole discretion and at its own expense, either (a) procure
for WDC the right to continue using such Product; (b) replace same with a
noninfringing product; (c) modify the Product so that it becomes noninfringing;
or (d) if Komag is unable to reasonably do any of the above, refund the Price
for such Product.
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8.4.3 Exclusions. Komag shall not be liable for, and WDC shall
indemnify, defend and hold Komag harmless from, any expenses, damages, costs or
losses resulting from any suit or proceeding based upon a claim arising from (a)
compliance with WDC's designs, specifications, or instructions; (b) a
modification of the Product by a party other than Komag; (c) the use of any
Product or part thereof furnished hereunder in combination with any other
product;; or (d) intellectual property infringements to the extent arising out
of the use of the Acquired Assets (as such term is defined under the Asset
Purchase Agreement), or any technology or intellectual property licensed or
otherwise provided to Komag in connection with the Acquired Assets under the
Asset Purchase Agreement, if such infringements would not have arisen using the
assets, technology and intellectual property used by Komag prior to the
Effective Date. WDC shall pay Komag's reasonable attorneys fees and all damages
and costs awarded against Komag arising out of such claim, suit or proceeding.
8.4.4 License. Sale of any Product or any part thereof by
Komag does not confer upon WDC any license under any patent rights or
copyrights.
8.4.5 SOLE LIABILITY. THIS PROVISION 8.4 IS IN LIEU OF ALL
OTHER EXPRESS, IMPLIED OR STATUTORY WARRANTIES AGAINST INFRINGEMENT AND WILL BE
THE SOLE AND EXCLUSIVE REMEDY FOR INTELLECTUAL PROPERTY INFRINGEMENT OF ANY
KIND. IN NO EVENT SHALL KOMAG'S TOTAL LIABILITY FOR SUCH INFRINGEMENT EXCEED THE
AGGREGATE SUM PAID BY WDC FOR THE ALLEGEDLY INFRINGING PRODUCTS.
ARTICLE 9: TERM AND TERMINATION
9.1 Term. This VPA will continue in force for an initial term of three
years after the Effective Date, and will terminate at the end of such initial
term unless otherwise agreed by the Parties in writing. In the event WDC does
not wish to renew the term of this Agreement after such initial term, WDC shall
notify Komag no later than 30 Days before the beginning of the final Fiscal
Quarter of such initial term, and issue to Komag a binding final Purchase Order
for such Fiscal Quarter.
9.2 Termination for Cause. Either party may terminate this VPA in the
event of a Material Default of this VPA by the other party, upon notice to such
other party, which notice must describe the reason for such termination and must
specify the termination date, which termination date must be no earlier than 5
Days after the date of such notice. The parties acknowledge that neither party
will have the right to terminate this Agreement due to any breach of this
Agreement other than a Material Default; and in the case of such other breach,
subject to Sections 10.2 and 11.6, the non-breaching party's only remedy under
this Agreement will be an action for damages.
9.3 Termination for Insolvency. This VPA may be terminated by either
party by notice to the other party upon (i) the commencement by the other party
of a voluntary or involuntary
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proceeding under any federal, state, provincial or foreign bankruptcy law or
similar law which is not dismissed within 90 Days; (ii) the appointment for the
other party of a receiver, trustee or similar official or a general assignment
for the benefit of such party's creditors; (iii) the winding up or liquidation
of the other party; or (iv) a party becomes unable to pay its debts either
because it is subject to a Suspension of Payments order, bankruptcy, or other
insolvency proceeding. In the case of (i) to (iv) above, termination may also be
effected by serving notice on the liquidator, administrator, or receiver, as the
case may be.
9.4 Rights Upon Termination. Upon termination, Komag shall complete and
WDC shall pay for all Products in accordance with Section 6.5 and Komag shall
continue to perform its obligations with respect to Replacement Products under
Exhibit D. Komag and WDC shall cooperate to perform an orderly Disentanglement
following termination.
9.5 Survival. The following provisions will survive the termination or
expiration of this VPA: Articles 1, 2, 8, 9.4, 10, 11, and 12, as well as any
obligations arising before the effective date of termination or expiration.
ARTICLE 10: LIMITATION OF LIABILITY
10.1 Limitation of Liability. EXCEPT FOR ARTICLE 11 (CONFIDENTIALITY),
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INDIRECT,
INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES EVEN IF ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
10.2 Performance. Notwithstanding the foregoing, in light of the fact
each of the parties entered into the Asset Purchase Agreement and this VPA in
reliance on the full and faithful performance by the other party of its
obligations (including but not limited to purchase and sale obligations)
hereunder, the parties agree that damages would be an inadequate compensation
for the breach by the parties of such obligations and accordingly, upon any such
breach, in addition to monetary damages, a party shall be entitled to obtain an
order for specific performance of such obligations at any court having
jurisdiction over the other party.
10.3 Year 2000 Liability. Except for WDC's right to purchase from other
suppliers as provided under Section 4.3, in no event shall Komag have any
liability for any failure to provide Products hereunder prior to July 1, 2000,
if such failure is attributable to the failure of any Acquired Assets (as such
term is defined in the Asset Purchase Agreement) to be year 2000 compliant.
ARTICLE 11: CONFIDENTIALITY
11.1 "Confidential Information" means any information disclosed by one
party (the "Disclosing Party") to the other (the "Receiving Party") in relation
to this VPA, which, if in written, graphic, machine-readable or other tangible
form is marked as "Confidential" or "Proprietary," or which, if disclosed orally
or by demonstration, is identified at the time of initial
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disclosure as confidential and reduced to a writing marked "Confidential" and
delivered to the Receiving Party within 30 Days of such disclosure.
11.2 Exclusions. Notwithstanding Section 11.1, Confidential Information
will exclude information that the Receiving Party can demonstrate:
11.2.1 was independently developed by the Receiving Party
without any use of the Disclosing Party's Confidential Information or by the
Receiving Party's employees or other agents (or independent contractors hired by
the Receiving Party) who have not been exposed to the Disclosing Party's
Confidential Information;
11.2.2 becomes known to the Receiving Party, without
restriction, from a source other than the Disclosing Party without breach of
this VPA and that had a right to disclose it;
11.2.3 was in the public domain at the time it was disclosed
or becomes in the public domain through no act or omission of the Receiving
Party; or
11.2.4 was rightfully known to the Receiving Party, without
restriction, at the time of disclosure.
11.3 Compelled Disclosure. If a Receiving Party believes that it will
be compelled by a court or other authority to disclose Confidential Information
of the Disclosing Party, it shall give the Disclosing Party prompt written
notice so that the Disclosing Party may take steps to oppose such disclosure,
and the Receiving Party shall assist in opposing such disclosure at the
Disclosing Party's expense.
11.4 Confidentiality Obligation. During the term of this VPA and for a
period of five years thereafter, the Receiving Party shall keep such
Confidential Information in strict confidence and shall not disclose such
Confidential Information to any third party without prior written consent of the
Disclosing Party.
11.5 Confidentiality of Agreement. Each party agrees that the terms and
conditions, but not the existence, of this VPA will be treated as the other's
Confidential Information and that no reference to the terms and conditions of
this VPA or to activities pertaining thereto can be made in any form of public
or commercial advertising without the prior written consent of the other party;
provided, however, that each party may disclose the terms and conditions of this
VPA: (i) subject to the provisions of Section 11.3 as required by any court or
other governmental body; (ii) as otherwise required by law; (iii) to legal
counsel of the parties; (iv) in connection with the requirements of a public
offering, secondary offering, debt offering, or securities filing of the
parties, or otherwise as obligated by law; (v) in confidence, to accountants,
banks, and financing sources and their advisors; or (vi) in confidence, in
connection with the enforcement of this VPA or rights under this VPA.
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11.6 Remedies. Unauthorized use by a party of the other party's
Confidential Information will diminish the value of such information. Therefore,
if a party breaches any of its obligations with respect to confidentiality or
use of Confidential Information hereunder, the other party will be entitled to
seek equitable relief to protect its interest therein, including injunctive
relief, as well as money damages.
11.7 Non-disclosure Agreements. Each party shall obtain the execution
of proprietary nondisclosure agreements with its Affiliates, including but not
limited to the party's and/or Affiliates' respective agents and consultants
having access to Confidential Information of the other party, shall diligently
enforce such agreements with respect to the Confidential Information, and shall
exercise due care to control the actions of such Affiliates, employees, agents
and consultants in this respect so long as they have a working relationship with
the party obligated hereunder to obtain such nondisclosure agreements.
ARTICLE 12: GENERAL
12.1 Governing Law and Jurisdiction. This VPA will be interpreted, and
the rights and liabilities of the parties hereto determined, in accordance with
the laws of the State of California applicable to agreements executed, delivered
and performed within such State, without regard to the principles of conflicts
of laws thereof. Each of the parties hereby consents to the jurisdiction of any
state or federal court located within the county of Santa ▇▇▇▇▇ in the State of
California (except for resolution of pricing disputes as described in Section
6.2), and each of the parties hereby: (i) waives any objection to venue of any
action instituted under this VPA, and (ii) consents to the granting of such
legal or equitable relief as is deemed appropriate by any aforementioned court.
12.2 Force Majeure. A defaulting party shall provide the nondefaulting
party immediate notice of any anticipated delay or failure of compliance due to
a Force Majeure Event; provided, however, that any such act will not relieve the
defaulting party's obligations hereunder.
12.3 Trademarks. Nothing in this VPA gives either party a right to use
the other party's name, trademark(s), or trade name(s), directly or indirectly,
without the other party's prior written consent, except as may be required by
applicable law or court order. In such a case, the party required to disclose
such information shall provide prompt notice of such requirement in order that
the other party may seek appropriate protective orders.
12.4 Assignment. Except as set forth in this Section 12.4, neither this
Agreement, nor any of the rights or obligations hereunder, may be assigned,
transferred, subcontracted or delegated by a party hereto to any third party,
including without limitation, by operation of law or pursuant to a Change of
Control (as defined below). Notwithstanding the foregoing, (a) Komag may assign
this Agreement, and the rights and obligations hereunder, without the prior
consent of WDC, in connection with a Change of Control, except to a Prohibited
Assignee (as defined below); (b) Komag may assign all or part of this Agreement,
or the rights and obligations hereunder, without
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the prior consent of WDC, to Komag USA (Malaysia) SDN; and (c) WDC may assign
this Agreement, and the rights and obligations hereunder, without the prior
consent of Komag, to a third party in connection with a Change of Control; so
long as WDC assigns all obligations under this Agreement to any party that
succeeds to all or substantially all of WDC's disk drive production business.
For purposes of this Section 12.4, "Change of Control" shall mean (i) any sale,
lease, exchange or other transfer (in one transaction or series of transactions)
of all, or substantially all, of the assets of such party, (ii) any
consolidation or merger or other combination of a party in which such party is
not the continuing or surviving corporation or pursuant to which shares of such
party's common stock would be converted into cash, securities or other property
(other than a merger of such party in which the holders of such party's common
stock immediately prior to the merger hold at least a majority of the
outstanding securities of the combined entity), or (iii) any transaction (or
series of related transactions) pursuant to which any person (as defined in
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of [***]% or more of such party's outstanding
common stock. For purposes of this Section 12.4, "Prohibited Assignee" shall
mean any third party who (x) [***] Any purported assignment of this VPA or the
rights or obligations of a party under this VPA in violation of this Section
12.4 shall be null, void and of no further force or effect and shall constitute
a Material Default.
12.5 Severability. If any of the provisions of this VPA are held by a
court or other tribunal of competent jurisdiction to be unenforceable, the
remaining portions of this VPA will remain in full force and effect.
12.6 Failure to Enforce. The failure of either party to enforce at any
time or for any period of time the provisions of this VPA will not be construed
to be a waiver of such provisions or of the right of such party to enforce each
and every provision of this VPA in the future.
12.7 Agency. This VPA does not create a principal to agent, employer to
employee, partnership, joint venture, or any other relationship except that of
independent contractors between Komag and WDC.
12.8 Request in Writing. All requests such as Pull Requests,
acceptances/rejections, notices, must be made or confirmed in writing. Such
writings must take the form of electronic mail (receipt confirmed), facsimile
(receipt-confirmed) and/or posted letter (return-receipt).
12.9 Counterparts. This VPA may be executed in one or more
counterparts, each of which will be deemed to be an original, but all of which
will be considered one and the same instrument.
12.10 Notices. Except as otherwise provided herein, all notices
hereunder will be deemed given if (a) in writing and delivered personally; or
(b) sent by facsimile transmission that is
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confirmed by return facsimile or e-mail; to the parties at the following
addresses (or at such other addresses as will be specified by like notice):
(i) if to WDC, to:
Western Digital Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, VP, Law & Administration,
Secretary
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Komag to:
Komag, Incorporated
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Fax No.: ▇▇▇ ▇▇▇-▇▇▇▇
Any notice given by mail will be effective when received. Any notice given by
electronic mail or facsimile transmission will be effective when the appropriate
electronic mail or facsimile transmission acknowledgment is received.
12.11 Amendments. This VPA may only be amended in writing signed by
authorized representatives of each of the parties. To be effective, such
amendments must specifically reference this VPA.
12.12 Complete Agreement. This VPA, Exhibits, and specific Purchase
Orders and Pull Requests set forth the complete agreement between the parties
regarding their subject matter and replace all prior or contemporaneous
communications, understandings or agreements, written or oral, about this
subject.
12.13 Performance During Pendency of Disputes. If a dispute arises
between the parties, regardless of whether such dispute requires the use of the
arbitration procedures described in Section 6.2, subject to the terms and
conditions of this Agreement, (a) in no event nor for any reason shall Komag
interrupt the provision of Products to WDC, delay manufacture or delivery of
Products or perform any other action that prevents, slows down, or reduces in
any way the provision of Products or WDC's ability to conduct its business; and
(b) each party shall continue to perform its obligations under this Agreement,
unless: (x) authority to do so has been granted by the other party or conferred
by a court of competent jurisdiction; or (y) this Agreement has been terminated
pursuant to Section 9.2 or 9.3 and a Disentanglement has occurred.
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IN WITNESS WHEREOF, the parties have caused this VPA to be signed and
accepted by their duly authorized representatives, effective as of the Effective
Date.
Western Digital Corporation, Komag, Incorporated,
a Delaware corporation. a Delaware corporation
___________________________ ___________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
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EXHIBIT A
WDC FISCAL QUARTERS
FY'99
MONTH Start Date End Date Weeks in Qtr.
-----------------------------------------------------------------
Q4 14
April 03/28/99 04/24/99 4
May 04/25/99 05/29/99 5
June 05/30/99 07/03/99 5
FY'00
MONTH Start Date End Date Weeks in Qtr.
-----------------------------------------------------------------
Q1 13
July 07/04/99 07/31/99 4
August 08/01/99 08/28/99 4
September 08/29/99 10/02/99 5
Q2 13
October 10/03/99 10/30/99 4
November 10/31/99 11/27/99 4
December 11/28/99 01/01/00 5
Q3 13
January 01/02/00 01/29/00 4
February 01/30/00 02/26/00 4
March 02/27/00 04/01/00 5
Q4 13
April 04/02/00 04/29/00 4
May 04/30/00 05/27/00 4
June 05/28/00 07/01/00 5
FY'01
MONTH Start Date End Date Weeks in Qtr.
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Q1 13
July 07/02/00 07/29/00 4
August 07/30/00 08/26/00 4
September 08/27/00 09/30/00 5
Q2 13
October 10/01/00 10/28/00 4
November 10/29/00 11/25/00 4
December 11/26/00 12/30/00 5
Q3 13
January 12/31/00 01/27/01 4
February 01/28/01 02/24/01 4
March 02/25/01 03/31/01 5
Q4 13
April 04/01/01 04/28/01 4
May 04/29/01 05/26/01 4
June 05/27/01 06/30/01 5
FY'02
MONTH Start Date End Date Weeks in Qtr.
-----------------------------------------------------------------
Q1 13
July 07/01/01 07/28/01 4
August 07/29/01 08/25/01 4
September 08/26/01 09/29/01 5
Q2 13
October 09/30/01 10/27/01 4
November 10/28/01 11/24/01 4
December 11/25/01 12/29/01 5
Q3 13
January 12/30/01 01/26/02 4
February 01/27/02 02/23/02 4
March 02/24/02 03/30/02 5
Q4 13
April 03/31/02 04/27/02 4
May 04/28/02 05/25/02 4
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June 05/26/02 06/29/02 5
Note: WDC's fiscal year is reported in a 52/53-week period and will
end on the Saturday closest to June 30. Each fiscal year will
be divided into four quarters. Each quarter will consist of
three months, the first and second of which will be four weeks
long and the last, five weeks. Each week will begin on Sunday
and end on Saturday.
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EXHIBIT B
Initial Unit Prices
WD Fiscal Quarter:
Fiscal Quarter ending [***] Fiscal Quarter Ending [***]
Double Sided Disks ("DSD"):
[***]
Single Sided
[***]
Notes:
1. Above prices are based on WDC specification and Komag specification reviews
that exist as of 3/5/99.
2. The above prices are dependent on terms listed herein.
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EXHIBIT C
Prices for Qualification Sample Products
Year 1999 2000 2001
[***] [***] [***] [***]
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EXHIBIT D
SUPPLIER WARRANTY AND REPLACEMENT PRODUCT TERMS
This Exhibit D sets forth the terms of warranty for Products sold by Komag to
WDC under the VPA. Further, this Exhibit D sets forth certain of the terms for
Komag's supply to WDC of Products used by WDC to replace Product which may have
failed, or which may be required due to failure of WDC disk drives, or
Components of WDC's disk drives other than the Products. All terms not defined
in this Exhibit D will have the meaning assigned them in the VPA. The terms and
conditions of this Exhibit D will supersede any conflicting terms in the VPA,
but only with respect to Replacement Products.
ARTICLE I: DEFINITIONS
1.1 "Replacement Product" means a Unit ordered by WDC, to replace
another Unit, which is identical to the Unit being replaced in design, process,
and location, and either (a) due to a defect in manufacture or workmanship, did
not, at the time of delivery to WDC, conform to the Specifications in effect at
the time the Purchase Order for such Unit was issued; or (b) due to any other
cause, including without limitation a failure of or damage by WDC disk drives or
any Components thereof, fails or no longer conforms to the Specifications in
effect at the time the Purchase Order for such Unit was issued.
1.2 "End of Life" of a WDC Program means the earlier of (a) the
beginning of the first of two sequential Fiscal Quarters when WDC discontinues
high volume purchasing of a Product for such Program, where high volume is
defined as greater than [***] Units per Fiscal Quarter; or (b) when WDC first
begins to purchase a Product used in such Program primarily for disk drive
repair purposes.
1.3 "Replacement Product Period" means the relevant Replacement Product
Period as set forth in Section 3.3.
ARTICLE II: LIMITED WARRANTY
2.1 Limited Warranty. Komag warrants that during the period of one year
after the WDC disk drive build date (but in no event later than 15 Days after
the date of Komag's invoice) for a Unit of a Product ("Warranty Term"), each
such Unit shall (a) be new and conform to the Specifications in effect at the
time the Purchase Order for such Unit is issued; and (b) be free from defects in
materials, workmanship and title under normal use and operation (the "Limited
Warranty"). WDC's sole remedy for a breach of the foregoing warranty will be
limited to Komag issuing a credit to WDC in accordance with the terms set forth
in Section 3.8. OTHER THAN AS SET FORTH IN THIS SECTION 2.1, KOMAG DISCLAIMS ANY
WARRANTY, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
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PURPOSE. THE WARRANTY IN THIS SECTION 2.1 NEITHER ASSUMES NOR AUTHORIZES ANY
OTHER PERSON TO ASSUME FOR KOMAG ANY OTHER LIABILITIES IN CONNECTION WITH THE
SALE OF THE PRODUCTS. The aforesaid warranty and WDC's remedies thereunder are
solely for the benefit of WDC and its subsidiaries and will not be extended or
construed to extend to any other entity whatsoever.
2.2 Limitation of Liability. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION
5.2 OF THIS EXHIBIT D, INDEPENDENTLY OF ANY OTHER REMEDY LIMITATION HEREOF AND
NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY SUCH LIMITED REMEDY,
KOMAG WILL NOT BE LIABLE FOR ANY LIABILITY UNDER THIS EXHIBIT D, INCLUDING
WITHOUT LIMITATION LOST PROFITS, COST OF PROCUREMENT OF SUBSTITUTE GOODS OR FOR
ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING WITHOUT
LIMITATION LOSS OF DATA HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY
RESULTING FROM THIS EXHIBIT D OR FROM THE USE OF THE PRODUCTS IN ANY MANNER, AND
WHETHER OR NOT KOMAG HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
2.3 Warranty Procedure. The parties agree to use the process described
in the Warranty Verification and Disposition flow chart set forth in Attachment
1 to manage and dispose of the Products returned to WDC under warranty.
ARTICLE III: REPLACEMENT PRODUCTS
3.1 Prices. On a quarterly basis, the parties shall agree to
Replacement Product prices for the upcoming Fiscal Quarter, within the
parameters set forth in Attachment 2 hereto.
3.2 Procedure for Returns. WDC shall return or destroy, according to
Komag's instruction, all Units for which WDC seeks replacement by Komag, whether
or not such Units are covered by the Limited Warranty. Komag shall issue an RMA
for all Units WDC wishes to return.
3.3 Replacement Product Period. During the Replacement Product Period
for each Product, Komag shall make available Replacement Products to WDC under
the terms of this Exhibit D. The Replacement Product Periods for the Products
and Programs listed on Attachment 2 will be as indicated therein. For any
Products or Programs whose Replacement Product Period is not listed therein,
Komag shall provide Replacement Products for two years following the End of Life
of the applicable Program. Notwithstanding the foregoing, (a) upon the occasion
of a major process change, or a change that requires Komag to maintain a set of
equipment which is not being used for volume production of other Komag products;
or (b) if Komag intends to discontinue operation of a factory or production line
for such Product or Program; then (w) Komag shall notify WDC as soon in advance
as reasonably practical; (x) the parties shall meet
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and agree on a one-time, firm, non-cancelable purchase order for such
Replacement Products; (y) notwithstanding the provisions of Section 4.2 of this
Exhibit D, such purchase order may be for less than the minimum of Units
required in Section 4.2 of this Exhibit D, but the maximum prices and maximum
price increases of Attachment 2 will nevertheless apply; and (z) WDC shall
purchase all the Units ordered thereunder within an agreed-upon period of time.
Thereafter, Komag shall have no obligation to supply such Replacement Products.
The parties acknowledge that for the Products listed in Attachment 2, there may
be occasions which, due to material changes in Komag's production process (such
as the shift from Tucson / Phase 0 to ▇▇▇▇▇▇▇▇ / ILE; or aluminum substrate to
glass substrate) may require a change in the Replacement Product Period, and if
so, the parties shall negotiate in good faith a Replacement Product Period that
reflects such material change.
3.4 Tracking. The parties acknowledge that pursuant to the Asset
Purchase Agreement, at Closing (as such term is defined in the Asset Purchase
Agreement), Komag will take over from WDC production of certain Product
inventory and WIP. On or before Closing, WDC shall develop a method to track
Media made by those processes used by WDC at its "Santa ▇▇▇▇▇ Media Operation"
prior to the Closing ("WDC Processes"), sufficient to differentiate between
Media made by the WDC Processes prior to Closing (such units, "Santa ▇▇▇▇▇
Pre-Closing Units") and Product made by the WDC Processes after Closing. Such
method will include [***] Until WDC establishes such method of tracking, all
Units that Komag and WDC reasonably determine are made using WDC Processes will
be deemed Santa ▇▇▇▇▇ Pre-Closing Units.
3.5 Supply of Replacement Product for Santa ▇▇▇▇▇ Pre-Closing Units.
For Santa ▇▇▇▇▇ Pre-Closing Units of Products included in Attachment 2, Komag
will supply Replacement Product as indicated therein. The terms of this Exhibit
D with respect to forecasting, placement of purchase orders and pricing will
apply to such Replacement Product. Notwithstanding the foregoing, nothing in
this VPA shall require Komag to supply the following Products to WDC: [***].
3.6 Calculating the Percentage of WDC Liability. The parties
acknowledge that Units may not conform to the Specifications due to various
causes, including without limitation (a) defects covered by the Limited Warranty
and occurring within the Warranty Term; (b) damage to such Units caused by WDC
disk drives or by Components thereof other than the Products; and (c) defects or
damage not occurring within the Warranty Term. For Units that do not conform to
the Specifications, for whatever reason, during the Replacement Product Term,
WDC shall provide reasonably sufficient data on Units that are removed from
failed drives to assess (x) cause of failure and (y) whether the Units are
within the Warranty Term. By mutual engineering analysis of such data, WDC and
Komag shall agree on the percentage of WDC's liability ("%BL") for such
failures. Such determination will be based on a percentage equal to the number
of Units of a Product that fail, due to all causes other than failure of the
Units to conform to the Limited Warranty during the Warranty Term, divided by
the total Units of a Product that fail. %BL will be determined for each Program
through the use of the Media Warranty Verification and Disposition Process
specified in Attachment 1. Any Unit that is
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modified, misused, or damaged after delivery of such Unit to WDC will be
included in the numerator of fraction that determines the %BL.
3.7 Pricing for Replacement Product. Prices for Replacement Products
("Base Line Price" or "BP"), whether such Products are subject to the Limited
Warranty or not, will be [***].
3.8 Credit Value. The credit value ("CV") will be calculated for each
Product and Program as shown below. [***]
3.9 Issuance of Credit Voucher. No later than seven days after the end
of each month, Komag shall issue to WDC a credit voucher in the amount of the CV
for Units returned during such month.
ARTICLE IV: FORECASTING, PURCHASE ORDERS AND FULFILLMENT
4.1 Replacement Product Forecast. Each month commencing on the
Effective Date, for each Product, WDC shall provide Komag with a forecast of
WDC's requirements for each Replacement Product during the Replacement Product
Period, which forecast must be based on an estimated failure rate for the
relevant Product. WDC's Replacement Product forecast will include weekly
requirements for the first 13 weeks, monthly requirements for the 14th to 26th
weeks, and Fiscal Quarterly requirements for the balance of the Replacement
Product Period. This Replacement Product forecast does not constitute a purchase
order. Within five Business Days of receiving WDC's forecast, Komag shall
provide feedback to WDC to support or challenge the validity of the forecast,
including a tentative delivery schedule.
4.2 Purchase Orders. WDC shall, no later than 60 Days before the
beginning of each Fiscal Quarter, submit to Komag a firm, non-cancelable
purchase order for Replacement Products for such Fiscal Quarter. Komag will not
be obligated to supply Units of Replacement Products ordered for each Program by
WDC for any Fiscal Quarter, in excess of 25% over the Units of Replacement
Products forecasted by WDC for such Program for such Replacement Product for
such Fiscal Quarter, but Komag shall use commercially reasonable efforts to
supply such Replacement Products. Except as otherwise expressly provided herein,
each purchase order for a particular Product shall be for at least (a) [***]
Units for Products made using in-line sputtering; and (b) [***] for Products
made using static sputtering. Except as otherwise provided in Section 3.3
following Komag's notice as required therein, in the event that WDC desires to
place an order for a last-time buy of fewer than such number of Units, the
parties shall first agree to an appropriate Price for such purchase order, which
Price shall not be limited by the maximum percentage price increases and maximum
prices set forth in Attachment 2.
4.3 Liability Limitation. WDC's liability for cancellation of purchase
orders for Replacement Products shall not exceed the quantities and Prices
specified in the applicable purchase order.
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ARTICLE V: DELIVERY OBLIGATIONS
5.1 Komag Failure Analysis Obligations. Komag shall use commercially
reasonable efforts to ensure that Komag is capable of executing failure analysis
for Products corresponding to the relevant Replacement Products during the
Replacement Product Period.
5.2 [***]
5.3 Increased Forecasts. If WDC's Replacement Product requirements
forecasted under Section 4.1 of this Exhibit D for a Fiscal Quarter increases by
more than [***]% from the previous Fiscal Quarter's forecast, then [***]
5.4 [***] Exception. Section 5.2 of this Exhibit D will apply to the
[***] Program for only so long as WDC places purchase orders for and purchases
[***] Units or more of Replacement Product for the [***] in each Fiscal Quarter.
In the event that WDC does not do so, Komag will notify WDC that WDC may make a
last-time buy and will not be obligated to reimburse WDC under Section 5.2 of
this Exhibit D for forecasts based on sales of disk drives in the [***] for any
cost in or after the first Fiscal Quarter in which WDC fails to do so. In the
event that WDC desires to place an order for a last-time buy of fewer than [***]
of such Units, the parties shall first agree to an appropriate Price for such
purchase order, which Price shall not be limited by the maximum percentage price
increases and maximum prices set forth in Attachment 2.
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ATTACHMENT 1
Warranty verification and disposition flow chart
[***]
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ATTACHMENT 2
Media-Pricing Table
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Program Price at Start of Maximum % Start of Replacement Product Period Maximum Price
End of Life Period Price Increase End of Replacement Product Period During
per Fiscal Replacement
Quarter Product Period
---------------- -------------------- ---------------- ----------------------------------------------- -------------------
[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***] [***] [***] [***] [***] [***]
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[***]
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