exv10w37



 





EXHIBIT 10.37




****Certain confidential information contained in this document, marked by brackets, has been
omitted and filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.



ESS-SILAN DVD TECHNOLOGY LICENSE AGREEMENT




THIS LICENSE AGREEMENT (the “Agreement”), effective as of November 3, 2006 (the “Effective Date”),
is entered into by and between ESS Technology, Inc., a California corporation having its principal
place of business at 48401 Fremont Blvd., Fremont, California 94538, U.S.A. (“ESS”), and Hangzhou
Silan Microelectronics Co., Ltd., having its principal place of business at No. 4 Huang Gu Shan
Road, Post Code 310012, Hang-Zhou, P.R. China (“Silan”).



RECITALS




     WHEREAS the parties desire that Silan license, distribute and sell DVD products incorporating
certain ESS technology.



     WHEREAS the parties desire that Silan obtain from ESS the right to use certain ESS technology
for the following purposes; the parties desire that Silan be authorized to distribute and sell DVD
products incorporating certain ESS technology; and the parties desire that ESS authorizes Silan to
use the DVD technology to do research, development and sell Silan’s own products.



     WHEREAS this Agreement is subject to the approval of the ESS Board of Directors and the
signature pages shall not be deemed delivered by the parties and this Agreement shall not be
binding on the parties until such Board approval has been obtained and ESS has released the
parties’ respective executed signature pages from escrow and delivered them to Silan following such
Board approval (such Board approval is referred to herein as the “Condition Precedent” and
is anticipated to occur on or about November 3, 2006).



AGREEMENT




     NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, the
sufficiency of which is acknowledged by the parties, the parties agree as follows (subject to the
Condition Precedent):




	1.	 	Definitions
	 
	1.1	 	“ESS DVD Technology” means all hardware and software intellectual property in DVD products
owned by ESS. Hardware intellectual properties include ESS design methodology, chip
architecture, and functional blocks, including but not limited to Servo,
Video encoder, MPEG1/2/4 decoder, USB, JPEG, CPU, DSP, PWM, Audio DAC, Video DAC, etc.
Software intellectual properties include but are not limited to firmware in CPU





 1




 









 






	 	 	and DSP, application software, GUI, OSD, etc. ESS DVD Technology deliverables are as per Exhibit
3.
	 
	1.2	 	“Standard DVD Player” means a desktop/portable DVD player, mini-combo DVD player or DVD home
theater system that uses an optical drive during operation and includes some or all of the
following features: 2 or more channels of audio output, 1 or more channels of video output in
480i/p (standard definition) resolution, MPEG 1, 2 or 4 decoding, USB 2.0 full speed host,
upscale 480i/p to 1080i resolution, HD JPEG up to 1080i resolution, and the option to
interface to external HDMI transmitter and memory cards. “Standard DVD Player” does not
include SACD DVD players or automotive DVD players.
	 
	1.3	 	“ESS Servo Technology” means the ESS servo processor owned by ESS interfacing with laser
optical pickup and disc/tracking motor drive(s) to provide data stream(s) to backend
processing circuitry. It includes all related hardware and software intellectual properties
and ESS source code owned by ESS and embedded in Phoenix 2 and LMX 2 database.
	 
	1.4	 	“ESS DVD Navigation Technology” means ESS navigation source code owned by ESS and embedded in
the ESS reference DVD platform for Phoenix 2 and LMX 2.
	 
	1.5	 	“Phoenix 2 Data Base” means documentation, algorithms, source codes and files in RTL,
simulation, layout, and test patterns, as well as a chip development environment (i.e. FPGA
board, schematics and layout files) and chip validation environment (i.e. test and system
level board schematics and layout files). Exhibit 1 lists the Phoenix 2 features set, all of
which is included within the “Phoenix 2 Data Base.” The Phoenix 2 Data Base shall not include
ESS’s CSS keys and ESS’s CPPM/CPRM keys.
	 
	1.6	 	“LMX 2 Data Base” means documentation, algorithms, source codes and files in RTL, simulation,
layout, and test patterns, as well as a chip development environment (i.e. FPGA board,
schematics and layout files) and chip validation environment (i.e. test and system level board
schematics and layout files). Exhibit 2 lists the LMX 2 features set, all of which is included
in within the “LMX 2 Data Base.” The LMX 2 Data Base shall not include ESS’s CSS keys and
ESS’s CPPM/CPRM keys.
	 
	1.7	 	“Licensed Technology” means ESS DVD Technology, ESS Servo Technology, ESS DVD Navigation
Technology, Phoenix 2 Data Base, and LMX 2 Data Base, collectively, as well as any
confidential information provided to Silan under the Agreement.
	 
	1.8	 	“Silan’s Gross Margin” means the gross selling price of the chip excluding applicable taxes,
less all actual costs of: semiconductor silicon either in die or wafer form, packaging costs,
testing fees, sales expense (such sales expenses shall not exceed 8% of gross selling price of
the chip, excluding applicable taxes or actual expenses whichever is less), and any future
possible licensing unit cost. The licensing unit cost must be imposed industry-wide and due to
no fault of Silan. All such licensing unit cost(s) must have prior written approval from ESS
within thirty days upon written notification from Silan. If ESS does not response within
thirty days, Silan shall proceed and treat as an agreement from ESS.
	 
	1.9	 	“ESS’s Cost” means all actual costs of: semiconductor silicon either in die or wafer form,
packaging costs, testing fees, and manufacturing overhead, but in no event shall the total of
manufacturing overhead costs exceed USD 0.17.
	 
	1.10	 	“Phoenix 2 Product” means an integrated circuit that contains both ESS Servo and ESS MPEG
circuitry from Phoenix 2 Data Base. The features set of a Phoenix 2 Product are in accordance
with Exhibit 1.





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	1.11	 	“LMX 2 Product” means an integrated circuit that contains both ESS Servo and ESS MPEG
circuitry from LMX 2 Data Base. The features set of an LMX 2 Product are in accordance with
Exhibit 2.
	 
	1.12	 	“Phoenix 2 Derivative Product” means products developed, designed, produced and sold using
ESS’s Phoenix 2 Data Base. A Phoenix 2 Derivative Product must include ESS’s servo circuitry
or ESS’s MPEG decoder circuitry.
	 
	1.13	 	“LMX 2 Derivative Product” means products developed, designed, produced and sold using ESS’s
LMX 2 Data Base. An LMX 2 Derivative Product must include ESS’s servo circuitry or ESS’s MPEG
decoder circuitry.
	 
	1.14	 	“Proven Functionality” means that if a chip is installed in a test validation board, a
standard DVD video disc can be played to video and audio content outputs without
interruptions. A Focus Ion Beam (FIB) can be used to verify functionality.
	 
	1.15	 	“Design Win” means receipt of first customer purchase order with 500 units or more of Phoenix
2 Products or LMX 2 Products.
	 
	1.16	 	“DVD Related Products” means products that include DVD servo.
	 
	2.	 	Grant of Licenses





2.1 Pursuant to the terms and conditions herein, ESS hereby grants to Silan a permanent,
irrevocable, non-exclusive, non-sublicensable, worldwide, non-transferable, royalty-bearing license
to design, develop, manufacture, have manufactured, make, have made, use, include in downstream
products, sell or otherwise distribute products using ESS DVD Technology, ESS Servo Technology, and
ESS Navigation Technology.



2.2 Pursuant to the terms and conditions herein, ESS hereby grants to Silan a permanent,
irrevocable, exclusive, non-sublicensable, worldwide, non-transferable, royalty-bearing license to
design, develop, manufacture, have manufactured, make, have made, use, include in downstream
products, sell or otherwise distribute products using Phoenix 2 Data Base and LMX 2 Data Base.
Phoenix 2 Products and LMX 2 Products shall only be sold for, distributed into, or used in Standard
DVD Player applications.



2.3 ESS shall not license the ESS Servo Technology and ESS Navigation Technology to any third party
for four years from the Effective Date for Standard DVD Player applications.



2.4 ESS hereby grants to Silan a non-exclusive, non-sublicensable, non-transferable, and
territory-limited distribution license to sell the ESS Phoenix U (currently produced at GSMC)
integrated circuit to customers in Greater China (China, Hong Kong, Macau, and Taiwan) only for
Standard DVD Player applications, and not for automotive DVD player applications. ESS shall charge
Silan [****] per unit.




	 	2.4.1	 	The parties understand and agree that ESS shall continue to market, distribute
and sell the Phoenix revision U (currently being produced at GSMC) and Phoenix revision
W (currently being produced at SMIC) integrated circuits, and that Silan
shall use its best efforts to transition all customers to Phoenix 2 Product, LMX 2
Product, Phoenix 2 Derivative Product or LMX 2 Derivative Product.





 





			
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	 	2.4.2	 	ESS agrees to use commercially reasonable efforts to transition its existing customers to
the Phoenix 2 Product, LMX 2 Product, Phoenix 2 Derivative Product or LMX 2 Derivative Product.
However, the parties understand and agree that ESS expressly retains the right to continue
marketing and selling ESS Phoenix revision U (currently being produced at GSMC), Phoenix
revision W (currently being produced at SMIC), Vibrato II, Phoenix Pro and Vibratto S
integrated circuits to customers who do not or cannot transition to the Phoenix 2 Product, LMX
2 Product, Phoenix 2 Derivative Product or LMX 2 Derivative Product.





2.5 Until Silan obtains all necessary third-party licenses and begins production of Phoenix 2
Product, ESS hereby grants to Silan an exclusive, non-sublicensable, non-transferable,
royalty-bearing and worldwide distribution license to sell the ESS Phoenix 2 Product (currently
being produced at GSMC) integrated circuit to customers for Standard DVD Player applications. ESS
shall charge Silan ESS’s Cost, and Silan shall pay royalties on its per-unit sales as per Section
5.3i. ESS will sell through Silan as an exclusive distributor and ESS shall not sell directly to
customers for such Standard DVD Player applications. After Silan obtains all necessary licenses and
produces Phoenix 2 Product, ESS will work together with Silan to attempt to transition customers to
Silan’s Phoenix 2 Product.



2.6 For clarity, the parties understand and agree that ESS retains the right to grant licenses to
third parties for ESS DVD Technology for applications other than Standard DVD Player applications.
The parties also understand and agree that ESS retains the right to design, develop, manufacture,
have manufactured, make, have made, use, include in downstream products, sell or otherwise
distribute all the Licensed Technology in applications, products or markets other than Standard DVD
Player applications. Subject to Section 2.2 above, the parties also understand and agree that ESS
grants Silan the right permanently and irrevocably to design, develop, manufacture, have
manufactured, make, have made, use, include in downstream products, sell or otherwise distribute
any products using Licensed Technology and ESS grants Silan the right permanently and irrevocably
to use, modify, improve, and enhance the Licensed Technology.



2.7 Silan expressly acknowledges and agrees that none of the licenses granted to it under this
Agreement, including those granted in Sections 2.1, 2.2, 2.3, 2.4, and 2.5, is sublicensable.
Silan shall not be permitted to and cannot grant to any third party or successor in interest a
license to make, use, import, offer for sale, or sell any integrated circuits or products using or
incorporating all or any part of the Licensed Technology, or all or any part of a Phoenix 2
Derivative Product or LMX 2 Derivative Product.



2.8 ESS agrees that for a period of three years from the Effective Date, it shall not release any
new integrated circuits for Standard DVD Player applications.



2.9 In consideration of the licenses granted herein, Silan shall pay to ESS a total of USD
3,750,000 in initial license fees, to be paid as follows:




	 	i.	 	[****] on within 5 days from Effective Date.





 





			
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	 	ii.	 	[****] each month for 4 months on the first day of each month after Effective
Date
	 
	 	iii.	 	[****] on the first to occur of (a) one calendar year after the Effective Date
or (b) Proven Functionality of the Phoenix 2 Product
	 
	 	iv.	 	[****] on the first to occur of (a) one calendar year after the Effective Date
or (b) Proven Functionality of the LMX 2 Product





     In consideration of the urgency of the first and second payments, the required documents of
these two payments shall not be limited to item 2.9. ESS agrees that Silan shall provide the
required documents to ESS as early as possible.



Both parties agree that if the project requires additional development cost, the payment is as
follows:




	 	v.	 	[****] each month for 2 months if Silan approves to continue Phoenix 2
and LMX 2 development and the total of such development cost is under [****], both
parties will pay equally. Silan will pay 100% of all development costs in excess of
[****].





     All license fees are subject to China income tax in accordance with China law. After receipt
of ESS invoice(s) (the total amount including income tax) as per payment schedule above, Silan
shall withhold, deduct, and pay the appropriate income tax before making license fee payment to
ESS. Silan will send license fee income tax statement receipt to ESS within 5 business days after
payment.



2.10 Silan agrees that all technology licensed to it under this Agreement, and all derivatives and
downstream products thereof, cannot be marketed or sold under the ESS brand name, nor shall Silan
refer to ESS in any manner without prior written permission.



2.11 Silan agrees that it will obtain its own licenses to the CSS keys for the Phoenix 2, LMX 2
and all derivative products as soon as possible, but in no event longer than six months from the
Effective Date of this Agreement. Silan shall not begin production of the LMX 2 product or any
derivative version of the Phoenix 2 and LMX 2 products unless it uses Silan’s own CSS keys in those
products. When Silan begins manufacturing using Silan CSS keys on Phoenix 2 and/or LMX 2 products,
ESS shall begin transition plans made by both parties and to stop manufacturing ESS Phoenix 2
and/or ESS LMX 2 products, upon Silan’s request.




	3.	 	Development Cost





3.1 For development of the Phoenix 2 and LMX 2 products, Silan shall pay directly to ESS or to
third party engineering and fabrication companies all costs incurred in the development of the
Phoenix 2 and LMX 2 products, including but not limited to all mask charges, packaging and
engineering wafer lots, all development and test boards, all further engineering costs and expenses
incurred by ESS, and all wafer, fabrication and packaging expenses. All such costs must have prior
written approval from Silan.



 





			
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3.2 The parties contemplate that following the Effective Date of this Agreement, ESS shall provide
Silan with the opportunity to hire current ESS employees who are currently employed by ESS and who
have specializations in ESS’s DVD line of business. No such employee shall be obligated to join
Silan, but Silan and ESS shall work together to persuade such employees to accept employment with
Silan.




	4.	 	Ownership





4.1 Silan acknowledges that as between the parties, ESS shall retain all rights, title and interest
in and to the Licensed Technology.



4.2 To the extent that Silan develops derivative works based upon the Licensed Technology, Silan
shall own all right, title, and interest in and to such derivative works, including, without
limitation, all patent rights and copyrights in works derived from the Licensed Technology.




	5.	 	Royalties





5.1 Silan shall pay the following sums to ESS as royalties on the licenses granted above. All
royalties shall be due and payable as soon as practical, but no more than twenty business days
after each calendar quarter in US Dollars, and shall be made by wire transfer to such bank account
as ESS shall designate. Each royalty payment shall be accompanied by a royalty report listing the
identity and quantity of all units sold, and calculating the total royalties owed to ESS



5.2 Silan’s payment to ESS shall have a maximum royalty fee of USD 20,000,000, at which point the
licenses granted herein shall become fully paid-up with no further royalties owed. At such time,
ESS shall have no further obligation to indemnify Silan pursuant to Section 8.2 of this Agreement.



5.3 Per unit royalties shall be calculated as follows:




	(i)	 	For Phoenix 2 Products, including minor upgraded Phoenix 2 Products and upgraded Phoenix 2
Products:






	 	a.	 	For three years after Effective Date , the lesser of [****] of Silan’s Gross
Margin for each unit sold, unless Section 5.3.i.b is satisfied.
	 
	 	b.	 	If Phoenix 2 Products do not achieve a Design Win within two years after the
Effective Date, the royalty shall be reduced to the lesser of [****] of Silan’s Gross
Margin for each unit sold
	 
	 	c.	 	After three years from the Effective Date and for the next three years, the
lesser of [****] of Silan’s Gross Margin for each unit sold.






	(ii)	 	For LMX 2 Products and any DVD Related Products developed by Silan:






	 	a.	 	For six and one half years after the Effective Date, the lesser of [****] of
Silan’s Gross Margin for each unit sold, unless Section 5.3.ii.b is satisfied.
	 
	 	b.	 	If LMX 2 Products do not achieve a Design Win within two and one half years
after the Effective Date, the royalty shall be reduced to the lesser of [****] of
Silan’s Gross Margin for each unit sold.





 





			
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	(iii)	 	For any products without embedded DVD servo developed by Silan that include ESS’s MPEG
decoder:






	 	a.	 	For six and one half years after Effective Date, the lesser of [****] of
Silan’s Gross Margin for each unit sold.





5.4 Upon the first to occur of (a) Silan’s payment to ESS reaches a cumulative total royalty fee of
USD 20,000,000, or (b) six and one half years after the Effective Date (and Silan has paid all
outstanding royalties due), the licenses granted in this Agreement shall be fully paid-up and shall
become royalty-free, and ESS’s obligation to indemnify Silan pursuant to Section 8.2 shall also
cease. For clarity, Silan shall pay royalties to ESS for products explicitly listed in Section 5.3
when Silan develops, designs, manufactures, distributes and sells products incorporating ESS
Licensed Technology; Other products that Silan develops, designs, manufactures, distributes and
sells using ESS Licensed Technology , without ESS Servo or ESS MPEG, are and shall remain royalty
free.



5.5 Silan agrees that it shall keep complete and accurate records and books of accounts relating to
the manufacture, distribution and sale of integrated circuits and products using or incorporating
all or any part of the Licensed Technology, and that it shall retain such books and records for a
period of three (3) years after the transactions to which they relate (but not exceeding one (1)
year after any termination of this Agreement). Upon giving Silan thirty (30) business days prior
written notice, ESS shall have the right to, at ESS’s expense and through an independent certified
public accountant acceptable who signs an appropriate confidentiality agreement with Silan, during
regular business hours, inspect, examine, audit, and make abstracts of all such records and books
insofar as they relate to the determination of Silan’s royalty obligations and insofar as may be
necessary to verify the accuracy of the same and of the royalty reports provided for herein. If a
discrepancy of greater than 5% is discovered during this audit, Silan shall be responsible for the
cost of the audit.



5.6 As soon as practical, ESS shall deliver all technical information relating to the Licensed
Technology (including data, files, etc.) to Silan. Such technical information shall include, but
not limited to, GDSII, RTL, software source code, design verification file(s), test file(s), design
manual(s), user manual(s), silicon development platform, application development platform, tuning
tool(s), compiler, emulator and any patent(s), software copyright(s), and IC schematics related to
the Licensed Technology. All ESS’s deliverables and schedule are as per Exhibit 3.



5.7 After Effective Date, Silan shall send 5 or more engineers to ESS HQ to transfer the License
Technology including but not restricted in data material (database), to consult with ESS engineers
on the Licensed Technology, to participate in the LMX2 design and tapeout, PHXII and LMXII sample
tests. During the sample test, ESS shall provide Silan engineers the corresponding test plan, test
results, problems and related solutions. ESS shall provide the working environment and the
necessary people to support Silan and smoothly transfer the Licensed Technology.



 





			
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5.8 If there are problems during product application and upgrades, ESS will, with best efforts,
provide Silan with engineering resources and recommend possible solution(s), including on-site
guidance, written instruction(s), telephone instruction(s) or providing more detailed data
and document(s).



5.9 Both parties shall keep copies of the delivered Licensed Technology and keep strict revision
and document control.



5.10 All royalty fees are subject to China income tax in accordance with China law. Silan shall
withhold, deduct, and pay the appropriate income tax before making royalty fee payment to ESS.
Silan will send royalty fee income tax statement receipt to ESS within 5 working days after
payment. After receipt of each royalty payment as per quarterly royalty report from Silan, ESS will
send invoice (the total amount including income tax) to Silan within five business days.



5.11 Both parties of this Agreement confirm the following contact persons:



	 	 	 	 	 	 	 
	 	 	i.	 	engineering related matters:
	 
	 	 	 	 	 	 
	 

	 	ESS
	 	 	 	 
	 

	 	 	 	Contact:
	 	[****]
	 

	 	 	 	Address:
	 	48401 Fremont Blvd., Fremont, CA 94538 USA
	 

	 	 	 	FAX:
	 	[****]
	 

	 	 	 	Email:
	 	[****]
	 

	 	 	 	Telephone:
	 	[****]
	 

	 	Silan	 	 	 	 
	 

	 	 	 	Contact:
	 	[****]
	 

	 	 	 	Address:
	 	No. 4, Huang Gu Shan Road, Hangzhou, P.R. China 310012
	 

	 	 	 	FAX:
	 	[****]
	 

	 	 	 	Email:
	 	[****]
	 

	 	 	 	Telephone:
	 	[****]
	 
	 	 	 	 	 	 
	 	 	ii.	 	sales and marketing related matters:
	 
	 	 	 	 	 	 
	 

	 	ESS	 	 	 	 
	 

	 	 	 	Contact:
	 	[****]
	 

	 	 	 	Address:
	 	48401 Fremont Blvd., Fremont, CA 94538 USA
	 

	 	 	 	FAX:
	 	[****]
	 

	 	 	 	Email:
	 	[****]
	 

	 	 	 	Telephone:
	 	[****]
	 

	 	Silan	 	 	 	 
	 

	 	 	 	Contact:
	 	[****]
	 

	 	 	 	Address:
	 	Rm 2003, Cyber Times Towers A, Tianan Cyber Park Futian District, Shenzhen,
P.R. China 518041
	 

	 	 	 	FAX:
	 	[****]
	 

	 	 	 	Email:
	 	[****]





 





			
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     Telephone: [****]



For any changes regarding to the above information, written notification must be made to the other
party within 5 business days.




	6.	 	Term and Termination





6.1 This Agreement shall become effective as of the Effective Date and shall remain in full force
and effect until both Parties agree in writing to terminate the agreement, or until terminated by
either party pursuant to this Section 6.



6.2 Either party, in addition to other remedies that it may have, may at its election terminate
this Agreement, effective upon written notice to the other party, in the event any of the following
actions or events is committed by the other party or occurs: (a) a default or breach by the other
party of any of its material obligations under this Agreement which default or breach remains
uncured thirty (30) days after the non-breaching party gives written notice thereof; (b) the other
party’s adjudicated bankruptcy, becoming insolvent or entering dissolution or liquidation
proceedings; or (c) a petition filed by or against such other party under bankruptcy law of the
nature of Chapter 7 of the United States Bankruptcy Code, under corporate reorganization law or
under any other law for the relief of debtors, which is consented to or is not dismissed within
sixty (60) days of filing.



6.3 Upon termination of this Agreement, all licenses and rights granted under this Agreement shall
cease forthwith, and the parties shall destroy all Confidential Information (as defined below)
furnished hereunder as well as all copies thereof. Notwithstanding the foregoing, the licenses and
rights granted under this Agreement shall continue for up to six months to allow Silan to sell its
existing inventory.




	7.	 	Confidentiality





7.1 For the purpose of this Agreement, “Confidential Information” of one party means any
information which is disclosed hereunder by such party to the other in tangible material marked as
confidential, or which is disclosed hereunder by such party to the other orally or in other
intangible form and designated as confidential at the time of such disclosure and is reduced to
writing conspicuously marked as confidential and sent to such other party within thirty (30) days
after such disclosure. For a period of five (5) years after disclosure hereunder, the receiving
party of Confidential Information of the other agrees to keep such Confidential Information in
confidence with at least the same degree of care which it uses to prevent the disclosure of its own
confidential information of like importance, but in no event with less than reasonable care. The
receiving party may disclose the other party’s Confidential Information to its employees to the
extent reasonably necessary for the purpose of this Agreement and provided the employees to which
Confidential Information is disclosed are bound by use and disclosure restrictions at least as
protective of such Confidential Information as those restrictions set forth herein. No other
disclosure of Confidential Information shall be permitted without the prior written consent of the
other party.



 





			
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7.2 The restrictions on use and disclosure of Confidential Information as described above shall not
apply to any information which:




	 	a.	 	is or becomes available to the public through no fault of the receiving party;
	 
	 	b.	 	is legitimately obtained by the receiving party from a third party without any
confidentiality obligation; or
	 
	 	c.	 	is at any time developed by the receiving party independently.





7.3 Notwithstanding Section 7.1 above, either party may disclose the other’s Confidential
Information if required by applicable laws, or by a court, administrative agency, or other
governmental body; provided, however, that the receiving party shall provide prompt and sufficient
advance written notice thereof to the disclosing party so that the disclosing party may seek a
protective order (or its equivalent) with respect to such disclosure, which the receiving party
shall fully comply with.



7.4 If either party elects to make a public announcement on this Agreement, both parties will work
together on the message and content, and coordinate on the timing of the announcement. The
announcing party must consider suggestions on the message and content from the other party before
making an announcement.




	8.	 	Indemnification





8.1 Silan will defend, indemnify and hold harmless ESS, its directors, officers, employees
and/or agents from and against any and all claims, damages, losses and expenses, including court
costs and reasonable fees and expenses of attorneys, expert witnesses, and other professionals,
arising out of or resulting from any action by a third party against ESS that is based on Silan’s
use, control, distribution or disposition of the Licensed Technology (including but not limited to
any alleged misuse of the CSS keys provided by DVD CCA to ESS or Silan contained in certain of the
Licensed Technology, and including but not limited to any alleged misuse of any other required
license as defined in Section 9.6 of this Agreement), based upon Silan’s breach of any obligation,
warranty or representation in this Agreement, or based on Silan’s distribution of any product under
the licenses granted in Section 2, including any claim of breach of a third-party license arising
therefrom. Silan’s obligation to indemnify ESS as set forth above will be conditioned on ESS
promptly (i) notifying Silan of the existence of such a claim, (ii) tendering sole control of the
defense and settlement of such claim to Silan, and (iii) cooperating as reasonably requested by
Silan. ESS may participate in such defense at its own expense and with its own counsel.



8.2 ESS shall indemnify Silan and hold it harmless, and, at Silan’s option, defend Silan from and
against all claims, damages, losses and expenses, including court costs and reasonable fees and
expenses of attorneys, expert witnesses, and other professionals, arising out of or resulting from
(i) any breach of this Agreement or of any of the warranties or representations made by ESS herein,
or (ii) any action by a third party against Silan that is based on any claim that the portions of
the Licensed Technology as delivered by ESS infringe a patent, copyright, or any other proprietary
right, or violate a third party’s trade secret rights, except to the extent that the foregoing
results from compliance with specifications provided by Silan, and except to the extent that the
foregoing results from the combination of the ESS portions of the Licensed Technology



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with software or equipment not provided by ESS. ESS’ obligation to indemnify Silan as set
forth above will be conditioned on Silan promptly (i) notifying ESS of the existence of such a
claim, and (ii) cooperating as reasonably requested by ESS. The indemnification obligation
described in this Section 8.2 shall cease when Silan ceases paying royalties to ESS pursuant to
Section 5.2 or Section 5.4 of this Agreement. .



8.3 SILAN UNDERSTANDS AND ACKNOWLEDGES THAT THE LICENSED TECHNOLOGY IS PROVIDED AS IS. EXCEPT AS
SPECIFICALLY SET FORTH HEREIN, NO OTHER WARRANTIES OR REPRESENTATIONS, EITHER EXPRESSED OR IMPLIED,
ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE GIVEN BY ESS UNDER THIS AGREEMENT, including but not limited
to, any warranty or representation: (a) as to the validity of any patent; (b) that any manufacture,
importation, sale, lease, use, or other disposition of products will be free from infringement of a
third party’s intellectual property rights; (c) that ESS will enforce any intellectual property
rights it may have against third parties; or (d) as to the quality, merchantability, or fitness for
a particular purpose of any product.



8.4 BOTH PARTIES UNDERSTAND AND ACKNOWLEDGE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY
FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED
REVENUES OR PROFITS RELATING TO THE SAME), ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
LICENSED TECHNOLOGY, WHETHER SUCH CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, EVEN IF EITHER PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.




	9.	 	Warranties and Representations





9.1 As of the Effective Date, each party represents and warrants to the other party that it (i) is
a corporation duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, and (ii) has full corporate power and authority and the
legal right to own and operate its property and assets and to carry on its business as it is now
being conducted and is contemplated in this Agreement, including, without limitation, the right to
grant the licenses granted hereunder.



9.2 As of the Effective Date, each party represents and warrants to the other party that it (i) has
the corporate power and authority and the legal right to enter into this Agreement and perform its
obligations hereunder; (ii) has taken all necessary corporate action on its part required to
authorize the execution and delivery of this Agreement and the performance of its obligations
hereunder; and (iii) this Agreement has been duly executed and delivered on behalf of such party,
and constitutes a legal, valid and binding obligation of such party and is enforceable against it
in accordance with its terms.



9.3 Except as otherwise described in this Agreement, each party represents and warrants to the
other party that all necessary consents, approvals and authorizations of all governmental
authorities and other persons or entities required to be obtained by such party in connection with
entry into this Agreement have been obtained.



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9.4 Each party represents and warrants to the other party that the execution and delivery of this
Agreement by such party and the performance of such party’s obligations hereunder (i) do not
conflict with or violate any requirement of any applicable law or regulation or any provision of
the Articles or Certificate of Incorporation or Bylaws of such party in any material way, and (ii)
do not conflict with, violate or breach or constitute a default or require any consent under, any
contractual obligation or court or administrative order by which such party is bound.



9.5 ESS represents and warrants that all the technologies contained in the technical information
that is delivered to Silan by ESS are owned by ESS; ESS owns or controls all right, title and
interest in and to the Licensed Technology, the ESS brand name, and the ESS trademarks; and that
ESS has the power to grant the licenses related to and within this Agreement.



9.6 Silan represents and warrants that as of the Effective Date, it shall immediately obtain and
maintain in good standing during the term of this Agreement all necessary third-party licenses for
the design, development, manufacture, import, distribution, marketing and sale of Standard DVD
Player products, including but not limited to licenses from DVD CCA, Macrovision, Dolby, DTS, HDCP,
DivX, WMA, Nero, CPPM, DRM, Memory Stick, and SD.



9.7 Silan cannot have access to ESS’s CSS keys under any circumstances. ESS shall manufacture the
Phoenix U and the Phoenix 2 until Silan tapes out its own version with its own keys.




	10.	 	Non-Assignment





Neither party shall assign any of its rights or obligations under this Agreement without the prior
written consent of the other party; provided, however, that either party may assign this Agreement
without consent to a successor-in-interest upon a merger, acquisition or sale of all or
substantially all of that party’s assets on condition that the assignee of this Agreement will
undertake by operation of law or has agreed in writing submitted to the other party, to assume all
obligations and liabilities of the assignor under or in connection with this Agreement and to be
bound by the terms and conditions of this Agreement.




	11.	 	Choice of Law And Forum





This Agreement and the performance of the parties hereunder shall be construed in accordance with
and governed by the laws of California, U.S.A., without respect to its conflict of law provisions.
The parties hereto expressly consent, and submit themselves, to the exclusive jurisdiction of the
courts of California and to venue in the state or federal courts in the County of Santa Clara,
California.




	12.	 	Modifications





No amendment or modification to this Agreement shall be valid or binding upon the parties unless
made in writing and signed by authorized representatives of the parties.



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	13.	 	Entire Agreement





This Agreement contains the full and complete understanding and agreement between the parties
relating to the subject matter hereof and supersedes all prior and contemporary understandings and
agreements, whether oral or written, relating to such subject matter.




	14.	 	Severability





If any provision of this Agreement is or becomes, at any time or for any reason, unenforceable or
invalid, no other provision shall be affected hereby, and the remaining provisions of this
Agreement shall continue in full force and effect.




	15.	 	Counterparts.





This Agreement may execute in two or more counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts, individually or taken together, shall bear the
signatures of all the parties hereto.



IN WITNESS, THE AUTHORIZED REPRESENTATIVES OF THE PARTIES HAVE EXECUTED THIS CONTRACT.



	 	 	 	 	 
	ESS Technology, Inc.

	 	Hangzhou Silan Microelectronics Co., Ltd.	 	 
	 
	 	 	 	 
	 

Signature

	 	 

Signature
	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 

          Name
	 	 
	 	 	 	 

          Name
	 	 






	 	 	 	 	 
	 
	 	 	 	 
	 

Title

	 	 

Title
	 	 






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ESS-SILAN DVD TECHNOLOGY LICENSE AGREEMENT




EXHIBIT 1




DESCRIPTION




[****]




FEATURES





	 	o	 	[****]






	 	o	 	[****]





Note: For detailed specifications, please refer to ESS Phoenix 2 datasheet supplied to Silan



 





			
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ESS-SILAN DVD TECHNOLOGY LICENSE AGREEMENT




EXHIBIT 2




DESCRIPTION




[****]




FEATURES





	 	o	 	[****]






	 	§	 	[****]






Note: For detailed specifications, please refer to ESS LMX 2 datasheet supplied to
Silan.



 





			
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ESS-SILAN DVD TECHNOLOGY LICENSE AGREEMENT

EXHIBIT 3




In accordance with the license agreement, ESS should transfer all technical information
(including data, files, etc.) relating to Licensed Technology, included but not limited to the
list below:



Schedule of ESS delivering licensed technology and database to Silan



	 	 	 	 	 	 	 
	NO.	 	Content	 	For PHXII	 	For LMXII
	1

	 	[****]
	 	[****]
	 	[****]
	 
	 	 	 	 	 	 
	2
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	3
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	4
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	5
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	6
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	7
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	8
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	9
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	10
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	11
	 	 	 	 	 	 





 





			
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	NO.	 	Content	 	For PHXII	 	For LMXII
	12
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	13
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	14
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	15
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	16
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	17
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	18
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	19
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	20
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	21
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	22
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	23
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	24
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	25
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	26
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	27
	 	 	 	 	 	 





 





			
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	NO.	 	Content	 	For PHXII	 	For LMXII
	28
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	29
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	30
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	31
	 	 	 	 	 	 





 





			
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