Development, License and Equipment Purchase Agreement between Registrant and Microsoft


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CONTRACT NUMBER:____________________




LICENSE AGREEMENT




This Development, License and Equipment Purchase Agreement (the “Agreement”) is entered into and effective as of December 17, 2002 (the “Effective Date”) by and among Microsoft Corporation, a Washington corporation located at One Microsoft Way, Redmond, WA 98052 (“Microsoft”) and Smarte Solutions, Inc., a Delaware corporation located at 611 South Congress Avenue, Suite 350, Austin, Texas 78704 (“Licensor”).  




Recitals




A.

Microsoft is, among other things, a developer and publisher of computer software products.




B.

Microsoft desires to utilize unique proprietary anti-piracy and copy protection technology to protect Microsoft software products.  




C.

Licensor is a developer and supplier of such anti-piracy and copy protection technology and desire to provide such a system to Microsoft pursuant to the terms and conditions of this Agreement.




Agreement




The parties agree as follows:




1.

DEFINITIONS




1.1

“Copy Protected Disc” means a Disc that has been produced from the Gold Master in accordance with the Process, along with files generated by a Media Replicator using licensed software provided to the Media Replicator by Licensor.




1.2

“Copy Protection File(s)” means the portion of the Software added to Licensed Product Code as output by SmarteSECURE App (as defined in Section 1.14 below) and/or added by Microsoft in accordance with the Process that, when reproduced on a Disc that includes file(s) generated by a Media Replicator’s licensed software, will perform the Process as more specifically described in Exhibit A.




1.3

“Disc” means a CD-ROM disc. 




1.4

“Gold Master” means a Disc that contains Licensed Product Code, Copy Protection File(s), and the output generated by the Software.




1.5

“Licensed Product Code” means Microsoft’s original program files for Licensed Products which are to be produced onto Copy Protected Discs.




1.6

“Licensed Products” shall mean the software products that are created by or for Microsoft, excluding “Software” as described in Section 1.15 below, and that are distributed on Copy Protected Discs.  Licensed Products include Full Packaged Licensed Products and Jewelcase Licensed Products, as further defined in Section 4, respectively.






Microsoft Confidential






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1.7

“Materials” means the Software and Copy Protection File(s), each as more particularly described in the specifications set forth in Exhibit A, including any and all documentation associated with any of the foregoing.  




1.8

“Media Replicator(s)” means any CD-ROM mastering houses and/or replicators selected by Microsoft in its sole discretion to produce Copy Protected Discs.  Microsoft will provide a written list of all Media Replicators to Licensor, along with written updates or changes as necessary from time to time, and Licensor will ensure that all necessary steps are taken to support Media Replicators in producing Copy Protected Discs.   




1.9

“Microsoft” means Microsoft Corporation and its affiliates.




1.10

“Microsoft OEM” means a manufacturer of computer hardware (e.g., computer systems, hard disk drives, CD-ROM drives or players, or peripheral hardware) that is licensed by Microsoft to distribute Licensed Products with such hardware under either Microsoft’s or the OEM’s trademarks.




1.11

“Microsoft Sales System” means Microsoft’s worldwide revenue reporting system, as such system may be implemented and changed by Microsoft in good faith from time to time during the term of this Agreement.




1.12

“Process” means the process of producing Copy Protected Discs as more particularly described in Exhibit A. 




1.13

“Republisher” means a publisher of software products that is licensed by Microsoft to manufacture and distribute Licensed Products under either Microsoft’s or the Republisher’s trademarks.




1.14

“SmarteSECURE Application Protection Module and Media Protection Module (“SmarteSecure App”)” means the wrapping tool provided to Microsoft by Licensor, for the purpose of completing the first stage of wrapping licensed products.  SmarteSECURE App shall be used locally at Microsoft and is further described in Exhibit A




1.15

“Software” means a toolkit and/or other software provided by Licensor for use by Microsoft to produce encrypted Copy Protection Files (and all updates and modifications thereto) as more specifically described in Exhibit A.  Software shall include, without limitation, SmarteSECURE App and SmarteMASTER. 




1.16

“Wrap” or “Wrapping” means to apply a protective layer to a Windows 32bit application file.




1.17

All other initially capitalized terms shall have the meanings assigned to them in this Agreement.




2.

LICENSE GRANT




2.1

Licensor grants to Microsoft a worldwide, nonexclusive license to use the Materials (and any other software or materials Licensor may provide to Microsoft in furtherance of this Agreement) in accordance with the Process in connection with the creation of Licensed Products. Licensor further grants to Microsoft a worldwide, nonexclusive license to publish Licensed Products, including a license to reproduce, translate, manufacture, market, advertise, display, transmit, publicly perform, distribute, directly or indirectly, and sell, license, rent or lease Licensed 






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Products in any language to end-users, Republishers and Microsoft OEMs during the Term of this Agreement and to authorize third parties to exercise any and all of the foregoing rights, including the right to grant further sublicenses as necessary to replicate and distribute the Licensed Products so long as authorized third parties comply with the terms of this Agreement.  Microsoft may make any number of copies of the Software as necessary to exercise the foregoing rights. Microsoft shall not modify, decompile, disassemble or reverse engineer the Software or otherwise attempt to discover the underlying source code or trade secrets contained in the object code of the Software. 




2.2

Microsoft’s license rights granted under this Section 2 shall extend to any new versions, editions, enhancements, changes, updates, amendments or other modifications to the Materials or any component(s) thereof (collectively, “Updates”) created by or for Licensor during the Term of this Agreement; provided, that (i) any Updates created as a result of custom engineering pursuant to Section 6.5 and Exhibit B, and/or (ii) any Updates incorporating any suggestions, comments, ideas, information, etc. regarding the Materials and communicated to Licensor by Microsoft in writing and accepted by Licensor, shall be exclusive to Microsoft, shall not itself use such Updates other than in the performance of this Agreement nor grant any third party any rights in or to any such Updates without the prior consent of Microsoft, which will not be unreasonably withheld or conditioned.  Licensor agrees to provide all Updates of the Materials to Microsoft promptly upon availability in the format(s) and manner specified in Exhibit A hereto.  




3.

TERM




The term of this Agreement shall be three (3) years from the date Microsoft first makes a Licensed Product commercially available to the public, subject to automatic, successive renewal terms of twelve (12) months each, unless either Microsoft or Licensor gives the other party written notice of its intent not to renew at least sixty (60) days prior to the expiration of the initial terms or any succeeding term. 




4.

FEES




4.1

Technology Fee.  Microsoft shall pay to Licensor a “Technology Fee” for each unit sold containing Licensed Product as set forth below.  The per-unit Technology Fee shall be based upon the net sales data captured in the Microsoft Sales System.  




(a)

A Technology Fee of USD<**> per each retail unit of Full Packaged Licensed Product, regardless of the number of Copy Protected Disc(s) included in such Licensed Product.  A “Full Packaged License Product” shall mean a Licensed Product packaged in a shrink-wrapped cardboard box and/or packaged only within a shrink-wrapped plastic casing, or two or more Full Packaged Licensed Products shrink-wrapped together and sold for a single, indivisible price.




(b)

A Technology Fee of USD<**> per each OEM unit of Licensed Product, regardless of the number of Copy Protected Disc(s) included in such Licensed Product.




(c)

A Technology Fee of USD<**> per each retail or OEM unit of Jewelcase Licensed Product, regardless of the number of Copy-Protected Disc(s) included in such Licensed Product.  A “Jewelcase Licensed Product” shall mean a Licensed Product packaged only within a shrink-wrapped plastic casing sub-branded as “Classic Edition,” or two or more Jewelcase Licensed Products shrink-wrapped together and sold for a single, indivisible price.









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(d)

No Technology Fee shall be paid with respect to: (i) Licensed Products distributed as “free,” “complimentary,” “no charge” or at nominal prices to promote or stimulate sales of Licensed Products, or (ii) Microsoft’s internal use and sale-to-employee copies. 




4.2

Custom Engineering Fees.  Microsoft shall pay USD<**> per man-hour for custom engineering services as further described in Section 6.5 and Exhibit B herein.




4.3

Republisher Fees.  Microsoft will notify Licensor in writing of the identity of its Republishers and unless Microsoft agrees otherwise, the Republisher shall be solely responsible for payment of any applicable Technology Fees directly to Licensor.  Microsoft does not guarantee any level of performance by the Republishers, and Microsoft will have no liability to Licensor for any Republisher’s failure to make payments or otherwise perform its obligations under any applicable agreement between Microsoft and such Republisher and/or between Licensor and such Republisher.  An agreement between Licensor and any Republisher shall be solely negotiated by Licensor and such Republisher and will contain substantially similar terms and conditions as this Agreement; provided, however, Licensor agrees that the Technology Fee for each Republisher retail unit of Full Packaged or Jewelcase Licensed Product shall be USD<**>, regardless of the number of Copy Protected Disc(s) included in such Licensed Product.  Each Republisher is an intended third-party beneficiary of this Section 4.3.




5.

PAYMENT SCHEDULE; REPORTS




5.1

Payment of Technology Fees.  




5.1.1

Within forty-five (45) days after the end of each fiscal quarter with respect to which Microsoft owed Licensor any Technology Fees, Microsoft shall furnish Licensor a fee statement together with payment for any amount shown thereby to be due to Licensor.  The Technology Fee statement shall be (a) based upon net sales data as captured in the Microsoft Sales System for the fiscal quarter then ended, (b) reflect Technology Fees generated in each of the four (4) worldwide regions, the United States (“US”), Europe, Middle East and Africa (“EMEA”), Asia (“ASIA”), and Canada, Latin America, Australia and New Zealand (“ICON”); and (c) shall contain information sufficient to discern how the Technology Fee payment was computed.  




5.1.2

Microsoft shall provide Licensor with the following reports for SPAR, EMEA, ICON and ASIA within five (5) business days after the start of each fiscal quarter: an updated Microsoft Product Release Services report containing the following information for each Licensed Product: (a) the end item part number or license part number for OEM Licensed Products, (b) the part number description, (c) the status of the part number (i.e., active, to be developed, obsolete), and (d) the business stream (i.e., OEM or retail).




5.2

Payment of Custom Engineering Fees. Within 5 Business Days following the end of each calendar month, Licensor shall furnish Microsoft with an invoice for any custom engineering services requested by Microsoft and performed by Licensor within the previous month pursuant to Section 6.5.  Payment of the amount shown shall be due within forty-five (45) days after Microsoft’s receipt of such invoice.









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6.

DELIVERY; ACCEPTANCE; SUPPORT SERVICES




6.1

Licensor agrees to deliver the initial version of the Materials to Microsoft on or before December 31, 2002 (the “Initial Version of Materials”).  The Initial Version of Materials shall be delivered according to and in conformance with the specifications set forth in Exhibit A.  




6.2

Microsoft shall evaluate the Initial Version of Materials to determine whether it conforms to the specifications set forth in Exhibit A and shall submit to Licensor a written acceptance or rejection thereof based solely on such conformity within a reasonable period of time after Microsoft’s receipt of the Initial Version of Materials.  If Microsoft discovers any deviations from such specifications, Microsoft shall notify Licensor and Licensor shall have a reasonable period of time following receipt of notice from Microsoft to correct such deviations and deliver a conforming Initial Version of Materials to Microsoft for evaluation.  In the event Licensor does not deliver a conforming Initial Version of Materials within such time period, Microsoft may again reject the Materials and require Licensor to correct and resubmit any deviations, or alternatively, Microsoft shall be entitled to reject the Initial Version of Materials in its entirety and terminate this Agreement by written notice to Licensor, in which case Microsoft shall return the version of the Materials delivered to it by Licensor and any copies thereof.  




6.3

Licensor agrees to deliver Updates to the Materials to Microsoft in accordance with the schedule set forth in Exhibit A.  The Updates shall be delivered according to and in conformance with the specifications set forth in Exhibit A.  




6.4

Microsoft shall evaluate each Update to determine whether it conforms to the specifications set forth in Exhibit A and shall submit to Licensor a written acceptance or rejection thereof based solely on such conformity within a reasonable period of time after Microsoft' receipt of the Update.  If Microsoft discovers any deviations from such specifications, Microsoft shall notify Licensor and Licensor shall have a reasonable period of time following receipt of notice from Microsoft to correct such deviations and deliver a conforming version of the Update to Microsoft for evaluation.  In the event Licensor does not deliver a conforming version of the Update within such time period, Microsoft may again reject the Update and require Licensor to correct and resubmit any deviations, or alternatively, Microsoft shall be entitled to reject the Update in its entirety and terminate this Agreement by written notice to Licensor, in which case Microsoft shall return the Update and previous version of the Materials delivered to it by Licensor and any copies thereof (except as set forth in Section 15.3 below).  




6.5

During the term of the Agreement, Licensor agrees to provide the support services, custom engineering services and training (“Services”) with respect to the Materials and Licensed Products in accordance with the support services plan set forth in Exhibit B (“Services Plan”).  Additionally, Licensor agrees that it shall promptly notify Microsoft in writing of any bugs, cracks, hacks, incompatibilities, errors, deviations from the specifications or other issues relating to the Materials (collectively, “Errors”) that Licensor becomes aware of during the Term of this Agreement.  If any Error(s) are not corrected within the applicable correction period as specified in the Services Plan, then Microsoft may, at its option: (i) extend the correction period; or (ii) terminate this Agreement, upon written notice to Licensor.  







6.6

Notwithstanding anything to the contrary herein, in the event Microsoft uses any Materials or Updates for any commercial or revenue generating purpose, such Materials or Updates shall be deemed accepted under this Section 6.









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7.

LICENSED PRODUCT MARKETING




7.1

Microsoft shall have the sole discretion to set and determine all terms and conditions of sale and/or licensing of Licensed Products, including price, position, distribution channels, and name, as well as all Licensed Product packaging, marketing materials, and advertising. 




7.2

Microsoft, Microsoft OEMs and Republishers shall be entitled to subcontract the manufacture or reproduction of all or any portion of Licensed Products to any Media Replicator so long as the Media Replicator has been certified by Licensor and is equipped with the necessary tools for producing Copy Protected Discs.    




8.

REPRESENTATIONS, WARRANTIES, AND COVENANTS OF LICENSOR 




Licensor hereby represents, warrants, and covenants to Microsoft that:




8.1

Licensor has the full right and power to enter into and perform according to the terms of this Agreement, and that it has, and will have during the entire Term of this Agreement and for the period of time described in Section 15.1, the right to grant to Microsoft each of the rights herein granted.  Without limiting the foregoing, Licensor warrants that (i) use of the Materials and Upgrade(s) by Microsoft, Microsoft OEMS, Republishers or Media Replicators as provided under this Agreement does not directly, indirectly or contributorily violate any patent, copyright, trade secret, or other proprietary right of any third party, (ii) no other third party permissions or licenses are required for Microsoft to exercise any of the rights licensed to Microsoft hereunder with respect to the Materials and Process; and (iii) the Process shall properly function as specified in Exhibit A in connection with the Copy Protected Discs containing Licensed Products.  The foregoing warranty shall not apply to the extent a nonconformity is the result of: (a) modification of the Materials made other than by Licensor; (b) failure of Microsoft to use updated or modified Materials provided by Licensor and approved by Microsoft as set forth in Section 6 (provided that this subsection (b) shall not apply to Licensed Products in existence prior to the time Microsoft could reasonably implement the updated or modified Materials following Microsoft’s acceptance thereof); or (c) non-compliance by Microsoft to the specifications and defined use of Materials.  




8.2

Personnel of Licensor shall be available to consult with respect to the Materials and Process with Microsoft and its personnel, at such times and for such periods as Microsoft may reasonably request in connection with the Services.  All Services shall be performed in a professional manner and shall be of a high grade, nature and quality and in accordance with the Services Plan.




8.3

In the production of the Materials all laws, statutes, ordinances, rules and regulations of each country, state, city, or other political entity having jurisdiction were fully complied with.  




8.4

The export from the United States of Licensed Products to countries other than Iran, Iraq, Libya, Serbia, Sudan, North Korea, and Cuba is not subject to any export license requirements or other restrictions pursuant to applicable United States laws and regulations, and the use of the Materials to manufacture Licensed Products will not cause export from the United States of such Licensed Products to countries other than Iran, Iraq, Libya, Serbia, Sudan, North Korea, and Cuba to be subject to any such export license requirements or other restrictions. Microsoft agrees that it will comply with all import and export laws and regulations of all jurisdictions in which it imports and exports the Materials or output of the Process.




8.5

No copies of any Licensed Product Code shall be retained by Licensor.









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9.

REPRESENTATIONS, WARRANTIES, AND COVENANTS OF MICROSOFT




Microsoft hereby represents, warrants, and covenants to Licensor that Microsoft has the full right and power to enter into and perform according to the terms of this Agreement.




10.

INDEMNITY




10.1

Licensor hereby agrees to indemnify, pay the defense costs of, and hold Microsoft, Microsoft OEMs, Republishers and Media Replicators and/or any of their respective directors, officers, employees, distributors and/or agents (collectively, the “Indemnitees”) harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including attorneys' fees, costs, and expert witnesses' fees) arising out of or in connection with (a) any claim by an unaffiliated third party that (i) the Materials or Upgrades violate any patent, copyright, trade secret, trademark, or other proprietary right of such third party, (ii) third party permissions or licenses are required for Microsoft to exercise any of its license rights with respect to the Materials; or (iii)  relates to an Media Replicator’s performance of the service in replicating the Copy Protected Discs containing the Licensed Products; or (b) any claim which, taking the claimant's allegations to be true, would result in a breach by Licensor of any of Licensor’s warranties and covenants set forth in this Agreement.  Prompt notice shall be given to Licensor of any claim to which the foregoing indemnity relates and sole control of the defense and settlement of such claim shall rest solely with Licensor.  Microsoft shall provide, at Licensor’s expense, information, assistance and authority reasonably requested by Licensor to help Licensor to defend such claim or action.  Microsoft shall have the right, at its sole cost and expense, to employ separate counsel and participate in the defense of any claim or action.  Licensor may not settle any claim or action on any Indemnitees’ behalf under this Section 10 without first obtaining Microsoft’s written permission, which permission will not be unreasonably withheld.  The foregoing indemnity shall not apply to any claim arising as a result of (a) modification of the Materials made other than by Licensor; or (b) failure of an Indemnitee to use updated or modified Materials provided by Licensor and accepted by Microsoft as set forth in Section 6, to the extent such claim would have been avoided if such updated or modified Materials has been used, provided that this subsection (b) shall not apply to Licensed Products in existence prior to the time the Indemnitee(s) could reasonably implement the updated or modified Materials following Microsoft’s acceptance thereof.




10.2

If the Materials are in any action held to constitute an infringement of any third party's rights and its use is enjoined, Licensor shall immediately and at its expense:  (i) procure for Microsoft, Microsoft OEMs, Republishers and Media Replicators the right to continue its use of the Materials in accordance with this Agreement; or (ii) replace the Materials with an equivalent version that is non-infringing.




10.3

Each of the Indemnitees (other than Microsoft) is an intended third party beneficiary of this Section 10.




10.4

The indemnity provisions hereof shall survive any termination or expiration of this Agreement.




11.

NONDISCLOSURE AGREEMENT




Microsoft and Licensor have entered into a Microsoft Non-Disclosure Agreement and the parties agree that the terms of such agreements shall be deemed incorporated herein, and further, that all terms and conditions of this Agreement and any reports or statements delivered pursuant to this Agreement shall be deemed Confidential Information as defined therein.






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12.

COPYRIGHT




Microsoft shall have the right to secure copyright protection for Licensed Products in Microsoft's own name and in all countries and territories where such protection is available and to exploit such copyright in Licensed Products; provided, however, that nothing herein shall be deemed to transfer any ownership rights held by Licensor in the Materials or the Process to Microsoft.




13.

AUDITS




13.1

Microsoft agrees to keep all proper records and books of account and all proper entries therein relating to Microsoft Sales System reporting data for Licensed Products.




13.2

Licensor may cause an audit to be made, at its expense, of Microsoft’s applicable records in order to verify statements rendered hereunder by Microsoft.  Any such audit shall be conducted only by an independent certified public accountant (other than on a contingency fee basis) after prior written notice to Microsoft, and shall be conducted during regular business hours at Microsoft’s offices and in such a manner as not to interfere with Microsoft’s normal business activities.  In no event shall an audit with respect to any statement commence later than eighteen (18) months from the date of the statement involved, nor shall the audits be made hereunder more frequently than once annually, nor shall the records supporting any statements be audited more than once.  The results of any such audit shall be subject to the nondisclosure obligations set forth in Section 11.




13.3

In the event that Licensor makes any claim against Microsoft with respect to such audit, Licensor hereby agrees to make available to Microsoft, upon request, its records and reports pertaining to the audit and any such records and reports prepared for Licensor by its accountant(s).




14.

TERMINATION  




In the event a party shall materially fail to perform or comply with this License Agreement or any material provision thereof, and fail to remedy the default within thirty (30) days after the receipt of notice to that effect, then the other parties shall have the right, at their sole option and upon written notice to the defaulting party, to terminate this License Agreement upon written notice.  Any notice of default hereunder shall be prominently labeled "NOTICE OF DEFAULT," and if to Microsoft, shall be copied to Microsoft's Law & Corporate Affairs Department, attn. U.S. Legal Group.  The rights and remedies provided in this Section shall not be exclusive and are in addition to any other rights and remedies provided by law or this Agreement.




15.

RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION 




15.1

Upon the expiration or termination of this Agreement, Microsoft and its OEMs and Republishers shall further have the right to continue to reproduce, manufacture, sell or otherwise dispose of copies of each Licensed Product which is commercially available as of  the date of expiration or termination (each, a “Legacy Licensed Product”), such right to continue for so long as Microsoft elects to make such Legacy Licensed Product commercially available (and/or so long as any applicable OEM or Republisher agreements executed prior to termination of this Agreement remain in effect), and Microsoft shall continue to pay the Technology Fees thereon as provided in Section 4.1 of this Agreement and Licensor shall continue to provide the Services.  To the extent the parties choose to renew this Agreement following the initial term, and in connection therewith the parties agree to different Technology Fees, such new Technology Fees shall not apply to Legacy Licensed Products.






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15.2

Upon the expiration or termination of this Agreement, Microsoft shall be entitled to retain copies of the Materials for support of OEMs, Republishers and end-users, and for internal use.




15.3

Expiration or termination of this Agreement for any reason shall not affect existing end user license agreements for the Licensed Product, which shall continue in full force and effect in accordance with their terms.  Sections 4, 5 and 8-27 shall survive expiration or termination of this Agreement.  




16.

GOVERNING LAW, VENUE, ATTORNEYS' FEES




16.1

This Agreement shall be construed and controlled by the laws of the State of Washington, and Licensor further consents to jurisdiction by the state or federal courts sitting in the State of Washington.  Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, or by such other method as is authorized by law.




16.2

If either Microsoft or Licensor employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs, including expert witness fees.




17.

NOTICES AND REQUESTS




All notices and requests in connection with this Agreement shall be deemed given as of the day they are (i) deposited in the U.S. mails, postage prepaid, certified or registered, return receipt requested; or (ii) sent by overnight courier, charges prepaid, with a confirming fax; and addressed as follows:







Licensor:

SMARTE SOLUTIONS, INC.

611 South Congress Avenue

Suite 350

Austin, TX  78704 




Attention:

Michael B. Shapiro

Fax:

512 442-9326

Phone:

512 443-8749 x106




Microsoft:

MICROSOFT CORPORATION

One Microsoft Way

Redmond, WA  98052-6399




Attention:

PC Games Business Development




with a cc to:

MICROSOFT CORPORATION

One Microsoft Way

Redmond, WA  98052-6399




Attention:

Law & Corporate Affairs Department

Fax:

U.S. Legal Group

(425) 936-7329









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or to such other address as the party to receive the notice or request so designates by written notice to the other.




18.

NO ASSIGNMENT




Licensor may not assign this Agreement, or any portion thereof, to any third party unless Microsoft expressly consents to such assignment in writing.  Any attempted assignment without such consent shall give Microsoft the right to terminate this Agreement effective upon written notice.




19.

LEGAL RELATIONSHIP




This Agreement is intended solely as a license agreement, and no partnership, joint venture, employment, agency, franchise, or other form of agreement or relationship is intended.




20.

SEVERABILITY




In the event that any provision of this Agreement is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms.  The parties intend that the provisions of this Agreement be enforced to the fullest extent permitted by applicable law.  Accordingly, the parties agree that if any provisions are deemed not enforceable, they shall be deemed modified to the extent necessary to make them enforceable.




21.

ENTIRE AGREEMENT/MODIFICATION/OFFER




The parties hereto agree that this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and merges all prior and contemporaneous communications.  It shall not be modified except by a written agreement dated subsequent hereto signed on behalf Licensor and Microsoft by their duly authorized representatives.  Neither this Agreement nor any written or oral statements related hereto constitute an offer, and this Agreement shall not be legally binding until executed by both parties hereto.




22.

TAXES




In the event taxes are required to be withheld on payments made under this Agreement by any U.S. (state or federal) or foreign government, Microsoft may deduct such taxes from the amount owed Licensor and pay them to the appropriate taxing authority.  Microsoft shall in turn promptly secure and deliver to Licensor an official receipt for any taxes withheld.  Microsoft will use reasonable efforts to minimize such taxes to the extent permissible under applicable law.




23.

PRESS RELEASES




The content, timing and necessity of all press releases and/or similar communications, if any, regarding the non-confidential subject matter of this Agreement will be agreed upon in writing by both Parties prior to any press release or public announcement.  Licensor shall not use Microsoft’s name, trademark(s), or trade name(s) (whether registered or not), without the prior written consent of Microsoft, including without limitation identification to any third party that Licensor is a supplier of technology or equipment to Microsoft.  









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24.

NO OBLIGATION  




Notwithstanding any other provision of this Agreement, Microsoft shall have no obligation to use or include the Materials in the manufacture of Microsoft software products.  Except as set forth in Sections 2 or 11, nothing in this Agreement will be construed as restricting Microsoft’s ability to acquire, license, develop, or use for itself, or have others acquire, license, develop, or use for Microsoft, similar product(s) performing the same or similar functions as the Materials, or to use, market and distribute such similar product(s) in addition to, or in lieu of, the Materials.  




25.

INSURANCE  




Licensor shall maintain Professional Liability and Errors & Omissions Liability Insurance (E&O) with policy limits of not less than Five Million Dollars ($5,000,000.00), each claim with a deductible of not more than Twenty-Five Thousand Dollars ($25,000.00).  Such insurance shall include coverage for infringement of any proprietary right of any third party, including without limitation copyright, trade secret, patent and trademark infringement as related to Licensor’s performance under this Agreement.  The E&O insurance retroactive coverage date will be no later than the Effective Date.  Licensor shall maintain an active policy, or purchase an extended reporting period providing coverage for claims first made and reported to the insurance company within two (2) years after Microsoft’s final payment related to this Agreement.  This E&O insurance shall apply only to claims, liabilities or damages (including legal fees) arising out of this Agreement.  Upon request, Licensor shall deliver to Microsoft proof of such coverage.  In the event that Licensor’s proof evidences coverage which Microsoft reasonably determines to be less than that required to meet Licensor’s obligations created by this Agreement, then Licensor agrees that it shall promptly acquire such coverage and notify Microsoft in writing thereof.




26.

INSOLVENCY, BANKRUPTCY




26.1

Licensor agrees that it shall provide Microsoft with a complete copy (including source code) of the Materials, which Microsoft shall archive and not permit review or use by any Microsoft employee or third party, and such Materials shall be subject to the Non-Disclosure Agreement entered into by the parties.  Contingent upon the following, Licensor grants Microsoft all license rights necessary (including the right to make modifications to correct Errors) to utilize the Materials in order to create Licensed Products consistent with the terms of this Agreement: (i) a petition under any bankruptcy act, receivership statute, or the like, as they now exist or as they may be amended, is filed by Licensor; (ii) such a petition is filed by any third party, or an application for a receiver of Licensor is made by anyone and such petition or application is not resolved favorably to Licensor within sixty (60) days; (iii) Licensor admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or (iv) Licensor is unable or unwilling to correct Errors as set forth in Section 6.5 herein.  




26.2

In the event Microsoft or Microsoft OEMs use the Materials to create Licensed Products pursuant to this Section, Microsoft shall continue to pay Licensor its Technology Fees as specified in Section 5 herein. 









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27.

BINDING EFFECT




Subject to the limitations herein before expressed, this Agreement will inure to the benefit of and be binding upon the parties, their successors, administrators, heirs, and permitted assigns.




IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates indicated below.







MICROSOFT CORPORATION

SMARTE SOLUTIONS, INC.







_/s/ Edward Ventura_____ __________

__/s/Michael B. Shapiro________________

By

By




___Edward Ventura         ___________

___Michael B. Shapiro_________________

Name (Print)

Name (Print)




___Director_______________________

___CEO_____________________________

Title

Title




___19 March 2003_________________

____17 March 2003____________________

Date

Date












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EXHIBIT A




SPECIFICATIONS FOR MATERIALS AND PROCESS

Materials Descriptions




General




Physical Media Locking

Modern CD copy protection systems utilize a CD that has embedded methodologies that make it uncopyable without specialized software and/or hardware (usually a CD with deliberate errors on certain tracks), which is checked during application initialization. Applications installed on the media are written to check the media for the protection signature (errors) and load or run correctly if the media is valid. The problem with this approach is that it is typically an easy process to remove the media checks from the application.




To prevent media checks from being removed from the application, a form of software security needs to be applied. Application code, which checks the media, is embedded directly within the application and is subsequently wrapped along with the application so that the validation becomes a direct part of the application. The executable (application) file itself is wrapped using SmarteSECURE, which effectively protects the wrapped application from modification, or reverse engineering, thereby protecting not only itself, but the integral CD media validation function.




Smarte’s protection solution, as provided to Microsoft is designed to prevent casual copying of CD media. Smarte defines casual copying as any non-raw mode copy of the CD or a non-raw mode copy of the CD image. Smarte will deliver SmarteMASTER V2.0, SmarteSECURE v2.0 with the Application Protection and Media Protection Modules, as well as the SmarteSuite  COM Extension Element and End-User Exception List Utility to Microsoft as outlined in the technology overview. 




SmarteSECURE V2.0 Application Protection Module




SmarteSECURE Application Protection Module delivers robust IP protection. It enables a balance between the necessary levels of product protection and revenue retention/generation capabilities.  This gives you the ability to securely distribute your solution within a trusted environment, protecting your IP throughout its lifecycle.  




SmarteSECURE’s 7-layer defense system protects an executable (application) file from modification, hacking, reverse engineering, etc.  It allows the end user complete flexibility through a simple to use process flow driven interface.  In addition, SmarteSECURE can be extended to meet Microsoft specific needs by developing and embedding COM objects directly into this flow.   




Features




§

Injected Code: Security code is injected not only at the start of the program, but throughout it. This allows security to be checked throughout the application’s execution. 

§

Compression: Protected software is reduced up to 70% of its original size with no appreciable deterioration in startup or execution performance.

§

Encryption: Protected software is encrypted and decrypts only when run. 

§

Relocation: Security code is moved in memory as it runs and at no time is the entire loader running in memory at once.






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§

Modification of Code: Allows you to customize the application to specific needs such as protecting access to additional levels of a product or allowing dual distribution methods that require both CD and Internet access to run.

§

Dual Process Security: The security is verified in a secondary process.

§

Anti-debug Code: Offers protection from debuggers, disassemblers, decompilers, process dumpers and other tools that allow software to be examined at its lowest level and then reversed to become readable instructions. Special routines are inserted to detect cracking tools.

§

Code Mutation (Intelligent Security Engine – ISE) – Provides the highest level of protection of the IP to where a generic crack becomes a virtual impossibility, including polymorphic encryption and injected code routines and methods.

§

Unique file-based physical corruption of the media.




§

Media originality validation system capable of automatically checking for the unique file-based physical corruption (with the Media Protection Module add-on as described below).

§

Flexible validation system that allows publishers to dictate the frequency and location of checks as well as the actions taken based on the checks.

§

Custom Element Addition Capability: The system accepts COM objects created by the producer that can be added to the flow, whereby the functionality and contents are “fused” and protected within the protected application itself, eliminating




Media Protection Module V2.0




The Media Protection Module determines whether or not optical disc media is valid/original and returns this information back to the calling application.  It provides options in which original media must be present in order for the application to run.  The Media Protection Module is also designed to be fully compatible with the SmarteSuite End-User Exception List Utility developed for Microsoft.




SmarteMASTER V2.0




SmarteMASTER offers the industry’s only fail-safe piracy protection logistics solution for in-house CD or network mastering. It will allow Microsoft to securely and efficiently produce CD masters with piracy management controls, ship protected gold masters and send protected files over a network to authorized replicators, duplicators and beta customers




SmarteMASTER maintains the same build standards for the final CD currently used by the producer, regardless of the original build utility. Specifically, the producer uses SmarteSECURE to apply the appropriate protection process flow to their executable (application) file, specifying the file name and path of the “target” file on the CD. The Producer then masters the CD in the same manner that they do currently, with the exception that they add two “placeholder” files to the CD, one of which is the “target” file that provides the basis for the CD validation, and the other, referred to as the “Ident” file, allows for the CD to be seamlessly processed through subsequent in-house duplication and/or replication/testing. This CD is then passed through the SmarteMASTER program, which creates a final protected CD that is a virtual duplicate (exclusive of embedded replication failsafe mechanism) of the final CD as processed through final mass production (replication).




Features




§

Limited Touch Methodology: The SmarteMASTER system only affects those areas of the user data that are required for the protection. All other areas of the user data of the CD remain exactly as they were originally written to the CD by the producer.

§

Ident File: Allows replication encoder, mastering, and testing equipment/systems and plug-ins to perform all required operations from the CD itself without the need for an additional external 






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file/disk that could be lost/mixed with a different CD/batch. This file also allows the producer access to enable integration with internal tools, such as an internal image verification/CRC utility.

§

Replication Failsafe: Since the produced CD itself has the protection embedded within it, Replication software itself fails when attempting to encode from the disc unless a licensed and authorized plug-in is activated, preventing human error in creating CD’s without the protection, eliminating delays and cost associated with such errors. In addition to this, a replicated CD has a modification “invisible” to other systems that prevents a replicated CD itself from being processed as a master.

§

Local Disc Generation: Final CD’s are created directly at the developer’s desk if desired, eliminating the need for an external “gatekeeper” of the producer’s technology. The SmarteMASTER system supports a number of standard CD burner drives, eliminating the requirement for “special” hardware.

§

Validation Utilities: The SmarteMASTER system has inbuilt validation utilities that allow for the verification of the protection as applied to the CD, as well as “content” based verification that can perform a byte for byte evaluation of file content written to the CD as compared to either another CD or from a hard drive where the structure was laid out, independent of physical order/position of the files on the CD, enabling the producer to validate that the content itself on the CD is exactly the same as the content from the parent source.

§

Final CD produces no “physical” defects: The final CD produces no E32/E22 errors identified by testers which indicate a “defective” replicate for discs produced during replication.




SmarteSuite Developers Kit End-User Exception List Utility

It is recognized that no protection is 100% compatible with all CD read drives produced as the industry itself is not fully standardized in it’s actual interpretation methodologies of the CD’s. To this end, the End-User Exception List Utility can be distributed with the protected application to produce an encrypted file by the end user from their machine (encryption is different from that used by the exception listing itself) whereby when received by Smarte Solutions via Microsoft Support, can be used rapidly create a “patch” file which can be either a “standard” listing used to maintain permanently known problem drive identification information, or used to create a file unique to the individual user sending the information. Either file, when returned to the user, allows the incompatibility verification step to be bypassed (other checks with 0% incompatibility remain), effectively “patching” the application such that the user can now run the protected CD.







Benefits




§

No Redistribution of CD’s: Since this methodology allows for the “patch” to be generated and subsequently handled electronically, there is no need to ever send a “new” CD to a customer within the context of incompatibility.

§

No “Unprotected” CD distribution: Failing a path capability, many producers are forced to either refund the customer’s money, or in most cases, will eventually send out an unprotected version of their software. The End-User Exception List utility ensures that the producer will NEVER have to send out unprotected versions of their software within the context of incompatibility.







Acceptance Criteria for Materials




The SmarteSECURE Application Protection product will successfully protect a test, beta and/or final game executable.  By utilizing the Media Protection Module, the executable will include a validation step that ensures an original CD is present (as produced by the SmarteMASTER system).  Attempts at 






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debugging/cracking/copying the application should fail. The debugger should not be able to break into the game code, nor should circumvention of the copy protected file check be possible by a simple binary patch to the encrypted executable.




SmarteMASTER will be able to successfully create a fully protected CD-R both for internal testing, beta testing, and potential delivery to an authorized replicator (meaning it will have the Ident file present if it is mastered in that method). In addition, simple copying of the protected CD-R using a consumer level CD authoring toolkit (such as Roxio’s EZ CD Creator) should not produce a workable CD.




Finally the encrypted application that includes checks for an original/ valid CD-R will properly start and execute on at least 90% of the test systems used for configuration testing. These systems will have been determined to be able to properly start and execute an unprotected/non-encrypted version of the test application/game as a control test. Failed drives will be identified using the End-user Exception List utility and the resultant information will then be passed to Smarte Solutions.  Smarte Solutions will create an exception list file for those fail drives.  Microsoft will retest the respective drives.  This process will continue until the indicated drives pass.




Specification For Process




Microsoft Ops Procedures




To summarize the internal process, Microsoft will be required to:

1.

Develop and apply a protection process flow to their application utilizing SmarteSECURE 2.0 and the Applications Protection and Media Protection Modules.

2.

Add an installer as per normal operations (if needed).

3.

Burn the application distribution package to a CD-R.

4.

Produce the final CD-R using one of the following methods:

a.

Create protected masters entirely in-house using SmarteMASTER 2.0 mastering software. This software will be customized to function on specific CD burners (such as Plextor burner).

b.

Send the Intermediate Master to Smarte which will produce the final masters and deliver those to Microsoft.

5.

Replicate the protected CD-R’s using one of the following three methods:

a.

Forward the protected CD-R to an approved replication facility(ies) for mastering.

b.

Electronically transmit the protected image to an approved and enabled replication facility(ies) for mastering.

c.

Duplicate via a Smarte-enabled Rimage unit.




The replicator will require SmarteMASTER software upgrades (plug-in’s) from their encoder and test equipment provider(s) (such as DCA , Eclipse, CD Associates, etc.) to enable mastering, verification and testing of the protected product. Smarte has worked with the imager, encoder and test equipment vendors to develop these plug-in enhancements per Microsoft’s supplied requirements for rollout .




Smarte Solutions development required for mastering, replication and test 

Smarte Solutions has created and delivered to Microsoft for initial testing the SmarteMASTER Version 2.0 software, as well as the SmarteSECURE Application Protection and Media Protection Modules. Smarte has architected the capability to allow Microsoft to implement their custom/internal utilities/tools such as the Microsoft CD CRC tool in creation of a compatible version for verification of CD-R masters and final replicas (which is believed to be already accomplished for this internal tool). In addition, Smarte has developed and delivered the requisite plug-in’s for the various equipment manufactures instrumental 






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in the replication and duplication process (including Rimage, DCA, Eclipse, CD Associates, etc.).  These plug-ins are required for the production process but are not the property of Smarte and as such are not licensed as part of this agreement. 




Smarte Solutions will maintain ongoing relationships with applicable Mastering, Replication, Duplication and Test equipment vendors to expediently address manufacturing issues.  Smarte will also develop equipment version upgrades as needed to support efficient, high quality manufacturing of Microsoft product.




Smarte is responsible for supporting the development, test and sign-off of:

·

SmarteSecure capable MS CD CRC tool.  

·

Microsoft Release Lab processing of SmarteSecure protected masters.  Including, but not limited to anti-virus scanning, Rimage Duplication and CRC checking.




Smarte has created and will maintain a Replicator Certification program to insure control and proper integration of the technology throughout mastering, verification, replication, test and security.  Smarte to provide Certification program details to Microsoft as well as ongoing program updates.




The Process:




The goal is to allow Microsoft to reduce the inherent costs of limited production/on-demand CD production by providing the capability to produce protected masters in-house, as well as provide the capability to produce fail-safe protected masters that can be sent to CD Replication houses for mass production/replication. This allows Microsoft the ability to create protected masters “on-demand” at a developers desktop, thereby reducing the inherent processing time during testing and vulnerabilities associated with unprotected IP being used internally, for beta testing, etc. This also provides a “fail-safe”, whereby a protected disk sent to a Replicator without the appropriate SmarteMASTER plug-ins, will fail during the mastering, thereby preventing the needless production of invalid media or pirated IP. In addition, with the methodology outlined, Microsoft should never have to distribute an unprotected version of their software due to incompatibility issues.




Local Protection “Gold Master” Generation

Microsoft will utilize SmarteMASTER to produce protected Gold Masters as follows:









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Figure : Solution Process




Key to Figure One:

1.

Microsoft develops and creates its software application as normal.  

2.

The application *.exe and files are securely packaged using SmarteSECURE Application Protection and Media Protection Modules. Microsoft can customize the security packaging using the Process Flow editor within SmarteSECURE, including incorporation of custom COM elements, custom end-user dialogs, custom exception list development, etc. 

3.

Microsoft uses SmarteMASTER to create necessary placeholder files. Microsoft then creates the install package for the protected .exe.

4.

Microsoft creates the Intermediate Master using conventional CD burning software. 

5.

Microsoft uses SmarteMASTER and the Intermediate Master to create the final disc image.

6.

Microsoft uses SmarteMASTER to produce the “Gold Master”.









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Example Glass Mastering Process




Figures two, three, four and five below detail examples of the glass mastering, replication copy protection, replica verification, and production test processes. For the purpose of displaying the processes, Eclipse Systems processes have been used, however any Replicator of choice will follow this same basic process. 






Figure : Example Glass Mastering Process









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Figure : Example Replication Copy Protection Process












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Figure : Example Replica Verification Process




Note:  Processes depicted in the above diagrams are examples only.  Actual implementation processes may vary.




Summary Information Regarding the “Ident” File:

This file is a readable data file (data encrypted) that contains the information regarding the current and future Versions of SmarteSECURE Media Protection, as well as creates an information file for SmarteMASTER enabled replicator imager, encoder and test equipment vendors to derive information regarding employed protections on the supplied master disk. 




The Ident File does two things:

1.

Records where the corruption is location, and

2.

Records which sectors data changes were made.

The CRC equipment will utilize this information to skip the modified sectors.




In addition, Smarte has extended the SmarteMASTER product to incorporate customized development to support the Microsoft in-house CRC tool.




 






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EXHIBIT B




SERVICES PLAN







Contacts




Microsoft will be provided single points of contact within Smarte for all queries.  These contacts will be able to delegate all technical, business and sales issues to the appropriate staff members. Smarte shall provide sufficient services and support to mastering equipment vendors, test equipment vendors, and media manufacturers to resolve issues in the most expedient manner possible. Most issues can be resolved in less than 48 hours and additional resources allocated as needed. 




Primary Contact 




Nimesh Porbandarwalla

Program Manager

Direct: 512 443-8749 x102

Cell:   512-731-3089

Email: nimesh@smartesolutions.com

Available between 8.30am – 5.30pm Central Standard Time.




If however, Microsoft wishes to contact a department directly, they can do so as listed below:




Sales

Penny J. Lane

Vice President, Sales and Marketing

Direct:  512-443-8749 X103

Cell:   512-963-4980

Email: penny@smartesolutions.com

Available between 8.30am – 5.30pm Central Standard Time







Smarte Technical Contact 

Brian Mantz

Vice President of  Engineering, Quality and Support

Direct: 512-443-8749 x111

Fax:   512-443-9326

Email: brian@smartesolutions.com

Available between 8.30am – 5.30pm Central Standard Time




General Support Email

support@smartesolutions.com







Escalation

For urgent issues or if Microsoft requires a current issue to be escalated, you can contact your primary point, Nimesh Porbandarwalla or Michael Shapiro (Smarte’s CEO) at the following:




Email: michael@smartesolutions.com

Direct:  512-443-8749 X106

Cell:  512-789-4565






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Michael Shapiro is in the office at least between 9.30am – 5.30pm US CST, however can be contacted at any time, night or day.




Head Office




Smarte Solutions’ head office details are as follows:




Smarte Solutions, Inc.

611 South Congress Avenue

Suite 350

Austin, TX 78704

Phone:

512-443-8749

Fax:

512-443-9326




Bugs




Smarte Solutions is dedicated to providing the best possible solution to Microsoft and media manufacturing equipment vendors including:




§

A single point of contact

§

Direct access to engineering staff as required

§

Additional resources allocated as needed

§

Priority service for bug & compatibility fixes




To report a bug, an authorized staff member from Microsoft will be required to submit a Bug via the RAID database as set up and hosted by Microsoft but available to SmarteSolutions  Smarte will handle the bug as outlined in the Issue Process Flow below.  However, if a reported problem is deemed not to be a bug, it is subject to Customer Engineering procedures and pricing as outlined below.




Cracks




Application security is the most important aspect of Smarte’s solutions.  We are absolutely dedicated to preventing cracks to software protected by these solutions.  Microsoft will benefit from this commitment through continuous improvements and enhancements to methodologies and technologies.

Smarte will deal with reported cracks in the following manner:




§

Reverse engineer cracks

§

Implement changes to reduce future similar threats

§

Make available revised products as soon as available.




Crack reporting is dealt with in a similar manner to bugs.  Microsoft can report the alleged crack to Smarte viathe RAID database . The crack is then given the highest priority in the technical department.  Again, the process will follow the lines outlined below in the next section.










Issue Process Flow












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Step 1: 

Microsoft activates a new bug in the SmarteSECURE RAID  bug database listing severity and priority

Step 2:

Smarte assesses the issue.




Step 3:

Smarte notifies Microsoft of the initial analysis and, if required, escalates.




Step 4:

Smarte assigns engineering resources if required.




Step 5:

Smarte provides time estimates for issue resolution to Microsoft.




Step 6:

Smarte completes the engineering and testing of the fix




Step 7:

Smarte delivers the tested fix to Microsoft




Custom Engineering




If Microsoft requires custom engineering to be completed by Smarte, they can make a request to Smarte’s Technical Department, at which point Smarte will supply an Estimation Quote for the work required.  Microsoft will then be required to submit a Purchase Order for the work to begin.  




This Purchase Order must outline the work to be completed, the authorizing Microsoft staff member and their contact details, and billing details such as a Microsoft accounts staff member delegated the responsibility of handling payments.  Microsoft can use its own standard purchase order form adding the required information requested by Smarte.




Standard rates for Custom Engineering are USD<**> per man hour.









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