Lexar Technology License Agreement

EXHIBIT 10.18


CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk to denote where omissions have been made. The confidential material has been filed separately with the Commission.


LEXAR TECHNOLOGY LICENSE AGREEMENT


This Lexar Technology License Agreement ("Agreement") is made and entered into as of this 21st day of March, 2000 ("Effective Date") between Lexar Media, Inc., a California corporation ("LEXAR") and Sony Corporation, a corporation of Japan ("SONY").


RECITALS


A. LEXAR is the owner and user of certain proprietary technology related to flash memory controllers, flash memory and system architecture.


B. SONY designs, manufactures, markets and sells certain flash memory products and associated devices under the trademark "Memory Stick".


C. SONY desires to receive from LEXAR a non-exclusive license to LEXAR's proprietary technology to develop, manufacture, market and sell Memory Stick and Improved Memory Stick products, Host Devices and components thereof on the terms and conditions of this Agreement.


NOW, THEREFORE, SONY and LEXAR hereby agree as follows:


1. DEFINITIONS


1.1 "Affiliate" shall mean, with respect to any person or entity, any
--------- other person or entity which controls, is controlled by or is under common control with such person or entity. For purposes of this Agreement, a person or entity shall be in "control" of an entity if it owns or controls at least fifty percent (50%) of the equity securities of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority), or otherwise has the power to control the management and policies of such other entity.


1.2 "Have Manufactured" means only that the licensee may contract
----------------- with a third party or parties to manufacture the licensed product for and on behalf of the licensee.


1.3 "Host Device" means any electronics product that utilizes a
----------- Memory Stick or an Improved Memory Stick for the purposes of data storage, recording or retrieval.


1.4 "Improved Memory Stick" means the Memory Stick improved by LEXAR
--------------------- or jointly by LEXAR and SONY which conforms to the Memory Stick Specifications.


1.5 "Improved Memory Stick Interface" means the portion of the
------------------------------- Improved Memory Stick relating to the interface between flash memory and the flash memory controller.


1.6 "Improvements Technology" means any improvements or enhancements
----------------------- to the Pertinent LEXAR Technology that are conceived or developed solely by SONY (except for implementation of MagicGate Memory Stick) and that would, absent the license granted hereunder, infringe or constitute a misappropriation of the LEXAR Intellectual Property Rights.


1


1.7 "Intellectual Property Rights" means with respect to a party, all
---------------------------- rights of such party in and to (i) all patent applications and patents having a priority date prior to * and (ii) all mask work rights, copyrights, moral rights, trade secret rights and other know-how rights regarding subject matter generated prior to *.


1.8 "LEXAR Intellectual Property Rights" means the Intellectual
---------------------------------- Property Rights in and to the Pertinent LEXAR Technology, which Intellectual Property Rights are owned by or licensed to LEXAR (with the right to grant sublicenses without payment of compensation to any third party other than employees of LEXAR).


1.9 "Licensed Memory Stick" means a Memory Stick that incorporates or
--------------------- uses LEXAR Intellectual Property Rights.


1.10 "MagicGate Memory Stick" means SONY's Memory Stick flash memory
---------------------- product with a copy protection feature.


1.11 "Memory Stick" means a flash memory data storage device which
------------ meets the Memory Stick Specifications. Memory Stick shall include, without limitation, the Improved Memory Stick and the MagicGate Memory Stick.


1.12 "Memory Stick Specifications" shall mean the specifications for
--------------------------- a certain flash memory data storage system, the outline of which is set forth in Exhibit A (as such specifications are from time to time modified or replaced by SONY in its sole discretion).


1.13 "Net Selling Price" shall mean the gross sales price of a
----------------- product invoiced by SONY or its Affiliates to customers that are not Affiliates for the sale or other distribution of a Licensed Memory Stick, less (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such customers for damaged and returned product; (b) freight and insurance costs incurred in transporting such product to such customers; (c) cash, quantity and trade discounts, rebates and other price reductions for such product given to such customers under price reduction programs that are consistent with industry practices and price reductions given for similar products by SONY or its Affiliates; (d) sales, use, value-added and other direct taxes incurred on the sale of such product to such customers; and (e) customs duties, surcharges and other governmental charges incurred in exporting or importing such product to such customers. In the case of Licensed Memory Sticks distributed with other products during any quarter, the Net Selling Price of such Licensed Memory Sticks shall be the average Net Selling Price of the same or comparable model of Licensed Memory Sticks sold separately to unaffiliated third parties in arm's length transactions during such calendar quarter.


1.14 "Pertinent LEXAR Technology" means the technology described in or
-------------------------- related to LEXAR's patents and patent applications and all improvements and enhancements thereto except as specified on Exhibit B.


1.15 "Royalty Term" shall mean fifteen (15) years from the Effective
------------ Date.


1.16 "SONY Intellectual Property Rights" means the Intellectual
--------------------------------- Property Rights owned by or licensed to SONY (with the right to grant sublicenses without payment of compensation to any third party other than employees of SONY) in and to the Improvements Technology.


* Material has been omitted and filed separately with the Commission.


2. GRANT OF LICENSE RIGHTS


2.1 LEXAR License Grants.
--------------------


(a) Subject to SONY's compliance with the terms and conditions of this Agreement and subject to Section 12.3 below, LEXAR hereby grants and agrees to grant to SONY a worldwide, nonexclusive, non-transferable, non- assignable, * license under all LEXAR Intellectual Property Rights to manufacture, Have Manufactured, use, offer for sale, import and sell Licensed Memory Sticks.


(b) Subject to SONY's compliance with the terms and conditions of this Agreement and subject to Section 12.3 below, LEXAR hereby grants and agrees to grant to SONY a worldwide, nonexclusive, non-transferable, non- assignable, * license under all LEXAR Intellectual Property Rights to manufacture, Have Manufactured, use, offer for sale, import and sell Host Devices and any components of Licensed Memory Sticks or Host Devices, provided that Sony shall only be licensed under LEXAR Intellectual Property * Licensed Memory Stick. Further, the license to offer to sell and sell Improved Memory Stick controllers apart from the Improved Memory Sticks is limited to sales and offers to sell such controllers to parties that have a license from LEXAR to manufacture Improved Memory Sticks from such controllers; provided, however, SONY shall be permitted to offer for sell and sell controllers any party as repair or replacement parts for Licensed Memory Stick.


2.2 Sublicense. SONY shall be permitted to sublicense the rights
---------- granted in Section 2.1 only to:


(a) wholly-owned subsidiaries of SONY; provided that SONY shall promptly notify LEXAR in writing of sublicenses granted to subsidiaries and SONY shall acknowledge responsibility for such subsidiary's compliance with the terms of this Lexar Technology License Agreement; and


(b) any parties for the manufacture, use, offer for sale, import and sale of Host Devices and any components of Host Devices, provided that such third parties shall only be sublicensed under LEXAR Intellectual Property Rights for that portion of a Host Device or of any component of a Host Device that communicates directly with a Licensed Memory Stick.


SONY's sublicense rights under this Section 2.2(b) shall be contingent upon SONY entering into a written agreement with each sublicensee in the form of Exhibit C. SONY will provide LEXAR with a copy of each such
--------- sublicense agreement immediately after execution thereof. Nothing in this Agreement shall be construed as permitting SONY to reveal LEXAR Confidential Information, as such term is defined in Section 6, to sublicensees under this Section 2.2(b). In the event that SONY determines that the Memory Stick Specification contains LEXAR Confidential Information, LEXAR and SONY agree to negotiate in good faith additional specific provisions to the form sublicensee agreement to sufficiently protect LEXAR's Confidential Information. LEXAR and SONY acknowledge that in the course of these negotiations, the parties' mutual interest in making the Host Device manufacturing license available as broadly as possible should be weighed against the importance of protecting LEXAR's Confidential Information.


Sublicensees under this Section 2.2 shall not have the right to sublicense the rights granted under this agreement.


* Material has been omitted and filed separately with the Commission.


2.3 Sony hereby grants to LEXAR a perpetual, irrevocable, worldwide, nonexclusive, * license under SONY Intellectual Property Rights to manufacture, Have Manufactured, use, offer for sale, import and sell products.


2.4 LEXAR Acknowledgement. SONY shall prominently mark the packaging
--------------------- of all Licensed Memory Sticks sold or distributed by SONY or its Affiliates, with an acknowledgement that such Licensed Memory Sticks incorporate Pertinent LEXAR Technology. SONY shall duplicate and apply LEXAR's patent and other proprietary rights notices, which LEXAR shall provide from time to time, to all Licensed Memory Sticks, and related packaging and documentation, sold or distributed by SONY and its Affiliates, to the same extent that LEXAR marks its own products and documentation.


2.5 Restrictions.
------------


(a) Except as expressly provided in Sections 2.1 and 2.2 above, SONY will have no right or license to use, sublicense, transfer or otherwise convey to any third party the LEXAR Intellectual Property Rights, or any enhancement, improvement or derivative thereof.


(b) Except as otherwise provided in Section 2.4 above, SONY shall have no right to use the LEXAR tradename or LEXAR trademarks.


(c) SONY's exercise of its "Have Manufactured" rights under Section 2.1 are contingent upon SONY entering into a written agreement with each manufacturer that protects the Confidential Information of LEXAR to the same extent as provided for in this Agreement.


(d) SONY shall not permit any of its Host Device sublicensees or Contractors (as defined in Section 8) to, reverse engineer any of the Pertinent LEXAR Technology.


2.6 Host Device License. Upon the request of LEXAR, SONY shall grant
------------------- to LEXAR a * license to manufacture Host Devices on terms and conditions mutually agreeable to LEXAR and SONY and substantially in the form of SONY's standard form of Host Device license agreement, a copy of which is attached as Exhibit D. - ---------


2.7 Reservation. No license or right is granted, by implication or
----------- otherwise, to SONY hereunder under any patent rights, Confidential Information or other intellectual property rights now or hereafter owned or controlled by LEXAR, except for the licenses and rights expressly granted in this Agreement. No license is granted to SONY with respect to other LEXAR products or other technologies.


3. TECHNOLOGY TRANSFER


3.1 Delivery of Pertinent LEXAR Technology. On or before *, upon the
-------------------------------------- request of SONY, LEXAR shall deliver to SONY, no more often than quarterly, all Pertinent Lexar Technology (if any) in the form of *. Information contained in such * shall be held strictly confidential on a "bona fide need to know" basis under Section 6 below.


* Material has been omitted and filed separately with the Commission.


3.2 Delivery of Improvements Technology. On or before *, upon the
----------------------------------- request of LEXAR, SONY shall deliver to LEXAR, no more often than quarterly, all Improvements Technology (if any).


4. PAYMENTS, PAYMENT TERMS AND OTHER CONSIDERATION


4.1 License Fee. In partial consideration for the licenses granted
----------- in Section 2 above, SONY shall pay LEXAR a nonrefundable, non-creditable against royalties, one-time license fee of *, due ten (10) calendar days after the Effective Date.


4.2 Royalties. In addition, during the Royalty Term for each
--------- Licensed Memory Stick sold or distributed by SONY or its sublicensees, SONY shall pay LEXAR a royalty equal to *. Except as set forth in Section 4.4 below, such royalties shall not be subject to a right of setoff against any other amounts due and payable under this Agreement or any other agreement between the parties. Notwithstanding the foregoing, no royalty shall accrue on any Licensed Memory Stick incorporating a controller supplied by LEXAR.


4.3 Flash Manufacturers. *, SONY shall use commercially reasonable
------------------- efforts to assist LEXAR in *. LEXAR agrees *. SONY agrees * flash manufacturer from *. In addition until *, SONY and LEXAR will use commercially reasonable efforts to *.


4.4 LEXAR Technology Limitations.
----------------------------


(a) LEXAR shall not license any third party under the LEXAR Intellectual Property Rights to manufacture or Have Manufactured Licensed Memory Sticks, unless such third party has also secured a license from SONY to manufacture Memory Sticks.


(b) If LEXAR grants any third party a license under the LEXAR Intellectual Property Rights, such third party shall not have the right to offer for sale, sell or import Improved Memory Stick controllers to any party other than LEXAR or SONY.


(c) If LEXAR grants to any third party a license under the LEXAR Intellectual Property Rights for an up-front royalty to LEXAR of less than * Sony shall have the right to credit against amounts owing to LEXAR hereunder the difference between such up-front royalty and * provided that the aggregate amount of such credits shall not exceed * over the term of this Agreement.


(d) If LEXAR grants to any third party a license under the Pertinent LEXAR Technology, Improved Memory Stick Technology or LEXAR Intellectual Property Rights *.


(e) LEXAR * cash consideration, and of the fair market value of any non-cash consideration, *.


4.5 Supply Agreement. In the event that SONY desires to purchase
---------------- Improved Memory Stick controllers from LEXAR, LEXAR agrees to negotiate in good faith a supply agreement under which LEXAR would supply Improved Memory Stick controllers to SONY. The prices for controllers will be approximately (subject to change due to changes in costs):


Prices of the Improved Memory Stick controller sold by LEXAR:


*


* Material has been omitted and filed separately with the Commission.


In the event that SONY desires to purchase Improved Memory Stick controllers directly from LEXAR's Contractors, LEXAR shall allow such Contractors to sell Improved Memory Stick controllers directly to SONY; provided, however, the parties acknowledge that if LEXAR support (if any) solely for such controller purchases is required, the price for such support shall be determined at the appropriate time. *.


4.6 Payment Terms. Within sixty (60) calendar days after the end of
------------- each calendar quarter, each party shall pay to the other party any royalties due and payable hereunder for such quarter. On any overdue payments, the overdue party shall pay a finance charge upon the unpaid balance of the lesser of one and a half percent (1.5%) per month and the maximum amount permitted by law. All amounts specified in this Agreement shall be paid in U.S. dollars and shall not be subject to setoff against any other amounts due and payable under this Agreement or any other agreement.


4.7 Taxes. The party owing such royalty (the "Payor") will pay all
----- sales, use and other taxes imposed by any applicable laws and regulations as a result of the payments made under this Agreement, other than taxes based upon the Payee's net income. The Payor shall be entitled to deduct the amount of any withholding taxes, value-added taxes or other taxes, levies or charges with respect to such amounts, other than United States taxes, payable by the Payor, or any taxes required to be withheld by the Payor, to the extent the Payor pays to the appropriate governmental authority on behalf of the other party (the "Payee") such taxes, levies or charges. The Payor shall use reasonable efforts to minimize any such taxes, levies or charges required to be withheld on behalf of the Payee by the Payor. The Payor promptly shall deliver to the Payee proof of payment of all such taxes, levies and other charges, together with copies of all communications from or with such governmental authority with respect thereto.


4.8 DSC Work Group. SONY and LEXAR agree to establish within 3 months
-------------- of the Effective Date, a Digital Still Camera Work Group ("DSC Work Group") to explore ways to optimize SONY'S Memory Stick technology and the Improved Memory Stick technology for digital still camera applications. LEXAR shall chair the DSC Work Group. *.


5. RECORDS AND AUDIT REQUIREMENTS


5.1 Records. For a period of three (3) years after each royalty or
------- other payment is made under this Agreement, each party agrees to make and maintain such books, records and accounts as are reasonably necessary to verify such royalty and other payments.


5.2 Reports. Within sixty (60) calendar days after the end of each
------- calendar quarter, until all royalties and other payments payable hereunder shall have been reported and paid, the Payor shall furnish to the Payee a statement specifying the royalties owed for such quarter. If no royalties are due, that fact shall be shown on such statement.


5.3 Audit. Upon at least thirty (30) calendar days prior written
----- notice to the Payor, no more than once a year, the Payee shall have the right, at its own cost and expense, to authorize a certified public accounting firm of internationally recognized standing selected by the Payee and approved by the Payor, which approval will not be unreasonably withheld, to audit the Payor's books, records, and accounts for the sole purpose of verifying royalties and other payments reported under Section 5.2. The accounting firm shall disclose to the Payee only whether the reports are correct or not and the specific details concerning any discrepancies. No other information shall be shared. If such accounting firm concludes that additional amounts were


* Material has been omitted and filed separately with the Commission.


owed during the audited period, the Payor shall pay such additional amounts within thirty (30) calendar days of the date the Payee delivers to the Payor such accounting firm's written report so concluding. The fees charged by such accounting firm shall be paid by the Payee; provided, however, if the audit discloses that the royalties payable by the Payor for such period are more than one hundred five percent (105%) of the amounts actually paid for such period, then the Payor shall pay the reasonable fees and expenses charged by such accounting firm.


6. CONFIDENTIAL INFORMATION


6.1 Definition of Confidential Information. LEXAR and SONY
-------------------------------------- acknowledge that, in the course of performing their respective obligations hereunder, each may obtain information relating to the other and the other's products that is of a confidential and proprietary nature to such other party. "Confidential Information" means confidential or proprietary information of either party which is (i) designated with the legend "Confidential" or comparable legend in case of disclosure thereof in written, graphic, machine readable or other tangible form or (ii) designated "Confidential" at the disclosure thereof in other form and within thirty (30) calendar days after such disclosure set forth in writing designated "Confidential" and forwarded to the receiving party. Confidential Information further includes without limitation the existence and terms of this Agreement unless otherwise agreed in writing.


6.2 Exclusions. Confidential Information does not include
---------- information which (i) is or becomes public knowledge or is received by the other party without the fault or action of the other party or any breach of any confidentiality obligation; (ii) the other party can document was independently developed by it without use or access to the Confidential Information; or (iii) the other party can document was previously known to it prior to receipt of the Confidential Information.


6.3 Obligation. Each of SONY and LEXAR agrees that, for a period of
---------- ten (10) years after receipt of such Confidential Information, it will (i) use the other party's Confidential Information only in connection with fulfilling its rights and obligations under this Agreement; (ii) hold the other party's Confidential Information in strict confidence and exercise due care with respect to its handling and protection, consistent with its own policies concerning protection of its own Confidential Information of like importance but in no instance less than reasonable care, such due care including without limitation requiring its employees to execute non-disclosure agreements which provide protection of the other party's Confidential Information which is at least as protective as the terms and conditions of this Agreement; (iii) not disclose, divulge or publish the other party's Confidential Information except to such of its responsible directors, employees and consultants and legal and financial advisors who have a bona fide need to know to the extent necessary to fulfill such party's obligations under this Agreement or except to the extent such Confidential Information is required to be disclosed pursuant to applicable law, regulation or court order provided the other party uses reasonable efforts to give the party owning the Confidential Information sufficient notice of such required disclosure to allow the party owning the Confidential Information reasonable opportunity to object to and to take legal action to prevent such disclosure (or to request confidential treatment thereof); (iv) instruct all such employees not to disclose the other party's Confidential Information to third parties, without the prior written permission of the other party. SONY acknowledges and agrees that the "bona fide need to know" standard set forth in the foregoing subsection (iii) above as applied to dissemination of LEXAR


Technology requires that authorized SONY employees must have actual need to use the LEXAR Technology to design or develop a specific Licensed Memory Stick. SONY further acknowledges and agrees that theoretical analysis and investigation of (a) the features and functionality of the LEXAR Technology or (b) potential application of the LEXAR Technology for an unidentified project will not satisfy the "bona fide need to know" standard. Each party may disclose Confidential Information of the other party to its legal and financial advisors, as necessary to obtain tax, legal and accounting advice.


7. INTELLECTUAL PROPERTY RIGHTS


7.1 LEXAR Technology. All right, title, and interest in and to the
---------------- Pertinent LEXAR Technology and all LEXAR Intellectual Property Rights are the sole and exclusive property of LEXAR.


7.2 SONY Technology. All right, title, and interest in and to any of
--------------- the Improvements Technology or SONY Intellectual Property Rights (exclusive of the underlying Pertinent LEXAR Technology and LEXAR Intellectual Property Rights) are the sole and exclusive property of SONY.


8. USE OF CONTRACTORS


Each party may retain third parties ("Contractors") to furnish services to it in connection with the performance of this Agreement and permit such Contractors to have access to the other party's Confidential Information, but only to the extent and insofar as reasonably required in connection with such party's performance under this Agreement; provided that all such Contractors shall be required to execute a written agreement sufficient to secure compliance by the Contractors with the contracting party's obligations of confidentiality concerning Confidential Information set forth in this Agreement.


9. WARRANTY


9.1 Disclaimer of Warranty. PERTINENT LEXAR TECHNOLOGY, LEXAR
---------------------- TECHNOLOGY DELIVERABLES AND LEXAR INTELLECTUAL PROPERTY RIGHTS ARE PROVIDED "AS- IS". EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LEXAR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LEXAR DOES NOT WARRANT THAT THE LEXAR TECHNOLOGY WILL OPERATE WITHIN LICENSED MEMORY STICKS OR HOST DEVICES OR WILL BE COMPATIBLE WITH LICENSED MEMORY STICKS OR HOST DEVICES.


10. TERM AND TERMINATION


10.1 Term. This Agreement will commence on the Effective Date and
---- continue indefinitely, unless sooner terminated as provided in this Section 10.


10.2 Termination due to Material Breach. If SONY materially breaches
---------------------------------- any


term or condition of this Agreement and fails to cure that breach within thirty (30) calendar days after receiving written notice of the breach, LEXAR shall have the right to terminate this Agreement at any time after the end of such thirty (30) calendar day period.


10.3 Termination upon Voluntary Bankruptcy. If SONY (a) seeks the
------------------------------------- liquidation, reorganization, dissolution or winding up of itself (other ...