[ ] INDICATES TEXT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED, WHICH
NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
PURCHASE AGREEMENT
This PURCHASE AGREEMENT is made as of the 18th day of December, 1997, by
and between FAROUDJA LABORATORIES, INC., a California corporation with a
place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Buyer"), and
AUDIO VIDEO SOURCE, INC., a California corporation with a place of business
at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Seller").
WHEREAS, Buyer and Seller are parties to an agreement dated August 11,
1997 (the "Letter Agreement") pursuant to which Seller agreed to develop a
rear screen projection system exclusively for sale by Buyer; and
WHEREAS, the parties wish to enter into an agreement pursuant to which
Seller will supply to Buyer rear screen projection systems conforming to the
specifications set forth on APPENDIX A to this Agreement (the "Product") on
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereby agree as follows:
1. During the term of this Agreement, Buyer shall have the right to
purchase Products from Seller and Seller agrees to sell the Products to
Buyer on the terms and subject to the conditions set forth herein.
2. Subject to Seller's performance of its obligations under this
Agreement, Buyer agrees to purchase a minimum of [ ] units of the
Product. It is Buyer's present intention to purchase approximately [ ]
units per month during the 24-month period commencing on the date of
the first shipment of the production version of the Product. The
parties understand and agree that Buyer's stated intention does not
constitute a binding commitment.
3. Concurrently with the execution of this Agreement, Buyer will issue a
purchase order for [ ] units to be delivered in December 1997, [ ]
units to be delivered in January, 1998 and [ ] units to be
delivered in February 1998. The December order shall be firm, the
January order may be modified by 50% and the February order may be
changed by 100%, in Buyer's discretion. Thereafter, purchase orders
will be issued monthly for Products to be produced during the month
starting sixty days after the order date and delivered not more than
ninety days after the order date. At the beginning of each month,
Buyer will also furnish Seller with non-binding forecasts for its
requirements during the months starting 90, 120 and 150 days after the
order date.
4. The unit price for the Product is $[ ], FOB Seller's
production/warehouse facility. The price will not exceed this amount
until the earlier of (a) delivery of the first 1,000
units, or (b) twelve months from the first delivery of Products.
Within one month of the occurrence of the earlier of these events, and
annually thereafter, the parties agree to review pricing for the next
twelve months taking into consideration cost, volume and other relevant
factors.
5. Buyer will take steps that are reasonable, in Buyer's sole discretion,
to assist Seller in procuring high value items required for the
production of the Products. Such assistance may include the purchase
of high value components directly by Buyer or actions to support
Seller's credit. Seller agrees to advise Buyer of its need for
assistance at the earliest possible date and Buyer will consider and
act upon requests for assistance promptly, on a case by case basis.
6. To assist Seller in obtaining cabinets for the Products from Hitachi,
Buyer agrees to order such cabinets for units to be delivered by Seller
during 1997 directly from Hitachi. Seller agrees to purchase all
cabinets purchased by Buyer from Hitachi on a pass-through basis, i.e.
on the same terms as the Buyer purchases such units from Hitachi.
7. Buyer will supply Seller with Buyer's VP-250 chassis and remote
control, at Buyer's sole expense, for integration into the Product.
8. With each Product Seller will supply a remote control for the
projector, an operating manual for the projector and a shipping carton.
9. Seller warrants that all Products will be free from defects in design,
material and workmanship and conform to the Product specifications set
forth on Appendix A (the "Specifications"). Without limiting the
foregoing, the Products shall be tested and listed for compliance with
FCC (Type B) and DHHS. The warranty shall extend for 90 days from in
service date for Products used commercially and for the shorter of (a)
12 months from shipment to an end-user, or (b) 18 months from shipment
by Seller for all other Products. Seller will not be responsible for
defects due to improper use or modification. With respect to the
VP-250, Seller's warranty only relates to integration into the
Products. Claims from users including, but not limited to, fitness for
application, loss of use or other consequential damages are not covered
in any form by Seller.
10. Within 4 months from the date hereof the Products shall be tested and
listed for compliance with UL and CSA requirements. Seller will use
its best efforts to test and list the Products with CE and ▇▇▇▇▇
requirements within the same 4 month period. UL certification will be
obtained at no additional cost to Buyer. CSA, CE and ▇▇▇▇▇
certification will be obtained at the cost of the approval process plus
15%.
11. Seller's obligations with respect to supply of the Products shall
include the following:
a. Provide projection system conforming to the Specification.
b. Specify and oversee procurement, manufacture and delivery of
cabinets.
2
c. Provide and install mirrors and screens.
d. Install the projection system.
e. Align projectors to cabinets.
f. Install VP250.
g. Test components and Products in accordance with good industry
practices.
h. Develop and follow mutually agreed quality control measures.
12. Seller shall provide warranty and repair support for the Products.
Such obligation shall include, without limitation, the maintenance of a
supply of spare and replacement parts necessary to comply with legal
and regulatory support requirements and good industry practices.
Service will be provided only for units returned to Seller's production
facility, freight prepaid. Seller will return units repaired under
warranty, freight prepaid, provided, that Seller's responsibility for
shipping costs shall be limited to the cost of shipping the projector
chassis. If the defect rate for all units exceeds 10% from all causes,
or 5% from any one cause, Seller will be responsible for (a) the cost
of return shipment, or (b) the cost of one service call with respect to
the affected units, at Buyer's option. Seller reserves the right to
make reasonable charges for the time involved in servicing units found
not to be defective.
13. Seller shall provide customer support for the product including
maintenance of a separate phone line for Buyer inquiries or inquiries
referred by Buyer. Service literature accompanying the Products will
not identify Seller and will instruct customers to contact Buyer
directly. Buyer will not refer customer calls to Seller until it has
made reasonable efforts to resolve the customer issue internally.
Customer support shall be available from the hours of 8am to 6pm
Pacific Time. Seller shall supply Buyer with a complete set of service
and repair manuals and documentation.
14. Completed products will be stored in a separate, secured area of the
production facility. Seller will ship the Products to customer
locations in accordance with Buyer's instructions. Seller's fee for
storage and drop shipping shall be $100, which approximates Seller's
cost of providing such services.
15. Seller will invoice Buyer semi-monthly for all Product completed in
accordance with delivery schedules set forth in Buyer's purchase orders
and moved to the designated storage area, and weekly when units of the
Product are shipped directly to customers. Payment will be made net 30
days from the date of invoice. Title and risk of loss for Products
completed and moved to the designated storage area shall shift to Buyer
upon receipt of Seller's invoice. Buyer may offset amounts due from
Seller to Buyer for high value items purchased by Buyer to support
Seller's production efforts against amounts due from Buyer to Seller.
16. The parties agree that information exchanged between the parties
relating to this Agreement is confidential information and will be held
in confidence in accordance with the non-disclosure agreement between
the parties dated August 11, 1997. The parties also agree that the
contents and terms of this Agreement shall be confidential
3
16. and not disclosed to any third party unless disclosure is required by
law or government regulation.
17. Seller represents and warrants that it has all necessary rights,
approvals, authorizations and licenses for Seller to sell the Products
to Buyer and for Seller to use, lease, sell or otherwise transfer the
Products.
18. This Agreement shall have a term of 2 years from the date hereof and
shall be automatically extended in one year increments unless
terminated by Buyer with 30 days written notice to Seller.
19. A party may terminate this Agreement if the other party breaches any
provision of this Agreement and fails to cure such breach within 30
days written notice of such breach. Notwithstanding the foregoing,
repeated failure to deliver Products on schedule shall entitle Buyer to
terminate this Agreement even if delivery occurs within the 30 day cure
period.
20. A party shall not be liable to the other for any loss incurred due to
causes beyond the reasonable control of the party such as riots,
storms, fires, war, embargo, government boycott or other governmental
action, acts of God or unavailability of key components.
21. The failure to enforce any provision of this Agreement shall not be
construed as a waiver of such provision or of the right thereafter to
enforce the same, and no waiver of any breach shall be construed as an
agreement to waive any subsequent breach.
22. Seller may not assign (whether by operation of law or otherwise) any of
its rights or obligations under this Agreement without the prior
written consent of Buyer. Seller has advised Buyer of its intention to
form a separate manufacturing company to perform services of the type
undertaken in this Agreement. Seller may assign its rights under this
Agreement to such a company with the prior written consent of Buyer.
Buyer will not unreasonably withhold its consent to such an assignment
if Seller demonstrates to the satisfaction of Buyer that the assignment
will not result in a diminution of Buyer's rights under this Agreement.
23. Seller agrees that Seller is an independent contractor and not an agent
or employee of the Buyer and shall not hold itself out as a legal
representative, agent, joint venturer, partner or employee of the Buyer
for any purpose whatsoever. Seller has no right or authority to assume
or create any obligations of any kind on behalf of Buyer or to bind
Buyer in any respect.
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FAROUDJA LABORATORIES, INC. AUDIO VIDEO SOURCE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------- -----------------------------
Title: VP Business Development Title: President
& General Counsel
5
