Microsoft Corp Manufacturing And Supply And Servic

EXHIBIT 10.38


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 CORPORATION


MANUFACTURING AND SUPPLY AND SERVICES AGREEMENT
CONFIDENTIAL


This Microsoft Manufacturing and Supply and Services Agreement ("Agreement") is made and entered into this day of July, 2001 ("Effective Date"), by and between Microsoft Corporation ("Microsoft"), a Washington, USA corporation, and StarTek, Inc. ("StarTek"), a Colorado corporation.


RECITALS


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


WHEREAS, the parties intend in this Agreement to set forth specific terms and conditions governing the performance of certain manufacturing and distribution 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. BOMB 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 Statements of Work.


(c) "Deliverables" shall mean and include all Hardware, 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 Original


Equipment Manufacturer ("OEM") 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, Microsoft software and/or Hardware, ready for delivery to a Customer.


(f) "Hardware" shall mean, without limitation, all Microsoft keyboards, mice, joysticks and other Microsoft Products which could not reasonably be categorized as software.


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


(h) "Intellectual Property" shall mean any and all trademarks, copyrights, patents and other proprietary rights comprising or encompassing a given Product.


(i) "Inventory" includes Finished Product Units, Deliverables, work in process, Product Components, Hardware or Raw Materials pertaining to the Products that contain Microsoft software, trademarks, copyrighted material, logos or other proprietary materials.


(j) "Manufacturing and Supply" or "Manufacturing and Supplying" shall mean the manufacturing and supply of Product Components and Products as described in the Statements of Work.


(k) "Products List" shall mean a list provided to StarTek by Microsoft from time to time that will list the Products to be Manufactured and Supplied by StarTek and Services to be provided by StarTek for Products pursuant to the terms of this Agreement.


(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 the Product CD-ROMs, Jewel Case Components, Disk Set Components, Assembled Box Components and Microsoft software products.


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(n) "Raw Materials" shall mean each raw material purchased by StarTek from third parties and used to compromise a Product or Product Component such as, for example and without limitation, disks, polyvinyl disk baggies, documentation, boxes, retail *.


(o) "Services" shall mean packaging and distribution services described in this Agreement and the Statement of Work.


(p) "Statement(s) of Work" shall mean the attached Exhibits A and B, including any modifications made thereto pursuant to Section 14(b).


(q) "Product CD-ROMs" shall mean the Product CD-ROM media either supplied by Microsoft or produced or procured by StarTek, but shall not include any Microsoft software included on the CD-ROM.


(r) "Disk Set Component" shall mean the fully assembled disk set, including polyvinyl disk baggies and duplicated disks either supplied by Microsoft or produced or procured by StarTek, but shall not include any Microsoft software included on the disks.


(s) "Jewel Case Component" shall mean a fully assembled jewel case or CD sleeve, including all documentation and other printed material, such as the front and back liners but excluding the Product CD-ROMs, to be included as an insert in the jewel case.


(t) "Assembled Box Component" shall mean the fully assembled retail packaging, including without limitation, retail bar code labels and all manuals and other documentation that is to be included with the Product, but excluding the Product CD-ROMs, Jewel Case Components, Disk Set Components.


2. MANUFACTURING AND SERVICES.


(a) General. StarTek hereby agrees to conduct Manufacturing and Supply and Services for Products on the Products List at the Facility pursuant to the terms and conditions set forth in this Agreement, including without limitation, the Statements of Work. StarTek shall not conduct Manufacturing and Supply and Services 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 Statements of Work, the terms contained in this Agreement shall control.


(b) Other Manufacturing/Services. In addition to Manufacturing and Supply and Services, the parties may identify other manufacturing and/or services to be provided under this Agreement through an addendum signed by the parties hereto.


(c) Reports. StarTek, at the scheduled times shall provide Microsoft with reports as specified herein or in the Exhibits (each a "Report"), with respect to all Products or Manufacturing and Supply and Services ordered or sold hereunder through StarTek to Customers. All Reports shall be in the form shown in the Exhibits and have the content as set forth in this Agreement or as otherwise agreed by the parties in writing, and shall be


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complete as required under this Agreement and accurate. Each Report, whether in paper or electronic format, shall meet the Standard Report Requirements identified for the Report in the Exhibits and shall be delivered as specified in the Exhibits. StarTek shall use reasonable efforts to correct any errors in a Report within * following Microsoft's notice specifying the item in respect of which an error has occurred. StarTek shall deliver each Report and all required supporting documentation therefor, by the time and on the date specified in the Exhibits.


(d) No Alteration; No Misrepresentation. Except in accordance with the terms of this Agreement or as otherwise authorized in writing by Microsoft, StarTek shall not alter the Product or Product packaging without the specific prior written consent of Microsoft, and shall have no authority to make copies of Microsoft diskettes or documentation other than as provided in this Agreement. StarTek shall distribute Product to Customers as specified in the Statements of Work. No other product or informational piece, including without limitation flyers, literature, documentation and advertising may be bundled with any product without the prior written consent of Microsoft. All materials used by StarTek in the distribution of Product shall comply with Section 4 hereof and shall clearly note that such Product is Microsoft Product. Such materials may include, but are not limited to, Microsoft invoices, packing slips, and packaging.


(e) Inventory. All of the Inventory shall at all times be held exclusively for assembly and delivery to shipping locations as authorized by Microsoft 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 and/or Product Components (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 10, at the price set forth at in Exhibit C. 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 and/or Product Components to Microsoft and to document Microsoft's title to Inventory and/or Product Components 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.


(f) Inventory Consignment. If, and to the extent that, Microsoft delivers Deliverables, Product CD-ROMs and/or Disk Set Components (collectively referred to


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herein as the "Consigned Inventory") to StarTek or places it under StarTek's control, this is a true consignment agreement governing such Consigned inventory, which StarTek shall hold in trust for the sole benefit of Microsoft pursuant to Section 6(b)(i). StarTek is not purchasing the Consigned Inventory. StarTek shall hold the Consigned Inventory either (a) for delivery to Microsoft's distribution center pursuant to this Agreement or (b) for return to Microsoft, and StarTek's authority is limited thereto. Microsoft consents only to sales in the ordinary course of providing the Services pursuant to this Agreement. The references in this subsection or elsewhere in this Agreement to "StarTek's control" means its ability to exercise restraining or directing influence over the item described. All of the Consigned Inventory shall be held in the Microsoft approved Facilities and exclusively for transfer to Microsoft's distribution center as authorized by Microsoft and for no other purpose, use or disposition, except as may be directed by Microsoft. Microsoft shall have title and ownership of the entire Consigned Inventory. StarTek shall at all times cause the Consigned Inventory to be free and clear of any and all liens, encumbrances and other claims of StarTek's creditors. StarTek shall label all Consigned Inventory as being the "property of Microsoft" and keep all such Consigned Inventory completely and totally segregated from any materials, supplies or inventory belonging to StarTek or any of its customers. At any time, at Microsoft's request, StarTek shall take all reasonable steps and shall execute a security agreement and financing statements, or their equivalents, all as may be necessary or advisable under the local law where the Consigned Inventory is located, in order to place of record Microsoft's ownership of all Consigned Inventory, and its unavailability to any creditor or creditors of StarTek. Microsoft shall bear the reasonable cost to StarTek (not to exceed $*) of reviewing, negotiating and executing any such security agreements or financing statements, except that StarTek shall bear the cost of executing any such agreements or statements done contemporaneously in connection with the execution of this Agreement.


(g) Declaration of Trust.


(1) Generally. StarTek hereby declares, confirms and agrees that throughout the term of this Agreement, StarTek shall hold in trust for the sole benefit of Microsoft all Consigned Inventory within StarTek's possession or within its reasonable control, of any kind, description or character. StarTek further agrees to account for the Consigned Inventory in its possession or under its reasonable control as property held in trust for Microsoft and not as assets belonging to StarTek, and not to present any Consigned Inventory as assets of StarTek in its balance sheet or in any representations (whether oral or written) to its creditors.


Wherever this Agreement states StarTek holds property in trust or as trustee, StarTek agrees to exercise ordinary care that Consigned Inventory received by StarTek will be handled as specified in this Agreement, but it does not, because of any trust or otherwise, undertake any greater standard of care.


(2) Accounting. StarTek agrees to account for the disposition of all Consigned Inventory received by StarTek, such accounting to be given to Microsoft at


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Microsoft's request, at the times and in the manner reasonably requested by Microsoft. If this is beyond the reports otherwise required hereunder, the reasonable expense of it shall be paid by Microsoft.


(3) Directions. Microsoft may at any time direct StarTek to return to Microsoft according to Microsoft's direction and at Microsoft's sole expense part or all of the Consigned Inventory in StarTek's possession or under its reasonable control. StarTek shall promptly * comply with any such direction.


(h) 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.


(i) Safe Storage and *. 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. *


(j) Non-exclusivity. This Agreement is not an exclusive agreement. At all times Microsoft shall have the right to appoint other third parties to perform Manufacturing and Supply and Services and other services for Microsoft or Customers. Provided that StarTek would not be placed in breach of this Agreement, StarTek may contract with and conduct manufacturing services for other software companies.


(k) Financial Information. Within * days 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.


(l) 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 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 tinder 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.


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(m) 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 Statements of Work.


(n) Production. StarTek covenants and agrees to meet Microsoft's demands for Product related to designated shipping locations, as such demands may be adjusted from time to time. Additional measurement procedures may be implemented as mutually agreed upon by Microsoft and StarTek.


(o) 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 Statements of Work. If StarTek is unable to obtain Product Components necessary to replace non-conforming Product within the specified * period, then replacement of such non-conforming Products shall take place as soon as possible after necessary Product Components are obtained by StarTek. StarTek agrees to use its best efforts to obtain Product Components as quickly as possible. 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 and Supply and Services for the replacement Products.


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3. DEDICATED REPRESENTATIVES. StarTek shall appoint one qualified staff member ("StarTek Account Manager") who has or is hereby granted authority to (i) submit material and information requests to Microsoft; (ii) provide access to StarTek's staff and independent advisors (including accountants) to provide information and answer questions; and (iii) provide schedules and plans to Microsoft for Microsoft' review and/or approval. StarTek shall also appoint a more senior officer who shall have authority to act for StarTek in making binding decisions with respect to this Agreement, and amend this Agreement. Microsoft shall appoint one or more qualified staff members ("Microsoft Vendor Account Manager") who has or is hereby granted authority to (i) act for Microsoft and make binding decisions with respect to this Agreement, and amend this Agreement; (ii) review information supplied by StarTek; (iii) provide any Microsoft information and answer questions and provide Product training to StarTek. The StarTek Account Manager is * and the Microsoft Vendor Account Manager is *. StarTek's senior officer described above is *, its *. Either party may change account managers and StarTek may change the designated senior officer upon * prior notice to the other (as long as or to the extent that such notice is reasonably possible).


4. PRICE AND PAYMENT.


(a) General. Microsoft and StarTek agree that StarTek shall be compensated for the Manufacturing and Supply and Services pursuant to the Price and Payment terms and conditions set forth in Exhibit C *. Microsoft shall be liable for payment to StarTek for Raw Materials that have been purchased in support of the weekly forecasts issued by Microsoft. Such forecasts shall only cover a * period and Microsoft shall not be responsible for Raw Materials purchased in excess of such forecasts. StarTek will use all reasonable efforts to provide competitive pricing to Microsoft. Except for Miscellaneous Charges (as defined below), all payments due by Microsoft to StarTek under this Agreement for Manufacturing Services shall be made * from Microsoft's receipt of a Purchase Order Receipt from StarTek. Payment shall be made by Microsoft in accordance with the Microsoft SAP Autovoucher Procedures. Payment for Miscellaneous Charges due by Microsoft to StarTek under this Agreement shall be made net * from Microsoft's receipt of an invoice from StarTek. Any undisputed payment that is overdue for more than *, shall thereafter bear interest at an annual rate of * per annum (or such lower rate as may then be the highest rate legally available).


(b) Manner of Payment; Invoices. For Manufacturing and Supply and Services, with the exception of Miscellaneous Charges, StarTek shall provide daily Purchase Order Receipts in accordance with the Microsoft SAP Autovoucher Procedures. StarTek shall render accurate monthly invoices for the Miscellaneous Charges earned by the date of the Microsoft Fiscal Month Close. For purposes of this Section 4, "Miscellaneous Charges" shall be defined as including, without limitation, prep/tooling, freight charges, pallet charges and samples. Such invoices shall consist of a complete, itemized listing of all such Manufacturing and Supplying and Services performed or Miscellaneous Charges incurred during the current invoice period. Microsoft shall pay within * of its receipt of an invoice, the


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entire amount of the invoice (except for Disputed Amounts), if the invoice is accurate, complete and accompanied by backup documentation required in the Statements of Work. All invoices shall be expressed in U.S. dollars. All payments shall be made by Microsoft in U.S. dollars either by first class mail, postage paid, at the address specified herein for notices to StarTek or in such other manner or at such other place as StarTek may reasonably designate from time to time by notice to Microsoft or electronically, at Microsoft's sole option. Payment shall be deemed credited to the account of Microsoft when received by StarTek if sent by first class mail or upon receipt by StarTek's financial institution if sent electronically.


(c) Disputed Amounts. As used herein, "Disputed Amounts" means invoice or Purchase Order Receipt amounts that are subject to a bona fide dispute raised by Microsoft in writing within * of Microsoft's receipt of an invoice, in the case of Miscellaneous Charges, or within * of an audit of Purchase Order Receipts, in the case of Manufacturing Services, which claim of dispute may concern not only the accuracy of the charge itself, but also any claim of deficient service or performance or any other claim of breach of this Agreement that relates to the specific charges in the invoice or Purchase Order Receipt. All Disputed Amounts that Microsoft subsequently agrees in writing to pay ("Agreed Payment") or that are required to be paid pursuant to a proper court order or award from any mutually submitted arbitration ("Required Payment") shall be paid within * from the date of such agreement or determination. Payment of an invoice or Purchase Order Receipt without asserting a dispute is not a waiver as to any claim or circumstance.


(d) Revisions to StarTek Services. From time to time, Microsoft may request that StarTek revise its Manufacturing and Supply and Services. If (i) Microsoft makes a request or a series of requests that materially changes the Manufacturing and Supply and Services and (ii) StarTek determines that a change in compensation is warranted, StarTek may provide Microsoft with a quote of the change in cost, by unit or other appropriate measure, for which it will undertake the change of Services ("Interim Rate Quote"). Microsoft may accept or reject any Interim Rate Quote. If Microsoft accepts an Interim Rate Quote, StarTek's Manufacturing and Supply and Services and the corresponding costs to Microsoft shall be revised accordingly, which revision shall be memorialized in a written amendment signed by both parties. If Microsoft rejects an Interim Rate Quote, StarTek's Manufacturing and Supply and Services shall not be revised but Microsoft shall then be free to have the changed Manufacturing and Supply and Services in question performed by a third party and to terminate the relevant portion of the Manufacturing and Supply and Services upon * prior notice to StarTek. StarTek agrees, at Microsoft's reasonable expense, to cooperate with such third party to transition and allow it to perform such Manufacturing and Supply and Services. This Section 4(d) does not impair either party's rights under Section 11(b) hereof.


(e) Cost Containment.*


(f) 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


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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 and Supply and 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 and Supply and Services and collected from Microsoft by StarTek or otherwise paid by Microsoft. Except as required by law or where expressly agreed to, in writing, by Microsoft pursuant to Exhibit C, Microsoft shall not pay any taxes other than those described above, including ...