Document:

Exhibit 10.B.18

 

CUSTOM
SALES AGREEMENT

BASE
AGREEMENT

	
  International Business
  Machines Corporation

  	
   

  	
  281 Winter Street

  Waltham, MA  02154

  

 

Agreement No.  000451

 

	
  Customer:

  	
   

  	
  Apple Computer, Inc.

  
	
   

  	
   

  	
  1 Infinite Loop

  
	
   

  	
   

  	
  Cupertino, CA  95014

  
	
   

  	
   

  	
  USA

  

 

This Custom Sales Agreement between Apple Computer,
Inc. (“Apple”) and International Business Machines Corporation (“IBM”), which
consists of this Base Agreement and Statement of Work Attachments, shall be
referred to as the “Agreement”.  The
term of this Agreement commences on October 21, 2002 and expires on October 20,
2007.

 

By signing below, the parties each agree to be
bound by the terms and conditions of this Agreement including the initial
Statements of Work, Attachments No. 1 and No. 2, and no additional signature on
those Statements of Work are required. 
Subsequent Statement of Work Attachments under this Agreement must be
signed by the parties to become effective.

 

Upon signature by both parties, it is agreed this
Agreement constitutes the complete and exclusive agreement between them
superseding all contemporaneous or prior agreements, written or oral, relating
to the subject matter notwithstanding anything contained in any document issued
by either party, except the Confidentiality Agreement (Mutual), Agreement No.
X1329, as amended, signed by IBM and Apple with an effective date of April 1,
1999.  This Agreement may not be amended
or modified except by a written amendment signed by duly authorized signatories
of both parties.

 

The parties expressly acknowledge
that they have received and are in possession of a copy of any referenced item
not physically attached to the Agreement and any such item will be treated as
if attached.

 

Accepted and Agreed To:

 

	
  Apple
  Computer, Inc.

  	
   

  	
  International
  Business Machines Corporation

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Jeff Williams

  	
   

  	
  By:

  	
  /s/
  Scottie Ginn

  
	
  Name:

  	
  Jeff
  Williams

  	
  Name:

  	
  Scottie
  Ginn

  
	
  Title:

  	
  V.P.
  Worldwide Procurement

  	
   

  	
  Title:

  	
  V.P.
  Standard Products

  
	
  Date:

  	
  December
  6, 2002

  	
   

  	
  Date:

  	
  December
  12, 2002

  

1.0           DEFINITIONS

Capitalized terms in this
Agreement have the following meanings. 
An Attachment may define additional terms and conditions; however, those
terms and conditions will apply only to that Attachment.  References in this Agreement to a gender
include references to all genders, and references to the singular include
references to the plural, and vice versa. 
Unless the context otherwise requires, the term “party” means a party to
this Agreement.  The words “include”,
“includes” and “including”, when used in this Agreement shall be deemed to be
followed by the phrase “without limitation.” 
Unless the context otherwise requires, references in this Agreement to
sections, exhibits, schedules, appendices and attachments shall be deemed
references to sections of, and exhibits, schedules, appendices and attachments
to this Agreement.  Unless the context
otherwise requires, the word “or” shall be disjunctive and the words “hereof”,
“hereby” and “herein” and words of similar meaning when used in this Agreement
shall refer to this Agreement in its entirety and not to any particular
article, section or provision of such Agreement.  Unless the context otherwise requires, references to “IBM, and
its Plant” shall be read to include “as the case may be.”

1.1           “ASIC
Products” means a custom Product that is an application specific integrated
circuit.

1.2           “Authorized
Purchaser” means the entity that placed (or, in the case of Apple, had a
Designee place) the Purchase Order for particular Products or Services,
provided such entity is (i) Apple, (ii) any of Apple’s wholly-owned
Subsidiaries, including Apple Computer International and Apple Computer
Limited, or (iii) another Apple-Related Company authorized to place Purchase
Orders under this Agreement as set forth in Section 2.4, below, and not a
Designee or any other third party.

1.3           “Base
Agreement” means this document, exclusive of Statement of Work Attachments.

1.4           “Business
Days” means a regularly scheduled day of work in the United States for both
Apple and IBM.

1.5           “Designee”
means an original equipment manufacturer, contract manufacturer or other third
party engaged by Apple or an Apple-Related Company to manufacture Apple-branded
products or subassemblies for Apple-branded products and authorized by Apple,
pursuant to Section 2.5, below, to purchase Products and perform other tasks on
Apple’s behalf.

1.6           “Exhibit
4 Products” means those specific Products set forth on the attached Exhibit 4,
including those in its footnotes.

1.7           “Failed
Units” means specific units of a particular Exhibit 4 Product, or any other
ASIC Product that the parties may agree to treat in a similar manner, sold
hereunder that exhibited a Failure or can be predicted with a reasonable
certainty to exhibit a Failure prior to the expiration of the [**] commencing
on the date such units were manufactured.

1.8           “Failure”
means that the unit of Exhibit 4 Product or the unit of any other ASIC Product
that the parties may agree to treat in a similar manner does not operate in
conformance with the agreed upon (in writing) specifications (in ASIC Products,
such specifications will be set forth in the RTM as that term is defined in the
ASIC Development Agreement, Agreement No. 000798) and [**] and which reasonably
could not have been detected by Apple through system, subsystem, and part testing
activities which are no less thorough than (i) for both the ASIC and PowerPC
Exhibit 4 Products, those testing activities generally conducted by Apple but
not less thorough than those testing activities generally conducted by other
personal computer manufacturers (but not microprocessor  manufacturers) in the industry, or (ii) for
PowerPC Exhibit 4 Products, after a test specification is agreed upon by IBM
and Apple pursuant to Section 14.1 of this Agreement, those testing activities
to be conducted by Apple as described in such test specification.

1.9           “Failure
Threshold.”  For each Exhibit 4 Product,
or any other ASIC Product that the parties may agree to treat in a similar
manner, sold under this Agreement, the Failure Threshold shall be [**] of the total
number of units of the particular Product manufactured [**] and shipped by IBM.

1.10         “Forecast”
means a non-binding monthly forecast in substantially the same format shown in
Exhibit 3 specifying the number of Products Apple anticipates that its Authorized
Purchasers and Designees will purchase from IBM each month during the specified
period.

1.11         “Item” means any part, specification,
design, document, report, data or the like which Apple delivers to IBM under
this Agreement.

1.12         “Plant” means the IBM-Related Company described in
Section 2.6.

1.13         “PowerPC Product” means a stand-alone
microprocessor Product based on the PowerPC Architecture.

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

1.14         “Product”
means production units to be sold or purchased under this Agreement, including
the Exhibit 4 Products.  Products may be
“standard” (available for purchase by one or more customers other than Apple)
or “custom” (resulting from IBM performing Services for Apple under this
Agreement and not available for IBM’s own use (other than ordinary
manufacturing activities) or for purchase by any other customer).  Standard Products may include, but not
necessarily be limited to, PowerPC Products and SRAM Products.  Custom Products may include, but not
necessarily be limited to, PowerPC Products and ASIC Products.  Product shall be designated as “standard” or
“custom” in the Attachment applicable to such Product.  Products shall not include Prototypes.

1.15         “Prototype” means a preliminary version
of an ASIC Product which may or may not be functional, is intended for internal
use and testing and not for resale, and is not suitable for production in
commercial quantities.  The terms and
conditions relating to Prototypes are set forth in the ASIC Development
Agreement, Agreement No. 000798, signed by the parties on September 26, 2001.

1.16         “Purchase
Order” means a written order containing the terms set forth in Section 3.2,
below, issued by an Authorized Purchaser or Designee pursuant to this
Agreement.

1.17         “Purchase
Order Lead Time” means the required minimum amount of time between IBM’s
receipt of the Purchase Order and the Scheduled Shipment Date.  Purchase Order Lead Times will be
established for each Product sold hereunder and shall be set forth in the
Attachment hereto which is applicable to such Product.

1.18         “Related
Company” of a party hereunder shall mean a corporation, company or other entity
which controls or is controlled by such party or by another Related Company of
such party, where control means ownership or control, direct or indirect, of
more than fifty (50) percent of:  (i)
the outstanding voting shares or securities (representing the right to vote for
the election of directors or managing authority), or (ii) the ownership
interests representing the right to make decisions for such a corporation,
company or other entity (as the case may be in a partnership, joint venture or
unincorporated association having no outstanding shares or securities).  However, any such corporation, company or
other entity shall be deemed to be a Related Company of such party only so long
as such ownership or control exists.

1.19         “Related
Company Agreement” means the agreement to be executed by the parties and by the
Authorized Purchaser in the form attached hereto as Exhibit 1.

1.20         “Sales
Acknowledgment” means a written sales acknowledgment or other acceptance
document issued by IBM or its Plant in response to a Purchase Order.

 

 

[**] = information redacted pursuant to a confidential treatment
request.  Such omitted information has
been filed separately with the Securities and Exchange Commission.

1.21         “Scheduled Shipment
Date” means:  [**] and (iii) in either
case, if later rescheduled by the Authorized Purchaser or Designee pursuant to
Section 5.3, below, the rescheduled date.

1.22         “Service”
means any design or engineering work that IBM performs pursuant to this
Agreement.

2.0           AGREEMENT STRUCTURE

2.1           This Agreement consists of:  (i) the Base Agreement which defines the
basic terms and conditions of the relationship between the parties; and (ii)
Attachments which specify the details of specific work tasks (Services) or
Products.  An Attachment may include
additional or differing terms and conditions from the Base Agreement, however
such terms and conditions will apply only to that Attachment.  Attachments may also include any
specifications agreed to by the parties applicable to the specific work tasks
(Services) or Product under that Attachment.

2.2           If there is a conflict or ambiguity
among the terms and conditions of the various documents, Attachment terms and
conditions govern only as to the Attachment.

2.3           Except
for Product part numbers, Product descriptions (e.g. 1 GHz microprocessor),
prices, quantities, bill-to locations, ship-to locations, shipping instructions
(limited to preferred carrier, carrier account number, and expedited shipping
method, if any), and Scheduled Shipment Dates, any other terms and conditions
on Purchase Orders and Sales Acknowledgements are void and replaced by this
Agreement.

2.4           Apple
and its wholly-owned subsidiaries, including Apple Computer International and
Apple Computer Limited, may issue Purchase Orders for Products and Services
under this Agreement.  Either party may
include its other Related Companies under this Agreement by prior written
agreement with the other party.  Apple
will cause any wholly-owned subsidiary or Related Company purchasing Product
under this Agreement to execute a Related Company Agreement with Apple and IBM
binding them to the terms and conditions of this Agreement.

2.5           Apple
may, in a writing provided to IBM, name one or more agents who are authorized
by Apple to issue Purchase Orders for Products with Apple part numbers,
receive, reschedule or cancel deliveries of such Products ordered pursuant to
such Purchase Orders, process warranty claims related to such Products and pay
for such Products and any associated freight costs (“Designees”).  Designees are not authorized to act for
Apple in any other capacity or to bind Apple in any other respect
whatsoever.  Apple may disclose to its
Designees those terms and conditions of this Agreement specifically set forth
in Exhibit 2, hereto, and each party agrees that it will not disclose any other
terms or conditions of this Agreement to any Designee without the other’s prior
written consent.  Apple represents and
warrants that before giving notice to IBM

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

appointing a Designee, Apple will have executed an
appropriate agreement with such Designee establishing the limited agency described
in this Section, establishing that the Designee is not a third party
beneficiary of this Agreement, protecting the confidentiality of any terms or
conditions of this Agreement that Apple may disclose to the Designee pursuant
to this Section, as well as any Confidential Information (as
that term is defined in the Confidentiality Agreement (Mutual), Agreement No.
X1329, as amended, signed by IBM and Apple with an effective date of April 1,
1999) that may be disclosed to the Designee, and securing such Designee’s
agreement to be bound to those terms and conditions set forth in Exhibit
2.  No Designee may receive Confidential
Information prior to executing an agreement with the party disclosing the
Confidential Information to the Designee, such agreement including restrictions
on nondisclosure and nonuse at least as stringent as those restrictions in
Agreement No. X1329.  Each Designee shall be subject to all of the
obligations and responsibilities of “Apple” under this Agreement with respect
to the terms and conditions in Exhibit 2. 
Apple, not its Designee, will remain responsible for fulfilling all of
its other obligations under the Agreement not delegated to such Designee
pursuant to this Section.  Should any
Designee fail to pay an invoice from IBM or a Plant within fifteen (15) days
after IBM provided written notice to the Designee and to Apple that such
invoice was overdue, IBM will provide Apple written notice of such Designee’s
continued failure to so pay, and Apple agrees to pay, or cause the Designee to
pay, in full, all of such sums due and unpaid, together with interest from the
date payment was due from the Designee, within thirty (30) days after receipt
of said later notice.  IBM will not be
obligated to exhaust remedies against any Designee for breach of any of its
obligations before seeking enforcement directly against Apple except as
expressly set forth in this Section. 
Apple shall hold harmless IBM from and against any and all claims or
actions of any kind made by any Designee against IBM, which claims or actions
in any way arise out of or are related to any such Designee’s role hereunder or
Apple’s termination of such role.  Apple
may withdraw a Designee by providing IBM ten (10) days prior written notice;
and thereafter (i) the Designee will no longer be authorized to purchase
Product on Apple’s behalf or perform any other of the tasks described in this
Section, and (ii) Apple will either cancel any open Purchase Orders placed on
its behalf by such withdrawn Designee and pay any applicable cancellation
charges therefor or take delivery of and pay for any Products covered by such
Purchase Orders.

2.6           Notwithstanding
any other provision hereof, for US sales (sales for which IBM ships to the
Authorized Purchaser or Designee and title transfers within the United States),
the contract of sale for Products purchased under this Agreement will be
between IBM and the Authorized Purchaser or, in the case of Designees,
Apple.  For non-U.S. sales (sales for
which IBM ships to the Authorized Purchaser or Designee with shipment and title
transfer outside of the United States), the contract of sale for Products
purchased under this Agreement will be between the IBM Related Company that
will supply the Products (“the Plant”) and the Authorized Purchaser or, in the
case of Designees, Apple, as the case may be. 
It is agreed that all such Purchase Orders will incorporate the terms
and conditions of this Agreement whether expressly referenced or not and will
only be accepted subject to the terms and conditions of this Agreement.  Purchase Orders will be accepted by the
Plant when it issues the Sales Acknowledgment accepting the Purchase Order,
thereby creating the contract of sale for the Products.  Apple reserves the right to

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

 

enforce the provisions of this Agreement on behalf of
its Authorized Purchasers and IBM reserves the right to enforce the provisions
of this Agreement on behalf of its Plant(s) and any other IBM-Related Companies
added to this Agreement.  IBM represents
and warrants that it has and will have, throughout the term of this Agreement,
an agreement with the Plant, wherein the Plant agrees to be bound to the terms
and conditions set forth in IBM’s sales agreements for IBM Microelectronics
Division products.

2.7           Any
purchase order submitted by an Authorized Purchaser or Designee during the term
of this Agreement (whether or not it references this Agreement) for products or
services from IBM’s Microelectronics Division shall be subject to and governed
by the terms and conditions of this Agreement, unless:  (i) there is another signed, written
agreement in place between IBM and Apple with respect to the subject matter of
such purchase order; or (ii) the product or service was ordered by a Designee
for use in or in connection with its own or another customer’s product and not
in an Apple-branded product.  The
foregoing shall be in effect regardless of whether Apple and IBM have executed
any Attachment specific to the Products, or Services ordered.  If no such Attachment has been executed,
then the terms and conditions of the Attachment most recently executed by Apple
and IBM shall control, except with respect to those matters which are uniquely
applicable to the specific Product or Service in question (such as specific NRE
charges, Product pricing, specific Items and IBM deliverables, Product names
and descriptions, Purchase Order Lead Times, and Forecasts).

3.0           PRODUCT DEMAND FORECASTS AND ORDERS

3.1           At
or before execution of the Agreement and each month during the term of the
Agreement, on or before the last Business Day of the month, Apple will provide
IBM an [**] rolling Forecast of Apple’s and its Authorized Purchasers’
requirements for Exhibit 4 Products and any other ASIC Products that the
parties may agree to treat in a similar manner, the first month of the Forecast
being the month following that month in which the Forecast is placed.  [**] 
If Apple discovers an error or omission in an accepted Forecast, Apple
may submit a corrected Forecast; such corrected Forecast will be deemed
accepted provided it meets the volume requirements described above and was
submitted by the tenth (10th) day of the first month in the
Forecast.  If IBM becomes concerned that
Apple’s Forecasts are inaccurate, IBM may escalate that concern to the Apple
executive designated for such purpose pursuant to Section 21.2.  Forecasts shall constitute good faith
estimates of Apple’s anticipated requirements for Products but shall not
obligate Apple or any Authorized Purchaser or Designee to purchase the
forecasted units.

3.2          
IBM will accept Purchase Orders for Products or Services placed by an
Authorized Purchaser or Designee in accordance with the terms and conditions of
this Agreement.  Purchase Orders will
specify (i) the Purchase Order number, (ii) the Authorized Purchaser’s or
Designee’s tax status (exempt or non-exempt), (iii) the ship-to location, (iv)
the bill-to location, (v) the order-from location, (vi) shipping instructions
(including preferred carrier and carrier account

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

number), (vii) requested shipment dates, (viii) the
name of the Authorized Purchaser’s or Designee’s contact, (ix) Product part
numbers and the quantity ordered (in increments of the Minimum Order Quantity
(“MOQ”),  (x) the applicable unit price,
and (xi) the agreement number of this Agreement.  Additionally, Purchase Orders placed by a Designee shall clearly
state that such Designee is purchasing “as the agent of Apple Computer,
Inc.”  Purchase Order Lead Times and any
applicable MOQ’s will be as set forth in the relevant Attachment.

3.3           IBM
and its Plants will respond promptly regarding all Purchase Orders placed under
this Agreement, providing a Sales Acknowledgment accepting or rejecting the
Purchase Order within [**] Business Days after receipt of any Purchase Order
placed with the requisite Purchase Order Lead Time and within [**] Business
Days after receipt of any Purchase Order placed with less than the requisite
Purchase Order Lead Time.  Purchase
Orders for Exhibit 4 Products and any other ASIC Product that the parties may
agree to treat in a similar manner may be rejected by IBM or its Plant only if:

(i)            the entity placing the Purchase
Order is not an Authorized Purchaser or Designee;

(ii)           the Purchase Order does not comply
with the terms and conditions of this Agreement;

(iii)          the Purchase Order exceeds Apple’s
current credit-limit established pursuant to Section 6.3, below;

(iv)          [**];

(v)           IBM has provided notice to Apple
pursuant to Section 3.5 that it no longer intends to manufacture such Product
or Service and the Purchase Order requests delivery after the end of the period
identified in Section 3.5;

(vi)         the Purchase Order is placed with less
than the requisite Purchase Order Lead Time; or

 

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

(vii)         the Purchase Order requests shipment of
a PowerPC Product with a specified frequency that exceeds the then available
product frequencies as set forth in Exhibit 4.

If IBM rejects a Purchase Order for any of the
above-stated reasons, IBM will provide Apple with prompt written notice of such
rejection, and Apple may escalate the discussions to the IBM executive
designated for such purpose pursuant to Section 21.2.

3.4           IBM
will specify the Scheduled Shipment Date for the Products ordered in the
applicable Sales Acknowledgment.  [**]

3.5           Nothing
herein shall prevent IBM from discontinuing the manufacture of a particular
Product.  In the event that IBM decides
to do so, however, IBM will provide Apple with at least [**] written notice
before it discontinues any Product.  IBM
will be obligated to accept and fulfill all orders for such Products placed by
an Authorized Purchaser or Designee within the [**]  notice period, except to
the extent IBM does not have manufacturing capacity available to manufacture quantities ordered [**].  Apple must
take final delivery of all Products ordered pursuant to this Section during the
[**]
notice period [**] unless IBM in its sole
discretion extends the last date of delivery in order to allow for the
manufacture of quantities [**]. To the extent IBM accepts Purchase Orders issued pursuant to this
Section for quantities in excess of [**], IBM shall not be obligated under Section 3.3 to respond to such
Purchase Order within [**] Business Days, [**] 
This Section 3.5 shall not apply to any products sold or manufactured by
IBM as of the date of the Agreement other than those Products set forth in an
Attachment.

4.0           DELIVERY

4.1           The
Authorized Purchaser or Designee is responsible for all freight and duty
charges from IBM’s shipping location. 
Title and risk of loss will pass to the Authorized Purchaser or Designee
upon tender to the carrier for shipment to such Authorized Purchaser or
Designee.

4.2           In
the event that IBM and Apple enter into an agreement to provide just-in-time
delivery of Product utilizing hub locations, such agreement will be set forth
in a separate written agreement as an attachment to this Agreement and signed
by each party.

4.3           If
IBM or its Plant foresees any supply constraint with respect to an accepted
Purchase Order, IBM will provide prompt notice to Apple and, if the Purchase
Order was placed by someone other than Apple, to the Authorized Purchaser or
Designee who placed the Purchase Order. 
Apple and IBM will then discuss likely shipment recovery plans, and if
they are unable to do so to Apple’s satisfaction, the parties will immediately
escalate the issue to the IBM and Apple executives designated for such purpose
pursuant to Section 21.2 and the parties will use reasonable efforts to
promptly resolve the discrepancy.  If
IBM’s supply of the Product and / or 

 

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

Services ordered by Authorized Purchasers or Designees
and accepted by IBM hereunder becomes constrained [**] IBM may reduce the
quantities of Products and / or Services to be supplied to Authorized
Purchasers or Designees [**].

4.4           If
IBM or its Plant foresees any delivery delay with respect to an accepted
Purchase Order, IBM will provide prompt notice to Apple and, if the Purchase
Order was placed by someone other than Apple, to the Authorized Purchaser or
Designee who placed the Purchase Order. 
Apple and IBM will then discuss likely shipment recovery plans, and if
they are unable to do so to Apple’s satisfaction, the parties will immediately
escalate the issue to the IBM and Apple executives designated for such purpose
pursuant to Section 21.2 and the parties will use reasonable efforts to
promptly resolve the delay. [**]

 

5.0           CANCELLATION AND RESCHEDULING

5.1           Cancellation.  Authorized Purchasers and Designees may
cancel accepted Purchase Orders for Products for their convenience at any time,
provided they pay IBM or its Plant applicable cancellation charges as set forth
in this Section 5.1.

5.1.1        Exhibit 4 Products.  Authorized Purchasers and Designees may
cancel Purchase Orders for Exhibit 4 Products (and any other ASIC Product that
the parties may agree to treat in a similar manner) without charge, provided
they give IBM written notice [**] days prior to the original Scheduled Shipment
Date.  If the Authorized Purchaser or
Designee provides IBM written notice canceling a Purchase Order for such
Products [**] days prior to the original Scheduled Shipment Date, the
Authorized Purchaser or Designee will pay IBM [**] of the purchase price of the
Products ordered.  Promptly after
receiving notice canceling a Purchase Order for Exhibit 4 Products, IBM will
provide Apple and the Authorized Purchaser or Designee who placed the Purchase
Order written notice of any applicable cancellation charges.  The Authorized Purchaser or Designee will
promptly after receiving IBM’s notice, issue a Purchase Order to IBM for such
charges, and IBM will invoice the same upon receipt.  Neither Apple nor the Authorized Purchaser will be liable for any
other fees or costs not expressly set forth in this Section when canceling a
Purchaser Order for Exhibit 4 Products.

                5.1.2        Other Products.  If the Authorized Purchaser or Designee
provides IBM written notice canceling a Purchase Order for any other Product,
the party canceling the Purchase

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

 

Order shall pay the cancellation
charges set forth in the applicable Product Attachment.  IBM will provide Apple and the Authorized
Purchaser or Designee who placed the Purchase Order prompt written notice of
any applicable cancellation charges. 
The Authorized Purchaser or Designee canceling the Purchaser Order will,
upon receipt of IBM’s written notice, promptly issue a Purchase Order to IBM
for such charges and IBM will invoice the same upon receipt.  Neither Apple nor the Authorized Purchaser
will be liable for any other fees or costs except those expressly set forth in
this Section when canceling a Purchase Order for other Products.

5.2           If an Authorized Purchaser or
Designee cancels a Purchase Order for Services for its convenience, IBM will
cease further work in connection with the Purchase Order and the Authorized
Purchaser or Designee will pay IBM for reasonable costs actually incurred by
IBM pursuant to such Purchase Order before the Authorized Purchaser or
Designee’s notice of cancellation.  IBM
must make its claim for cancellation charges and provide supporting
documentation within forty-five (45) days of the date of cancellation.  Any claim not made within such forty-five
(45) day period will be deemed waived.  In
the event IBM is more than twenty-one (21) days late in completing a Purchase
Order for Services, the Authorized Purchaser or Designee may cancel such
Purchase Order and the Authorized Purchaser or Designee’s sole obligation will
be to pay IBM for any deliverables ordered pursuant to that Purchase Order that
were actually completed or delivered by IBM before the Authorized Purchaser or
Designee’s notice of cancellation, provided that any periods of such delay that
were caused by the Authorized Purchaser or Designee shall be excluded for
purposes of calculating the length of the delay hereunder.

5.3           Rescheduling.  The Authorized Purchaser or Designee may
reschedule accepted Purchase Orders for Products in accordance with this
Section 5.3.

5.3.1                        Exhibit 4
Products.  The Authorized Purchaser or Designee may reschedule a
Scheduled Shipment Date for an Exhibit 4
Product or any other ASIC Product that the parties may agree to treat in a
similar manner to a later date provided:  (i) it sends IBM or its Plant written notice of the request to
reschedule; (ii) the Product being rescheduled has not yet been shipped; and
(iii) the requested rescheduled shipment date is within [**] after the original Scheduled Shipment Date.  If the foregoing requirements are met, [**] will be imposed by IBM or its Plant
for rescheduling.

5.3.2                        Other
Products.  The Authorized Purchaser or Designee may reschedule an
order for any other Product to a later date only upon prior written notice to
IBM and as set forth in the applicable Product Attachment.  In the event of a reschedule which exceeds
the rescheduling rights set forth in the applicable Attachment, IBM may invoice
the Authorized Purchaser or Designee the quoted price for any Products

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

that were delivered or ready for shipment pursuant to
that Purchase Order on the date the Authorized Purchaser’s or Designee’s notice
was received by IBM or its Plant, and the cancellation charges set forth in the
applicable Attachment for any Products on that Purchase Order that were not
already delivered or ready for shipment when IBM or its Plant received such
notice.

5.4           Product
Remix without Charge.  Apple and its
Authorized Purchasers and Designees may request that IBM or its Plant ship a
different mix of Products than those originally ordered.  IBM or its Plant will agree to do so without
charge provided:  (i) Apple, the Authorized
Purchaser or the Designee gives written notice to IBM or its Plant, as the case
may be, at least [**] before the Scheduled Shipment Date;  (ii) all substituted Products are within the
same Product-family as those originally ordered.  Products that utilize the same design revision, materials and
manufacturing process from wafer start to module final test are within the same
Product-family; (iii) the total number of units ordered remains the same; (iv)
the change will not have any significant negative manufacturing or financial
impact to IBM or its Plant in IBM or its Plant’s sole and reasonable judgment;
and (v) subject to availability of Products that permit the requested
remixing.  Changes that do not meet the
requirements of this Section may be accepted for similar treatment in IBM’s or
its Plant’s sole discretion.  If IBM or
its Plant agrees to change an order as described in this Section, as a
condition of obtaining such agreement, the Authorized Purchaser or Designee
will promptly cancel the original Purchase Order without incurring any
cancellation or other charge and place a new one for the modified Product mix.

6.0           PRICES AND PAYMENT

6.1           Exhibit 4 Products.   Prices for the Exhibit 4 Products will be
as set forth in the attached Exhibit 5.

6.2           Other Products and Services.   Prices for Products and Services not set
forth in Exhibit 4 shall be as set forth in either (i) the Sales Acknowledgment
and accepted Purchase Order, provided the price in both is the same, or (ii)
the applicable Attachment (as the same may be amended from time to time), or
(iii) the most recent uncontested notice, as set forth below.  If there is a conflict between the prices
set forth in (i), (ii) and (iii), the prices in the most recent document(s)
will govern.  IBM and Apple will review
prices for Products on a quarterly basis at least thirty (30) days prior to the
start of each calendar quarter.  If the parties agree to revise prices during a quarterly review, IBM will
document that agreement in a written communication to Apple, and, unless Apple
contests the documentation in writing within three (3) Business Days after
receiving IBM’s written communication, the revised prices in such written
communication will be deemed effective as of the first Business Day of the applicable calendar
quarter and will apply to any Products originally scheduled for shipment during
that quarter.  For purposes of this section, e-mail transmissions shall be considered
valid written notification.   If the parties are unable to
agree on revised prices, the most recent
prices, as set forth in the applicable

 

[**] = information redacted
pursuant to a confidential treatment request. 
Such omitted information has been filed separately with the Securities
and Exchange Commission.

Attachment, Sales Acknowledgment and accepted Purchase
Order, as appropriate, or uncontested written notice from IBM, will be used until such time as the
parties agree differently.

6.3           Invoices and Payments.  IBM or its Plant shall invoice the
Authorized Purchaser or Designee after the Products have been shipped, or the
Services provided.  Payment will be due
within thirty (30) days after the date of invoice.  Late payment of invoices may be assessed a charge equal to the
lesser of one and one-half percent (1.5%) per month or the statutorily maximum
rate of interest in accordance with the laws of the State of New York.  In addition, if an Authorized Purchaser or
Designee’s account balance exceeds Apple’s credit limit with IBM, or becomes
delinquent, IBM may stop shipments to the Authorized Purchaser or Designee or
ship to such party on a prepaid basis until the account is compliant.

6.4           Credit Limits.  At any time, Apple may request that IBM
disclose the credit limit that IBM’s Microelectronics’ Division is then willing
to extend to Apple and the aggregate amounts then outstanding against such credit
limit.  IBM will respond promptly.  IBM will notify Apple within one (1)
Business Day after any decrease of IBM’s credit limit for Apple.  IBM will decrease Apple’s credit limit only
if IBM, in its sole and reasonable discretion, believes that there has been an
increase in the risk of extending credit to Apple.

6.5           [**]
Costs. IBM will be solely responsible for all [**] incurred in connection with
[**] of the microprocessor Products set forth on Exhibit 4, and under no
circumstances will Apple be liable to IBM for any such costs  (except to the extent such costs were
included in the agreed purchase price of a Product and Apple is liable for that
purchase price pursuant to this Agreement without reference to this Section
6.5).

 

7.0           TERMINATION

7.1           If either party materially breaches a
term or condition of this Base Agreement or an Attachment, the other party may,
at its option, terminate this Agreement or any or all Attachments provided the
party in breach is given written notice and fails to cure such breach within thirty
days (30) days after the notice of termination, or immediately in the event of
(i) insolvency, dissolution or liquidation by or against the other party,  (ii) any assignment of the other party’s
assets for the benefit of creditors; (iii) any act or omission of an act by the other party
demonstrating its inability to pay debts generally as they become due, or (iv)
any transfer of substantially all of the other party’s business or assets to a
third party, unless such transfer is effectuated in accordance with Section
21.4, below.

7.2           If IBM terminates pursuant to Section
7.1, at IBM’s sole discretion, all previously accepted Purchase Orders may be
canceled and Apple shall pay (i) for any Products delivered or ready for shipment when the
Agreement terminated, the full price determined in accordance with Section 6.1
or 6.2, as applicable; (ii) for any Products not delivered or ready for
shipment when the Agreement terminated, the actual amount IBM paid for any long
lead time materials authorized by Apple and procured in accordance with the
terms and conditions of an applicable

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

Attachment or this
Agreement and any applicable cancellation charges set forth in this Agreement
or the Attachment for such Products (IBM agrees to attempt to mitigate any
amounts payable by Apple for any long lead time materials through such means as
use in other manufacturing activities or sale, if practicable); (iii) for any
Services completed when the Agreement terminated, the full price determined in
accordance with the applicable Attachment; and (iv) for any Services not
delivered or completed when the Agreement terminated, the applicable
cancellation charges determined in accordance with the applicable Attachment,
or, if none, in accordance with Section 5.2 of this Agreement.  Under
no circumstances will the total amount due for a Product or Services under (i),
(ii), (iii), or (iv), above, exceed the full price for such Product or Service
determined in accordance with Section 6.1 or 6.2, as applicable, and any
applicable Attachment.

7.3           If Apple terminates pursuant to
Section 7.1, at Apple’s discretion all previously accepted Purchase Orders may
be canceled and no cancellation charges (including long-lead-time materials)
will apply.

7.4           Apple may terminate this Agreement or
any or all Attachments for convenience by providing written notice to IBM at
least twelve (12) months before the termination date.  If Apple terminates this Agreement, or any or all Attachments,
for its convenience, all previously accepted Purchase Orders will be filled,
but IBM shall not be obligated to accept further Purchase Orders pursuant to
the terminated Agreement or Attachment, as the case may be, after receiving
notice of termination.

7.5           All amounts due for Products or
Services under this Agreement shall be paid in accordance with the terms and
conditions of this Agreement notwithstanding any termination of this Agreement
for any reason, provided, however, that in the event this Agreement is
terminated pursuant to Section 7.1 all amounts due and payable to the
non-terminating party as of the date of such termination shall become immediately
due and payable.

7.6           This Base Agreement will continue
after its termination or expiration with respect to any Attachments already in
place until they expire, or are terminated or performed.  Applicable Items shall be returned or disposed
of as directed by Apple in writing at Apple’s expense after a termination or
expiration of this Agreement or relevant Attachment.

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

8.0           CONFIDENTIAL INFORMATION

8.1           In the event IBM or Apple wishes to
disclose specific confidential information to the other in connection with IBM
furnishing Products and/or Services hereunder, such information shall be
disclosed only pursuant to the terms and conditions of the Apple Computer, Inc.
Confidentiality Agreement (Mutual), Agreement No. X1329, as amended, signed by
IBM and Apple with an effective date of April 1, 1999, the current version of
which, and all currently effective Amendments to the same, are attached hereto
as Exhibit 6, or pursuant to the terms and conditions of another comparable
confidential disclosure agreement. The parties agree to treat the terms and
conditions of this Agreement as confidential information.

9.0           LICENSE

9.1           No license, immunity or other right
is granted herein to any Authorized Purchaser or Designee whether directly or
by implication, estoppel or otherwise, with respect to any patent, trademark,
copyright, mask work, trade secret, utility, model, or know-how, or other
intellectual property right of IBM. 
Nothing herein shall abrogate any rights that may arise by operation of
the patent exhaustion doctrine.

10.0         TRADEMARK

10.1         Nothing in this
Agreement grants either party any rights to use the other party’s trademarks or
trade names, directly or indirectly, in connection with any product, service,
promotion, or to make any publication or publicity without prior written
approval of the other party or trademark or trade name owner.

 

11.0         INTELLECTUAL
PROPERTY AND INDEMNIFICATION

11.1         Neither party is required by this
Agreement to knowingly infringe any valid patent or other intellectual property
of a third party. If either party has reason to believe that any Item, Product
or portion thereof infringes such an intellectual property right, it will
promptly escalate its concern to the executive of the other party designated
for such escalations pursuant to Section 21.2, and the parties will work
together to make necessary changes or provide substitute Items or Products so
as to avoid infringement.  IBM may stop shipments of all such
Products without liability for failure to deliver a Product under this
Agreement for up to [**] while IBM and Apple analyze the potential infringement
and discuss whether shipments should resume. 
If a Product becomes or is likely to
become the subject of a claim covered by Section 11.2, below, IBM will, at its own expense: (i) obtain the rights and
licenses necessary to permit Authorized Purchasers and Designees to continue to
use and sell the Products consistent with this Agreement;

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

(ii)
modify the Products so they are non-infringing and in compliance with this
Agreement; (iii)  replace the Products with non-infringing ones
that comply with the Agreement; or (iv) at Apple’s request, accept the return
of infringing Products and refund any amount paid.  [**] 
If an Item provided to IBM hereunder becomes or is likely to become the
subject of a claim covered by Section 11.3, below, IBM will provide Apple
written notice advising Apple of such claim, and, [**] IBM may stop further
shipment of Products incorporating that Item or portion thereof without
liability for failure to deliver a Product under this Agreement unless Apple
has demonstrated to IBM’s reasonable satisfaction that the Item does not
infringe or has modified the Item so it is
non-infringing,  replaced the Item
with a non-infringing Item, or obtained
the rights and licenses necessary to permit IBM to continue to make, use and
sell Products incorporating the Item consistent with this Agreement. If a court
of law of competent jurisdiction determines that any Item, Product, or portion
thereof infringes an intellectual property right of any third party:
(i) either party may, in its sole discretion, terminate its obligations
hereunder with respect to such Item and/or Product effective immediately upon
written notice; and (ii) any payments [**] will be indemnified or reimbursed by
Apple pursuant to Section 11.3, below.

11.2         At Apple’s request, IBM will defend any claim that a Product sold to an Authorized Purchaser or
Designee or a Service provided by IBM or any of its Related Companies hereunder
infringes a patent, copyright, or mask work right of a third party in any country in which IBM sells or provides
similar products or services and IBM will indemnify and hold Apple and
its Authorized Purchasers harmless from any damages
assessed against them as a result of a final judgment of a court of competent
jurisdiction, any settlement agreed upon by IBM in writing, and any
costs or fees reasonably incurred by them (including but not limited to fees of
attorneys and other professionals) that are attributable to such claim; PROVIDED THAT Apple: (i) promptly notifies
IBM, in  writing, of  the charge of infringement; (ii) allows
IBM to control and cooperates with IBM at IBM’s expense in the defense and any
related settlement action; and (iii) upon the written request of IBM (a) allows
IBM to modify or replace the Product in the Authorized Purchaser’s inventory at
IBM’s expense, provided that modified or replaced product meets the applicable
specifications for the Product being so modified or replaced (and returns any
such Products being so modified or replaced to IBM), or (b) if option (a) is
not reasonably available, returns the Product for a credit equal to the
purchase price of such Product.  Such
indemnification does not apply to the extent that the claim of infringement
arises from (i) modifications to any Product or Service by Apple unless
directed in writing by IBM, (ii) the combination, operation or use of a Product
or Service with a product, data or apparatus not sold by IBM to Apple, unless
the Product has no substantial non-infringing use or unless directed in writing
by IBM, (iii) modifications made by IBM to Product sold to Authorized
Purchasers and / or Designees and in compliance with Apple’s written
specification(s), except for modifications
made by IBM to standard Products; (iv) any Item that is incorporated into a particular Product or
Service with Apple’s agreement as evidenced by Apple’s execution of the related
RTM (as that term is defined in the ASIC Development Agreement, Agreement No.
000798), or (v) infringement by a non-IBM product alone,
as opposed to its combination with Products IBM provides to Apple as a system (collectively
referred to as “Apple-Indemnified Action”).

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

11.3         At IBM’s request, Apple will defend any claim that an Item provided by Apple to IBM hereunder
infringes a patent, copyright, or mask work right of a third party in any country in which Apple sells or provides
similar Items, products or services based on such Items, or products
which include the Products or output from the Services, and Apple will
indemnify and hold IBM harmless from any damages
assessed against IBM as a result of a final judgment of a court of competent
jurisdiction, any settlement agreed upon by Apple in writing, and any
costs or fees reasonably incurred by IBM (including but not limited to fees of
attorneys and other professionals) that are attributable to such claim; PROVIDED THAT IBM: (i) promptly notifies
Apple, in writing, of the charge of infringement; (ii) allows Apple to control
and cooperates with Apple at Apple’s expense in the defense and any related
settlement action; and (iii) upon the written request of Apple, (a) allows
Apple to modify or replace the Items in IBM’s possession at Apple’s expense
provided that the modified or replaced Items meet the applicable specifications
for the Items being so modified or replaced (and returns any such Items being
so modified or replaced to Apple), or (b) if option (a) is not reasonably
available, returns the Item to Apple provided that Apple pays any costs
incurred by IBM in connection with reworking the Products or Services as a
result of the replacement.  Such
indemnification does not apply to the extent that the claim of infringement
arises from (i) modifications to any Item by IBM unless directed in writing by
Apple, (ii) the combination, operation or use of an Item with a product, data
or apparatus not provided by Apple to IBM, unless the Item has no substantial
non-infringing use or unless directed in writing by Apple,
(iii) modifications to any Item, Product or Service made by Apple in
compliance with IBM’s written specification(s), (iv) anything IBM provides that is incorporated into an Item with IBM’s
agreement as evidenced by IBM’s execution of the related RTM (as that term is
defined in the ASIC Development Agreement, Agreement No. 000798); (v) Items licensed to IBM pursuant to a separate agreement between the
parties; or (vi) IBM’s use of an Item
in a way not expressly permitted by this Agreement or in writing by Apple,
which written agreement would be evidenced by Apple’s execution of the related
RTM (as that term is defined in the ASIC Development Agreement, Agreement No.
000798).

11.4         Reference that Product Sales and
Manufacturing Services Agreement, Base Agreement, Agreement No. IMD001 and
Section 11.1 thereof, such Section 11.1 is incorporated herein by reference and
hereby agreed to extend to and cover, to the extent implicated in that BIAX
litigation (Civil Action No. 01-601-RRM(GMS)(MPT), currently pending in the
United States District Court for the District of Delaware and any related
action involving the same patents

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

hereafter filed), Product (as defined in
Agreement No. IMD001) provided by IBM to Apple directly or indirectly through
one or more other entities during the term of that agreement and through the
date of commencement of this Agreement. 
This Section 11.4 does not reduce or negate any other right or claim of
indemnity that Apple may have under any of the above agreements or any other
agreements or statute or common law without reference to this Section 11.4.

11.5         The
foregoing as limited by Section 12.0 states the entire obligations and
exclusive remedies of IBM and Apple regarding any third party claim of
infringement relating to any Product sold or Service or Item provided hereunder
or, as the case may have been, under that agreement referenced in Section 11.4.

12.0         LIMITATION OF LIABILITY

12.1         Neither party shall be entitled to
special, indirect, incidental, consequential or punitive damages, including
lost profits, opportunities or savings based on any breach or default of the
other party, even if such party is informed of their possibility, except (i)
[**], and (ii) to the extent such damages are awarded in a final judgment or
settlement covered by Section 11.

12.2
        In no event shall either party’s
aggregate liability to the other party for damages in connection with all claims
relating to this Agreement exceed the amount of [**], regardless
of the form of action (including fundamental breach, negligence,
misrepresentation, or other contract or tort claim), provided that this
limitation will not apply to: 
(i) the amount of any damages for bodily injury (including death) caused
by such party’s negligence or damages to real property and tangible personal
property caused by such party’s negligence; and (ii) payments owed for Products and Services provided hereunder.

This Section 12.2 also
applies to any of IBM’s subcontractors and any Authorized Purchasers.  It is the maximum for which IBM and its
subcontractors are collectively responsible, and for which Apple and its
Authorized Purchasers are collectively responsible.

12.3     Under
no circumstances is either party liable to the other for any of the
following:  (i) third party claims
against a party for losses or damages other than those in Section 11 and 12.2
(i), above; or (ii) loss of, or damage to, records or data.  Further under no circumstances will IBM be
liable when the Products or Services are used in conjunction with military,
nuclear, automotive or aeronautical applications or medical implantation or
other direct life support applications where malfunction may result in injury,
harm or death to persons, or used in any other ultrahazardous applications

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

13.0         WARRANTIES

13.1         Product
Warranty.

13.1.1      PowerPC Warranty.  IBM warrants each PowerPC Product delivered
hereunder to be free from defects in material and workmanship and to comply
with Product specifications at the time of manufacture, as agreed in writing by
IBM and Apple, for the notice period of [**] from the date of shipment.

13.1.2      ASIC Product
Warranty.  IBM warrants all ASIC Products delivered to be free
from defects in material and workmanship and conform to the Product
specifications as set forth in the RTM for the notice period of [**] from the
date of shipment. Apple acknowledges that the functionality of ASIC Products
may be contingent on Apple’s designs and, therefore, Apple agrees that such
warranty does not apply to the functionality of ASIC Products designed by Apple
and manufactured by IBM under this Agreement except to the extent the lack of
functionality is due to a defect in materials or workmanship.

13.1.3      Other Product Warranty.  IBM warrants all other standard Products
delivered to be free from defects in material and workmanship and to conform to
the Product Specifications for the notice period of [**] from the date of
shipment unless otherwise stated in an Attachment applicable to such standard
Products, and all other custom Products delivered to be free from defects in
material and workmanship for the notice period of [**] from date of shipment
unless otherwise stated in an Attachment applicable to such custom
Products.  Apple acknowledges that the
functionality of such other custom Products may be contingent on Apple’s
designs and, therefore, Apple agrees that such warranty does not apply to the
functionality of Products designed by Apple and manufactured by IBM under this
Agreement except to the extent the lack of functionality is due to a defect in
materials or workmanship.  IBM
warrants Services will be performed using reasonable care and ordinary skill.

13.2         The Product warranty does not include
defects in or failures of Products that result from (i) an Apple-supplied
design; (ii) matters not covered in the Product specification or use outside of
the intended operating environment set forth in the applicable Product
specifications; (iii) accident, disaster, neglect, abuse, misuse, improper
handling, testing, storage or installation after delivery to the carrier,
including improper handling in accordance with generally acceptable static
sensitive electronic device handling requirements; (iv) alterations,
modifications or repairs

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

 by Apple or third parties not authorized by IBM in writing; (v)
removal or alteration of labels by Apple or a third party; or (vi) failure
caused by a product which IBM did not provide or for which IBM is not
responsible.  IBM does not warrant uninterrupted or
error free operation of the Products or that IBM will correct all defects.

13.3         THE FOREGOING WARRANTIES ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS OR USAGE FOR PARTICULAR PURPOSE OR NON-INFRINGEMENT.

13.4
        This warranty is not
transferable.  No course of dealing,
course of performance, usage of trade, or description of Product or Service
shall be deemed to establish a warranty, express or implied.

13.5         If an Authorized Purchaser or Designee
claims that any Products or Services are nonconforming, the Authorized
Purchaser or Designee shall, (i) promptly notify IBM, in writing, of the basis
for such claim of nonconformity; (ii) follow IBM’s instructions for the prompt
return of the Products; and (iii) return such Products freight collect to IBM’s
designated facility.  If IBM determines
that the returned Products are nonconforming and such returned Products were
shipped with Apple’s consent prior to their qualification, IBM’s sole and
exclusive obligation will be to, at IBM’s option, repair or replace the
defective Products, or issue a credit for the purchase price (e.g., Section
14.0 will not apply to such Product units delivered before the Product is
qualified).  If IBM determines the
Products are nonconforming and they were shipped subsequent to their
qualification, IBM will issue a credit or rebate for the purchase price.

13.6         Prior to returning any defective
Products to IBM, the Authorized Purchaser or Designee shall obtain a Return
Merchandise Authorization number (“RMA”) from IBM (which IBM will provide
within [**] Business Days of the request) and provide the specific description
of the problem, by part number for the total quantity of the defective
Products.  The Authorized Purchaser or
Designee shall only return the exact quantity authorized in each RMA by following IBM’s RMA instructions.  Each shipping container shall contain only one (1) RMA.

 

13.7         IBM’s sole liability and Apple’s exclusive remedy for breach
of warranty shall be limited as stated in this Section 13, except that Product
Failures which exceed the applicable Failure Threshold shall be governed by
Section 14 below.

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

 

14.0
        FREQUENT
FAILURES  

14.1      Test Specification. 
(i) U3 and any other ASIC Product that the parties may agree to treat in
a similar manner:  Apple shall define and
implement its own design verification tests, which testing activities shall be
no less thorough than those testing activities generally conducted by Apple but
not less thorough than those testing activities generally conducted by other
personal computer manufacturers (but not microprocessor manufacturers) in the
industry (receipt by IBM of Apple’s Prototype Acceptance as set forth in the
ASIC Development Agreement, Agreement No. 000798 shall establish that the
Prototype design revision conformed with the agreed-upon specifications as set
forth in the RTM); and (ii) other Exhibit 4 
Products:  Apple and IBM shall
agree on a test specification that shall set forth the minimum level of testing
of the other Exhibit 4 Products sold hereunder both (a) by IBM prior to
shipment from IBM to Apple and (b) by Apple prior to shipment to end-user
customers, and other matters such as a returned-parts process and regular
communications expected between the parties. 
Either party shall be free to exceed the agreed-upon level of testing.

14.2     IBM will promptly notify Apple if IBM
believes that a Product contains a defect that could result in Failed Units
exceeding the Failure Threshold. IBM may stop shipments of all such Products
[**] while IBM and Apple analyze the defect and discuss whether shipments
should resume.  If the Product contains such a defect, IBM will use
diligent efforts to promptly:  (i) cure such defect and resume shipments
as quickly as possible; or (ii) make available a replacement Product that meets
the agreed specifications for the Product but does not contain such a defect.  
[**]  The modified or replacement
Products shall be fully warranted as set forth in Sections 13 and this Section
14 once qualified by Apple.   If Apple provides IBM written
instructions acknowledging IBM’s notice of a defect but instructing IBM to
resume shipments in advance of a cure or replacement, IBM will resume such
shipments as quickly as possible; provided, however that: (a) Apple’s
instructions will not relieve IBM of its obligation to cure the defect or make
a replacement part available as set forth above; and (b)

uncured Products shipped pursuant to such written instructions will be shipped
without warranty, express or implied, or Frequent Failure protection with
regard to such defect or any related defect rendered undetectable due to the
presence of such defect.

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

 

14.3     If the number of Failed Units manufactured [**]
and sold hereunder exceeds the Failure Threshold within [**] of manufacture of
each such Failed Unit, Apple will promptly notify IBM specifying with
particularity the nature of the Failures. 
Upon receipt of such notice, IBM will, with Apple assistance, promptly
analyze and attempt to determine the cause of such Failures and IBM may stop
all such Product shipments to Apple [**] while IBM and Apple analyze the
Failures and discuss whether shipments should resume.  Either party may escalate these discussions to the executive of
the other party designated for such purpose pursuant to Section 21.2.

                            14.3.1      If
such Failures result from:  (i) defects
in materials or workmanship in the Failed Units; or (ii) design defects in the
PowerPC Failed Units, IBM and Apple shall promptly meet to devise a mutually
acceptable and timely plan to:

(a)           at  Apple’s option,
either replace the Failed Units (if a replacement is available), or credit the
full purchase price of returned Failed Units; and

[**]

14.3.2   If after each party has used all reasonable efforts to analyze
and determine the cause of such Failures, the cause(s) remain(s) unknown, such
Failure shall not be subject to the remedies provided in this Section and IBM
and Apple will promptly discuss appropriate ways in which they can work
together to assist Apple customers who have experienced such Failures.  If IBM disputes that a Failure has occurred,
IBM may escalate its concern to the Apple executive designated for such purpose
pursuant to Section 21.2.

14.3.3  
Repair/Replacement by Apple.  If
it is deemed by Apple and IBM to be the most timely and cost effective
approach, Apple or its authorized repair facilities may repair or replace
Failed units.  In such event, Apple will
promptly submit to IBM, in writing, the serial numbers and date codes of the
Failed Units, the date Apple received the Failed Units, the nature of the
Failures, and the date of repair of the Failed Units by Apple or its authorized
repair facility.  Apple will send to IBM
the defective replaced parts of the Failed Units.  IBM shall provide Apple with the necessary replacement parts at
no cost for Failed Units replaced by Apple [**]

14.3.4   No Liability.  The
provisions of this Section 14.3 shall not apply to the extent that defects in
the Exhibit 4 Product, or any other ASIC Product that the parties may agree to
treat in a similar manner, are due to Apple’s or a third party’s (but excluding
IBM’s subcontractors or agents) abuse, improper use, accident, tampering,
alteration or faulty repair.

14.3.5   No Waiver.  Except as
otherwise provided herein, Apple’s approval of the materials used will not
relieve IBM of its obligations set forth in this Section 14.3, nor 

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.

will Apple’s approval or
acceptance of any Exhibit 4 Products, or any other ASIC Product that the
parties may agree to treat in a similar manner, which are subsequently determined
to meet the definition of Failed Units relieve IBM of such obligations, unless
agreed to by Apple in writing specifically referencing this Section 14.3.

14.3.6   The obligations contained in this Section 14.3 are IBM’s sole
obligation and Apple’s exclusive remedy with respect to such Failed Units that
exceed the Failure Threshold and shall survive termination or expiration of
this Agreement.  This Section does not
in any way alter IBM’s intellectual property indemnification obligation.  In the event that the parties agree to
Frequent Failure protection for other Products, such agreement would be set
forth in the applicable Product Attachment.

 

15.0
        TAXES

15.1
        IBM shall bill Apple for all taxes
related to any Product or Services arising from the sale of such Product or
Services to Apple pursuant to this Agreement except for taxes based on IBM’s
net income.

 

16.0         NOTICES

16.1         All communications and notices between
the parties concerning this Agreement shall be given in writing to the
appropriate individual listed below or in the applicable Attachment and shall
be deemed sufficiently made on the date if given by personal service or sent
via certified mail or receipted facsimile (sender has a receipt showing time
and date of sending and receipt by the other party) or electronic data
interchange.  Communication by facsimile
or electronic data interchange is acceptable as a “writing”.  The autographs of representatives of the
parties, as received by facsimile or electronic data interchange, shall
constitute “original” signatures.

 

	
  Notices
  to Apple:

  	
   

  	
  Notices
  to IBM:

  
	
   

  	
   

  	
   

  
	
  Sr. VP of Worldwide Operations

  	
   

  	
  TGWW Contracts and Business
  Practices

  
	
  Apple Computer, Inc.

  	
   

  	
  IBM Microelectronics Division

  
	
  1 Infinite Loop

  	
   

  	
  1000 River Street

  
	
  MS:  301-4TC

  	
   

  	
  965-3B

  
	
  Cupertino, Ca  95014

  	
   

  	
  Essex Junction, VT  05453

  
	
  Fax:  (408) 974-6400

  	
   

  	
  Fax:  (802) 769-3988

  
	
   

  	
   

  	
   

  
	
  with simultaneous copy to:

  	
   

  	
  with simultaneous copy to:

  
	
   

  	
   

  	
   

  
	
  General Counsel,

  	
   

  	
  Division Counsel

  

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

 

 

	
  Apple Computer, Inc.

  	
   

  	
  IBM Microelectronics Division

  
	
  1 Infinite Loop

  	
   

  	
  1580 Route 52

  
	
  MS:  301-4GC

  	
   

  	
  MS:  92B

  
	
  Cupertino, CA  95014

  	
   

  	
  Hopewell Junction, NY  12533-6531

  
	
  Fax:  (408) 974-8530

  	
   

  	
  Fax:  (914) 892-5358

  

 

17.0         INDEPENDENCE
OF ACTION

17.1         Each party agrees that this Agreement
will not restrict the right of either party to enter into agreements with other
parties for same or similar work, or to make, have made, use, sell, buy,
develop, market or otherwise transfer or deal in any products or services, now
or in the future, so long as confidential information is not disclosed contrary
to the terms and conditions applicable thereto, and unless the parties have
expressly agreed otherwise in an Attachment. 
Nothing in this Agreement or any prior discussions or agreements between
the parties will give rise to any obligation to purchase forecasted volumes, or
any volumes, of any Product.

 

18.0         UTILIZATION
OF PRODUCTS

18.1
        Apple represents that all Products
purchased under this Agreement will be: 
(i) incorporated into and made a part of Apple products; or (ii)
combined with Apple products for sale or lease as an Apple system; or (iii)
sold or leased in incidental additional quantities for sale or lease directly
to an unaffiliated third party in conjunction with an installed Apple system,
or (iv) scrapped.

 

19.0         CHANGES
TO SCOPE OF WORK

19.1         With respect to Services contracted for
hereunder, Apple may, at any time and from time to time, by written notice to
IBM, request changes to the Products, specifications or work scope.  IBM shall submit a written report to Apple
setting forth the probable effect, if any, of the requested change in regard to
the work and the effect of any change on prices or delivery.  IBM shall not proceed with any such change
until mutually agreed in writing by IBM and Apple. The parties shall promptly
amend the relevant Attachment to incorporate any agreed changes.

19.2      IBM
may implement engineering changes required to satisfy governmental standards,
protect Product or system integrity, or for environmental, health or safety
reasons (“Mandatory Engineering Changes”). 
Engineering changes affecting form,
fit, function, quality or reliability will be handled in accordance with
Standard 46-B of the JEDEC Solid State Technology Association (formerly known
as the Joint Electron Device Engineering Council) as such Standard may change
from time to time.  IBM shall
give Apple notice of any Mandatory

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

Engineering Changes as soon as reasonably
practicable.  IBM shall give Apple prior
notice of any other engineering changes affecting the form, fit or function of
a Product as set forth in the above-described JEDEC standard.  Apple will have no obligation to accept any
modified Product unless and until IBM has demonstrated to Apple’s satisfaction
that the modified Product functions in accordance with agreed specifications
and Apple has qualified the modified Product for use in Apple’s products.

 

20.0         EXPORT
AND OTHER LAWS, REGULATIONS AND ORDINANCES

20.1         Each
party will comply, at its own expense, with all applicable United States
(federal, state and local), European Union, and other country or country group
laws, regulations and ordinances, and shall procure all licenses and permits,
and shall comply with all relevant export license terms, conditions and
provisos regardless of to whom (which party under this Agreement) the license
was issued, and pay all fees and other charges required thereby.  Such laws, regulations and ordinances
include the regulations of the U.S. Government relating to export and
re-export. Apple agrees that regardless of any disclosure made by Apple to IBM
of an ultimate destination of any Products or related technical data, or any
system incorporating them, Apple will not export, either directly or
indirectly, any Product or related technical data, or system incorporating them
without first obtaining required licenses or permits from all relevant
government agencies or departments. IBM will provide Apple with information
regarding any standard Products as reasonably required to assist Apple in
obtaining such documents and approvals. 
In addition, Apple warrants that custom Products are not for space or
missile use, do not contain encryption of a type that would violate applicable
laws if exported without approval, and do not relate to radiation-hardened
design, circuitry, manufacturing or testing. 

 

20.2         Each
party will keep suitable records to show compliance with this Section 20. At
the other’s request and pursuant to a request by a responsible government agency,
each party will demonstrate to the other that it has fully complied with the
terms and conditions of this Section.

20.3         Whenever
IBM secures an export license for a Product, the parties agree that IBM will be
the exporter of record for all exports of such Product, and the Authorized
Purchaser or Designee will utilize an IBM-approved (such approval not to be
unreasonably withheld) freight forwarder for shipment of the Product to the
agreed-upon destination point.  Further,
the parties will cooperate with one another and comply with  any terms, conditions and provisos IBM may
reasonably impose relating to the export of Product under any such export
license.  IBM agrees that it will
consult with Apple regarding any government proposed license terms, conditions
and provisos that would result in obligations for Apple.

20.4         Whenever
IBM arranges for export or import of custom Products, with respect to all
relevant governmental and administrative authorities, including the United
States and European 

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

Union, Apple: (i) recognizes that IBM may not know or
have reason to know the intended function of such Products and technical data
and must rely on Apple to provide correct information for export and import of
Products and technical data, (ii) agrees to cooperate in providing all
information necessary to determine all relevant export authorizations and to
export and import the Products and technical data, including as applicable the
Export Classification Control Number (ECCN) and subheadings, and (iii) agrees
to assist with obtaining any required licenses and authorizations for export
and import of Products and technical data and with making any required filings.
Apple shall be fully responsible for the correctness of information provided by
Apple and any Apple-authorized use of it to comply with applicable regulations.

20.5         For
the avoidance of doubt, this clause shall be considered one of the clauses
intended by the parties to survive the expiration or termination of this
Agreement under Section 21.6.

20.6         If
IBM has a reasonable basis to believe that any export license issued for any of
the Products is not being complied with in accordance with the terms and
conditions of this Section 20, IBM shall give prompt notice to Apple pursuant
to Section 21.2 of the Agreement, and shall ask that Apple provide IBM with
adequate assurance of compliance with such license terms, conditions, or
provisos.

20.7         For
purposes of this Section 20, the term “party” shall include IBM, the Plant,
Authorized Purchasers and Designees.

 

21.0         GENERAL

21.1         Neither party shall be responsible for
failure to fulfill its obligations under this Agreement due to fire, flood,
war, earthquake or other such cause beyond its reasonable control and without
its fault or negligence provided it promptly notifies the other party and uses
reasonable efforts to promptly cure such failure or delay and to resume its
performance.

21.2         The parties will make every reasonable
effort to resolve any disputes under this Agreement through negotiation.

21.3         This Section shall apply in the event
that the parties are unable to resolve any disputes under this Agreement
through negotiation.   Each party agrees
to provide the other party written notice of any such dispute.  If the dispute cannot be resolved within
thirty (30) days of such written notice, the matter will be escalated to
Apple’s Chief Executive Officer and IBM’s Senior Vice President, Technology
Group.  If they cannot resolve the
dispute within sixty (60) days of the date of escalation, the parties then may
seek to resolve the dispute through other means.  BOTH PARTIES AGREE TO WAIVE THEIR RIGHT TO A JURY TRIAL IN ANY DISPUTE
ARISING OUT OF THIS AGREEMENT.  
If Apple commences any action against IBM relating to or arising out of
the Agreement, the substantive laws of the State of New York shall be applied
exclusively to govern this Agreement without regard to conflict of law

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

principles
and the action shall be brought in a court of competent jurisdiction in the
State of New York, in which event both parties hereby consent to the
exclusive personal jurisdiction of, and waive any venue objections against any
such court.  If IBM
commences any action against Apple relating to or arising out of this
Agreement, the substantive laws of the State of California shall be applied
exclusively to govern this Agreement without regard to conflict of law
principles and the action shall be brought in a court of competent jurisdiction
in the State of California, in which event both parties hereby consent to the
exclusive personal jurisdiction of, and waive any venue objections against any
such court.  If, notwithstanding
the foregoing, a New York or California court’s judgment (with respect to
either the underlying action or any counterclaim) is not enforceable against a
party, the other party may bring such an action in any court of competent
jurisdiction.  Neither party will bring
a legal action against the other more than one (1) year after the cause of
action has been, or reasonably should have been, discovered, except for actions
for non-payment of amounts due pursuant to this Agreement (including actions
for non-payment of amounts due under Sections 11 and 14) or to enforce intellectual
property rights.

21.4         Apple may assign its rights or delegate
its obligations without the prior written consent of IBM only in connection
with a merger or a sale of all or substantially all of its assets to a third
party reasonably determined by Apple to be creditworthy.  IBM may assign its rights or delegate its
obligations without the prior written consent of Apple only in connection with
a merger or a sale of all or substantially all of the assets of the IBM Microelectronics
Division or any successor business unit thereof relating to the subject matter
of the Agreement to a third party reasonably determined by IBM to be capable of
fulfilling IBM’s obligations hereunder, provided that IBM may freely assign its
rights to receive payment from Apple hereunder to any third party.  IBM has the right to subcontract its
responsibilities under this Agreement, provided that IBM remains responsible to
Apple as provided in this Agreement with respect to such subcontracted responsibilities.

21.5         No delay or failure by either party to
act in the event of a breach or default hereunder shall be construed as a
waiver of that or any subsequent breach or default of any provision of this
Agreement.

21.6         If any part, term or provision of this
Agreement is declared unlawful or unenforceable by judicial determination, the
remainder of this Agreement shall remain in full force and effect and the
parties will agree upon a valid replacement provision with like economic effect
and intent.

21.7         Any terms of this Agreement which by
their nature extend beyond expiration or termination of this Agreement shall
remain in effect until fulfilled and shall bind the parties and their legal
representatives, successors, heirs and assigns.

21.8         The headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange Commission.

21.9         The UN Convention on Contracts for the International Sale of
Goods shall not apply to this Agreement.

21.10       Each IBM Product is manufactured from
new, or new and used parts.  In some
cases, the Product may not be new and may have been previously installed.
Regardless of the Product’s production status, IBM’s warranty terms and
conditions apply.  Where a type of
service involves the exchange of a Product or part, the replacement may not be
new, but will be in good working order.

21.11       Publicity
and Corporate Communications.  Neither
party will issue or authorize any press release or publicity regarding the
Agreement or its subject matter without the other’s prior written approval,
with the following limited exceptions: 
(i) Apple will publicly announce no later than January 2003 that it is
committed to PowerPC as its strategic platform and that IBM will continue to be
a strategic supplier, (ii) Apple may make warranties or representations
regarding the Products on its own behalf provided they are consistent with
those made by IBM or supported by Apple’s own test results or analysis, and
(iii) Apple may market systems containing the Products, and make
representations and warranties on its own behalf about the performance of the
Products in those systems. This provision is not intended to
limit either party’s right to disclose this Agreement or the relationship of
the parties to regulatory agencies or as otherwise required by law.

21.12       This Agreement is not intended to and does not benefit
any party except IBM (including the Plant) and Apple (including its Authorized
Purchasers).

21.13       Neither party will have the power, and will not hold
itself out as having the power, to act for or in the name of or to bind the
other party.

21.14       Senior-Level Communications.  Apple’s CEO and IBM’s Sr. VP, Technology
Group or their designees or successors will meet at least once each quarter to
have an open and frank discussion on the state of the relationship, including any
changes in direction.  The parties acknowledge
that the schedules of these individuals can be difficult to coordinate, and for
that reason the parties agree that a failure to meet during a particular
quarter will not constitute a breach of this Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

Exhibit 1: 
Related Company Agreement Template

 

	
  International Business
  Machines Corporation

  	
   

  	
  1000 River Street, 965-3B 

  
	
   

  	
   

  	
  Essex Jct., VT 05452

  

 

Agreement
No.____________

 

Related
Company:

 

This Related Company Agreement (“RCA”) is made and
entered into between International Business Machines Corporation (“IBM”),
{Related Company Full Name} (“{Related Company}”) and Apple Computer, Inc.
(“Apple”).  This RCA shall be effective
as of ______________________ (the “Effective Date”).

 

WHEREAS IBM and Apple are parties to Custom Sales Agreement No. 000451 and
Attachment No. 1, having an effective date of 
________________ (the “Agreement”);

 

WHEREAS {Related Company} represents and warrants that it is a “Related
Company” as such term is defined under the Agreement; and

 

WHEREAS IBM, {Related Company} and Apple desire that {Related Company} enter
into the Agreement with IBM.

 

NOW, THEREFORE, the parties agree as follows:

 

1.  Unless otherwise defined in
this RCA, all capitalized terms shall have the meaning assigned to them in the
Agreement.

 

2.  In exchange for good and
valuable consideration, the sufficiency of which is hereby acknowledged,
{Related Company} is hereby deemed a party to the Agreement as of and from the
Effective Date with the same force and effect as if {Related Company} were an
original signatory.  As an additional
party to the Agreement, {Related Company} shall have the rights of and be
subject to the duties and obligations of Customer under the Agreement,
including any applicable SOW Attachments thereto.

 

3.  {Related Company}’s
Invoicing address shall be:

 

 

4.  Upon
signature by the parties, it is agreed that this RCA and the Agreement
constitutes the complete and exclusive agreement between them superseding all
contemporaneous or prior agreements and other communications between them,
written or oral, relating to the subject matter of this RCA, notwithstanding anything
contained in any document issued by either party.  This RCA may not be amended or modified except by a written
amendment signed by duly
authorized signatories of the parties.

 

5.  The parties
expressly acknowledge that they have received and are in possession of a copy
of any referenced document that is not physically attached to the Agreement and
any such item will be treated as if attached.

 

6.  This RCA
shall automatically terminate, without further notice or action by any party
hereto upon the earlier of: (a) the termination or expiration of the Agreement
or (b) at such time that {Related Company} ceases to be a Related Company of
Apple.  In the event that this RCA is
terminated pursuant to (b) immediately above, IBM and {Related

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

Company} shall have the rights and obligations as if
the Agreement were terminated pursuant to Section 7.2 of the Agreement.

 

7.  Notwithstanding the above, {Related Company}
will have sole responsibility for all of its obligations under the Agreement,
including obligations to pay for Products it purchases from IBM.

 

 

IN WITNESS WHEREOF, the parties have caused this RCA
to be duly signed by its authorized representatives as of the Effective Date.

 

	
  Apple Computer, Inc.  

  	
   

  	
  International Business Machines Corporation  

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  

 

	
  {Related Company name}

  
	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

 

Ex. 2:  Term Sheet for Designees

Term Sheet for
Designees

This Term Sheet for Designees sets forth the terms and
conditions under which a Designee may purchase certain microelectronic products
on behalf of Apple Computer, Inc. under the Custom Sales Agreement between
Apple Computer, Inc. (“Apple”) and International Business Machines Corporation
(“IBM”), Agreement No. 000451 (the “Agreement”).

1.0           DEFINITIONS

Capitalized terms in this
Term Sheet have the following meanings. References in this Term Sheet to a
gender include references to all genders, and references to the singular
include references to the plural, and vice versa.  Unless the context otherwise requires, the term “party” means a
party to the Agreement, and not the Designee. 
The words “include”, “includes” and “including”, when used in this Term
Sheet shall be deemed to be followed by the phrase “without limitation.”  Unless the context otherwise requires,
references in this Term Sheet to sections, exhibits, schedules, appendices and
attachments shall be deemed references to sections of, and exhibits, schedules,
appendices and attachments to this Term Sheet. 
Unless the context otherwise requires, the word “or” shall be
disjunctive and the words “hereof”, “hereby” and “herein” and words of similar
meaning when used in this Term Sheet shall refer to the Term Sheet in its
entirety and not to any particular article, section or provision of such Term
Sheet.  Unless the context otherwise
requires, references to “IBM, and its Plant” shall be read to include “as the
case may be.”

1.1           “ASIC Products” means a custom
Product that is an application specific integrated circuit.

1.2           “Attachment” means an exhibit,
statement of work or other attachment to this Term Sheet or to the Agreement,
as the case may be.

1.3           “Business Days” means a regularly
scheduled day of work in the United States for both Apple and IBM.

1.4           “Designee” means an original
equipment manufacturer, contract manufacturer or other third party engaged by
Apple or an Apple-Related Company to manufacture Apple-branded products or
subassemblies for Apple-branded products and authorized by Apple, pursuant to
Section 2.4, below, to purchase Products and perform other tasks on Apple’s
behalf.

1.5           “Exhibit 4 Products” means those
Products identified as such in the Agreement or an Attachment thereto.  Apple or IBM will advise Designee whether a
Product Designee is

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

authorized
to purchase is an Exhibit 4 Product either in an Attachment to this Term Sheet
or in a written notice.

1.6           “Plant”
means the IBM-Related Company described in Section 2.5.

1.7           “PowerPC
Product” means a stand-alone microprocessor Product based on the PowerPC
Architecture.

1.8           “Product” means production units to
be sold or purchased under the Agreement, including the Exhibit 4
Products.  Products may be “standard”
(available for purchase by one or more customers other than Apple) or “custom”
(resulting from IBM performing Services for Apple under this Agreement and not
available for IBM’s own use (other than ordinary manufacturing activities) or
for purchase by any other customer). 
Standard Products may include, but not necessarily be limited to,
PowerPC Products and SRAM Products. 
Custom Products may include, but not necessarily be limited to, PowerPC
Products and ASIC Products.  Product
shall be designated as “standard” or “custom” in the Attachment to the Agreement
applicable to such Product.  Apple or
IBM will advise Designee if a Product Designee is authorized to purchase is a
“custom” Product either in an Attachment to this Term Sheet or in a written
notice.  Products shall not include
Prototypes.

1.9           “Purchase Order” means a written
order containing the terms set forth in Section 3.2, below, issued by a
Designee pursuant to the Agreement.

1.10         “Purchase Order Lead Time” means the
required minimum amount of time between IBM’s receipt of the Purchase Order and
the Scheduled Shipment Date.  Purchase
Order Lead Times will be established for each Product sold hereunder and shall
be set forth in an Attachment to the Agreement applicable to such Product.  Apple or IBM will advise Designee of the
Purchase Order Lead Time applicable to the Product Designee is authorized to
purchase either in an Attachment to this Term Sheet or in a written notice.

1.11         “Sales Acknowledgment” means a written
sales acknowledgment or other acceptance document issued by IBM or its Plant in
response to a Purchase Order.

1.12         “Scheduled Shipment Date” means the
scheduled date of shipment as specified on the Sales Acknowledgment and, if
later rescheduled by the Designee pursuant to Section 5.3, below, the
rescheduled date.

1.13         “Service” means any design or
engineering work that IBM performs pursuant to the Agreement.

1.14         “Term Sheet” means this document,
including any Attachments attached to or referencing this Term Sheet.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

 

2.0           AGREEMENT STRUCTURE

2.1           This
Term Sheet is for the purpose of communicating certain relevant terms and
conditions of the Agreement to the Designee. 
It may not contain all terms applicable to Products purchased by a
Designee, and if there is any conflict or ambiguity between this Term Sheet and
the Agreement, the Agreement will govern.

2.2            Apple may add Attachments to this Term Sheet
to communicate Product-specific terms and conditions, such as  Product descriptions, IBM part numbers, Apple part
numbers, minimum order quantities, shipment pack quantities, Purchase Order
Lead Times and prices, to the Designee. 
Such an Attachment may include additional or differing terms and
conditions from the Term Sheet, however such terms and conditions will apply
only to that Attachment.  Such
Attachments may also include any specifications agreed to by Apple and IBM applicable
to the specific work tasks (Services) or Product under that Attachment.  In the event of a conflict or ambiguity
between an Attachment to this Term Sheet and any other document, the
Attachment’s terms and conditions govern only as to the Attachment.

2.3           Except for Product part numbers, Product
descriptions (e.g. 1 GHz microprocessor), prices, quantities, bill-to
locations, ship-to locations, shipping instructions (limited to preferred
carrier, carrier account number, and expedited shipping method, if any), and
Scheduled Shipment Dates, any other terms and conditions on Purchase Orders and
Sales Acknowledgements are void and replaced by the Agreement.

2.4           Apple may, in a writing provided to
IBM, name one or more agents who are authorized by Apple to issue Purchase
Orders for Products with Apple part numbers, receive, reschedule or cancel
deliveries of such Products ordered pursuant to such Purchase Orders, process
warranty claims related to such Products and pay for such Products and any
associated freight costs (“Designees”). 
Designees are not authorized to act for Apple in any other capacity or
to bind Apple in any other respect whatsoever. 
Prior to giving notice to IBM appointing a Designee, Apple and the
Designee will have executed an appropriate agreement establishing the limited
agency described in this Section, establishing that the Designee is not a third
party beneficiary of the Agreement, protecting the confidentiality of any terms
or conditions of this Term Sheet, as well as any Confidential Information that may be disclosed to the
Designee (as that term is defined in the Confidentiality Agreement (Mutual),
Agreement No. X1329, as amended, signed by IBM and Apple with an effective date
of April 1, 1999), and securing such Designee’s agreement to be bound to the
terms and conditions set forth herein. 
No Designee may receive Confidential Information prior to executing an
agreement with the party disclosing the Confidential Information to the
Designee, such agreement including restrictions on nondisclosure and nonuse at
least as stringent as those restrictions in Agreement No. X1329.  Each Designee shall be subject to all of the
obligations and responsibilities of “Apple” under the Agreement with respect to
the terms and conditions in this Term Sheet. 
Apple may withdraw a Designee by providing IBM ten (10) days prior
written notice; and thereafter the Designee will no longer be 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

authorized
to purchase Product on Apple’s behalf or perform any other of the tasks
described in this Section.

2.5           Notwithstanding any other provision
hereof, for US sales (sales for which IBM ships to the Designee and title
transfers within the United States), the contract of sale for Products
purchased under this Agreement will be between IBM and in the case of
Designees, Apple.  For non-U.S. sales
(sales for which IBM ships to the Designee with shipment and title transfer
outside of the United States), the contract of sale for Products purchased
under this Agreement will be between the IBM Related Company that will supply
the Products (“the Plant”) and in the case of Designees, Apple.  It is agreed that all such Purchase Orders
will incorporate the terms and conditions of the Agreement whether expressly
referenced or not and will only be accepted subject to the terms and conditions
of the Agreement.  Purchase Orders will
be accepted by the Plant when it issues the Sales Acknowledgment accepting the
Purchase Order, thereby creating the contract of sale for the Products.

2.6           Any purchase order submitted by a
Designee during the term of this Agreement (whether or not it references this
Agreement) for products or services from IBM’s Microelectronics Division shall
be subject to and governed by the terms and conditions of this Agreement,
unless:  (i) there is another signed,
written agreement in place between IBM and the Designee with respect to the
subject matter of such purchase order; or (ii) the product or service was
ordered by a Designee for use in or in connection with its own or another
customer’s product and not in an Apple-branded product.  The foregoing shall be in effect regardless
of whether Apple and IBM have executed any Attachment to the Agreement specific
to the Products, or Services ordered. 
If no such Attachment has been executed, then the terms and conditions
of the Attachment most recently executed by Apple and IBM shall control, except
with respect to those matters which are uniquely applicable to the specific
Product or Service in question (such as specific NRE charges, Product pricing,
specific Items and IBM deliverables, Product names and descriptions, Purchase
Order Lead Times, and Forecasts).

 

3.0           PRODUCT DEMAND FORECASTS AND ORDERS

3.1           Each month during the term of the
Agreement, on or before the last Business Day of the month, Apple will provide
IBM a rolling Forecast of Apple’s requirements for Products, the first month of
the Forecast being the month following that month in which the Forecast is
placed.

3.2            IBM will accept Purchase Orders for
Products or Services placed by a Designee in accordance with the terms and
conditions of the Agreement.  Purchase
Orders will specify (i) the Purchase Order number, (ii) the  Designee’s tax status (exempt or
non-exempt), (iii) the ship-to location, (iv) the bill-to location, (v) the
order-from location, (vi) shipping instructions (including preferred carrier
and carrier account number), (vii) requested shipment dates, (viii) the name of
the Designee’s contact, (ix) Product part numbers and the quantity ordered (in
increments of the Minimum Order Quantity (“MOQ”),  (x) the applicable unit price, and (xi) the agreement 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

number
of the Agreement.  Additionally, Purchase Orders placed by a Designee shall
clearly state that such Designee is purchasing “as the agent of Apple Computer,
Inc.”  Purchase Order
Lead Times and any applicable MOQ’s will be as set forth in the relevant
Attachment to the Agreement.  Apple or
IBM will advise Designee of applicable Purchase Order Lead Times and MOQ’s in
an Attachment to this Term Sheet or by written notice.  Purchase Orders may be rejected by IBM if
not received in advance with at least the Purchase Order Lead Time.

3.3           IBM and its Plants will respond
promptly regarding all Purchase Orders placed under this Agreement, providing a
Sales Acknowledgment accepting or rejecting the Purchase Order within two (2)
Business Days after receipt of any Purchase Order placed with the requisite
Purchase Order Lead Time and within eight (8) Business Days after receipt of
any Purchase Order placed with less than the requisite Purchase Order Lead
Time.

3.4           IBM will specify the Scheduled
Shipment Date for the Products ordered in the applicable Sales
Acknowledgment.  For Products ordered
with less than the requisite Purchase Order Lead Time, if the Scheduled
Shipment Date differs from the requested shipment date, the Designee may, at
its option:  (i) cancel all or any
portion of the Purchase Order without liability to IBM provided it does so in
accordance with Section 5.1, below; or (ii) require that IBM deliver the
Products ordered using priority freight delivery with incremental freight
charges at the Designee’s expense.

3.5           In the event that IBM determines to
discontinue the manufacture of a Product under the Agreement, IBM will provide
Apple with written notice of such discontinuance, which notice Apple may
provide to Designees authorized to purchase that Product.

 

4.0           DELIVERY

4.1
          The Designee is responsible for
all freight and duty charges from IBM’s shipping location.  Title and risk of loss will pass to the
Designee upon tender to the carrier for shipment to such Designee.

4.2           In the event that IBM and Apple enter
into an agreement to provide just-in-time delivery of Product utilizing hub
locations, Designee will be provided with written notice of the applicable
terms and conditions of such agreement.

4.3           If IBM or its Plant foresees any
supply constraint with respect to an accepted Purchase Order, IBM will provide
prompt notice to Apple and to the Designee who placed the Purchase Order.  If IBM’s supply of the Product and / or
Services becomes constrained for any reason, IBM may reduce the quantities of
Products and / or Services to be supplied to Designees.

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted information
has been filed 

separately with the Securities and Exchange
Commission.

4.4           If IBM or its Plant foresees any
delivery delay with respect to an accepted Purchase Order, IBM will provide
prompt notice to Apple and the Designee who placed the Purchase Order.  [**]

 

5.0           CANCELLATION
AND RESCHEDULING

5.1           Cancellation.  Designees may cancel accepted Purchase
Orders for Products for their convenience at any time, provided they pay IBM or
its Plant applicable cancellation charges as set forth in this Section 5.1.

5.1.1        Exhibit 4 Products.  Designees may cancel Purchase Orders for
Exhibit 4 Products (and any other ASIC Product that the parties may agree to
treat in a similar manner) without charge, provided they give IBM written notice
[**] prior to the original Scheduled Shipment Date.  If the Designee provides IBM written notice canceling a Purchase
Order for such Products [**] prior to the original Scheduled Shipment Date, the
Designee will pay IBM [**] of the purchase price of the Products ordered.  Promptly after receiving notice canceling a
Purchase Order for Exhibit 4 Products, IBM will provide Apple and the Designee
who placed the Purchase Order written notice of any applicable cancellation
charges.  The Designee will promptly
after receiving IBM’s notice, issue a Purchase Order to IBM for such charges,
and IBM will invoice the same upon receipt.

                                                5.1.2        Other Products.  If the Designee provides IBM written notice
canceling a Purchase Order for any other Product, the Designee shall pay the
cancellation charges set forth in the applicable Attachment to the
Agreement.  IBM will provide Apple and
the Designee prompt written notice of any applicable cancellation charges.  The Designee canceling the Purchaser Order
will, upon receipt of IBM’s written notice, promptly issue a Purchase Order to
IBM for such charges and IBM will invoice the same upon receipt.

5.2           If a Designee cancels a Purchase
Order for Services for its convenience, IBM will cease further work in
connection with the Purchase Order and the Designee will pay IBM for reasonable
costs actually incurred by IBM pursuant to such Purchase Order before the
Designee’s notice of cancellation.  IBM
must make its claim for cancellation charges and provide supporting
documentation within forty-five (45) days of the date of cancellation.  Any claim not made within such forty-five
(45) day period will be deemed waived. 
In the event IBM is more than twenty-one (21) days late in completing a
Purchase Order for Services, the Designee may cancel such Purchase Order and
the Designee’s sole obligation will be to pay IBM for any deliverables ordered
pursuant to that Purchase Order that were actually completed or delivered by
IBM before the Designee’s notice of cancellation, provided that any periods of
such delay that were caused by the Designee shall be excluded for purposes of
calculating the length of the delay hereunder.

5.3           Rescheduling.  The Designee may reschedule accepted
Purchase Orders for Products in accordance with this Section 5.3.

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

5.3.1        Exhibit 4 Products.  The Designee may reschedule a Scheduled
Shipment Date for an Exhibit 4 Product or
any other ASIC Product that the parties may agree to treat in a similar manner
to a later date provided:  (i) it sends
IBM or its Plant written notice of the request to reschedule; (ii) the Product
being rescheduled has not yet been shipped; and (iii) the requested rescheduled
shipment date is within ninety (90) days after the original Scheduled Shipment
Date.  If the foregoing requirements are
met, no cancellation or other charge will be imposed by IBM or its Plant for
rescheduling.

5.3.2        Other Products.  The Designee may reschedule an order for any other
Product to a later date only upon prior written notice to IBM and as set forth
in the applicable Attachment to the Agreement. 
In the event of a reschedule which exceeds the rescheduling rights set
forth in the applicable Attachment, IBM may invoice the Designee the quoted
price for any Products that were delivered or ready for shipment pursuant to
that Purchase Order on the date the Designee’s notice was received by IBM or
its Plant, and the cancellation charges set forth in the applicable Attachment
for any Products on that Purchase Order that were not already delivered or
ready for shipment when IBM or its Plant received such notice.

5.4           Product Remix without Charge.  Designees may request that IBM or its Plant
ship a different mix of Products than those originally ordered.  IBM or its Plant will agree to do so without
charge provided:  (i) the Designee gives
written notice to IBM or its Plant, as the case may be, at least [**] before
the Scheduled Shipment Date;  (ii) all
substituted Products are within the same Product-family as those originally
ordered.  Products that utilize the same
design revision, materials and manufacturing process from wafer start to module
final test are within the same Product-family; (iii) the total number of units
ordered remains the same; (iv) the change will not have any significant
negative manufacturing or financial impact to IBM or its Plant in IBM or its
Plant’s sole and reasonable judgment; and (v) subject to availability of
Products that permit the requested remixing. 
Changes that do not meet the requirements of this Section may be
accepted for similar treatment in IBM’s or its Plant’s sole discretion.  If IBM or its Plant agrees to change an
order as described in this Section, as a condition of obtaining such agreement,
the Designee will promptly cancel the original Purchase Order without incurring
any cancellation or other charge and place a new one for the modified Product
mix.

 

6.0           PRICES
AND PAYMENT

6.1           Prices for Products shall be as
determined between IBM and Apple.  Apple
or IBM will notify Designee of the price of each Product Designee is authorized
to purchase.

6.2           Invoices and Payments.  IBM or its Plant shall invoice the Designee
after the Products have been shipped, or the Services provided.  Payment will be due within thirty (30) days
after the date of invoice.  Late payment
of invoices may be assessed a charge equal to the lesser of one

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

and one-half percent
(1.5%) per month or the statutorily maximum rate of interest in accordance with
the laws of the State of New York.  In
addition, if a Designee’s account balance exceeds Apple’s credit limit with
IBM, or becomes delinquent, IBM may stop shipments to the Designee or ship on a
prepaid basis until the account is compliant.

 

7.0           CONFIDENTIAL
INFORMATION

7.1           The terms and conditions and the
existence of this Term Sheet are “Confidential Information” subject to the terms and conditions of the
confidentiality agreement signed by the Designee and Apple. Designees
shall not disclose the terms and conditions of this Term Sheet to any third
party without the prior written consent of both IBM and Apple.

 

8.0           LICENSE

8.1           No license, immunity or other right
is granted herein to any Designee whether directly or by implication, estoppel
or otherwise, with respect to any patent, trademark, copyright, mask work,
trade secret, utility, model, or know-how, or other intellectual property right
of IBM.  Nothing herein shall abrogate
any rights that may arise by operation of the patent exhaustion doctrine.

 

9.0           TRADEMARK

9.1           Nothing in the Agreement or this Term
Sheet grants Designee or either party any rights to use either party’s or the
Designee’s trademarks or trade names, directly or indirectly, in connection
with any product, service, promotion, or to make any publication or publicity
without prior written approval of the other party or trademark or trade name
owner.

 

10.0         WARRANTIES

10.1         Product
Warranty.

10.1.1      PowerPC Warranty.  IBM warrants each PowerPC Product delivered
hereunder to be free from defects in material and workmanship and to comply with
Product specifications at the time of manufacture, as agreed in writing by IBM
and Apple, for the notice period of [**] from the date of shipment.

10.1.2      ASIC Product
Warranty.  IBM warrants all ASIC Products delivered to be free
from defects in material and workmanship and conform to the Product
specifications as

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

set forth in the RTM for the notice period of [**] from the date of shipment. Apple
acknowledges that the functionality of ASIC Products may be contingent on
Apple’s designs and, therefore, Apple agrees that such warranty does not apply
to the functionality of ASIC Products designed by Apple and manufactured by IBM
under this Agreement except to the extent the lack of functionality is due to a
defect in materials or workmanship.

10.1.3      Other Product Warranty.  IBM warrants all other standard Products
delivered to be free from defects in material and workmanship and to conform to
the Product Specifications for the notice period of [**] from the date of shipment unless otherwise stated in an
Attachment to the Agreement applicable to such standard Products, and all other
custom Products delivered to be free from defects in material and workmanship
for the notice period of [**] from
date of shipment unless otherwise stated in an Attachment to the Agreement
applicable to such custom Products. 
Such warranty does not apply to the functionality of custom Products
designed by Apple and manufactured by IBM under the Agreement except to the
extent the lack of functionality is due to a defect in materials or
workmanship.  IBM warrants Services
will be performed using reasonable care and ordinary skill.

10.2         The Product warranty does not include
defects in or failures of Products that result from (i) an Apple-supplied
design; (ii) matters not covered in the Product specification or use outside of
the intended operating environment set forth in the applicable Product
specifications; (iii) accident, disaster, neglect, abuse, misuse, improper
handling, testing, storage or installation after delivery to the carrier,
including improper handling in accordance with generally acceptable static sensitive
electronic device handling requirements; (iv) alterations, modifications or
repairs by Apple or third parties not authorized by IBM in writing; (v) removal
or alteration of labels by Apple or a third party; or (vi) failure caused by a
product which IBM did not provide or for which IBM is not responsible.  IBM does not warrant uninterrupted or error free
operation of the Products or that IBM will correct all defects.

10.3         THE FOREGOING WARRANTIES ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS OR USAGE FOR PARTICULAR PURPOSE OR NON-INFRINGEMENT.

10.4
        This warranty is not
transferable.  No course of dealing,
course of performance, usage of trade, or description of Product or Service
shall be deemed to establish a warranty, express or implied.

10.5         If a Designee claims that any Products
or Services are nonconforming, the Designee shall, (i) promptly notify IBM, in
writing, of the basis for such claim of nonconformity; (ii) follow IBM’s
instructions for the prompt return of the Products; and (iii) return such
Products freight collect to IBM’s designated facility.  If IBM determines that the returned Products
are 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

nonconforming and such returned
Products were shipped with Apple’s consent prior to their qualification, IBM
will, at IBM’s option, repair or replace the defective Products, or issue a
credit for the purchase price.  If IBM
determines the Products are nonconforming and they were shipped subsequent to
their qualification, IBM will issue a credit or rebate for the purchase price.

10.6         Prior to returning any defective
Products to IBM, the Designee shall obtain a Return Merchandise Authorization
number (“RMA”) from IBM (which IBM will provide to the Designee within [**] of
the Designee’s request) and provide the specific description of the problem, by
part number for the total quantity of the defective Products.  The Designee shall only return the exact
quantity authorized in each RMA by
following IBM’s RMA instructions.  Each shipping container shall contain only one (1) RMA.

10.7         IBM’s sole liability and the Designee’s
exclusive remedy for breach of warranty shall be limited as stated in this
Section 10.

 

11.0         UTILIZATION
OF PRODUCTS

11.1
        All Products purchased under the
Agreement will be:  (i) incorporated
into and made a part of Apple products; or (ii) combined with Apple products
for sale or lease as an Apple system; or (iii) sold or leased in incidental
additional quantities for sale or lease directly to an unaffiliated third party
in conjunction with an installed Apple system, or (iv) scrapped.

 

12.0         CHANGES
TO SCOPE OF WORK

12.1         With respect to Services contracted for
hereunder, Apple may, at any time and from time to time, by written notice to
IBM, request changes to the Products, specifications or work scope.  The parties shall promptly amend the
relevant Attachment to the Agreement to incorporate any agreed changes and
provide a copy of the same to the Designee.

12.2         IBM shall give Apple prior notice of
engineering changes affecting the form, fit or function of a Product as set
forth in the above-described JEDEC standard in accordance with the terms and
conditions of the Agreement.  IBM will,
thereafter, provide Designees with written notice of any such engineering
change.

 

13.0         EXPORT
AND OTHER LAWS, REGULATIONS AND ORDINANCES

13.1         The Designee will comply, at its own
expense, with all applicable United States (federal, state and local), European
Union, and other country or country group laws, regulations and ordinances, and
shall procure all licenses and permits, and shall comply with all relevant
export

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

license terms, conditions and provisos regardless of
to whom (which party under the Agreement) the license was issued, and pay all
fees and other charges required thereby. 
Such laws, regulations and ordinances include the regulations of the
U.S. Government relating to export and re-export. Regardless of any disclosure
made to IBM of an ultimate destination of any Products or related technical
data, or any system incorporating them, the Designee will not export, either
directly or indirectly, any Product or related technical data, or system
incorporating them without first obtaining required licenses or permits from
all relevant government agencies or departments. IBM will provide Designees
with information regarding any standard Products as reasonably required to
assist Designees in obtaining such documents and approvals.

13.2         Designees will keep suitable records to
show compliance with this Section 13. At the request of either party and
pursuant to a request by a responsible government agency, the Designee will
demonstrate to the requesting party that it has fully complied with the terms
and conditions of this Section.

13.3         Whenever
IBM secures an export license for a Product, IBM will be the exporter of record
for all exports of such Product, and Designees will utilize an IBM-approved
(such approval not to be unreasonably withheld) freight forwarder for shipment
of the Product to the agreed-upon destination point.

13.4         Whenever
IBM arranges for export or import of custom Products, with respect to all
relevant governmental and administrative authorities, including the United
States and European Union, Designees: (i) agree to cooperate in providing all
information necessary to determine all relevant export authorizations and to
export and import the Products and technical data, including as applicable the
Export Classification Control Number (ECCN) and subheadings, and (ii) agree to
assist with obtaining any required licenses and authorizations for export and
import of Products and technical data and with making any required filings.

 

14.0         GENERAL

14.1         The Agreement is not intended to and does not benefit
Designees.

14.2         No Designee has the power, and will not hold itself
out as having the power, to act for or in the name of or to bind any party to
the Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed 

separately with the Securities and Exchange
Commission.

Exhibit 3: Apple Forecast Template

 

	
   

  	
   

  	
  Oct-02

  	
   

  	
  Nov-02

  	
   

  	
  Dec-02

  	
   

  	
  FQ1(CQ4’02)

  	
   

  	
  Jan-03

  	
   

  	
  Feb-03

  	
   

  	
  Mar-03

  	
   

  
	
  Pro-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  Consumer-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  Server

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  Pro-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  Consumer-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  U3

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  U3 Lite

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Exhibit 3: Apple Forecast Template
(continued)

 

	
   

  	
   

  	
  FQ2(CQ1’03)

  	
   

  	
  Apr-03

  	
   

  	
  May-03

  	
   

  	
  Jun-03

  	
   

  	
  FQ3(CQ2’03)

  	
   

  	
  Jul-03

  	
   

  	
  Aug-03

  	
   

  
	
  Pro-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Server

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Pro-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  U3

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  U3 Lite

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Exhibit 3: Apple Forecast Template
(continued)

 

	
   

  	
   

  	
  Sep-03

  	
   

  	
  FQ4(CQ3’03)

  	
   

  	
  Oct-03

  	
   

  	
  Nov-03

  	
   

  	
  Dec-03

  	
   

  	
  FQ1(CQ4’03)

  	
   

  	
  Jan-04

  	
   

  
	
  Pro-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Server

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Pro-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  U3

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  
	
  U3 Lite

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  

 

Exhibit 3: Apple Forecast Template
(continued)

 

	
   

  	
   

  	
  Feb-04

  	
   

  	
  Mar-04

  	
   

  	
  FQ2(CQ1’04)

  	
   

  	
  Apr-04

  	
   

  	
  May-04

  	
   

  	
  Jun-04

  	
   

  	
  FQ3(CQ2’04)

  	
   

  
	
  Pro-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Desktop

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Server

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Pro-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Consumer-Portable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PN1 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN2 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN3 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN4 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN5 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  PN6 (part # or description)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  U3

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
  U3 Lite

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  * Demand

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  

 

 

Exhibit
4: [**]

 

 

[**] = information
redacted pursuant to a confidential treatment request.

Such omitted information
has been filed separately with the Securities and Exchange Commission.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

EXHIBIT 5

DEFINITIONS
AND PRICING FOR EXHIBIT 4 PRODUCTS

 

1.             DEFINITIONS

Whenever used in this Exhibit or in Exhibit 4, the
following terms will mean:

 

1.1                                 [**]

1.2                                 [**]

1.3                                 [**]

1.4                                 [**]

1.5                                 [**]

1.6                                 [**]

1.7                                 [**]

1.8                                 “Performance Milestone” means the date by
which IBM must make available a Product meeting the requirements
specified in Exhibit 4, including: [**].

1.9                                 [**]

1.10                           [**]

1.11                           [**]

1.12                           [**]

1.13                           [**]

1.14                           [**]

1.15                           [**]

 

2.                                       MICROPROCESSOR PRICING

2.1                                 Purchase Price.  The purchase price, in U.S. Dollars (“USD”), for those
microprocessor Products set forth in Exhibit 4 and purchased by Authorized
Purchasers or Designees beginning October 21, 2002 and throughout the period
covered by this Agreement will be as follows:

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

2.1.1        [**]

 

2.1.2        [**]

 

2.2           [**]

 

3.             NORTHBRIDGE PRICING

3.1           [**]

3.1.1        [**]

3.1.2        [**]

4.             SOUTHBRIDGE PRICING

4.1           [**]

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

 

PowerPC Product Attachment No. 1

To Custom Sales Agreement No. 000451

 

Attachments are
governed by the terms and conditions of the Base Agreement.   No additional signature shall be required
on Product Exhibit 1 to this Attachment No. 1 for it to become effective.  Subsequent Product Exhibits to this
Attachment must be signed by the parties to become effective.

 

 

1.0          Term

 

The term of this
Attachment is coextensive with the term of the Base Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

 

Product Exhibit 1 to PowerPC Product Attachment No.
1

 

To Agreement No.
000451

 

Current IBM’s
Part Numbers, Apple’s Part Numbers, Minimum Order Quantities (“MOQ”), Shipment
Pack Quantities (“SPQ”), minimum amounts of time between receipt of Purchase
Order and Scheduled Shipment Dates (“Purchase Order Lead Time”).

 

Prices for Product
are set forth in Exhibit 5 to the Base Agreement.

 

The Products set
forth in this Product
Exhibit 1 to PowerPC Product
Attachment No. 1 are standard Products.

 

Effective Date:      October 21, 2002

 

	
  Products

  	
   

  	
  IBM’s P/N

  	
   

  	
  Apple’s P/N

  	
   

  	
  MOQ *

  	
   

  	
  SPQ *

  	
   

  	
  Purchase
  Order  Lead Time

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  

 

 

* IBM will consider Apple requests for alternative MOQ and
SPQ quantities under special circumstances such as the discontinuance of the
manufacture of a Product pursuant to Section 3.5 of the Base Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

 

 

ASIC Product Attachment No. 2

To Custom Sales Agreement No. 000451

 

Attachments are
governed by the terms and conditions of the Base Agreement.   No additional signature shall be required
on Product Exhibit 1 to this Attachment No. 2 for it to become effective.  Subsequent Product Exhibits to this
Attachment must be signed by the parties to become effective.

 

The parties recognize and agree that the development
of the ASIC Products set forth in Product Exhibits to this Attachment is
governed and controlled by the ASIC Development Agreement, Agreement No.
000798, last signed by the parties on September 26, 2001.

 

1.0          Term

 

The term of this Attachment is coextensive with the term of the Base Agreement.

 

 

[**] = information redacted pursuant to a confidential
treatment request.  Such omitted
information has been filed separately with the Securities and Exchange
Commission.

 

Product
Exhibit 1 to ASIC Product
Attachment No. 2

to Agreement No. 000451

 

 

U3 ASIC / Northbridge

 

1.0  Product Name and Description

 

	
   

  	
  Product Type:

  	
   

  	
  ASIC

  
	
   

  	
  Apple’s Product
  Name:

  	
   

  	
  [**]

  
	
   

  	
  Process
  Technology:

  	
   

  	
  [**]

  
	
   

  	
  Chip Image
  Description:

  	
   

  	
  [**]

  
	
   

  	
  Package
  Description:

  	
   

  	
  [**]

  
	
   

  	
   

  	
   

  	
   

  

The Product set forth in this Product Exhibit 1 to ASIC
Product Attachment No. 2 is a custom Product.

 

2.0          Purchase Order Lead Times:  (includes purchase order approval and
manufacturing lead time):

 

Production:               [**]

 

3.0          Pricing

 

Product unit pricing:  
Set forth in Exhibit 5 to the Base Agreement.

 

4.0          Minimum
Order Quantities / Minimum Ship Pack Quantities:

 

The following Minimum Order Quantities (MOQ) and  Minimum Ship Pack Quantities (SPQ) shall
apply to all Purchase Orders for Product. 
Purchase Orders must be placed in increments of the MOQ and SPQ.

 

	
  Product

  	
   

  	
  MOQ*

  	
   

  	
  SPQ**

  
	
  [**]

  	
   

  	
  [**]

  	
   

  	
  [**]

  

 

* units per order

** units per shipment

 

IBM will consider Apple requests for alternative MOQ and
SPQ quantities under special circumstances such as the discontinuance of the
manufacture of a Product pursuant to Section 3.5 of the Base Agreement.

 

 

[**] = information
redacted pursuant to a confidential treatment request.  Such omitted information has been filed
separately with the Securities and Exchange Commission.--------------------------------------------------------------------------------

                          SECURITIES PURCHASE AGREEMENT

                                 BY AND BETWEEN

                               VITAL LIVING, INC.

                                       AND

                                  THE INVESTORS

--------------------------------------------------------------------------------

                             Dated December 15, 2003

<PAGE>

                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of the 15th
day of December,  2003, by and between Vital Living,  Inc., a Nevada corporation
(the "Company"),  and the investors listed on the Schedule of Investors attached
hereto as such  Schedule may be amended from time to time to include  Additional
Investors (as defined in Section 7.12) (each an "Investor" and collectively, the
"Investors").

                              W I T N E S S E T H:

     WHEREAS,  the Company  desires to sell to the Investors,  and the Investors
desire to purchase from the Company,  (a) 12% senior secured  convertible  notes
(the "Notes") in the aggregate principal amount of up to $6,000,000, in the form
attached as Exhibit A hereto,  and (b) warrants  (the  "Warrants"),  in the form
attached as Exhibit B hereto,  to  purchase a number of shares of the  Company's
common stock,  $0.001 par value per share (the "Common  Stock") equal to 100% of
the principal amount of the Notes, pursuant to the provisions of this Agreement;
and

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows: 1. Purchase and Sale of Notes and Warrants.

          1.1 Issuance and Sale of Notes and Warrants.  Subject to the terms and
conditions of this  Agreement,  the  Investors  agree to purchase at the Initial
Closing (as hereafter defined),  and the Company agrees to issue and sell to the
Investors at the Initial Closing, the amount of Notes and the Warrants set forth
opposite each Investor's name on the Signature Page hereto.

          1.2 Closing.

               (a)  The  Company  may  close  on  any  amount  of  Notes,  up to
$6,000,000  in  aggregate  principal  amount,  without a minimum.  However,  the
Company  intends to effect a closing  ("Initial  Closing") upon the purchase and
sale of Notes in an aggregate principal amount of not less than $2,030,000 and a
like  number of  Warrants  (the  "Purchase  Price"),  since the  holders  of the
Company's  $1,530,000  aggregate principal amount Senior Convertible  Promissory
Notes ("Bridge Notes") sold in October and November 2003 have agreed to exchange
such notes for the Notes sold hereby if at least  $500,000  aggregate  principal
amount of Notes, in addition to the Bridge Notes,  are sold. The Initial Closing
shall take place at the offices of  HCFP/Brenner  Securities,  LLC,  888 Seventh
Avenue,  17th Floor,  New York,  New York 10106 at 10:00 a.m.,  on December  15,
2003, or at such time and place as the Company and the Investors  mutually agree
upon orally or in writing.

               (b) At the  Initial  Closing,  the Company  shall  deliver to the
Investors, the Notes and the Warrants,  against payment of the Purchase Price by
wire transfer to an account designated by the Company or through the exchange of
the Bridge Notes described above.

                                       2
<PAGE>

               (c) The  Company  may  thereafter  effect an interim  closing (an
"Interim  Closing"  and each of the Initial  Closing  and any  Interim  Closings
hereafter  referred to as a "Closing")  upon the purchase and sale of additional
Notes.  The Interim Closing may take place at any time thereafter at the offices
of HCFP/Brenner  Securities,  LLC, 888 Seventh Avenue, 17th Floor, New York, New
York  10106 at such time and place as the  Company  and the  Investors  mutually
agree upon orally or in writing,  with the delivery  of, and payment  for,  such
additional Notes and warrants as described in Section 1.2(b) above.

     2.  Representations  and  Warranties  of the  Company.  The Company  hereby
represents and warrants to the  Investors,  except as set forth on a Schedule of
Exceptions to Representations  and Warranties  attached hereto as Exhibit C (the
"Schedule of Exceptions"), the following:

          2.1  Subsidiaries.  The  Company  does not  presently  own or control,
directly or indirectly, any interest in any other corporation,  association,  or
other  business  entity  except as disclosed in the SEC Reports (as  hereinafter
defined) (each, a "Subsidiary" and collectively, the "Subsidiaries"). Unless the
context requires  otherwise,  all references herein to the "Company" shall refer
to the  Company  and its  Subsidiaries.  The Company is not a party to any joint
venture, partnership, or similar arrangement.

          2.2 Organization,  Good Standing, and Qualification.  The Company is a
corporation  duly organized,  validly  existing,  and in good standing under the
laws of the State of Nevada, and has all requisite corporate power and authority
to own its  properties  and assets  and to carry on its  business  as  presently
conducted. The Subsidiaries are duly organized in their respective jurisdictions
of  organization,  validly  existing  and in good  standing  in such  respective
jurisdictions  and each has the power and  authority to own its  properties  and
assets and to carry on its respective business as now conducted. The Company and
the  Subsidiaries  are  duly  qualified  to  transact  business  and are in good
standing in each jurisdiction where such qualification is required, except where
the failure so to qualify  could not  reasonably  be expected to have a Material
Adverse Effect (as hereafter defined) on the Company's business or properties.

          2.3 Capitalization and Voting Rights. The number of authorized, issued
and  outstanding  capital  stock of the  Company  is set forth in Exhibit C. All
outstanding shares have been duly authorized and are validly issued,  fully paid
and  nonassesasble.  Except as  disclosed  in  Exhibit C, no  securities  of the
Company or any Subsidiary are entitled to preemptive or similar  rights,  nor is
any holder of securities of the Company or any Subsidiary entitled to preemptive
or similar rights arising out of any agreement or understanding with the Company
or any  Subsidiary  by  virtue  of any of  the  Transaction  Documents  (defined
hereinafter).  Except as  disclosed  in  Exhibit  C,  there  are no  outstanding
options,   warrants,  script  rights  to  subscribe  for  or  acquire  calls  or
commitments of any character whatsoever relating to, or securities,  except as a
result of the  purchase  and sale of the  Securities,  or rights or  obligations
convertible  into or  exchangeable  for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments,  understandings,  or  arrangements  by  which  the  Company  or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the  knowledge  of the  Company,  except as  specifically  disclosed  in the SEC
Reports  (as  defined  below) or in  Exhibit  C, no  Person or group of  related
Persons  beneficially  owns (as  determined  pursuant to Rule 13d-3  promulgated

                                       3
<PAGE>

under the Securities  Exchange Act of 1934, as amended (the "Exchange Act")), or
has the right to acquire by  agreement  with or by  obligation  binding upon the
Company, beneficial ownership of in excess of 5% of the Common Stock. A "Person"
means  an  individual  or  corporation,   partnership,  trust,  incorporated  or
unincorporated  association,  joint venture,  limited liability  company,  joint
stock company,  government (or an agency or subdivision thereof) or other entity
of any kind.

          2.4  Authorization.  All corporate  action on the part of the Company,
its officers,  directors,  and shareholders necessary for the due authorization,
execution,  and  delivery  of  this  Agreement,  the  Ancillary  Agreements  (as
hereafter defined), the Notes and the Warrants  (collectively,  the "Transaction
Documents"),  the  performance of all  obligations of the Company  hereunder and
thereunder  and  the due  authorization,  valid  issuance  (or  reservation  for
issuance)  and delivery of the Notes and the Warrants  hereunder  and the Common
Stock  issuable  upon  conversion  of the Notes or upon exercise of the Warrants
(collectively,  the "Securities"),  has been taken or will be taken prior to the
Initial Closing, and the Transaction Documents constitute or, in the case of the
Notes,  the Warrants and the Common Stock,  will  constitute,  valid and legally
binding  obligations  of the  Company,  enforceable  in  accordance  with  their
respective terms,  except (i) as limited by applicable  bankruptcy,  insolvency,
reorganization,  moratorium  and similar laws of general  application  affecting
enforcement of creditors' rights generally,  (ii) as limited by laws relating to
the availability of specific performance,  injunctive relief, or other equitable
remedies,  and (iii) to the extent the indemnification  provisions  contained in
the Transaction Documents may be limited by applicable federal or state laws.

          2.5 Valid Issuance of Notes,  Warrants and Common Stock. The Notes and
the Warrants  being  purchased  by the  Investors  hereunder  have been duly and
validly  authorized  and, when issued and delivered in accordance with the terms
hereof for the  consideration  provided for herein,  will be validly  issued and
will constitute  legally  binding  obligations of the Company in accordance with
their terms and will have been issued in compliance with all applicable  federal
and state  securities  laws.  The Common Stock  issuable upon  conversion of the
Notes and upon  exercise of the Warrants has been duly and validly  reserved for
issuance and,  upon  issuance in accordance  with the terms of the Notes and the
Warrants (and upon payment of the exercise  price as required by the  Warrants),
respectively,  will be validly issued,  fully paid and  nonassessable,  and will
have been issued in compliance with all applicable  federal and state securities
laws.

     2.6 Filings, Consents and Approvals. Neither the Company nor any Subsidiary
is required to obtain any consent,  waiver,  authorization or order of, give any
notice to, or make any filing or registration  with, any court or other federal,
state, local or other governmental  authority or other Person in connection with
the  execution,  delivery  and  performance  by the  Company of the  Transaction
Documents or the consummation of the transactions  contemplated  thereby,  other
than  (i)  the  filing  of a  proper  Form D in  accordance  with  Regulation  D
promulgated  under the Securities Act of 1933, as amended (the  "Securities Act"
or  "Act"),  and  applicable  Blue Sky  filings,  (ii)  such  filings  as may be
necessary to perfect the security  interest  granted to the Investors  under the
Security  Agreement  (as  defined  below) and (iii) in all other cases where the
failure to obtain such consent, waiver,  authorization or order, or to give such
notice or make such filing or  registration  could not reasonably be expected to
have or result in,  individually or in the aggregate,  a material adverse effect
on the assets, business, operations, financial condition, liquidity or prospects

                                       4
<PAGE>

of the Company and its Subsidiaries taken as a whole ("Material Adverse
Effect").

          2.7  Litigation.  There  is no  action,  suit,  proceeding,  claim  or
investigation pending or, to the knowledge of the Company,  currently threatened
against  the  Company or its  affiliates  which  questions  the  validity of the
Transaction Documents, or the right of the Company to enter into any of them, or
to consummate the transactions  contemplated  hereby or thereby,  or which might
result or that could  reasonably be expected to have a Material  Adverse Effect,
either individually or in the aggregate,  or result in any change in the current
equity  ownership  of the  Company,  nor is the Company  aware that there is any
basis for the foregoing.  The foregoing includes,  without limitation,  actions,
pending or threatened (or any basis  therefor  known to the Company),  involving
the prior employment of any of the Company's employees,  their use in connection
with  the  Company's  business  of  any  information  or  techniques   allegedly
proprietary to any of their former  employers,  or their  obligations  under any
agreements  with prior  employers.  The Company is not a party or subject to any
order, writ,  injunction,  judgment, or decree of any court or government agency
or  instrumentality.  2.8  Patents and  Trademarks.  The Company and each of its
Subsidiaries  owns, or is licensed or otherwise  possesses  legally  enforceable
rights to use all patents,  trademarks,  trade names, service marks, copyrights,
and any applications therefore, technology, know-how, computer software programs
or applications, and tangible or intangible proprietary information or materials
that are used in the business of the Company and its  Subsidiaries  as currently
conducted,  except for any such  failures to own,  be licensed or possess  that,
individually  or in the  aggregate,  could not  reasonably be expected to have a
Material Adverse Effect, and to the knowledge of the officers of the Company all
patents,  trademarks,  trade names,  service  marks and  copyrights  held by the
Company and/or its Subsidiaries are valid and subsisting.

          Except as disclosed in Exhibit C or as could not reasonably be
expected to have a Material Adverse Effect:

               (a)  the  Company  is not,  nor  will  it be as a  result  of the
execution and delivery of the Transaction  Documents or the  consummation of the
transactions contemplated thereby, in violation of any licenses, sublicenses and
other  agreements  as to which the Company is a party and  pursuant to which the
Company is authorized to use any third-party patents, trademarks, service marks,
copyrights,  trade  secrets or  computer  software  (collectively,  "Third-Party
Intellectual Property Rights").

               (b) no claims with  respect to (i) the  patents,  registered  and
material unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefore,  trade secrets or computer software owned
by  the  Company  or  any  of  its  Subsidiaries  (collectively,   the  "Company
Intellectual Property Rights"); or (ii) Third-Party Intellectual Property Rights
are currently  pending or, to the knowledge of the officers of the Company,  are
threatened by any Person;

               (c) the officers of the Company do not know of any valid  grounds
for any bona fide claims (i) to the effect that the manufacture, sale, licensing
or use of any product as now used, sold or licensed or proposed for use, sale or
license by the Company or any of its  Subsidiaries,  infringes on any copyright,
patent, trademark,  service mark or trade secret of any Person; (ii) against the

                                       5
<PAGE>

use by the  Company  or any of its  Subsidiaries,  of any  Company  Intellectual
Property Right or Third-Party  Intellectual  Property Right used in the business
of the Company or any of its Subsidiaries as currently  conducted or as proposed
to be conducted; (iii) challenging the ownership,  validity or enforceability of
any of the Company Intellectual Property Rights; or (iv) challenging the license
or legally  enforceable right to use of the Third-Party  Intellectual  Rights by
the Company or any of its Subsidiaries; and

               (d) to the knowledge of the officers of the Company,  there is no
unauthorized  use,  infringement  or  misappropriation  of any  of  the  Company
Intellectual  Property  Rights by any third  party,  including  any  employee or
former employee of the Company or any of its Subsidiaries.

          2.9 Compliance with Other Instruments. The Company is not in violation
or  default  of  any  provisions  of  its  Amended  and  Restated   Articles  of
Incorporation  or Bylaws  or any  instrument,  judgment,  order,  writ,  decree,
mortgage,  indenture,  lease,  license or  contract to which it is a party or by
which it is bound or any provision of federal, state, or local statute, rule, or
regulation  applicable  to the  Company,  except  as  could  not  reasonably  be
expected,  singly or in the aggregate,  to have a Material  Adverse Effect or to
burden or impair the  ability  of the  Company to  consummate  the  transactions
contemplated hereby. The execution, delivery, and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby will not
result in any such  violation  or be in  conflict  with or  constitute,  with or
without  the  passage of time and giving of notice,  either a default  under any
such provision,  instrument,  judgment,  order, writ, decree or contract,  or an
event which results in the creation of any lien, charge, or encumbrance upon any
assets of the Company or the suspension,  revocation, impairment, forfeiture, or
nonrenewal  of  any  material  permit,  license,   authorization,   or  approval
applicable to the Company,  its business or operations,  or any of its assets or
properties,  except  as could  not  reasonably  be  expected,  singly  or in the
aggregate, to have a Material Adverse Effect.

          2.10 Permits. The Company has all franchises,  permits,  licenses, and
any similar  authority  necessary  for the conduct of its  business as now being
conducted by it, the lack of which could,  individually or in the aggregate,  be
reasonably  expected  to have a  Material  Adverse  Effect and  believes  it can
obtain,  without undue burden or expense,  any similar authority for the conduct
of its business as planned to be conducted. The Company is not in default in any
material  respect  under any of such  franchises,  permits,  licenses,  or other
similar authority.

          2.11  Compliance with Laws. The conduct of business by the Company and
each  Subsidiary  as  presently,  conducted  or proposed to be  conducted is not
subject to continuing oversight,  supervision,  regulation or examination by any
governmental  official  or body of the United  States or any other  jurisdiction
wherein the  Company or any  Subsidiary  conducts  or  proposes to conduct  such
business,  except such  regulation as is  applicable  to commercial  enterprises
generally.  Neither the Company nor any of the  Subsidiaries  has  received  any
notice of any violation of or noncompliance  with, any federal,  state, local or
foreign laws, ordinances, regulations and orders (including, without limitation,
those  relating to  environmental  protection,  occupational  safety and health,
federal  securities  laws, equal employment  opportunity,  consumer  protection,
credit  reporting,  "truth-in-lending",  and  warranties  and  trade  practices)
applicable to its business or to the business of any  Subsidiary,  the violation
of, or noncompliance with, which could reasonably be expected to have a Material

                                       6
<PAGE>

Adverse  Effect,  individually  or in the  aggregate,  or burden  or impair  the
ability of the Company to consummate the  transactions  contemplated  hereby and
the Company knows of no facts or set of  circumstances  which could give rise to
such a notice.

          2.12 Disclosure. This Agreement, the Notes, the Warrants and any other
statements  or  certificates  made  or  delivered  in  connection   herewith  or
therewith, when taken together with the Disclosure Materials (as defined below),
do not  contain  any untrue  statement  of a  material  fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.

          2.13 Title to Property  and Assets.  The Company owns its property and
assets  free  and  clear  of all  mortgages,  liens,  loans,  pledges,  security
interests, claims, equitable interests,  charges, and encumbrances,  except such
encumbrances and liens which arise in the ordinary course of business and do not
materially  impair the  Company's  ownership or use of such  property or assets.
With respect to the property and assets it leases,  the Company is in compliance
with such  leases  and, to the best of its  knowledge,  holds a valid  leasehold
interest free of any liens, claims, or encumbrances.

          2.14 Tax  Returns,  Payments,  and  Elections.  The Company has timely
filed all tax returns and reports as required by law,  and all such  returns and
reports are true and correct in all material respects.  The Company has paid all
taxes and other  assessments  due, if any,  except those contested by it in good
faith which are listed in the Schedule of  Exceptions.  The provisions for taxes
of the Company as shown in the Financial Statements is adequate for taxes due or
accrued as of the date  thereof.  The Company  has not  elected  pursuant to the
Internal  Revenue  Code  of  1986,  as  amended  ("Code"),  to be  treated  as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code.

          2.15  Insurance.  The  Company  has in full force and effect  fire and
casualty  insurance  policies,  with  extended  coverage,  sufficient  in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed,  and the Company has insurance against other
hazards, risks, and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.

          2.16 SEC  Reports;  Financial  Statements.  The  Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d)  thereof,  for the three years  preceding the date hereof
(or  such  shorter  period  as the  Company  was  required  by law to file  such
material) (the foregoing materials being collectively  referred to herein as the
"SEC  Reports" and,  together with the Schedule of Exceptions to this  Agreement
and the documents filed as exhibits to the Company's  Registration  Statement on
Form SB-2,  as amended,  the  "Disclosure  Materials")  on a timely basis or has
received a valid  extension  pursuant to Rule 12b-25  under the  Exchange Act of
such time of filing and has filed any such SEC Reports  prior to the  expiration
of any such extension. As of their respective dates, the SEC Reports complied in
all  material  respects  with the  requirements  of the  Securities  Act and the
Exchange  Act  and the  rules  and  regulations  of the  Commission  promulgated
thereunder,  and none of the SEC  Reports,  when  filed,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under which they were made,  not  misleading.  Except as set
forth in Exhibit C, all material  agreements  to which the Company is a party or

                                       7
<PAGE>

to which the  property or assets of the  Company are subject  have been filed as
exhibits to the SEC Reports. The financial statements of the Company included in
the SEC Reports  comply in all  material  respects  with  applicable  accounting
requirements  and the rules  and  regulations  of the  Commission  with  respect
thereto as in effect at the time of filing. Such financial  statements have been
prepared in accordance with generally accepted  accounting  principles  ("GAAP")
applied on a  consistent  basis  during the periods  involved,  except as may be
otherwise  specified in such  financial  statements  or the notes  thereto,  and
fairly  present in all material  respects the financial  position of the Company
and its  consolidated  subsidiaries  as of the dates  thereof and the results of
operations  and cash flows for the periods then ended,  subject,  in the case of
unaudited statements, to normal, immaterial,  year-end audit adjustments. Except
as disclosed in the Disclosure Documents, since September 30, 2003 (a) there has
been no event,  occurrence or development  that has had or that could reasonably
be expected to have or result in a Material Adverse Effect,  (b) the Company has
not  incurred  any  liabilities   (contingent  or  otherwise)   other  than  (x)
liabilities  incurred in the ordinary  course of business  consistent  with past
practice and (y)  liabilities  not  required to be  reflected  in the  Company's
financial  statements  pursuant to GAAP or required to be  disclosed  in filings
made  with the  Commission,  (c) the  Company  has not  altered  its  method  of
accounting  or the identity of its auditors and (d) the Company has not declared
or  made  any  payment  or  distribution  of  cash  or  other  property  to  its
stockholders  or officers or directors  (other than in compliance  with existing
Company  stock option  plans) with respect to its capital  stock,  or purchased,
redeemed  (or made any  agreements  to  purchase  or  redeem)  any shares of its
capital stock.  Additionally,  since the adoption of the  Sarbanes-Oxley  Act of
2002 (the "New Act"), the Company has complied in all material respects with the
laws, rules and regulation under the New Act which are applicable to it.

          2.17 No Conflict of  Interest.  Except as  otherwise  disclosed in the
Disclosure Materials,  the Company is not indebted in excess of $5,000, directly
or  indirectly,  to any of its  employees,  officers  or  directors  or to their
respective  spouses  or  children,  in  any  amount  whatsoever  other  than  in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees,  officers and directors, nor is
the Company  contemplating  such  indebtedness as of the date of this Agreement.
Except  as  otherwise  disclosed  in the  Disclosure  Materials,  none  of  said
employees,  officers or directors, or any member of their immediate families, is
directly or indirectly  indebted to the Company  (other than in connection  with
purchases  of the  Company's  stock) or have any  direct or  indirect  ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business  relationship or any firm or corporation  which
competes with the Company, nor is the Company contemplating such indebtedness as
of the date of this Agreement, except that employees, officers, directors and/or
shareholders of the Company may own stock in publicly  traded  companies (not in
excess of 1% of the  outstanding  capital stock  thereof) which may compete with
the Company.  Except as  otherwise  disclosed in the  Disclosure  Materials,  no
employee,  shareholder,  officer or director,  or any member of their  immediate
families,  is, directly or indirectly,  interested in any material contract with
the Company,  nor does any such person own, directly or indirectly,  in whole or
in part, any material  tangible or intangible  property that the Company uses or
contemplates  using  in  the  conduct  of its  business.  The  Company  is not a
guarantor or indemnitor of any indebtedness of any other Person.

                                       8
<PAGE>

     3. Representations and Warranties of the Investors.  Each of the Investors,
severally and not jointly, hereby represent and warrant that:

          3.1 Authorization.  The Investor represents that it has full power and
authority to enter into the Transaction  Documents.  The  Transaction  Documents
entered  into  by  the  Investor   constitute  the  valid  and  legally  binding
obligations of the Investor  enforceable in accordance with their terms,  except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the  availability  of specific
performance, injunctive relief, or other equitable remedies.

          3.2 Purchase Entirely for Own Account. The Securities will be acquired
for  investment for the Investor's own account and not with a view to the resale
or distribution of any part thereof.

          3.3 Disclosure of Information.  The Investor  acknowledges that all of
the SEC Reports and Disclosure  Materials were made fully available to it and it
has  reviewed  and  understands  them.  The  Investor  acknowledges  that it has
received all the information  that it has requested  relating to the Company and
the purchase of the Notes and the Warrants. The Investor further represents that
it has had an opportunity to ask questions and receive  answers from the Company
regarding  the  terms  and  conditions  of the  offering  of the  Notes  and the
Warrants.  The foregoing,  however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investor to rely thereon.

          3.4  Accredited  Investor.  The Investor is an  "accredited  investor"
within the meaning of Rule 501 of Regulation D under the Securities Act.

          3.5 Restricted Securities. Investor understands that the Notes and the
Warrants (and the shares of Common Stock  issuable upon  conversion of the Notes
and exercise of the Warrants) that it is purchasing are "restricted  securities"
under the  federal  securities  laws and that  under  such  laws and  applicable
regulations   such  securities  may  only  be  sold  pursuant  to  an  effective
registration statement or an available exemption from registration.

          3.6 Legends.  It is understood  that the  certificates  evidencing the

Notes and the  Warrants  (and the Common  Stock  issuable  upon  conversion  and
exercise thereof, respectively) may bear the following legend:

          "THE  SECURITIES   REPRESENTED  BY  THIS  CERTIFICATE  HAVE  NOT  BEEN
          REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
          AND ARE SUBJECT TO  RESTRICTIONS  ON  TRANSFERABILITY  AS SET FORTH IN
          THIS CERTIFICATE.  THE SECURITIES  REPRESENTED HEREBY MAY NOT BE SOLD,
          TRANSFERRED,  OR OTHERWISE  DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION  STATEMENT  UNDER  THE  ACT  OR AN  OPINION  OF  COUNSEL,
          REASONABLY  ACCEPTABLE TO COUNSEL FOR THE COMPANY,  TO THE EFFECT THAT
          THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT
          REGISTRATION UNDER THE ACT."

                                       9
<PAGE>

     4.  Conditions  of  the  Investors'   Obligations  at  each  Closing.   The
obligations of the Investors under  subsection 1.1 of this Agreement are subject
to  the  fulfillment  on or  before  each  Closing  of  each  of  the  following
conditions:

          4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 hereof shall be true and correct on and as
of the date of this  Agreement  and as of each  Closing  with the same effect as
though such  representations  and warranties had been made on and as of the date
of such Closing.

          4.2  Performance.  The Company shall have  performed and complied with
all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each Closing.

          4.3 Compliance Certificate. The President of the Company shall deliver
to the Investors,  at each Closing, a certificate certifying that the conditions
specified in Sections 4.1 and 4.2 have been  fulfilled and stating that,  except
as set forth in the  Disclosure  Materials,  there has been no material  adverse
change in the business,  affairs,  prospects,  operations,  properties,  assets,
condition,  capital  shares,  long-term debt,  results of operations,  financial
condition or liquidity of the Company since September 30, 2003.

          4.4 Proceedings and Documents.  All corporate and other proceedings in
connection with the transactions  contemplated at each Closing and all documents
incident  thereto shall be reasonably  satisfactory in form and substance to the
Investors  and counsel to the  Investors,  and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.

          4.5 Opinion of Company Counsel. The Investors shall have received from
Graubard Miller an opinion, dated as of each Closing, in form attached hereto as
Exhibit D.

          4.6 Good Standing  Certificates.  The Company shall have  delivered to
the Investors, dated as of a date within five (5) business days of each Closing,
a  certificate  issued by the State of Nevada to the  effect  that it is legally
existing and in good standing.

          4.7 Secretary's  Certificate.  The Company shall have delivered to the
Investors a  certificate  executed by the Secretary of the Company dated as each
Closing attending,  true and correct copies of the following documents:  (a) the
resolutions  adopted  by  the  Company's  Board  of  Directors  authorizing  the
transactions  contemplated by this  Agreement;  and (b) the Amended and Restated
Articles of Incorporation and Bylaws of the Company.

          4.8 Delivery of Notes and Warrants.  The Company shall have  delivered
the Notes and the Warrants to the Investors  for each  Closing,  as specified in
Section 1.

                                       10
<PAGE>

          4.9 Ancillary Agreements.

               4.9.1 The Company and the  Investors  shall have  entered  into a
security  agreement  dated of even date  herewith,  a form of which is  attached
hereto as Exhibit E (the "Security Agreement").

               4.9.2 The Company and the  Investors  shall have  entered  into a
registration  rights  agreement dated of even date herewith,  a form of which is
attached hereto as Exhibit F (the "Registration Rights Agreement").

               4.9.3 The Company and Graubard Miller shall have entered into the
escrow agreement dated of even date herewith, a form of which is attached hereto
as Exhibit G (the "Escrow  Agreement") and together with the Security  Agreement
and Registration Rights Agreement, the "Ancillary Agreements").

          4.10 Other Payments.  Concurrent with each Closing,  the Company shall
pay the compensation set forth in Section 7.7 hereto.

     5. Conditions of the Company's Obligations at each Closing. The obligations
of the Company to Investor under this Agreement is subject to the fulfillment on
or before each Closing of each of the following conditions by the Investor:

          5.1 Representations and Warranties. The representations and warranties
of the  Investors  contained in Section 3 shall be true and correct on and as of
the date of this Agreement and as of each Closing with the same effect as though
such representations and warranties had been made on and as of such Closing.

          5.2 Payment of Purchase  Price.  The Investor shall have delivered the
Purchase Price.

          5.3 Ancillary  Agreements.  The Company and the  Investors  shall have
entered into the Ancillary Agreement.

     6. Indemnification.

          6.1 General.  The Company  agrees to indemnify  and hold  harmless the
Investors and any of their general partners, shareholders,  employees, officers,
directors,  members,  agents  and  other  representatives   (collectively,   the
"Indemnitees"),  against any  losses,  damages,  liabilities,  or  judgments  or
settlements  of any nature or kind,  including  all costs and expenses  relating
thereto,  including  without  limitation,  interest,  penalties  and  reasonable
attorneys'  fees  (the  "Losses")  (joint or  several)  (i)  arising  out of any
investigations,  proceedings,  claims or actions,  to which the  Indemnitees may
become  subject,  whether  under the  Securities  Act or the Exchange Act or any
rules or regulations promulgated thereunder,  or any state law or regulation, or
common  law,  arising  out  of,  related  to or in any way  attributable  to the
Indemnitee's  investment in the Company,  or (ii) that arise out of or are based
upon any  breach  of any  representation,  warranty,  agreement,  obligation  or
covenant of the Company contained herein or in any of the Transaction Documents.
The Company  also agrees to  reimburse  the  Indemnitees  for any legal or other
expenses  reasonably  incurred in connection with investigating or defending any

                                       11
<PAGE>

such investigations,  proceedings,  claims or actions, as such expenses or other
costs are incurred. The indemnity provided in this Section 6.1 is not limited to
Losses  asserted by third parties  against any  Indemnitee,  but includes Losses
incurred  or  sustained  by any such  Indemnitee  in the  absence of third party
claims.

          6.2 Non-Exclusive  Remedy.  The  indemnification  remedies provided in
this Section 6 shall not be deemed to be exclusive. Accordingly, the exercise by
any person of any of its rights  under this  Section 6 shall not be deemed to be
an election of remedies and shall not be deemed to  prejudice,  or to constitute
or operate as a waiver of,  any other  right or remedy  that such  person may be
entitled to exercise  (whether under this  Agreement,  under any other contract,
under any law or regulation or  otherwise);  provided,  however,  that no person
shall seek other  remedies in those  situations  where they have  received  full
indemnification payments with respect to such situations.

     7. Miscellaneous.

          7.1 Survival of Warranties.  All of the representations and warranties
made herein shall  survive the  execution  and delivery of this  Agreement.  The
Investors  are entitled to rely,  and the parties  hereby  acknowledge  that the
Investors have so relied,  upon the truth,  accuracy and completeness of each of
the representations and warranties of the Company contained herein, irrespective
of any independent  investigation made by Investors.  The Company is entitled to
rely, and the parties hereby  acknowledge  that the Company has so relied,  upon
the  truth,  accuracy  and  completeness  of  each  of the  representations  and
warranties of the Investors  contained  herein,  irrespective of any independent
investigation made by the Company.

          7.2 Successors and Assigns.  This Agreement is personal to each of the
parties  and may not be  assigned  without  the  written  consent  of the  other
parties;  provided,  however,  that any of the  Investors  shall be permitted to
assign its rights  under this  Agreement  and the  Ancillary  Agreements  to any
affiliate of such Investor.

          7.3 Governing Law. This  Agreement  shall be governed by and construed
under the laws of the State of New York as applied to agreements  among New York
residents entered into and to be performed entirely within New York. The Company
(1) agrees that any legal suit, action or proceeding  arising out of or relating
to this  Agreement  shall be  instituted  exclusively  in New York State Supreme
Court,  County of New  York,  or in the  United  States  District  Court for the
Southern  District of New York,  (2) waives any objection  which the Company may
have now or hereafter to the venue of any such suit,  action or proceeding,  and
(3)  irrevocably  consents  to the  jurisdiction  of the New York State  Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and  acknowledge  service of any and all  process  which may be
served in any such suit,  action or  proceeding  in the New York  State  Supreme
Court,  County of New  York,  or in the  United  States  District  Court for the
Southern  District  of New York and agrees  that  service  of  process  upon the
Company  mailed by certified  mail to the  Company's  address shall be deemed in
every respect effective  service of process upon the Company,  in any such suit,
action or proceeding.  THE PARTIES HERETO AGREE TO WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED  UPON OR  ARISING  OUT OF
THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.

                                       12
<PAGE>

          7.4  Counterparts.  This  Agreement  may be  executed  in two or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall  constitute one and the same  instrument.  This  Agreement,  once
executed by a party,  may be  delivered  to the other party  hereto by facsimile
transmission  of a copy of this Agreement  bearing the signature of the party so
delivering this Agreement.

          7.5  Titles and  Subtitles.  The  titles  and  subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

          7.6 Notices.  Unless otherwise  provided,  any notice,  authorization,
request or demand  required or permitted to be given under this Agreement  shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified or three (3) days following  deposit with the United
States Post Office,  by registered or certified mail,  postage  prepaid,  or two
days  after  it is sent  by an  overnight  delivery  service,  or  when  sent by
facsimile with machine confirmation of delivery addressed as follows:

             If to the Investors to:

             The address set forth opposite their name on the Schedule
             of Investors attached hereto

             If to Company, to:

             Vital Living, Inc.
             5080 North 40th Street,
             Suite 105, Phoenix, AZ 85018
             Telecopier No.: (602) 952-7129
             Attention: Stuart A. Benson, President (e-mail: cafestu@aol.com)

                                       13
<PAGE>

             In either case, with a copy to:

             HCFP/Brenner Securities, LLC
             888 Seventh Avenue
             17th Floor
             New York, New York 10106
             Telecopier No.: (212) 707-0378
             Attention: Ira Greenspan (e-mail: igreenspan@hcfpbrenner.com)

             and

             Graubard Miller
             600 Third Avenue
             New York, New York 10016
             Telecopier No.: (212) 818-8881
             Attention:  David Alan Miller, Esq. (e-mail: dmiller@graubard.com)

Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.

          7.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' or brokers' fee or commission in connection with this
transaction;  provided,  however,  that the Company is  obligated to pay certain
compensation upon consummation of the transactions  contemplated hereby to Sloan
Securities Corp., Atlas Capital,  HCFP/Brenner Securities, LLC and Aegis Capital
Corp.

          7.8 Transaction Expenses;  Enforcement of Transaction  Documents.  The
Company and each Investor shall pay their respective costs and expenses incurred
with respect to the  negotiation,  execution,  delivery and  performance of this
Agreement.  If any  action  at law or in  equity  is  necessary  to  enforce  or
interpret the terms of the Transaction Documents,  the prevailing party shall be
entitled to reasonable  attorney's fees,  costs, and necessary  disbursements in
addition to any other relief to which such party may be entitled.

          7.9 Amendments and Waivers.  Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular  instance and either  retroactively or  prospectively),  only
with the written consent of the Company and Investor or Investors  holding Notes
evidencing,  in the  aggregate,  an amount  equal to not less than  50.1% of the
aggregate  principal  amount of all Notes then  outstanding.  Any  amendment  or
waiver  effected in accordance  with this  paragraph  shall be binding upon each
holder of any securities  purchased under this Agreement at the time outstanding
(including  securities into which such securities are convertible),  each future
holder of all such securities, and the Company.

          7.10  Severability.  If one or more  provisions of this  Agreement are
held to be unenforceable  under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance  with its
terms.

                                       14
<PAGE>

          7.11 Entire  Agreement.  This Agreement and the documents  referred to
herein  constitute the entire  agreement among the parties and no party shall be
liable  or  bound  to  any  other  party  in  any  manner  by  any   warranties,
representations,  or  covenants  except  as  specifically  set  forth  herein or
therein.

          7.12 Additional Investors. In the event that, at any time or from time
to time, the Company holds an Interim  Closing and issues  additional  Notes and
Warrants to additional  investors  (collectively the "Additional  Investors" and
individually  an  "Additional  Investor"),  as a  condition  precedent  to  such
Closing,  the  Company  shall  countersign  a copy of this  Agreement  with each
Additional Investor and each such Additional Investor shall agree to sign a copy
of this  Agreement  (for and on behalf of himself  or  itself,  his or its legal
representatives  and his or its transferees and assigns)  thereby agreeing to be
bound by all  applicable  provisions of this  Agreement as a party hereto and in
the capacity as an Investor.  Except as provided  herein,  upon any such Interim
Closing,  all references to the Investors or to any Investor shall thereafter be
deemed to include such Additional  Investors,  and upon such Closing,  each such
Additional Investor shall be added to the Schedule of Investors.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                      Vital Living, Inc.

                      By:
                               --------------------------------------------
                      Name:
                      Title:

                      EACH OF THE INVESTORS SET FORTH ON
                      THE ATTACHED SCHEDULE OF INVESTORS

                                       15
<PAGE>

                              SCHEDULE OF INVESTORS

Name and Address                      Amount                     Signature

                                       16

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