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Joint Development & License Agreement

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JOINT DEVELOPMENT AND LICENSE AGREEMENT


The 3DO Company ("3DO") and Cirrus Logic, Inc. ("Cirrus Logic") enter into this Joint Development and License Agreement (the "Agreement") as of this 29th day of February, 1996 ("Effective Date").


RECITALS


3DO has developed an existing semiconductor device known as "BDA" ("BDA") that includes, among other things, a component designated by the parties as the "3DEngine" (as defined in Section 1.4 below). Cirrus wishes to have 3DO develop certain modifications to the 3DEngine and to obtain a nonexclusive license of such 3DEngine to incorporate the 3DEngine in semiconductor devices developed by Cirrus Logic, and 3DO wishes to make such modifications and grant such license, on the terms and conditions set forth in this Agreement. Accordingly, in consideration of the mutual representations, warranties, covenants, and other terms and conditions contained herein, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, 3DO and Cirrus Logic agree as follows:


TERMS AND CONDITIONS


1. Definitions.


1.1. "3DO Deliverable Items" means the specific information and materials of or concerning the 3DEngine set forth in Exhibit A, attached hereto, and any other information and materials of or concerning the 3DEngine provided by 3DO to Cirrus Logic in connection with this Agreement.


1.2. "Development Period" means the period beginning upon commencement of the Development Program and ending upon the earliest of (i) acceptance by Cirrus Logic of the last of the 3DO Deliverables set forth in Exhibit A, attached hereto, (ii) exercise by Cirrus Logic of its right to terminate 3DO engineering services pursuant to Section 7, below, (iii) exercise by Cirrus Logic of its right to receive source code in accordance with Section 28, below, or (iv) termination of this Agreement.


1.3. "Development Program" means the development work to be undertaken by both parties under the terms and conditions of this Agreement in order to obtain an initial production version of Magnum in accordance with the Magnum Specifications.


1.4. "3DEngine" means the memory controller, bus interface, 3D setup engine and 3D rendering engine components of BDA described in Exhibit B, attached hereto, as they exist on the Effective Date, together with (i) the modifications to such components specifically required to be made under this Agreement and (ii) any other modifications to such components completed by 3DO during the Development Period (whether or not arising from the Development Program) as to which 3DO has the right to grant licenses to Cirrus Logic of the scope contemplated by this Agreement, except that the "3DEngine" expressly excludes (a) any version or derivative of such components designed for a product configuration to comply with the MPEG2 or Digital Versatile Disc ("DVD") standard and (b) any modifications designed for any version or derivative.


1.5. "PCI Bus" means Peripheral Component Interface, the 32/64-bit local bus architecture developed by Intel, IBM and DEC, among others.


1.6. "Magnum" means a Product to be developed by Cirrus Logic in accordance with this Agreement that integrates the VGA Logic with the 3DEngine. The parties anticipate that Magnum will be the first Product developed and manufactured by Cirrus Logic under this Agreement.


1.7. "Magnum Specifications" means the feature and functionality requirements set forth in Exhibit B, attached hereto.


1 2
1.8. "Multi-Purpose Computers" means computers with a multiplicity of functions and purposes. Without limitation, "Multi-Purpose Computers" expressly excludes any video game device or other dedicated-purpose system.


1.9. "Net Revenues" means the gross revenues recognized by Cirrus Logic and its Subsidiaries for the sale or other distribution of Products, but not including separate related charges for (i) sales and use taxes, excise taxes, customs duties and other similar taxes (excluding in any event taxes on Cirrus Logic's net income), (ii) shipping and/or insurance charges, (iii) bad debts, and (iv) the amount of any refunds and/or credits, but only to the extent that such refunds and/or credits are actually recognized against such gross revenues. Net Revenues will be determined in accordance with United States generally accepted accounting principles consistently applied.


1.10. "NRE Expenses" means nonrecurring engineering expenses incurred by 3DO. "NRE Expenses" are hereby agreed to be equal to the rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person year and to the rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person day for any partial person years (unless otherwise agreed to in writing for any particular additional engineering services under section 5.3, below).


1.11. "Product" means a semiconductor device now or hereafter developed by Cirrus Logic that incorporates all or a portion of the 3DEngine.


1.12. "Royalty Bearing Product" means a Product sold or otherwise distributed by Cirrus Logic or its Subsidiaries, excluding Products (a) distributed at no charge solely for demonstration, evaluation, training, development or promotional purposes or (b) sold to 3DO.


1.13. "Subsidiary" means, with respect to a party, an entity as to which such party owns and controls at least seventy percent (70%) of the capital stock and/or other equity (or, in the case of a noncorporate entity, equivalent interests) representing the right to vote for the election of directors or another managing authority, but such entity shall be deemed to be a Subsidiary only so long as such ownership and control exist.


1.14. "VGA Logic" means the video graphics adapter core logic comprised of components such as the controller, bus interface, buffer, digital to analog converter, 2D acceleration logic, video functions and other related components as incorporated into Magnum.


2. Technology License Grant.


2.1. 3DO hereby grants to cirrus Logic, subject to the terms and conditions of this Agreement, a non-exclusive, non-transferable (except as provided in Section 31.3, below), worldwide, irrevocable (except as set forth in Section 27, below) license (i) to design and develop modifications to and derivatives of the 3DEngine, (ii) to use the 3DEngine, including such modifications and derivatives, in the design and development of Products, and (iii) to manufacture, import, use, offer to sell, sell and otherwise distribute such Products, in each case solely for Multi-Purpose Computers. Such license shall include (a) the right to use trade secrets, copyrights, mask work rights and patents, if any, relating to the 3DEngine that are necessary for the design and development of such modifications and the manufacture, import, use, offer to sell, sale and other distribution of such Products for Multi-Purpose Computers and (b) the right to use, reproduce and modify the 3DO Deliverable Items in connection with the design and development of such modifications and the manufacture, import, use, offer to sell, sale and other distribution of such Products for Multi-Purpose Computers.


2.2. Cirrus Logic shall not (and shall have not right to) sublicense any of its rights or licenses under this Agreement, except that Cirrus Logic may have sublicense the rights set forth in this Section 2 to one or more of its Subsidiaries, provided that (i) Cirrus Logic shall be responsible for compliance by the Subsidiaries with the terms and conditions of this Agreement to the same extent as Cirrus Logic itself, (ii) any act or omission of the Subsidiaries shall constitute an act or omission of Cirrus Logic, and (iii) the Subsidiaries shall agree in writing that they are subject to the terms and conditions of this Agreement and that 3DO shall have a right of action against the Subsidiaries to the same extent as Cirrus Logic itself with respect to a breach of any obligation relating to this Agreement by such Subsidiary.


2 3
2.3. Cirrus Logic shall not (and shall have no right to) have its rights or licenses under this Agreement exercised by any third party (and, without limitation, shall have no "have developed" or "have made" rights) except as follows:


(a) Cirrus Logic may engage third-party contractors to engage in design and development of modifications to the 3DEngine, solely for the benefit of Cirrus Logic, provided that the third parties agree in writing (i) that the 3DO Deliverables and other Confidential Information of 3DO may be used only for the design and development of modifications to the 3DEngine for the sole benefit of Cirrus Logic, (ii) to confidentiality requirements, including, without limitation, restrictions on disclosure and use of 3DO Deliverable Items and other Confidential Information of 3DO, no less strict than those required by Cirrus Logic for its own comparable confidential and proprietary information, and (iii) that all right, title and interest in and to their work product, including, without limitation, any design and development related to the 3DEngine and modifications thereto, are assigned to Cirrus Logic;


(b) Cirrus Logic may engage third-party semiconductor manufacturers (including but not limited to foundry and ASIC manufacturers), assemblers and test facilities to fabricate, assemble and/or test the Products, solely for the benefit of Cirrus Logic, provided that (i) the Products are sold by the manufacturer (and any such assemblers and test facilities) only to Cirrus Logic, (ii) the manufacturer, assembler or test facility is not provided with any Confidential Information of 3DO except for materials required for fabrication, assembly and/or testing of such Products and (iii) the manufacturer, assembler or test facility agrees in writing (A) that the Confidential Information, if any, provided to the manufacturers, assembler or test facility may be used only for fabrication, assembly and/or testing of Products for the sole benefit of Cirrus Logic, and (B) to confidentiality requirements, including, without limitation, restrictions on disclosure and use of 3DO Deliverable Items and other Confidential Information of 3DO, no less strict than those required by Cirrus Logic for its own comparable confidential and proprietary information; and


(c) Cirrus Logic may disclose 3DO Deliverable Items and other Confidential Information to third parties participating with Cirrus Logic in (i) joint development of a Product or of an interface of third party proprietary technology into a Product, or (ii) integration of a Product into systems (including board-level systems) or with other semiconductor devices, but solely as necessary for such joint development or integration, provided that (A) such third parties agree in writing (1) that the 3DO Deliverable Items and other Confidential Information of 3DO may be used only for such joint development and/or integration for the sole benefit of Cirrus Logic, and (2) to confidentiality requirements, including, without limitation, restrictions on disclosure and use of 3DO Deliverable Items and other Confidential Information of 3DO, no less strict than those required by Cirrus Logic for its own comparable confidential and proprietary information and (B) any Products which are the subject of this subsection (c) are sold or distributed only by Cirrus Logic.


3. Technical Disclosure. For the purposes described above, 3DO shall deliver to Cirrus Logic the 3DO Deliverable Items set forth in Exhibit A, attached hereto.


4. Development of Magnum. 3DO and Cirrus Logic shall jointly determine the specifications for the interface between the VGA Logic and the 3DEngine for Magnum. Thereafter, 3DO shall use reasonable best efforts to modify the design of the 3DEngine so as to conform to the jointly determined Magnum interface specifications. Cirrus Logic shall be solely responsible for the fabrication of units of Magnum, and solely liable for all costs and expenses relating to the production of Magnum, including, without limitation, the development of all masks, the production of all test devices, the testing of all prototypes, and the revision of all masks and designs which may be required as a result of any testing. 3DO will cooperate with and assist Cirrus Logic with respect to the process of debugging of the 3DEngine until the first commercial shipment of the initial production version of Magnum. Any additional engineering services in excess of those required pursuant to Section 3, above, or this Section 4 shall be subject to 3DO's reasonable approval prior to 3DO being obligated to perform such services, and shall be subject to the terms and conditions of Section 5.3, below.


5. Non-Recurring Engineering Expenses. Cirrus Logic shall pay the NRE Expenses for engineering services furnished by 3DO in connection with development and delivery of the 3DO Deliverable Items and


3 4 performance of its obligations under Section 4, above. The payments will be nonrefundable. The payments shall be made as follows:


5.1. Within fifteen (15) days following the execution of this Agreement, Cirrus Logic shall provide 3DO with an initial NRE Expenses payment in advance in the amount of $[CONFIDENTIAL TREATMENT REQUESTED]. The balance of the NRE Expenses to be provided by Cirrus Logic shall be paid to 3DO in accordance with the milestones referenced in Exhibit C, attached hereto, as amended from time to time by mutual agreement of the parties. Payments based on milestones consisting of acceptance of 3DO Deliverable Items will be subject to the acceptance procedure set forth in Section 6, below, and shall be made by Cirrus Logic within fifteen (15) days after the later of (i) Cirrus Logic's acceptance of the 3DO Deliverable Items associated with such milestones or (ii) Cirrus Logic's receipt of an invoice with respect thereto, which invoice will include a summary of such milestones and the cumulative number of person years (or portion thereof) spent in completing the milestones. NRE Expenses shall be calculated based on actual engineering services performed hereunder on a person year and person day basis. Any NRE expenses that, in the aggregate, exceed the sum of the estimates referenced in Exhibit C shall be subject to Cirrus Logic' approval, which approval will not be unreasonably withheld. 3DO will have no obligation to provide engineering services for which the NRE Expenses will not be paid.


5.2. The parties acknowledge and agree that Exhibit C, attached hereto, is intended to set forth the reasonable schedule of desired engineering services, deliverables and related milestones, and estimates of any required 3DO resources and related NRE Expenses in order to meet its development and delivery obligations under Section 3 and 4, above. The parties acknowledge and agree that, because of uncertainties in the development and testing process, the estimates of 3DO resources and related NRE Expenses are necessarily preliminary, and that the parties shall use diligent, good faith efforts to reach agreement with respect to additions and modifications to Exhibit C. Notwithstanding the immediately preceding sentence, Cirrus Logic shall not be obligated to pay for the marginal cost of inefficiencies resulting from 3DO's use of engineers who are not comparable to those generally used on semiconductor development projects of this kind. In any event, unless otherwise approved by Cirrus Logic, which approval will not be unreasonably withheld, the aggregate NRE Expenses for 3DO's development and delivery obligations under Section 3 and 4, above, will not exceed $[CONFIDENTIAL TREATMENT REQUESTED] ("NRE Cap").


5.3. In the event that Cirrus Logic desires any additional engineering services from 3DO in connection with any future engineering task or project that 3DO is not obligated to undertake or perform pursuant to the provisions of Sections 3 or 4, above, such engineering services shall be the subject of a separate agreement between e parties and shall require the payment of additional NRE Expenses by Cirrus Logic, the amount of which shall be negotiated in good faith and mutually agreed upon by the parties, and which amount shall neither by subject to nor count towards the NRE Cap. In addition, in the event that Cirrus Logic desires 3DO to develop any applications software that would demonstrate the performance characteristics of Magnum, the applicable software development requirements, schedule and related costs would be negotiated by the parties in good faith and, if mutually agreed upon, would become the subject of a separate agreement or an amendment to this Agreement. NRE Expenses for software development during the first year after the Effective Date will be calculated at the rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person year, pro-rated at a rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person hour for any partial person years.


6. Additional Procedure.


6.1. Upon receipt of a 3DO Deliverable Item, Cirrus Logic will have twenty (20) days from the date or receipt ("Acceptance Period") in which to test and evaluate the 3DO Deliverable Item and determine whether it materially confirms to any applicable Magnum Specifications for such 3DO Deliverable Item. Before the end of the Acceptance Period, Cirrus Logic will provide 3DO with a written notice of acceptance of the 3DO Deliverable Item or a notice of rejection that (i) specifies in reasonable detail the material nonconformance(s) (to the applicable Magnum Specifications) that are the basis for the rejection and (ii) is accompanied by test suites and test results, if applicable, evidencing (and allowing 3DO to replicate) such nonconformance(s). If 3DO does not receive such a notice of rejection during the Acceptance Period, the 3DO Deliverable Item will be deemed accepted. If 3DO receives a notice of rejection during the Acceptance Period, 3DO will, during the period of twenty (20) days from the date or


4 5 receipt of the rejection notice, use reasonable best effort to correct any material nonconformance(s) specified in the rejection notice and to deliver the corrected 3DO Deliverable Item to Cirrus Logic. The process set forth in this Section 6.1 will continue until the 3DO Deliverable Item is accepted.


6.2. The parties acknowledge and agree that the acceptance process set forth in Section 6.1 may not reveal all bugs or defects, and that in the event any such bugs or defects are subsequently discovered during the Development Period, 3DO will use reasonable best efforts to correct any bugs or defects upon Cirrus Logic's request as part of 3DO's development obligations under Section 4, above, provided that (i) 3DO's obligations will be limited to bugs or defects that constitute nonconformance(s) with the Magnum Specifications and (ii) any such bugs or defects will not affect 3DO rights to any milestone payments or any other rights based on acceptance.


6.3. All references in this Agreement to acceptance of 3DO Deliverable Items (and, accordingly, any references in this Agreement to the end of the Development Period) assume that (i) the development, delivery and acceptance of the 3DO Deliverable Items are not delayed because of an act or omission of Cirrus Logic (including its contractors, its suppliers or other parties for which Cirrus Logic is responsible), and (ii) Cirrus Logic does not unreasonably withhold or delay its acceptance of the 3DO Deliverable Items. In either such event, 3DO will be entitled to the rights and benefits triggered by acceptance of the 3DO Deliverable Items (and, accordingly, any rights and benefits triggered by the end of the Development Period), including, without limitation, the payment of NRE Expenses, payment of pre-paid royalties and running of the six (6) month periods described in Sections 20.1 and 20.4, below, as of the day acceptance would have occurred if such event had not occurred, notwithstanding failure to achieve the milestone to which the acceptance relates.


7. Termination of3DO Engineering Services. Cirrus Logic may, upon thirty (30) days' written notice to 3DO, terminate 3DO's engineering services to be provided pursuant tot his Agreement at any time during he Development Program. Upon such termination, 3DO shall have no further obligations to perform any engineering services hereunder. In the event of such a termination, Cirrus Logic shall, within fifteen (15) days after Cirrus Logic's receipt of an invoice for NRE Expenses incurred before the effective date of termination for which 3DO has not previously been paid, pay the greater of (i) such NRE Expenses, subject to the terms and conditions of Section 5.2, above, with respect to the NRE Cap, or (ii) an amount equal to $[CONFIDENTIAL TREATMENT REQUESTED] less the NRE Expenses previously paid by Cirrus Logic to 3DO hereunder. Promptly upon receipt of such payment, 3DO shall deliver to Cirrus Logic copies of all 3DO Deliverable Items set forth in Exhibit A, attached hereto, as and in the form existing on the effective date of termination (whether completed, partially completed or uncompleted), for Cirrus Logic's use solely in accordance with and subject to the terms and conditions of, this Agreement. Termination pursuant to this Section 7 shall affect only the engineering services to be provided by 3DO and the related NRE Expenses, and shall not result in termination of this Agreement or affect the rights and obligations of the parties hereunder, including, without limitation, 3DO's right to receive the license fees, royalty payments and any other sums due hereunder.


8. Ownership Interests.


8.1. Except as expressly set forth herein, (i) 3DO retains all right, title and interest in and to the 3DEngine and 3DO Deliverable Items, any modifications to the 3DEngine or 3DO Deliverable Items that are developed by or for 3DO, and any subsequently derived and/or successor technologies that are developed by o for 3DO or any related intellectual property rights, and (ii) Cirrus Logic retains all right, title and interest in and to the VGA Logic, any modifications to the VGA Logic that are developed by or for Cirrus Logic, or any subsequently derived and/or successor technologies that are developed by or for Cirrus Logic or any related intellectual property rights.


8.2. All of 3DO Rights with respect to the 3DEngine and/or any related intellectual property rights that are not specifically granted to Cirrus Logic are expressly reserved by 3DO. No license or rights with respect to the 3D Engine and/or any related intellectual property rights shall be implied by or inferred from this Agreement or the activities of the parties in furtherance of this Agreement.


8.3. Cirrus Logic shall own any modifications to the 3DEngine or 3DO Deliverable Items made by or for Cirrus Logic (except those made by 3DO), subject to 3DO's underlying ownership interests in


5 6 and to the 3DEngine and related intellectual property rights (and provided that, for purposes of clarification, Cirrus Logic acknowledges it has no rights to use or to otherwise exploit any modifications that include all or any portion of the 3DEngine, or that use or are subject to any related intellectual property rights, except as part of Products as expressly authorized by this Agreement). 3DO shall own any implementation or embodiment developed by 3DO based on an idea, invention or information developed by Cirrus Logic and disclosed or otherwise provided to 3DO hereunder, provided that either party may use or otherwise exploit (or sublicense the right to use or otherwise exploit) such idea, invention or information, whether or not patentable.


9. Scope of Agreement. This Agreement and the rights and obligations of the parties hereunder are limited to the 3DEngine, as specifically defined in Section 1.4, above, and the 3DO Deliverable Items set forth in Exhibit A, attached hereto. Nothing herein shall be construed as granting Cirrus Logic any rights with respect to, or requiring 3DO to offer to Cirrus Logic, any modification or addition to the current version of the 3DEngine, or any new version of the 3DEngine, except for modifications specifically included within the definition of "3DEngine."


10. License Fee. In partial consideration for 3DO's grant of the various licensed rights regarding the 3DEngine referenced hereinabove, and in addition to me NRE Expenses, Cirrus Logic shall pay 3DO the sum of $[CONFIDENTIAL TREATMENT REQUESTED] as a non-refundable, non-recoupable license fee (the "License Fee"). The License Fee shall be paid to 3DO in accordance with the following schedule: (i) $[CONFIDENTIAL TREATMENT REQUESTED] within fifteen (15) days following the Effective Date, or March 31, 1996, whichever is earlier, (ii) $[CONFIDENTIAL TREATMENT REQUESTED] no later that March 31, 1996, and (iii) $[CONFIDENTIAL TREATMENT REQUESTED] within ninety (90) days following the Effective Date, or June 1, 1996, whichever is earlier.


11. Pre-Paid Royalties. In partial consideration for 3DO's grant of the various licensed rights regarding the 3DEngine referenced hereinabove, and in addition to the License Fee and the NRE Expenses, Cirrus Logic shall pay 3DO the non-refundable sum of $[CONFIDENTIAL TREATMENT REQUESTED] (the "Advance"), which sum shall be recoupable by Cirrus Logic as an advance payment of the first royalties otherwise due and payable to 3DO pursuant to Section 12, below, with respect to Cirrus Logic's exercise of the licensed rights. The Advance shall be paid to 3DO in accordance with the following schedule: (i) $[CONFIDENTIAL TREATMENT REQUESTED] within fifteen (15) days following the Effective Date, or March 31, 1996, whichever is earlier, (ii) $[CONFIDENTIAL TREATMENT REQUESTED] no later that March 31, 1996, and (iii) $[CONFIDENTIAL TREATMENT REQUESTED] no later than June 30, 1996, and (iv) $[CONFIDENTIAL TREATMENT REQUESTED] within fifteen (15) days after the end of the Development Period.


12. Ongoing Royalties.


12.1. Cirrus Logic shall pay royalties to 3DO calculated as a percentage of the Net Revenues. The applicable royalty rates shall be as follows:


Months after First
Commercial Shipment Percentage of
(in volume production quantities) Net Revenues
--------------------------------- --------------
1-12 [CONFIDENTIAL
TREATMENT REQUESTED]%


13-24 [CONFIDENTIAL
TREATMENT REQUESTED]%


25 (and beyond) [CONFIDENTIAL
TREATMENT REQUESTED]%


In accordance with the foregoing formula, the parties contemplate, subject to the provisions of Section 13, below, that the applicable royalty rates for all Royalty Bearing Products shall decline annually (down to, but not below, [CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL TREATMENT


6 7 REQUESTED]%), except as otherwise expressly set forth in Section 12.3, below), commencing twelve (12) months after first commercial shipment of volume production quantities of such Royalty Bearing Product. As used herein, the term "volume production quantities" refers to the shipment to customers by or for Cirrus Logic of units of a Product that are not prototypes, engineering samples, or other such units that are not purchased in quantities for commercial resale.


12.2. All royalties due 3DO shall accrue upon recognition by Cirrus Logic or a Subsidiary of Net Revenues, regardless of the time of collection by Cirrus Logic or the Subsidiary. Cirrus Logic and its Subsidiaries will recognize Net Revenue in accordance with United States generally accepted accounting principles, consistently applied. No costs incurred in the manufacture, marketing, sale, distribution or exploitation of the Royalty Bearing Products, other than as expressly set forth herein, shall be deducted from any royalties payable to 3DO. If any Royalty Bearing Products are sold or otherwise distributed in an arrangement that is not an arm's-length merchant market transaction, and the price of the Royalty Bearing Products is less than the price in an average arm's-length merchant market transaction, the price in such an average arm's-length merchant market transaction shall be substituted therefor i
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