OEM Hardware License And Purchase Agreement

Exhibit 10.19


CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.


OEM HARDWARE (WITH SOFTWARE) LICENSE AND PURCHASE AGREEMENT
-----------------------------------------------------------


THIS OEM HARDWARE (WITH SOFTWARE) LICENSE AND PURCHASE AGREEMENT, including the Exhibits ("Agreement"), effective as of May 29, 2001 ("Effective Date"), is hereby made by and between Cisco Systems, Inc., a California corporation, having principal offices at 170 West Tasman Drive, San Jose, California 95134-1706 ("Cisco") and SonicWALL, Inc., a California corporation, having principal offices at 1160 Bordeaux Drive, Sunnyvale, California 94089-1209 ("Seller").


RECITALS
--------


A. Seller designs, manufactures and sells certain Products as set forth on


Exhibit A. ---------


B. Seller desires to sell the Products and Cisco desires to purchase the Products for resale on a stand-alone basis and as incorporated into Cisco's products.


AGREEMENT
---------


In consideration of the foregoing and the mutual promises and covenants contained herein, the parties agree as follows:


1. SALES AND PURCHASES OF PRODUCTS
-------------------------------


1.1 Products. Subject to the terms and conditions of this Agreement, Seller
-------- shall sell to Cisco the Products which Cisco may order from Seller. Products shall be manufactured by Seller according to the Product Specifications set forth in Exhibit B and the Cisco Quality Plan set forth in Exhibit C, as
--------- --------- modified from time to time by written agreement of Cisco and Seller. Products include hardware products and software. The software includes software imbedded in hardware or provided separately on disks or other media or provided electronically, user documentation, packaging and any enhancements, modifications, updates, bug fixes or releases to the Product that are made commercially generally available. ("Software").


1.2 Product Enhancements and New Products. At the earliest date possible,
------------------------------------- Seller shall notify Cisco of any new product or enhancements to or advanced versions of existing Products, that are made commercially generally available. Upon written agreement between Cisco and Seller as to pricing and other terms required by Cisco, such products shall be considered Products under this Agreement and shall be purchased and sold under the terms and conditions of this Agreement. Cisco may convert any or all of its future orders of Products to any enhancements to or advancements of existing Products. If Seller implements any improved technology (e.g., without limitation, improved manufacturing processes), Seller shall promptly so advise Cisco and, at Cisco's request, discuss with Cisco the possibility and advantages of using such improved


SonicWALL OEM Agreement


technology to redesign any Products. At Cisco's request, Seller shall negotiate any such redesign in good faith.


1.3 Upgrades. Seller shall keep Cisco informed of all Software upgrades,
-------- enhancements, improvements and bug fixes. Seller shall make such items available to Cisco no later than the date Seller generally releases such items to any of its other customers and at no additional charge unless otherwise expressly provided in this Agreement.


1.4 Project Managers. Each party has appointed a single project manager
---------------- ("Project Manager"). The names, addresses and telephone and fax numbers of the Project Managers are attached to this Agreement as Exhibit D. The Project
--------- Managers shall act as liaisons between the parties with respect to their respective performances of this Agreement and shall provide the parties from time to time with the names and telephone numbers of additional specific contact persons (e.g., to communicate specific information regarding support, enhancements, etc.) when such direct contact is preferable. In the event that either party appoints a new Project Manager, such party shall promptly notify the other.


1.5 Non-Recurring Engineering. Seller shall modify the Products in accordance
------------------------- with the terms and conditions as set forth in Exhibit A.
---------


1.6 Agency Certification. Seller shall certify the Products in accordance with
-------------------- its own procedures as set forth in Exhibit B. Cisco agrees to pay a mutually
--------- agreed upon (NRE) charge for any additional certifications and/or requirements that it may require.


1.7 Global Supply Management Reviews. Reviews will be held on a quarterly
-------------------------------- basis, after the close of Cisco's fiscal quarter, to assess the performance of the Seller against the mutually established objectives and criteria. Reviews will include the resetting of standards for subsequent periods, as well as the establishing and measuring Seller's performance record at Cisco. Upon Cisco's request, Seller shall provide Cisco with updated financial information. The location and/or meeting method will be mutually agreed upon by the parties. If on-site meetings are determined to be appropriate, the intent will be to alternate periodically between Seller's and Cisco's sites.


2. OWNERSHIP; GRANT OF RIGHTS
--------------------------


2.1 OEM Right. Seller hereby grants Cisco a nonexclusive, worldwide, royalty
--------- free right and license to promote, market, resell and distribute the Products as stand-alone products or as incorporated into or in connection with Cisco's products subject to the terms and conditions of this Agreement.


2.2 Cisco Property.
--------------


(a) During the term of this Agreement Cisco may provide equipment, designs, materials, software and other property of Cisco (collectively "Cisco Property") to Seller for its use in fulfilling its obligations hereunder. All Cisco Property furnished to Seller by Cisco or paid for by Cisco in connection with this Agreement shall (i) be clearly marked or tagged as the property of Cisco; (ii) be and remain personal property; (iii) be subject to inspection by Cisco at any time; (iv) be used by Seller and its subcontractors to perform its obligations under this Agreement and


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for interoperability purposes; (v) be kept free of liens and encumbrances; (vi) be kept separate from other materials, tools, or property of Seller or held by Seller; and, (vii) not be modified in any manner by Seller.


(b) Cisco shall retain all rights, title and interest in the Cisco Property, and Seller shall treat and maintain the Cisco Property with the same degree of care as Seller uses with respect to its own valuable equipment, but in no event with less than a reasonable degree of care for equipment of a similar kind and importance. Seller shall bear all risk of loss or damage to Cisco Property until it is returned to Cisco. Upon Cisco's request, Seller shall deliver all Cisco Property to Cisco in good condition, normal wear and tear excepted, without cost to Cisco (exclusive of freight costs); the parties shall determine the manner and procedure for returning the Cisco Property, and Cisco shall pay the corresponding freight costs. Seller waives any legal or equitable right it may have to withhold Cisco Property, and Seller shall execute all documents, or instruments evidencing Cisco's ownership of the Cisco Property as Cisco may from time to time request.


2.3 Seller Property
---------------


Except as expressly and unambiguously granted herein, all rights to the Products and any modifications thereto and all related documentation and materials and any modifications thereto are retained by Seller, including without limitation, all copyrights, patent rights, trade secret rights, and all other intellectual or industrial property rights therein.


3. PRICES; PAYMENT
---------------


3.1 Non-Recurring Engineering (NRE). Cisco shall pay the NRE payments as
------------------------------- specified in Exhibit A subject to the terms and conditions therein.


3.2 Prices. Product prices, and discounts thereon, shall be as set forth in
------ Exhibit A. Such prices shall be fixed for a period of 12 months commencing with the Effective Date of this Agreement, except that if Seller's price offered to its customers generally for the Products are reduced, such reduction shall be immediately effective and shall apply to all subsequent regular lead time orders issued by Cisco. Thereafter, Seller shall use commercially reasonable efforts to reduce the prices of Products by [***] annually commencing on each anniversary of the Effective Date, and such prices will be effective with respect to orders received thereafter. If Seller performs design enhancements to the current Products resulting in increased performance, such improved Products shall not be subject to the preceding sentence until the first anniversary of the date such improved Products are first shipped to Cisco for commercial release, provided that Seller shall continue to make the unimproved Products available for purchase by Cisco at the prices set forth on Exhibit A in accordance with the terms of this Section 3.2 for the duration of the fixed price period. Increased volume requirements of Cisco shall be cause for price decreases, subject to negotiation between Cisco and Seller. All prices and risk are F.C.A. Origin. Cisco shall be responsible for all transportation and insurance costs.


[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


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3.3 On-going Cost Reductions. Seller shall use commercially reasonable efforts
------------------------ to achieve ongoing reductions in the costs of the bill of materials for the Products. Seller and Cisco agree to reasonably share the benefits of such cost reductions. Seller shall work on achieving cost savings on both materials and processes, and such savings shall be reflected in a reduction of the purchase price of the Products. In addition, Seller may institute any cost reduction proposals reasonably suggested by Cisco, and to reduce the purchase price of the Products to Cisco by an amount equal to the per-unit savings realized therefrom.


3.4 Taxes. Prices stated in Exhibit A are in U.S. dollars and include any
----- --------- withholding taxes and the like. Seller agrees that amounts paid pursuant to this Agreement are subject to sales and use tax, unless Cisco provides Seller with satisfactory documentation (including but not limited to resale exemption or other certificates) supporting such status. All other items of tax based in whole or in part on the income of a party shall be the sole responsibility of such party.


3.5 Drawback. Cisco reserves all rights to duty drawback, if any, which may be
-------- available as a result of the sale of Products to Cisco. Seller shall provide to Cisco Certificates of Delivery and/or Certificates of Manufacture as requested within ten (10) days of Cisco's request.


3.6 Payment Terms. Seller shall invoice Cisco with each shipment. All payments
------------- are due within thirty (30) days after receipt of shipment on Cisco's designated dock in the United States. Seller's invoice shall read 2% 10, Net 30 from date of receipt on such Cisco dock. Cisco shall be entitled to a two percent (2%) discount if payment is made within ten days of receipt on Cisco's dock. Invoices shall be remitted to Cisco Systems, Inc. PO BOX 641570, SAN JOSE, CA 95164-1570, ATTN: ACCOUNTS PAYABLE; or via Electronic Data Interchange (EDI). No invoice shall be submitted to Cisco until shipment to Cisco of the Products covered by such invoice.


4. PURCHASE ORDERS
---------------


4.1 Purchase Orders. Cisco's purchase orders for Products shall be submitted
--------------- to Seller in writing or via EDI. Each purchase order shall include:


(a) Identification of Products ordered by Cisco part number and descriptions;


(b) Quantity to be purchased;


(c) Price of Products ordered;


(d) Requested delivery dates; and


(e) Shipping and labeling instructions.


4.2 Forecasts. On or before the first business day of each calendar quarter,
--------- Cisco shall issue a nonbinding forecast (broken down by month) of its requirements for Products for such quarter. Each such nonbinding forecast also will include a rolling forecast for the next three quarters containing the same information.


4.3 Placement by Cisco. All purchase orders and invoices under this Agreement
------------------ shall be subject only to the terms and conditions hereof. Standard lead-time shall be 45 days. The lead time for


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orders from Buffer Inventory (defined in Exhibit G) shall be 5 days. In the event the terms of any such purchase order, confirmation or similar document conflict with or are additional to the terms of this Agreement, the terms of this Agreement alone shall apply and shall govern regardless of execution of such document by one or both parties, except that the parties may agree to negotiate non-preprinted terms which shall be effective only if executed by both parties. Any other Seller terms and conditions shall not apply to this Agreement or the purchase orders.


4.4 Acceptance by Seller. Subject to the establishment of mutually agreeable
-------------------- delivery dates (any requested delivery date that complies with the lead time set forth above shall be conclusively deemed agreeable), Seller shall accept and acknowledge in writing all purchase orders submitted by Cisco within two (2) working days after receipt thereof. Each acknowledgment shall include a firm shipping date for the Products ordered in the purchase order. "Working day" shall mean a regular week day on which Cisco is open for business. Delivery shall be in accordance with accepted purchase orders. Seller shall give prompt written notice to Cisco of any anticipated delay.


4.5 Reschedules, Work Stoppage and Cancellations. Cisco may, at any time prior
-------------------------------------------- to the delivery date, reschedule any purchase order in whole or in part or modify the delivery schedule set forth in any purchase order but only in accordance with the terms of Exhibit E, provided that Cisco gives written notice
--------- thereof.


4.6 Order Increases. Upon written request from Cisco, and according to best
--------------- commercial practices, Seller shall: (i) deliver on the requested date the number of items ordered by Cisco in excess of that set forth in Cisco's estimated usage; and (ii) deliver items available in Seller's uncommitted stock in less than the expected lead-time if so requested by Cisco. However the failure to perform the foregoing shall not be considered a default under this Agreement.


4.7 Rush Orders. Cisco may, at its option, submit purchase orders requesting
----------- immediate delivery within three (3) working days ("Rush Orders"). Seller shall use commercially reasonable efforts to fill Rush Orders. The parties shall negotiate in good faith the prices for Rush Orders, taking into consideration Seller's available inventory and additional shipping and personnel expense.


4.8 On Time Performance. Seller's on time performance for delivery of for
------------------- forecasted Product quantities that are ordered in accordance with the 45 day lead time request set forth herein shall be measured as two (2) days early, zero (0) days late.


4.9 Shipping. All items shall be shipped in the manner specified as set forth
-------- in the Cisco Quality Plan attached hereto as Exhibit C or as specified in the separate purchase orders issued hereunder. In the event a shipment shall not meet the delivery date, routing may be changed to premium transportation at Cisco's request. In that event, Seller shall bear the expense of any difference in freight costs for the premium transportation.


4.10 Delivery. Cisco reserves the right to refuse delivery of any quantity of
-------- Products in excess of that specified in its purchase order and/or any delivery made more than five (5) days in advance of the delivery date. Cisco, at its option may return, freight collect, all such units received in advance or in excess of the quantity specified on its purchase order line item, or may, at its option, retain such units with payment therefore deferred until it would otherwise be due.


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4.11 Allocation. Seller shall in any event maintain the ability to supply
---------- all Product that Cisco orders from Seller. Seller agrees that, in the event of an allocation due to a Force Majeure event, as specified in Section 16.1, Cisco's order(s), subject to normal lead-time requirements, shall be filled according to an allocation plan no less favorable than that provided to any other Seller customer. Seller shall provide Cisco with as much notice as possible if it anticipates or has reason to believe that Seller's output of the Product shall not be sufficient to meet Cisco's forecast for any period.


4.12 Discontinuance. Seller shall make available Products for a minimum period
-------------- of three (3) years following the date of release of the Products (the "Supply Period") and in accordance with the Support Guidelines attached hereto as Exhibit F and the terms of this Agreement. In the event that Seller intends to --------- discontinue the manufacture and sale of any Product, Seller shall provide at least six (6) months prior written notice to Cisco. During such six-month period (the "Discontinuance Period"), Cisco may place purchase orders for such Product pursuant to this Agreement, provided however, the last delivery date for such Product shall not be more than six (6) months after the end of such Discontinuance Period. In no event shall Seller accept orders for such Product from any other new customers after it stops accepting orders for such Product from Cisco. During the Discontinuance Period, Cisco may place orders for Products which have been forecasted by Cisco and which are not to be considered "end of life" purchases unless specified by Cisco, provided such units are deliverable within six (6) months of the Discontinuance Period.


4.13 Inventory and Stock Requirements. Seller shall comply with the inventory
-------------------------------- and stock requirements as set forth in Exhibit G.
---------


5. PRODUCT ACCEPTANCE AND QUALITY
------------------------------


5.1 Inspection and Acceptance by Cisco. Notwithstanding any prior inspection
---------------------------------- or payment by Cisco, all Products shall be subject to final inspection at Cisco's specified destination within forty-five (45) days after delivery by Seller. In addition, Cisco shall be entitled to inspect by Product lot in accordance with the procedures specified in the Cisco Quality Plan. Notwithstanding the foregoing to the contrary, if and when Seller qualifies to bypass Cisco's incoming inspection requirement pursuant to the Cisco Quality Plan, Cisco shall have the right to reject any Product which Cisco determines to be non-operable upon its removal from its original packaging and initial check-out ("DOA"), whether discovered by Cisco, its subcontractor or its customer; in any case, Cisco's sole remedy for Product rejection is set forth in Section 5.2 below.


5.2 Rejection. If any Product is defective in material or workmanship, or
--------- otherwise not in conformity with the applicable Specifications, Cisco shall have the right, at its sole option and remedy, to, at the time it notifies Seller of rejection of the affected Product, request correction or replacement of such Product. Any Product that has been rejected or required to be corrected must be replaced or corrected by, and at the expense of, the Seller within five (5) working days of request by Cisco. If, after being requested by Cisco, Seller fails to replace or correct any defective item within the required time period, then Cisco shall have the right, at its sole option and in addition to any other rights or remedies it may have, to replace or correct such Product and charge to Seller the cost occasioned thereby provided that such repair or replacement cost shall not exceed 20% of the purchase price. At Cisco's request, Seller shall provide to Cisco a


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failure analysis report specifying the reason for failure of any rejected Product. Seller shall follow the procedures in the Cisco Quality Plan and analyze and respond to Product failures. Seller shall track Products returned for replacement by lot number and date code (this obligation shall continue beyond the Warranty Period). If the repaired or replacement Product does not conform to the Specifications, then Cisco shall have the right to request a correction or replacement of such Product, or demand a credit or refund for the amount paid Seller for such non-conforming Product.


5.3 Packing. Unless otherwise specified in the Cisco Quality Plan, Seller
------- shall package and pack all goods in a manner which is (i) in accordance with good commercial practice then carried out by Seller, (ii) acceptable to common carriers for shipment at the lowest rate for the particular goods, and (iii) in accordance with I.C.C. regulations. Seller shall mark all containers with necessary lifting, handling and shipping information and with purchase order numbers, date of shipment, and the names of the consignee and consignor, if applicable. An itemized packing list shall accompany each shipment which shall include (i) prominently the purchase order number and (ii) the description, part number, revision level, and quantity of the Products so shipped.


5.4 Return Procedure. In the event Cisco rejects Product as set forth in this
---------------- Section 5 above, Cisco may, at its option, return the Product to Seller F.C.A. Seller's location in accordance with Seller's RMA procedure at Seller's expense, or retain such Product pending Seller's instructions.


6. PRODUCT SPECIFICATIONS; CHANGES
-------------------------------


6.1 Specifications; Cisco Quality Plan. Seller shall supply Product(s) in
---------------------------------- conformance with mutually agreed Product Specifications and the Cisco Quality Plan. Seller shall not make any material changes in the form, fit, function, design or appearance of any Product purchased hereunder, or to any Specifications of any Product irrespective of impact on form, fit, or function, without Cisco's prior written approval.


6.2 Pre-Shipment Testing. Prior to delivery, Seller shall test all Products in
-------------------- accordance with the Test Procedure as set forth in Exhibit H, and shall not
--------- knowingly ship Products which fail to meet the Specifications. Seller agrees not to make any changes or modifications to any test process or procedure without prior written approval from Cisco. At its option Cisco may, from time to time and with reasonable prior notice, send its quality control personnel to Seller's factory to observe the testing. In addition, Cisco may, from time to time, request modifications to Seller's test procedure, where repetitive failure to meet Specifications has been noted on shipped equipment in accordance with the Cisco Quality Plan. Seller shall not unreasonably withhold modifications of this procedure.


6.3 Engineering Change Approval. Seller shall not make any changes to any
--------------------------- production process, or the controlled process parameters or sources, types or grade classifications of materials used, with respect to any Product without first obtaining from Cisco an engineering change approval. Within one (1) working day after learning of any bug or other problem in a Product which may result or has already resulted in an impact to the installed customer base of such Product, the discovering party shall notify the other of such problem. Seller shall submit a request to make a change containing engineering data in support of the request. Within ten (10) working days of receiving such request, Cisco shall respond to Seller's request and shall either (i) approve the


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change, (ii) disapprove the change, or (iii) extend the deadline for the approval or disapproval period for an additional twenty (20) working days.


6.4 Cisco's Engineering Change Request. When an engineering change is
---------------------------------- requested by Cisco, Cisco shall provide Seller all applicable documentation, specifications and the requested effective date of such engineering change. Seller shall respond initially within three (3) working days, advising Cisco as to (i) implementation and the effective date of such change, (ii) associated costs and effect to on-hand materials, on-order materials and work in process, and (iii) the impact of the change upon existing Product pricing and shipment schedules for the entire period for which purchase orders are outstanding, and whether Seller agrees to such request. Seller shall also identify any materials issue or process issue that modifies the shipment schedule that was in effect immediately prior to the engineering change. Where a requested change may create scrap costs, Seller agrees to stop work in process and/or orders for materials within twenty-four (24) hours of notification of such change by Cisco. Materials on-hand or on-order and work in process which has become obsolete as a result of the engineering change shall be treated in the same manner as termination of a Product as set forth herein. In such event, Cisco shall issue requisite documentation and purchase order release changes before Seller shall begin the change implementation.


7. END USER DOCUMENTATION AND TRADEMARKS
-------------------------------------


7.1 End User Documentation. Seller shall deliver end user documentation
---------------------- complying with the terms and conditions set forth in Exhibit I.
---------


7.2 Trademarks. During the term of this Agreement, Seller hereby grants to
---------- Cisco a nonexclusive, nontransferable license to advertise the Product under the Seller trademarks, trade names, logos and/or slogans listed on Exhibit J (the
--------- "Trademarks") as updated by Seller and agreed to in writing by Cisco from time to time. Cisco shall use the Trademarks in accordance with Seller's trademark usage guidelines specified in Exhibit J, and all goodwill accrued through the
----------------------------------------------- use of Seller Trademarks shall inure to Seller. If any of Seller's Trademarks ---------------------------------------------- are to used in conjunction with Cisco's or another party's trademarks, on or in relation to ...