MANUFACTURING AGREEMENT

EXHIBIT 10.26


PORTIONS OF THIS EXHIBIT MARKED WITH AN "*" HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.


MICROSOFT IRELAND OPERATIONS LIMITED
MANUFACTURING AGREEMENT


THIS MICROSOFT IRELAND OPERATIONS LIMITED MANUFACTURING AGREEMENT (the "Agreement") is made and entered into as of February 1, 1999 (the "Effective Date"), by and between MICROSOFT IRELAND OPERATIONS LIMITED, a limited liability company incorporated in Ireland with registered number 256796 and whose principle place of business is at Blackthorn Road, Sandyford Industrial Estate, Dublin 18, Ireland ("MICROSOFT") and STARTEK EUROPE. ("StarTek").


RECITALS


WHEREAS, MICROSOFT and StarTek intend to create a formal relationship by which StarTek shall provide certain manufacturing services with respect to orders for Microsoft software products.


WHEREAS, the parties intend in this Agreement to set forth specific terms and conditions governing the performance of certain manufacturing services by StarTek for MICROSOFT; and


NOW, THEREFORE, in consideration of the covenants and conditions set forth below, the adequacy of which is agreed to and hereby acknowledged, the parties agree as follows:


AGREEMENT


1. DEFINITIONS.


The following terms, whenever initially capitalized, shall have the following meanings for the purposes of this Agreement:


(a) "BOM" shall mean the bill of materials document provided by MICROSOFT to StarTek, which bill of materials identifies all components comprising a given Product or Product Component. BOMs may be modified in writing prospectively from time to time by MICROSOFT at its sole discretion.


(b) "CUSTOMERS" shall mean customers designated by MICROSOFT, including MICROSOFT internal customers and distribution vendors, to whom MICROSOFT authorizes StarTek to deliver Product pursuant to the terms and conditions of this Agreement and the Statement of Work.


(c) "DELIVERABLES" shall mean and include all code material, source material, software masters or replicative material or other such documented material, of any kind or description and in any form including compact disk, other disks or diskettes, tape, text or any electronic or other medium supplied by MICROSOFT or at its direction. It does not include such materials if held under an independent contractual relationship with an OEM (original equipment manufacturer) which contract contains the requisite license. Nor does it include Products acquired for office purposes and used by StarTek in its offices.


(d) "FACILITY" shall mean the manufacturing facility operated, owned, subcontracted or leased by StarTek at *.


(e) "FINISHED PRODUCT UNIT" shall mean fully packaged Microsoft Product, which includes all requisite Product Components and Microsoft software, ready for delivery to a Customer.


(f) "INSOLVENT" shall mean a financial condition such as to make the sum of a party's debts greater than all of the party's assets, at fair valuation; or, when a party has incurred debts beyond that party's ability to pay


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such debts as they mature; or, when a party is engaged in a business or transaction for which the party has unreasonably small capital.


(g) "INTELLECTUAL PROPERTY" shall mean any and all trademarks, copyrights, patents and other proprietary rights comprising or encompassing a given Product.


(h) "INVENTORY" includes Finished Product Units, work in process, Product Components or raw materials pertaining to the Products that contain Microsoft software, trademarks, copyrighted material, logos or other proprietary materials.


(i) "MANUFACTURE" OR "MANUFACTURING" shall mean the manufacture and supply of Product Components and assembly of Products as described in the Statement of Work.


(j) "PRODUCTS LIST" shall mean a list provided to StarTek by Microsoft from time to time that will list the Products to be manufactured by StarTek pursuant to the terms of this Agreement.


(k) "MICROSOFT AUTHORISED REPLICATOR" shall mean an authorised replicator of the Products, Products Components and associated Product material components (including without limitation, Microsoft registration card, Microsoft certificate of authenticity, a Microsoft end user license agreement, Microsoft manuals, cartons, labels, software distribution media etc.), with whom MICROSOFT has entered into a replication agreement (a "MICROSOFT Replication Agreement") (which Agreement is still subsisting), as notified to StarTek by MICROSOFT from time to time and who carries out replication services for and on behalf of StarTek pursuant to a written agreement between StarTek and such authorised replicator.


(l) "PRODUCT(S)" shall mean the copyrighted and/or patented Microsoft software products, including Product Components, Microsoft software, and any associated documentation, packaging and other written materials, including, where applicable, the specified user documentation, which MICROSOFT may request StarTek to Manufacture pursuant to this Agreement, by the issuance of a purchase order.


(m) "PRODUCT COMPONENTS" shall mean each individual component listed on a BOM as comprising a Product, such as, for example, disks, polyvinyl disk baggies, documentation, boxes, retail package shrink wrap, or retail bar-code labels.


(n) "SERVICES" shall mean the manufacturing services to be performed by StarTek under this Agreement and any Statement of Work.


(o) "STATEMENT OF WORK" shall mean the attached Exhibit A, including any modifications made thereto pursuant to Section 15(b).


(p) "TERRITORY" shall mean the European Community.


2. MANUFACTURING AND SERVICES.


(1) GENERAL. StarTek hereby agrees to Manufacture Products on the Products List at the Facility pursuant to the terms and conditions set forth in this Agreement, including without limitation, the Statement of Work. StarTek shall not conduct Manufacturing at or from any location other than the Facility without MICROSOFT's prior written approval. In the event of any conflict between the terms contained in this Agreement and terms contained in the Statement of Work, the terms contained in this Agreement shall control.


(2) OTHER MANUFACTURING/SERVICES. In addition to Manufacturing services, the parties may identify other manufacturing and/or services to be provided under this Agreement through an addendum signed by the parties hereto.


(3) INVENTORY. All of the Inventory shall at all times be held exclusively for assembly and delivery to Customers within the Territory as authorized by MICROSOFT (or as otherwise authorized by


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MICROSOFT in writing) and for no other purpose, use or disposition, except as may be directed in writing by MICROSOFT. StarTek shall at all times cause the Inventory to be free and clear of any and all liens, encumbrances and other claims of its creditors. StarTek grants MICROSOFT the option, assignable to any affiliated corporation, to acquire by purchase all of the Inventory (less Finished Product Units which have already been purchased by MICROSOFT) upon * notice, and payment as would apply for unused Inventory in the case of termination as stated in Section 12, at the price set forth at in Exhibit B. At any time, upon MICROSOFT's request, StarTek shall take all necessary steps and shall execute such documents as may be necessary or advisable under the local law where the Inventory is located, in order to effect the sale of such Inventory to MICROSOFT and to document MICROSOFT's title to Inventory owned by MICROSOFT. Use of Intellectual Property in any manner by StarTek after expiration or termination of this Agreement for any reason, whether or not incorporated in Inventory, shall be deemed to be in violation of MICROSOFT's Intellectual Property rights and shall entitle MICROSOFT to have all remedies provided by law or equity (including injunctive relief); provided, however, (i) this does not preclude StarTek from continuing to use in its offices Microsoft Products legally acquired for that purpose; and (ii) it does not preclude StarTek's performance of independent contractual relationships with MICROSOFT or an OEM (original equipment manufacturer) or other party, which contract contains the requisite Microsoft product replication license.


(4) AGREEMENT NOT TO SELL. StarTek acknowledges that, under the terms of this Agreement, that both during and after the term of this Agreement it has no rights within the licenses pertaining to software or other Microsoft proprietary materials or Products which would allow StarTek to be a seller or distributor of any Products. Whenever requested by MICROSOFT and from time to time, it will sign separate mutually acceptable agreements to this effect.


(5) SAFE STORAGE *. StarTek agrees not to store any other goods near or in such relation to the Products or Product Components as to cause injury to those Products or Product Components through contamination by strong odors, leakage, or otherwise. *


(6) NON-EXCLUSIVITY. StarTek's engagement under this Agreement is not exclusive as to any type of service, Product, customer or prospective customer or any geographic area. StarTek acknowledges and agrees that MICROSOFT makes no representation or commitment that the scope of level of services or other terms and conditions for any one turnkey manufacturer will be the same as or similar to any of them for any other MICROSOFT turnkey manufacturer in any respect and that StarTek is entering into this Agreement without any expectation of any such similar or same treatment. StarTek further acknowledges that MICROSOFT reserves to itself the right to manufacture Products and/or Product Components. In the event that MICROSOFT manufactures Products and/or Product Components which StarTek is authorised or required to manufacture pursuant to this Agreement and any Statement of Work then StarTek, if so required by MICROSOFT shall purchase from MICROSOFT such part of its requirements of such Products and/or Product Components as is notified to StarTek by MICROSOFT. In such case, the terms applicable to the supply by MICROSOFT of such Products and/or Product Components, including any amendments to the terms of this Agreement, shall be documented in a separate agreement between MICROSOFT and StarTek.


(7) COMBINING SERVICES. In the event that MICROSOFT at any time wishes to combine or centralise, through one or more MICROSOFT turnkey manufacturers or MICROSOFT, any services previously carried out by all or any other MICROSOFT turnkey manufacturers, including StarTek, StarTek shall provide all reasonable assistance and cooperation to MICROSOFT for the orderly and timely combination or centralisation of such services through such MICROSOFT turnkey manufacturers or MICROSOFT.


(8) FINANCIAL INFORMATION. Within * after StarTek learns that it has become or will become Insolvent, StarTek shall submit financial statements to MICROSOFT in sufficient detail to allow MICROSOFT to determine whether StarTek shall be capable of continuing to perform its obligations hereunder. The financial statements shall include, but shall not be limited to, balance sheets and related statements of income and retained earnings and statements of changes in financial condition. To the extent those statements are audited, the audit report of the certified public accountant performing the audit shall also be made available to MICROSOFT.


(9) RETURN OF DELIVERABLES. StarTek will have possession of Deliverables and replicable material for certain Products and other property for purposes of the replication to be done under this Agreement. Upon termination of this Agreement and at any early time whenever requested by MICROSOFT to do so, StarTek


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shall immediately deliver, at MICROSOFT's cost, to MICROSOFT all of such Deliverables (provided that in no event shall such a request by MICROSOFT for StarTek's return of the Deliverables prejudice StarTek's right to full performance by MICROSOFT under this Agreement), replicable materials and all and any other Microsoft proprietary materials ever received by it and it shall not retain any copy or original of the same in any way whatsoever.


(10) QUALITY REQUIREMENTS. StarTek shall ensure that in performing its obligations under this Agreement, it shall operate in accordance with the quality guidelines as posted on Microsoft's Website, which can be found at * (the "Microsoft Website") and as set forth in the Statement of Work.


(11) PRODUCTION. StarTek covenants and agrees to meet MICROSOFT's demands for Product related to the Territory, as such demands may be adjusted from time to time. Additional measurement procedures may be implemented as mutually agreed upon by MICROSOFT and StarTek.


(12) NON-CONFORMING PRODUCT. StarTek shall promptly replace and deliver, within * from notification, at no charge to MICROSOFT or its Customers, any non-conforming Product if any delivery of Product, or any portion of it, to any Customer fails to meet the quality standards specified in the Statement of Work. In the event MICROSOFT determines that a Product recall is necessary due to a breach of StarTek's warranties hereunder, or due to a manufacturing defect, StarTek shall cooperate with MICROSOFT in all respects to conduct such recall at StarTek's expense; provided that if StarTek has given prior notice of the possible defect and recommended against delivery and the Product is nonetheless delivered at MICROSOFT's direction, or if the recall is necessary because of a MICROSOFT error, the recall on account of that defect shall be at MICROSOFT's expense, but StarTek shall still cooperate with it, and in such a case, MICROSOFT shall reimburse StarTek for the costs of Manufacturing the replacement Products.


3. PRICE AND PAYMENT.


(1) GENERAL. MICROSOFT and StarTek agree that StarTek shall be compensated for the Manufacturing services pursuant to the Price and Payment terms and conditions set forth in Exhibit B. MICROSOFT shall be liable for payment to StarTek for raw materials and Finished Product Units that have been purchased and/or built in support of the weekly purchase order(s) issued by MICROSOFT. StarTek will use all reasonable efforts to provide competitive pricing to MICROSOFT within the region. All payments due by MICROSOFT to StarTek under this Agreement shall be * from MICROSOFT's receipt of an invoice from StarTek.


(2) QUANTITY. The quantity of Product to be used in calculating MICROSOFT's obligation to pay StarTek with regard to any particular purchase order shall be the lesser of (1) the number of Finished Product Units delivered to a Customer in response to such purchase order, or (2) the quantity indicated on the original purchase order.


(3) COST CONTAINMENT. The parties agree that they will, in good faith, strive to contain and reduce Manufacturing costs where reasonable and without compromising Product quality standards.


(4) TAXES. In the event income taxes are required to be withheld by MICROSOFT on payments to StarTek required hereunder, MICROSOFT agrees to provide StarTek with reasonable notice in advance of the first such withholding, and MICROSOFT may deduct such income taxes from the amounts owed and timely pay such taxes, when required, to the appropriate taxing authority. MICROSOFT shall in turn promptly secure and deliver to StarTek an official receipt for any income taxes withheld. MICROSOFT agrees to pay all applicable goods and services or other applicable consumption taxes (other than income taxes) levied on it by a duly constituted and authorized taxing authority on the Manufacturing services. To the extent required by any such taxing authority, StarTek may collect such taxes, if any, from MICROSOFT, and, in such case, shall remit to MICROSOFT official tax receipts indicating that such taxes have been collected by StarTek and remitted to the appropriate tax authorities, to the extent such receipts are available, and StarTek shall show such taxes as separate line items on invoices to MICROSOFT. StarTek agrees to take such steps as are reasonably requested by MICROSOFT to minimize such taxes in accordance with all relevant laws and to cooperate with and assist MICROSOFT, in challenging the validity of any taxes applicable to the Manufacturing services and collected from MICROSOFT by StarTek or otherwise paid by MICROSOFT. Except as required by law or where expressly agreed


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to, in writing, by MICROSOFT pursuant to Exhibit B, MICROSOFT shall not pay any taxes other than those described above, including, without limitation (1) taxes on or with respect to or measured by any net or gross income or receipts of StarTek, (2) any franchise taxes, taxes on doing business, gross receipts taxes or capital stock taxes (including any minimum taxes and taxes measured by any item of tax preference), (3) any taxes imposed or assessed for work performed without the written authorization by MICROSOFT after the date upon which this Agreement is terminated, (4) taxes based upon or imposed with reference to StarTek's real and personal property ownership, (5) taxes incurred by StarTek on all goods and services purchased from other related or unrelated parties, and/or (6) any taxes similar to or in the nature of those taxes described in (1), (2), (3), (4) or (5) above. StarTek agrees to make available to MICROSOFT any and all records necessary to comply with any and all tax obligations as provided herein, including but not limited to reports necessary for goods and services tax compliance and audit purposes. The contents and form of such reports shall be mutually agreed to between the parties.


(5) CURRENCY FOR INVOICING AND PAYMENT. StarTek shall invoice MICROSOFT for the Prices in *. All payments made by MICROSOFT to StarTek for Products delivered hereunder shall be in *. In computing the monthly payment due for Manufacturing services and in rendering invoices. * will be adjusted monthly based on *.


4. INTELLECTUAL PROPERTY RIGHTS, ETC.


(A) IMAGE AND IPRS. StarTek shall perform its obligations hereunder and conduct its business arising herefrom so as to protect and safeguard the image of MICROSOFT and the intellectual property rights owned by MICROSOFT and Microsoft Corporation and any of its or their affiliates and/or any of its or their licensors.


(B) Where, in connection with the provision of Services, StarTek has to develop a new IT system or, StarTek has to modify its existing IT system(s) so as to facilitate and accommodate such Services, such development and modification shall be done pursuant to a "Technical Design Document" which shall be prepared by StarTek on the basis of a MICROSOFT "Requirements Document". The "Technical Design Document" shall be subject to the approval of MICROSOFT prior to use. Ownership of the MICROSOFT "Requirements Document", shall vest in MICROSOFT and shall comprise "MICROSOFT Confidential Information" within the meaning of Section 9 and shall be treated accordingly. Ownership of the "Technical Design Document" and any software written by StarTek to implement same shall vest in StarTek and each shall comprise "StarTek Confidential Information" within the meaning of Section 9 and shall be treated accordingly.


(C) Where, as part of the Services, StarTek has to create and use a database, MICROSOFT shall own all data which is entered on such database by StarTek during the provision of the Services, but StarTek shall own all intellectual property rights otherwise subsisting in such created database. At its own expense, StarTek shall at the request at any time of MICROSOFT, whether before or after the termination of this Agreement or any Statement Of Work, furnish MICROSOFT forthwith with the data entered on such database in such format as MICROSOFT may specify to enable MICROSOFT to take data entered on the database and load it onto another database and StarTek shall cooperate fully with MICROSOFT in having such data loaded on such other database.


(D) RESTRICTED USE OF TRADEMARKS, LOGOS AND TRADENAMES. StarTek shall not use the name "Microsoft" or any other trademark or tradename or logo of MICROSOFT or Microsoft Corporation or any of its or their affiliates and/or any of its or their licensors otherwise than in connection with the Services and in accordance with this Agreement. StarTek is not entitled either by implication or otherwise to any title, right or interest in the trademarks, tradenames, logos or symbols of MICROSOFT, Microsoft Corporation or any of its or their affiliates or any of its or their licensors. StarTek agrees not to form a company, commercial organisation, firm or legal entity with a name incorporating as part of its name the word "Microsoft" or any similar word and not to apply for any registration of the word "Microsoft" or any similar word as a trademark.


(E) PERMITTED USE OF TRADEMARKS, LOGOS AND TRADENAMES. StarTek is granted permission to use, during the term of this Agreement, the trademarks, logos and tradenames and Microsoft * of MICROSOFT or Microsoft Corporation for the sole purposes of the Services and in accordance with this


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Agreement. StarTek agrees to comply with all guidelines for the use of "Microsoft" trademarks, logos, tradenames and Microsoft * prescribed by MICROSOFT from time to time, and in particular but without limitation agrees to use the Microsoft *, trademarks, tradenames, logos and symbols of MICROSOFT, or Microsoft Corporation in all media and materials relating to the services together with an acknowledgement of ownership of relevant trademarks by MICROSOFT or Microsoft Corporation (as appropriate). The appropriate trademark symbol (either "TM" or "R" in a superscript following the product name) shall be used whenever the name of a Microsoft Product is first mentioned in any advertisement, brochure or other material circulated or displayed by StarTek.


(F) PROTECTION OF TRADEMARKS, LOGOS AND TRADENAMES. StarTek agrees to report to MICROSOFT as soon as possible after it comes to StarTek's notice, any suspected infringement of Microsoft certificates of authenticity, the "Microsoft" tradename or any tradenames, trademark, logo or symbol owned by MICROSOFT or Microsoft Corporation and any of its or their affiliates and/or any of its or their licensors.


(G) RESERVATION OF RIGHTS. Except as expressly granted by and in accordance with this Agreement, StarTek is granted no rights in relation to copyright or other rights of whatever nature subsisting in any Microsoft Product. All rights not expressly granted are expressly reserved by MICROSOFT.


(H) LIMITED LICENCE, REVERSE ENGINEERING, ETC. Any software, source code, Microsoft *, Microsoft * labels, replicating kits, CD masters, CD stampers, CD serialisation files and labels, all software media on disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film masters, electronic and physical artwork files, PID files and labels, disk masters, label masters, label art, labels, user guide masters, packaging masters or other masters made available by MICROSOFT or Microsoft Corporation or any of its or their affiliates to StarTek and the intellectual property rights therein or relating thereto are and remain the property of MICROSOFT. StarTek is given a revocable non-exclusive limited licence to use the same solely for the purposes of performing the Services. StarTek shall not reverse engineer, decompile or disassemble any Microsoft Product except as expressly permitted herein or by law.


(I) NO DISTRIBUTION OF COUNTERFEITS. StarTek agrees it will not engage in the manufacture or use of counterfeit, pirated or illegal software; it will not knowingly engage in the distribution or supply or transfer of counterfeit, pirated or illegal software; and it will not knowingly supply any Microsoft Product to any dealer who engages in the use, manufacture, distribution or other supply or transfer of counterfeit, pirated or illegal software.


(J) ANTI-PIRACY EFFORTS. StarTek agrees to reasonably co-operate with MICROSOFT in the investigation of counterfeit, pirated or illegal software.


(K) PROTECTION OF MICROSOFT COPYRIGHTS. StarTek agrees to report to MICROSOFT as soon as possible after it comes to StarTek's notice, any suspected counterfeiting, piracy or other infringement of copyright in computer programs, manuals, marketing materials, Microsoft certificates of authenticity or other copyrighted materials owned by MICROSOFT, Microsoft Corporation and any of its or their affiliates and/or any of its or their licensors.


5. SUB-CONTRACTING.


(1) TO THIRD PARTIES. StarTek shall not subcontract any of its rights or obligations under this Agreement, with respect to the Services, except as follows:


(i) StarTek may only sub-contract the Services to such third parties as MICROSOFT shall first approve in writing on the basis that such sub-contractor must upon request by MICROSOFT, agree in writing to undertake the same obligations and/or abide by the same restrictions to which StarTek is subject under Sections 4 (IPR), 7 (Year 2000 Compliance), 9 (Confidentiality), 10 (Title), Exhibit C (Insurance and Risk of Loss) and 13 (Record Keeping; Record Review). If such sub-contracting relates to the purchase of Product Components, then StarTek may only sub-contract with a MICROSOFT Authorised Replicator;


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(ii) Neither MICROSOFT, Microsoft Corporation nor any of its and/or their affiliates and its and/or their licensors shall have any liability to StarTek or otherwise in the event of the alteration or termination of any such relationship between the independent third parties concerned. StarTek shall indemnify MICROSOFT, Microsoft Corporation and any of its and/or their affiliates and its and/or their licensors against any claim, cost, liability, damages, expenses or proceedings brought against or incurred by MICROSOFT arising out of the alteration or termination of any such relationship to which StarTek is a party;


(iii) In the event that StarTek has entered into a sub-contract pursuant to Section 5(a) and Section 16(a), StarTek shall immediately notify MICROSOFT of the termination or expiration for whatever reason of such sub-contract, and shall at StarTek's expense recover and repossess any stocks of Products, Product Components and other MICROSOFT materials and goods including without limitation all replication lists and all CD masters, CD stampers, CD serialisation files and labels, all software on disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film masters, electronic and physical artwork files, PID files and labels, disk masters, label masters, label art, labels, user guide masters, packaging masters or other masters, Microsoft certificates of authenticity, Microsoft certificate of authenticity labels, raw disks and source code in the possession or control of such sub-contractor.


(iv) In the event that MICROSOFT notifies StarTek of the termination or expiration for whatever reason of a MICROSOFT Replication Agreement, StarTek shall immediately cease to sub-contract in respect of the Services with the MICROSOFT Authorised Replicator in respect of which the MICROSOFT Replication Agreement has been terminated or has expired; and StarTek shall recover and repossess any stocks of Products, Product Components and other MICROSOFT materials and goods including without limitation all replication lists and all CD masters, CD stampers, CD serialisation files and labels, all software on disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film masters, electronic and physical artwork files, PID files and labels, disk m ...