Development And Purchase Agreement

SUN TECHNOLOGY ENTERPRISES, INC.
DEVELOPMENT AND PURCHASE AGREEMENT


This Agreement is made and entered into by and between Sun Microsystems, Inc., a Delaware corporation having its principal place of business at 2550 Garcia Avenue, Mountain View, California 94043 and acting by and through the SunConnect unit of its subsidiary Sun Technology Enterprises, Inc. ("SunConnect"), and Network Peripherals Inc., a California corporation having its principal place of business at 1371 McCarthy Boulevard, Milpitas, CA 95035 ("NP").


1.0 DEFINITIONS


1.1 "Administrator(s)" means the individuals listed in Section 28 below, or an individual designated by such Administrator.


1.2 "BOM" means the Bill of Materials describing the OEM Products as they are to be delivered to SunConnect set forth in Exhibit A-4, which may be modified with the mutual written agreement of each party's Administrator.


1.3 "Development Deliverable" means each deliverable required pursuant to the Development Schedule and Deliverables.


1.4 "Development Schedule and Deliverables" means the schedule of tasks, deliverables and completion dates set forth in Exhibit B.


1.5 "Documentation" means the user manual and other written materials related to the OEM Products as described in the Product Specification and Development Deliverables.


1.6 "NP Products" means the OEM Products minus the Sun-Unique Elements.


1.7 "OEM Products" means the FDDI Adapter for the SBbus/Solaris systems product line described in the Product Specification (SunLink FDDI/S 3.x), and any additional products the parties add by mutual consent. The term "OEM Products" shall include Documentation except with respect to those instances where this Agreement separately refers to Documentation.


1.8 "Proprietary Information" means that information which SunConnect and NP desire to protect against unrestricted disclosure or competitive use and which, if disclosed in writing, is designated as such in writing by the disclosing party or, if disclosed orally, is announced as confidential at the time of its disclosure by the disclosing party and within thirty (30) days thereafter is summarized in writing and such summary is provided to the receiving party.


1.9 "Product Specification" means the description of the OEM Products set forth in Exhibits A, A-1 and A-2.


1.10 "SunConnect Modification" means any modification, enhancement, extension or addition of or to the OEM Products, in source or object code form, developed by or on behalf of SunConnect (but excluding modifications developed by NP pursuant to this Agreement).


1.11 "Sun-Unique Elements" means those elements of the OEM Products listed in Exhibit C attached hereto.


1.12 "Service Provider" means an entity which SunConnect has authorized to provide product support to customers, which may include distributors, resellers and support partners.


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2.0 DEVELOPMENT OF OEM PRODUCTS


2.1 Development of OEM Products. NP and SunConnect will develop and test the OEM Products in accordance with the milestones, delivery dates and testing requirements set forth in the Development Schedule and the pre-FCS "SunLink FDDI/S 3.x Quality Assurance Plan attached hereto as Exhibit A-3. Changes to the Development Schedule and/or the Product Specification may be made with the mutual written consent of the Administrators of both parties.


2.2 * "Confidential portion has been omitted and filed separately with the Commission."


2.3 Acceptance of Deliverables. SunConnect shall acknowledge in writing or by electronic mail its receipt of each Development Deliverable. SunConnect will notify NP as soon as possible whether the Development Deliverable is accepted or rejected, provided that each Development Deliverable will be deemed automatically accepted if SunConnect's Administrator fails to notify NP in writing that SunConnect accepts or rejects such deliverable within thirty (30) days from the date of its delivery.


2.4 Correction of Errors in Deliverables. If, within the thirty (30) day acceptance period, SunConnect notifies NP in writing that an Development Deliverable fails to satisfy the criteria set forth in the Development Schedule or Product Specification and provides NP with a written explanation thereof, NP will have five (5) days to provide SunConnect with a revised schedule for correcting the defect(s) in the non-conforming Development Deliverable and shall promptly institute and diligently execute such corrections.


2.5 FCS Decision. Pursuant to the Development Schedule, SunConnect is responsible for making a "Go/ No Go" decision regarding the first customer ship of the OEM Products. SunConnect will notify NP in writing of the result of the Go/ No Go decision within two days after the decision is made. If the decision is a "go," then this decision will authorize NP to begin the production phase for the OEM Products and to ship the OEM Products to SunConnect under the terms set forth below.


3.0 DOCUMENTATION


3.1 Documentation Deliverables. Development Deliverables related to Documentation are set forth in Exhibit B.


3.2 Post-FCS Documentation. The parties will negotiate in good faith to determine who will be responsible for writing and implementing revisions to the Documentation, and how related costs shall be allocated. NP will not distribute any modified Documentation without the prior written approval of the SunConnect Administrator.


3.3 Quality of Documentation Shipped by NP. The quality of Documentation for the OEM Products shipped by NP at and after FCS must be comparable with the quality of the current SunLink FDDI/S 2.0 documents. (Notwithstanding the foregoing sentence, the documentation to be provided to beta sites by NP may be xeroxed copies of the beta-stage documentation delivered by SunConnect to NP.) Promptly after the Effective Date. NP will develop a quality plan to ensure that the Documentation meets the Quality requirements for post FCS documentation, and shall submit such quality plan to SunConnect's Administrator for approval. After such approval the documentation quality plan shall be attached as part of the Quality Assurance Plan described in Section 8.1 below. SunConnect shall also have the right to approve the quality of the completed Documentation prior to shipment.


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4.0. OWNERSHIP


4.1 * "Confidential portion has been omitted and filed separately with the Commission."


4.2 * "Confidential portion has been omitted and filed separately with the Commission."


5.0 MAINTENANCE, SUPPORT AND TRAINING.


5.1 Support to Customers. Customer support for OEM Products, SunLink FDDI/S 1.0 and SunLink FDDI/S 2.0 products shall be provided as set forth in Exhibit E.


5.2 OEM Product Repair and Replacements Under Warranty. If a SunConnect Service Provider receives an OEM Product which is eligible for warranty service by NP under NP's warranty set forth in Section 23 below, then the Service Provider will return such OEM Product to NP for repair or replacement, and NP shall repair or replace such OEM Product in accordance with the warranty provided under Section 23.


5.3 OEM Product Repair and Replacements Out of Warranty. Repair and Replacement Prices for OEM Products which are not eligible for service under NP's warranty ("Out of Warranty OEM Products") are set forth in Exhibit F. NP will replace Out of Warranty OEM Products for SunConnect and SunConnect's Service Providers, and will repair Out of Warranty OEM Products for SunConnect, SunConnect's Service Providers, customers, distributors and resellers in accordance with the procedures and prices in Exhibit F.


5.4 TOI. NP will provide SunConnect with the information described in the "Transfer of Information" attached as Exhibit E, and will comply with the procedures set forth therein. NP hereby grants SunConnect an unrestricted, fully-paid license to use, duplicate, and distribute any TOI materials in whatever fashion SunConnect or its Service Providers deem useful to provide traning in the use of the OEM Products.


6.0 * "Confidential portion has been omitted and filed separately with the Commission."


7.0 DISTRIBUTION OF NP PRODUCTS


7.1 No Distribution of OEM Products by NP. NP may not sell or distribute the OEM Products, or any other products containing any SunConnect-Unique Element without the express written consent of the SunConnect Administrator.


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8.0 PRODUCTION OF OEM PRODUCTS


8.1 Quality Assurance. Attached hereto as Exhibit J is NP's Quality Systems Manual for FCS and subsequent shipments for ensuring quality standards of the OEM Products.


8.2 NP Responsibilities. Except as set for in Section 8.3 below, NP will be responsible for all aspects of manufacturing, assembling, testing, packaging and delivery of the OEM Products to the SunConnect-designated location(s). Each OEM Product delivered to SunConnect will meet the requirements set forth in Exhibits A (Product Specifications), B (Development Schedule and Deliverables), A-4 (BOM), J (Quality Systems Manual), K-1 (Inbound)Outbound Packaging Requirements), K-2 (Engineering Specification for Part Identification Label), K-3 (Corporate Shipping Container Graphics Guideline), K-4 (Shipping Carton Color Standard), K-5 (Specification for A SunConnect Color: SunConnect Medium Purple), K-6 (Routing Guide) and Section 15 (Trademark License). SunConnect shall have the right, on reasonable notice, to audit NP's premises and records to verify compliance with these requirements. At least thirty (30) days prior to NP's distribution of the first copy of each commercial release of an OEM Product bearing the Sun Trademarks and Trade Dress (as defined in Section 15 below), NP shall provide SunConnect's Administrator with written certification that NP has adequately reviewed and tested such OEM Product and that it conforms to the requirements of this Section 8.2. NP shall keep written records of such testing and make them available to SunConnect promptly upon written request.


8.3 Other Responsibilities.


a. Compact Disks. SunConnect will initially be responsible for the mastering of the compact disk to be included in the OEM Products. NP will purchase the compact disks from SunConnect's vendor in accordance with Section 8.11. (Nothing herein shall be deemed to limit SunConnect's right to continue to order and purchase products from the vendors fisted in Exhibit M.) After the FCS of the OEM Products, NP will use its best efforts to identify and reach terms with a compact disk manufacturer within nine (9) months of the Effective Date, pursuant to which NP would master compact disks without SunConnect's assistance. NP will promptly provide SunConnect's Administrator with the details of such agreement, including without limitation all pricing terms. SunConnect may, at its option and in its sole discretion, authorize NP to master compact disks directly, subject to SunConnect's approval of content and quality.


b. Packaging Artwork. SunConnect shall design the artwork for the OEM Product packaging. The completed artwork is a SunConnect Deliverable to NP.


8.4 Copyright Notices. The Documentation shall bear a copyright notice in the form (C)Sun Microsystems 19__. NP shall put a copyright notice on the software components of the OEM Products and NP Products incorporating the SunLink Source Code stating (C)Network Peripherals 19__, portions (C)Sun Microsystems 19__. NP may put an NP copyright notice on the board component of the OEM Products.


8.5 NP Improvements. NP agrees to keep SunConnect informed of any improvements to of replacements for existing NP Products or OEM Products planned to be made available during the term of this Agreement. NP agrees to notify SunConnect's Administrator of such improvements in writing not less than 90 days prior to shipment of NP Products incorporating such improvements to third parties or customers and shall make available such improvements for OEM Products at no charge to SunConnect, provided that such improvements do not significantly affect the form, fit and function of the OEM Product in ways that differ from any change in the form, fit or function of the corresponding NP Product. SunConnect may elect to incorporate such improvements into the OEM Products by notifying NP in


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writing within 30 days after notification of such improvements. If SunConnect so notifies NP within the 30 day period, then NP will ensure that any NP Improvements are incorporated into OEM Products at least as early as they am incorporated into NP Products. The terms of Section 10.2 * "Confidential portion has been omitted and filed separately with the Commission." will continue to apply to any improved OEM Products.


8.6 NP Modifications. NP will not implement any changes in design or manufacture that might affect form, fit or function of the OEM Products, including without limitation, changes in performance, maintenance procedures, interchangeability, interconnectability, reliability or compatibility of OEM Products, without the prior written consent of a SunConnect Administrator and such consent shall not be unreasonably withheld.


8.7 Mandatory Changes.


a. "Mandatory Changes," as used herein means any change necessary to ensure that OEM Products comply with the following standards, as such standards are constituted on the date of shipment: (1) the Product Specification; (2) applicable laws or regulations; or (3) recognized and accepted commercial safety standards for similar products. NP will. at its own expense, supply SunConnect or SunConnect's Service Providers (as directed by SunConnect) parts kits and detailed rework instructions for all OEM Products purchased by SunConnect affected by any Mandatory Change, regardless of whether such OEM Products have been delivered to SunConnect, its customers, resellers or distributors.


b. If a Mandatory Change requires replacement of products already delivered to SunConnect's customers, resellers and distributors, then SunConnect or SunConnect's Service Provider(s) shall implement such replacements in accordance with the reasonable instructions provided by NP. NP shall be responsible for all necessary and reasonable costs incurred by SunConnect or its Service Provider(s) in any replacement of products delivered to SunConnect's customers, distributors and resellers which is required by Section 8.7(a).


8.8 O/S and Platform Changes.


(a) "Systems Changes," as used herein means any change necessary to ensure that NP Products remain compatible with new versions of the Sun Operating System and new versions of the Sun platform. NP will use its best commercial efforts to develop Systems Changes. NP agrees to notify SunConnect within a reasonable period of time after the release of a new version of the Sun Operating System or Sun Platform of Systems Changes planned for the NP Products and shall make available such System Changes for OEM Products at no charge to SunConnect. SunConnect may elect to incorporate System Changes into the OEM Products by notifying NP in writing within 30 days after notification of such System Changes. If SunConnect so notifies NP within the 30 day period, than NP will ensure that any System Changes are available incorporated into OEM Products at least as early as they are incorporated into NP Products. The terms of Section 10.2 * "Confidential portion has been omitted and filed separately with the Commission." will continue to apply to any revised OEM Products.


(b) When Systems Changes am not planned for the NP Products, then SunConnect may request such changes in accordance with Section 8.9 and the parties will mutually develop a development schedule.


(c) NP will perform all required compatibility testing for all new Sun Operating Systems and new Sun platforms at NP's expense. SunConnect will provide NP with the necessary equipment and operating system software to perform such testing.


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8.9 SunConnect Requested and Required Changes.


a. SunConnect may, at any time, require changes in writing to any of the following: method of shipment or packing; place of delivery, or the Exhibits marked with an * in Section 29.8 ("Required Change"). In addition, SunConnect may, at any time, request changes to applicable drawings, designs or specifications, or to ensure compatibility with other new or modified SunConnect products ("Requested Change").


b. If a Required or Requested Change causes an increase in the cost or the time required by NP for performance of any purchase order issued under this Agreement and NP so notifies SunConnect in writing, then if SunConnect wishes such Requested or Required Change to be made, an equitable adjustment will be made in the price or delivery schedule or both and the Agreement and/or any applicable purchase order will be modified accordingly in writing. Claims by NP for adjustment due to a SunConnect Requested or Required Change order must be made within fifteen (15) days from the date of NP's receipt of the change order; provided, however, that such period may be extended upon the written approval of SunConnect.


c. If any SunConnect Requested or Required Change requires reworking of any OEM Product already delivered to SunConnect, NP will, at SunConnect's expense, supply components for all OEM Products purchased by SunConnect affected thereby.


8.10 NP Purchase from SunConnect Suppliers. NP may purchase specific components for the OEM Products from specified SunConnect suppliers as SunConnect's authorized sub-contractor as set forth on Exhibit M. NP shall comply with all applicable provisions of the SunConnect contract with such suppliers. SunConnect agrees to provide NP with the text of applicable provisions. All items so purchased must be used in OEM Products, and may not be used in NP Products or other products without the express written consent of SunConnect.


8.11 NP Sub-Contractors. NP may subcontract the production of components of the OEM Products to suppliers, provided that each such supplier agrees to and fulfills all quality and compliance requirements set forth in this Agreement and its Exhibits.


8.12 Future Cooperation. The parties agree to work together to evaluate and develop new technologies and products for FDDI network interface cards as mutually agreed to. If new products are developed, the parties will negotiate an agreement with terms as similar as possible to this Agreement, except that product specifications, pricing and leadtimes may be different for such new products.


9.0 PURCHASE OF OEM PRODUCTS


9.1 Orders. SunConnect shall order OEM Products by telecopier, telephone, electronic data interchange ("EDI") as specified in Section 16.3, and/or in writing on SunConnect's standard purchase order form. Each telephone order shall be confirmed by a hard-copy purchase order within five (5) days after the placement of such telephone order. All orders for OEM Products will be governed by this Agreement and shall not be governed by the terms of SunConnect's or NP's purchase order, acceptance or other form documents. This Agreement does not constitute a purchase order SunConnect shall be liable under this Agreement only for those OEM Products covered by a SunConnect purchase order.


9.2 Sale to SunConnect Subcontractors. NP shall sell and license OEM Products under the pricing and terms set forth in this Agreement to SunConnect-designated subcontractors ("Subcontractors") upon express written authorization by SunConnect. SunConnect shall be liable to pay only for OEM Products ordered by and invoiced directly to SunConect and shall not be liable to pay for


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any OEM Products ordered by Subcontractors. All purchases made by Subcontractors shall be added to SunConnect's cumulative volume of OEM Products purchased.


9.3 Forecasts. SunConnect shall supply a six month rolling forecast by the 10th day of each month, with the first two months broken out by week. The first two months shall be backed by a purchase order which is non-cancelable. The third month of the forecast is a firm commitment, which may be rescheduled as specified in Section 14.1.


9.4 SoftwarelFirmware License. With respect to OEM Products which contain NP software and/or firmware (Software'). NP hereby grants to SunConnect a perpetual, nontransferable, nonexclusive license to use, market, distribute and sublicense the use of the Software in object code form only, and to authorize others to do the foregoing, solely in conjunction with the sale, license, loan of distribution of the OEM Products.


9.5 * "Confidential portion has been omitted and filed separately with the Commission."


10.0 PRICE OF OEM PRODUCT(S).


10.1 Pricing. The prices and applicable discounts for the OEM Products are specified in Exhibit N. The prices set forth in Exhibit N do not include freight or taxes, and all applicable federal, state and local sales or use taxes shall be separately stated on NP's invoice. SunConnect shall be liable to NP for the payments of such sales or use taxes only if SunConnect has failed to comply with the statutory resale tax certificate requirements of states where appropriate.


10.2 * "Confidential portion has been omitted and filed separately with the Commission."


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10.3 * "Confidential portion has been omitted and filed separately with the Commission."


10.4 Price Notification. During the tenth week of each calendar quarter, NP will provide to a SunConnect Administrator a written confirmation of the price of each OEM Product and component thereof, as such price has been determined in accordance with Sections 10.1 10.3. NP will provide such price confirmation whether or not any price has changed from the previous quarter. The prices set forth in such notification will be deemed accepted if SunConnect fails to notify NP in writing of any disagreement within 10 days after receipt of the notification by the SunConnect Administrator.


10.5 Special Requests. If SunConnect requests NP to manufacture or deliver OEM Products to SunConnect on special terms which will cause an increase in the manufacturing cost to NP, then NP shall notify the SunConnect Administrator in writing, specifying the additional costs and available options. SunConnect shall have 10 day to accept or reject such additional costs. Failure to respond shall be deemed a rejection of such additional costs and such special terms.


11.0 SHIPMENT AND DELIVERY


11.1 Leadtimes and Delivery Dates. Leadtimes for OEM Products are set forth in Exhibit N. NP agrees to accept and deliver the full quantity of OEM Products ordered on the delivery dates requested by SunConnect, to the extent that such dates are in conformance with leadtimes set forth in Exhibit N, or otherwise mutually-agreed to delivery dates ("Agreed Delivery Date"). If SunConnect requests delivery dates earlier than the leadtimes set forth in Exhibit N, NP agrees to use commercially reasonable efforts to meet such requested delivery dates or to propose the earliest possible alternate delivery dates.


11.2 Delayed Delivery Dates. If NP is unable to deliver OEM Product on the Agreed Delivery Date, NP shall promptly notify the appropriate SunConnect materials management personnel (as identified by the SunConnect Administrator), giving SunConnect a new delivery date. SunConnect may, at its option, (1) accept the new delivery date, (2) reschedule the purchase order, (3) require NP, at NP's expense, to use any expedited transportation methods that are available to deliver the OEM Products to SunConnect or a designated customer via Drop Ship as quickly as possible, or, if new date is greater than 5 days after Agreed Delivery Date, (4) cancel the purchase order without liability. In all cases, NP agrees to respond to SunConnect's purchase orders within 3 days after receipt. Time is of the essence with respect to this agreement.


11.3 Overshipments. SunConnect will pay only for quantities ordered. At SunConnect's option, overshipments will be returned to NP at NP's risk freight collect. NP shall credit SunConnect with the amount of outbound freight attributable to such returned overshipments.


11.4 Early Shipments. For OEM Products delivered more than five (5) days in advance of the Agreed Delivery Date(s), SunConnect may (i) return such OEM Products to NP freight


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collect, or (ii) accept such OEM Products with payment based upon the Agreed Delivery Date(s) and not the date of receipt by SunConnect.


11.5 Partial Deliveries. NP shall use reasonable efforts to deliver the full number of OEM Products ordered by SunConnect on the Agreed Delivery Date(s). If NP is unable to deliver the full number of OEM Products ordered, NP shall notify SunConnect promptly, and SunConnect shall consent to such partial delivery provided that the Agreed Delivery Date is met for the deliverable portion. Partial deliveries shall be separately invoiced by NP and paid for by SunConnect without regard to subsequent deliveries. The undelivered portion of the order shall be subject to the terms of Section 11.2.


11.6 * "Confidential portion has been omitted and filed separately with the Commission."


11.7 Shipping Documents and Markings.


a. Shipping labels and containers must comply with the requirements set forth in Section 8.2 above.


b. Shipping documentation must be complete and accurate. This documentation must include the SunConnect part number, the manufacturer's part number, the total quantity shipped, the SunConnect purchase order number, the number of shipping containers in the delivery, the quantity per shipping container, indication of partial/complete shipment and the waybill/Bill of Lading number.


11.8 Shipping Reports. NP will deliver to SunConnect shipping reports specified in Exhibit O.


11.9 * "Confidential portion has been omitted and filed separately with the Commission."


11.10 * "Confidential portion has been omi ...