-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N5ZThq0J3soGJVi16NsYJZRCq2Jh948flS0M3Gz5v1/lyxFEt73PKvzVSt3K4cIv d47K+nhN2KBLbCUV9m1Jzw== 0001095811-01-502172.txt : 20010515 0001095811-01-502172.hdr.sgml : 20010515 ACCESSION NUMBER: 0001095811-01-502172 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010510 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAY INC CENTRAL INDEX KEY: 0000949158 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 930962605 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26820 FILM NUMBER: 1632718 BUSINESS ADDRESS: STREET 1: 411 FIRST AVE SOUTH STREET 2: SUITE 600 CITY: SEATTLE STATE: WA ZIP: 98104-2860 BUSINESS PHONE: 2067012000 MAIL ADDRESS: STREET 1: 411 FIRST AVE SOUTH STREET 2: SUITE 600 CITY: SEATTLE STATE: WA ZIP: 98104-2860 FORMER COMPANY: FORMER CONFORMED NAME: TERA COMPUTER CO \WA\ DATE OF NAME CHANGE: 19950809 8-K 1 v72525e8-k.txt FORM 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 10, 2001 ------------------------------------------------------ CRAY INC. (Exact name of registrant as specified in its charter) ------------------------------------------------------ Washington 0-26820 93-0962605 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 (Address of principal executive offices) Registrant's telephone number, including area code: (206) 701-2000 Registrant's facsimile number, including area code: (206) 701-2500 2 Item 5. Other Events. On May 10, 2001, Cray Inc. ("Cray") closed its transaction with NEC Corporation ("NEC") in which NEC appointed Cray as a distributor and NEC made an investment in Cray. Upon the closing, Cray became the exclusive distributor in North America for NEC present and future vector supercomputers, and, subject to applicable law, a non-exclusive distributor of those products in the rest of the world, including Japan but excluding certain customers in France. The distribution agreement has a term continuing until March 31, 2011, subject to provisions permitting early termination. The parties also agreed that Cray will perform installation and support services for all hardware and software to NEC's current customers in North America, subject to each customer's consent, and to those customers who acquire NEC vector supercomputers through Cray. The parties further agreed that Cray will absorb the operations of NEC's North American marketing arm, HNSX Supercomputers Inc. HNSX was founded in 1986 to market and support NEC high performance computers in North America. HNSX is headquartered in Littleton, Massachusetts, with marketing, support, performance and customer service centers in The Woodlands, Texas; and Montreal, Quebec, Canada, and with sales locations in the United States and Canada. HNSX supports North American customers involved in weather forecasting/climate modeling, seismic processing and product engineering, as well as basic and applied research. Cray plans to market the NEC vector supercomputers worldwide alongside its current Cray SV1(TM) series and future Cray SV2(TM) series vector systems. Cray believes that the NEC agreement will increase its revenues by providing a full spectrum of current and future vector products for customers to choose from. The transaction does not provide for any technology transfer between Cray and NEC. As part of the closing, NEC purchased from Cray 3,125,000 shares of Series A Convertible Preferred Stock ("Series A Stock") for $8.00 per share, or a total price of $25 million in cash, prior to fees and expenses estimated at approximately $65,000. Cray expects to use the net proceeds of the stock sale for working capital and other general corporate purposes. The Series A Stock accrues a cumulative dividend at the rate of 2% per annum, payable when, as and if declared by the Board of Directors. The dividend is payable in cash, except that upon the conversion of Series A Stock into common stock, the dividend is payable in shares of common stock. The Series A Stock has a liquidation preference equal to $8.00 per share of Series A Stock, plus any accrued but unpaid dividends. In the event of a liquidation of Cray, the holders of the Series A Stock would be entitled to receive in cash the liquidation preference in full before any proceeds of the liquidation were paid to the holders of common stock. In the event of a sale by Cray of substantially all of its assets or an acquisition of Cray in which holders of voting stock prior to the acquisition own less than 50% of the voting power of the surviving entity after the acquisition (a "Sale Transaction"), the holders of Series A Stock may elect to receive the liquidation preference, and in that event the liquidation preference would be paid in the kind of consideration paid to holders of common stock in the Sale Transaction. 3 The Series A Stock is not convertible into common stock unless the Series A Stock is sold or in the event of a Sale Transaction. NEC has agreed not to sell the Series A Stock until two years after the closing date, unless the distribution agreement is sooner terminated. Any shares of Series A Stock that are sold by NEC or its affiliates automatically convert into common stock. In the event of a Sale Transaction, if the holders of Series A Stock do not elect to receive the liquidation preference, the holders of Series A Stock receive the same consideration as if the Series A Stock had converted into common stock. The conversion price is $8.00 per share, subject to anti-dilution adjustments, and therefore the Series A Stock is initially convertible in full into 3,125,000 shares of common stock. Cray has agreed, after the Series A Stock can be sold, to register the underlying common stock with the Securities and Exchange Commission for resale upon the request of NEC. Neither Cray nor the holders of Series A Stock have any redemption rights with respect to the Series A Stock. The holders of Series A Stock do not have any voting rights, except on matters that would adversely affect the Series A Stock, authorize additional shares of Series A Stock, authorize any equity securities senior to the Series A Stock, or as otherwise required by law. The sale of the Series A Stock to NEC was exempt from the registration provisions of the Securities Act, under Sections 4(2) and 4(6) of the Securities Act, and the rules and regulations thereunder, because of the nature of the investor and the manner in which the offering was conducted. Item 7. Financial Statements and Exhibits. (c) Exhibits 3.1 Restated Articles of Incorporation of Cray Inc.(1) 3.2 Articles of Amendment Containing the Statement of Rights and Preferences of the Series A Convertible Preferred Stock of Cray Inc. 10.1 Distribution Agreement between NEC Corporation and Cray Inc., dated as of February 28, 2001.(2) 10.2 Sales and Marketing Services Agreement among NEC Corporation, HNSX Supercomputers, Inc. and Cray Inc., dated as of February 28, 2001.(2) 10.3 Maintenance Agreement between NEC Corporation and Cray Inc., dated as of February 28, 2001.(2)
- ----------------------- (1) Incorporated by reference to exhibit 3.1 of the report on Form 10-Q filed by Cray on August 14, 2000. (2) Subject to confidential treatment. The omitted confidential information has been filed separately with the Securities and Exchange Commission. SIGNATURES 4 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CRAY INC. By: /s/ KENNETH W. JOHNSON --------------------------------- Kenneth W. Johnson Vice President - Finance May 14, 2001 EX-3.2 2 v72525ex3-2.txt EXHIBIT 3.2 1 Exhibit 3.2 ARTICLES OF AMENDMENT CONTAINING THE STATEMENT OF RIGHTS AND PREFERENCES OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF CRAY INC. These Articles of Amendment containing the Statement of Rights and Preferences of the Series A Convertible Preferred Stock of Cray Inc., a Washington corporation (the "Corporation"), are herein executed by the Corporation, pursuant to the provisions of RCW 23B.06.020, as follows: 1. The name of the Corporation is Cray Inc. 2. The text of the amendment determining the terms of the Series A Convertible Preferred Stock of the Corporation is attached as Exhibit A which is incorporated herein by this reference. 3. The date of the adoption of the amendment by the Board of Directors was February 27, 2001. 4. The amendment was duly adopted by the Board of Directors of the Corporation. IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment in duplicate and in an official and authorized capacity under penalty of perjury this 4th day of May, 2001. CRAY INC. By: /s/ Kenneth W. Johnson ------------------------------------ Kenneth W. Johnson Its Vice President - Finance and Chief Financial Officer 2 EXHIBIT A CRAY INC. 3,125,000 Shares Series A Convertible Preferred Stock, $.01 Par Value Stated Value $8.00 Per Share Statement of Rights and Preferences Series A Convertible Preferred Stock. The rights, preferences, privileges, and limitations granted to and imposed on the Series A Convertible Preferred Stock (the "Series A Stock") of Cray Inc. (the "Corporation"), which series shall consist of 3,125,000 shares, are as set forth below. Subject to the terms of the Series A Stock set forth herein, the following rights, preferences, privileges, and limitations are subject to the designation, description, and terms of one or more subsequent series of Preferred Stock by the Board of Directors of the Corporation (the "Board of Directors"), pursuant to authority granted by the Restated Articles of Incorporation. Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Convertible Preferred Stock" and the authorized number of shares of such series shall be 3,125,000. Section 2. Dividends and Distributions. (a) Dividends on the Series A Stock shall be cumulative and shall cumulate and accrue at the rate of $0.16 per share of Series A Stock per annum from the Issuance Date without interest and shall be payable when, as and if declared by the Board of Directors out of funds legally available for such purpose. In the event of any calculation of accrued dividends as of a date other than any anniversary of the Issuance Date, such calculation shall be based on a 360-day year consisting of twelve 30-day months. Dividends on the Series A Stock shall be paid in cash, except in the case of dividends payable upon conversion of the Series A Stock. Upon conversion of any shares of the Series A Stock pursuant to Section 5, all accrued and unpaid dividends (whether or not declared), if any, on such converted shares shall be paid in shares of common stock of the Corporation, $.01 par value ("Common Stock"), and such Common Stock shall be valued at its Market Price as of the date of such conversion. (b) Any cash dividends or distributions of cash or other property (other than shares of Common Stock) payable with respect to the Common Stock when, as and if declared by the Board of Directors, will be paid on the outstanding shares of Series A Stock, pari passu with the Common Stock as if all shares of outstanding Series A Stock had been converted into Common Stock as provided herein on the record date for determination of shares eligible for such dividend or distribution. -1- 3 Section 3. Liquidation Preference. (a) Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (any of the foregoing, a "Liquidation Event"), the holders of the outstanding shares of Series A Stock, subject to the rights of any holders of securities senior to or pari passu with the Series A Stock with respect to the distribution of assets upon a Liquidation Event, shall be entitled for each share of Series A Stock held, before any distribution or payment is made upon any Common Stock or any other security subordinated to the Series A Stock with respect to the distribution of assets upon a Liquidation Event (the "Junior Stock"), to be paid an amount equal to $8.00 (the "Stated Value"), plus an amount equal to all accrued and unpaid dividends thereon (whether or not declared), such amounts referred to herein collectively as the "Liquidation Preference Payment." Upon any Liquidation Event, after the holders of the Series A Stock shall have been paid in full the amounts to which they are entitled, the remaining net assets of the Corporation may be distributed to the holders of Junior Stock. Upon a Liquidation Event the Liquidation Preference Payment shall be paid to the holders of Series A Stock in cash, and not in specific assets of the Corporation (other than cash); provided, that in the event of a Sale Transaction deemed to be a Liquidation Event pursuant to Section 3(d), the Liquidation Preference Payment shall be paid in accordance with Section 3(d). (b) If upon any Liquidation Event, the assets to be distributed among the holders of Series A Stock of the Corporation shall be insufficient to permit payment of the Liquidation Preference Payment to the holders of Series A Stock and holders of securities pari passu with the Series A Stock with respect to distribution of assets upon a Liquidation Event, then, subject to the rights of any holders of securities senior to the Series A Stock, the entire assets of the Corporation legally permitted to be distributed shall be distributed pro rata among the holders of Series A Stock and any securities which are pari passu with the Series A Stock with respect to the distribution of assets upon a Liquidation Event. (c) Written notice of a Liquidation Event, the amount of the Liquidation Preference Payment, and the place where said sums will be payable shall be given by mail, postage prepaid, not less than ten (10) days prior to the payment date stated therein, to the holders of record of the Series A Stock at their respective mailing addresses as shown by the records of the Corporation. (d) A Sale Transaction may be treated as a Liquidation Event at the option of the holders of a majority of the Series A Stock, in which case the Liquidation Preference Payment shall be paid to the holders of Series A Stock in the kind of consideration received by holders of Common Stock in connection with such Sale Transaction. Any securities to be delivered to the holders of shares of Series A Stock pursuant to this Section 3(d) shall be valued at: (i) the value established for such securities in the Sale Transaction, if such value is established in the Sale Transaction, or (ii) if such value is not established in the Sale Transaction, the Market Price of such securities as of the business day immediately prior to the date of consummation of the Sale Transaction. To exercise their option under this Section 3(d), the holders of a -2- 4 majority of the shares of Series A Stock must provide the Corporation written notice of such exercise on or before the later of (i) the twentieth day before the consummation of the Sale Transaction, and (ii) the tenth day following their receipt of the Sale Notice (as defined in Section 5(d)(ix)). Section 4. Redemption. Neither the Corporation nor the holders of the Series A Stock shall have redemption rights with respect to the Series A Stock. Section 5. Conversion. (a) No Voluntary Conversion. The shares of Series A Stock may not be converted into Common Stock at the option of the Corporation or at the option of the holders of the Series A Stock. (b) Automatic Conversion Upon a Sale Transaction. In the event the holders of the Series A Stock do not elect to receive the payments contemplated by Section 3(d), then upon the consummation of a Sale Transaction, each share of Series A Stock shall automatically convert into the right to receive the kind and amount of shares of stock or other securities, property or cash receivable upon such Sale Transaction by a holder of the number of shares of Common Stock as is equal to the Stated Value divided by the Conversion Price then in effect. Such amount shall be in addition to all accrued and unpaid dividends payable in accordance with Section 2(a). The Corporation shall make provision for the foregoing in the agreement, if any, relating to the Sale Transaction. (c) Automatic Conversion Upon a Stock Sale. Each share of Series A Stock shall automatically convert into Common Stock (i) upon any sale or other transfer of such share to any person or entity which is not a Purchaser Affiliate, or (ii) immediately prior to any proposed sale or other transfer, pursuant to Rule 144 under the Securities Act (or any successor to such rule) or a public offering registered under the Securities Act, of the shares of Common Stock issuable upon the conversion of Series A Stock in accordance with the next sentence (each of the foregoing, a "Stock Sale"). The shares of Series A Stock converted upon a Stock Sale shall convert into such number of validly issued, fully paid, and nonassessable whole number of shares of Common Stock equal to the number of shares of Series A Stock to be converted multiplied by the Stated Value and divided by the Conversion Price then in effect. Such amount shall be in addition to all accrued and unpaid dividends payable in accordance with Section 2(a). (d) Adjustment of Conversion Price. The Conversion Price shall initially be the Stated Value and be subject to adjustment from time to time as follows: (i) Adjustment for Stock Splits and Combinations. If the Corporation, at any time or from time to time after the Issuance Date, shall effect a subdivision or split of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision or split shall be proportionately -3- 5 decreased. Conversely, if the Corporation at any time or from time to time after the Issuance Date shall combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (i) shall become effective at the close of business on the date the subdivision, split or combination becomes effective. (ii) Adjustment for Certain Dividends and Distributions. If the Corporation at any time or from time to time after the Issuance Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event (other than any such dividends or other distributions which are paid to the holders of Series A Stock pursuant to the last sentence of Section 2(a)), the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for such Series A Stock then in effect by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or other distribution; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such other distribution is not fully made on the date fixed therefor, the Conversion Price for such Series A Stock shall be recalculated accordingly as of the close of business on such record date, and thereafter the Conversion Price for Series A Stock shall be adjusted pursuant to this subsection (ii) as of the time of actual payment of such dividend or other distribution. (iii) Adjustment for Reclassification, Exchange or Substitution. In case of any capital reorganization or reclassification or other change of outstanding shares of Common Stock (other than a change to which subsection (d)(i) or (d)(ii) applies, and other than a change in par value, or from par value to no par value, or from no par value to par value), or in case of any consolidation or merger of the Corporation with or into another entity (other than a Sale Transaction or a consolidation or merger in which the Corporation is the resulting or surviving entity and which does not result in any such reclassification or other change of outstanding Common Stock) (any of the foregoing, a "Transaction"), the Corporation, or such successor or purchasing entity, as the case may be, shall execute and deliver to each holder of Series A Stock a certificate that the holder of each share of Series A Stock then outstanding shall have the right thereafter to -4- 6 convert such share of Series A Stock into the kind and amount of shares of stock or other securities (of the Corporation or another issuer) or property or cash receivable upon such Transaction by a holder of the number of shares of Common Stock into which such share of Series A Stock could have been converted immediately prior to such Transaction. Such certificate shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this subsection (d). The provisions of this subsection (d)(iii) and any equivalent thereof in any such certificate similarly shall apply to successive Transactions. (iv) Adjustment of Conversion Price upon Issuance of Common Stock. Except as otherwise provided herein, if and whenever after the Issuance Date, the Corporation issues or sells, or in accordance with subsection (d)(v) is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than eighty-five percent (85%) of the Market Price of the Common Stock at the date of issuance (a "Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the Conversion Price will be adjusted in accordance with the following formula: C' = (C) (O + P/M)/(CSDO) where: C' = the adjusted Conversion Price C = the then effective Conversion Price; M = the Market Price; O = the number of shares of Common Stock outstanding immediately prior to the Dilutive Issuance; P = the aggregate consideration, calculated as set forth in subsection (d)(v), received by the Corporation upon such Dilutive Issuance; and CSDO = the total number of shares of Common Stock outstanding immediately after the Dilutive Issuance, plus any additional shares of Common Stock deemed outstanding as a result of the Dilutive Issuance, determined pursuant to subsection (d)(v). (v) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under subsection (d)(iv), the following will be applicable: (A) Issuance of Rights or Options. If the Corporation in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to -5- 7 purchase Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Market Price on the date of issuance ("Below Market Options"), then the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable) will, as of the date of the issuance or grant of such Below Market Options, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of the preceding sentence, the price per share for which Common Stock is issuable upon the exercise of such Below Market Options shall be determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or granting of such Below Market Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of all such Below Market Options, plus, in the case of Convertible Securities issuable upon the exercise of such Below Market Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Below Market Options or upon the exercise, conversion or exchange of Convertible Securities issuable upon exercise of such Below Market Options, except as otherwise provided in subsections (C) and (D) hereof. (B) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon the exercise, conversion or exchange of such Convertible Securities is less than the Market Price on the date of issuance, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Corporation for such price per share. For purposes of the preceding sentence, the price per share for which Common Stock is issuable upon such exercise, conversion or exchange shall be determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, -6- 8 convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuances of such Common Stock upon exercise, conversion or exchange of such Convertible Securities, except as otherwise provided in subsections (C) and (D) hereof. (C) Change in Option Price or Conversion Rate. If there is a change at any time in (i) the amount of additional consideration, if any, payable to the Corporation upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Corporation upon the exercise, conversion or exchange or any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such change will be readjusted to the Conversion Price which would have been in effect at such time had any such Options or Convertible Securities that are still outstanding provided for such changed additional consideration or changed rate, as the case may be, at the time initially granted, issued or sold. (D) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Options or upon exercise, conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Options or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Conversion Price then in effect will be readjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Options or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been granted, issued or sold. (E) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of the calculation in subsection (d)(iv) will be the gross amount of cash received by the Corporation therefor plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise, conversion or exchange of all such Options or Convertible Securities at the time such Options or Convertible Securities first become exercisable, convertible or exchangeable. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Corporation will be the fair market value of such consideration except where such consideration -7- 9 consists of freely-tradeable securities, in which case the amount of consideration received by the Corporation will be the Market Price of such freely-tradeable securities as of the date of receipt (without regard to the ten (10) day trailing average specified in the definition of Market Price). In case any Common Stock, Options or Convertible Securities are issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash or freely-tradeable securities will be determined by the Board of Directors in the exercise of their fiduciary duties. (vi) Other Changes. In case the Corporation at any time or from time to time, prior to the conversion of shares of Series A Stock, shall take any action affecting its Common Stock similar to or having an effect similar to any of the actions described in any of subsections (d)(i) through (v), (but not including any action described in any such subsection) and the Board of Directors in good faith determines that it would be equitable in the circumstances to adjust the Conversion Price as a result of such action, then, and in each such case, the Conversion Price shall be adjusted in such manner and at such time as the Board of Directors in good faith determines would be equitable in the circumstances. (vii) Exceptions to Adjustment of Conversion Price. No adjustment to the Conversion Price pursuant to this subsection (d) will be made: (A) upon the exercise of any warrants, options or convertible securities issued and outstanding as of the Issuance Date in accordance with the terms of such securities as of such date; (B) upon issuance, grant or exercise of shares, warrants, options or convertible securities to employees, consultants or directors of the Corporation in accordance with plans approved by the Board of Directors; or (C) upon the issuance of shares or other securities of the Corporation pursuant to an agreement or other written obligation entered into prior to the Issuance Date. No adjustment to the Conversion Price will be made pursuant to subsection d(iv) upon an issuance, sale or deemed issuance of Common Stock that is not a Dilutive Issuance. (viii) Adjustment Notice. Whenever the Conversion Price must be adjusted as provided in this subsection (d), the Corporation promptly shall file, at the office of the Secretary of the Corporation and any transfer agent for the Series A Stock, a statement, signed by its President or any Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment. The Corporation shall also cause a copy of such statement to be sent by mail to each holder of shares of Series A Stock at each such holder's address appearing on the Corporation's records. Where appropriate, such copy may be given in advance and may be included as -8- 10 part of a notice required to be mailed under the provisions of subsection (d)(ix) below. (ix) Notice of Certain Actions. In the event the Corporation shall propose to take any action of the types described in subsections (d)(i) through (d)(vi) or enter into an agreement for a Sale Transaction, the Corporation shall give notice to each holder of shares of Series A Stock, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of shares of Series A Stock. Such notice shall be given at least ten (10) days prior to the taking of such proposed action or, in the case of a Sale Transaction, at least twenty (20) days prior to the consummation of the Sale Transaction (such notice with respect to a Sale Transaction being a "Sale Notice"). Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. (x) No Fractional Shares or Adjustments. No fractional shares of Common Stock shall be issued upon conversion of any Series A Stock, but in lieu of fractional shares the Corporation shall pay an amount in cash equal to the Market Price of such fractional share of Common Stock as of the conversion date (without regard to the ten (10) day trailing average specified in the definition of Market Price). No adjustment in the Conversion Price shall be made if such adjustment would result in a change of less than one cent ($0.01) thereto. Any adjustment of less than one cent ($0.01) that is not made shall be carried forward and made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of one cent ($0.01) or more in the Conversion Price, but in any event all such adjustments shall be made upon a conversion of the Series A Stock. (xi) Reserved Shares. As long as any of the Series A Stock remains outstanding, the Corporation shall take all steps necessary to reserve and keep available a number of its authorized but unissued shares of Common Stock sufficient for issuance upon conversion of all such outstanding shares of Series A Stock. Section 6. Voting Rights. The affirmative vote or written consent of the holders of a majority of the outstanding shares of the Series A Stock, voting or consenting separately as a class, shall be required for (i) any amendment, modification or restatement of the Corporation's Restated Articles of Incorporation that adversely affects the rights, preferences or privileges of the Series A Stock, or (ii) the authorization or issuance of any additional shares of Series A Stock, or preferred stock or other equity securities which preferred -9- 11 stock or other equity securities are senior to the Series A Stock upon a Liquidation Event or Sale Transaction; provided, however, that any increase in the authorized number of shares of preferred stock of the Corporation or the creation and issuance of any stock which is pari passu with or subordinated to the Series A Stock with respect to the distribution of assets upon a Liquidation Event or Sale Transaction shall be deemed not to adversely affect such rights, preferences or privileges and any such increase or creation and issuance may be made without any such vote or consent by the holders of Series A Stock. Except as otherwise required by law or expressly provided herein, shares of Series A Stock shall not be entitled to vote on any matter. Section 7. Amendment Upon Conversion of Outstanding Shares. When, as a result of the conversion of the Series A Stock or otherwise, no shares of Series A Stock remain outstanding, the Board of Directors may, at its discretion and without a vote of the shareholders of the Corporation, withdraw this designation in its entirety by providing for the filing of an applicable amendment or restatement of the Corporation's Restated Articles of Incorporation, and the Series A Stock designated hereby shall thereby return to the status of authorized but unissued and undesignated shares of preferred stock of the Corporation. Section 8. Definitions. As used herein, "Issuance Date" means the first date of original issuance of any shares of Series A Stock. As used herein, "Market Price" equals as of any date with respect to any security, including the Common Stock, (i) if such security is listed on a securities exchange or market, the average of the closing prices for such security as reported by such exchange or market for the ten (10) trading days immediately preceding such date, or (ii) if traded on the over-the-counter market, the average closing bid and asked prices of such security for the ten (10) trading days immediately preceding such date as shown by the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System and reported by any member firm of the New York Stock Exchange selected by the Corporation, or (iii) if market value cannot be calculated as of such date on either of the foregoing bases, the Market Price shall be the fair market value as determined by the Board of Directors in the exercise of their fiduciary duties. As used herein, the "Purchaser" means the entity to which shares of Series A Stock are issued on the Issuance Date. As used herein, a "Purchaser Affiliate" means any individual, corporation, partnership or other entity of any kind which, directly or indirectly, controls or is controlled by the Purchaser, or is under common control with the Purchaser. For the purpose of this definition, "control" with respect to any person means possession, directly or indirectly, of the power to direct the management and policies of such person whether through the ownership of voting securities, by contract or otherwise. -10- 12 As used herein, a "Sale Transaction" means any sale or other disposition by the Corporation of all or substantially all of its assets or the acquisition of the Corporation by another entity by stock purchase, consolidation, merger or other reorganization in which the holders of the Corporation's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the entity surviving. -11- EX-10.1 3 v72525ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 DISTRIBUTION AGREEMENT This Agreement is entered into as of February 28, 2001, between NEC Corporation, a Japanese corporation with its principal place of business at 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan ("NEC"), and Cray Inc., a Washington corporation with its principal place of business at 411 First Avenue South, Suite 600, Seattle, WA 98104-2860, U.S.A. ("Cray"). RECITALS: A. NEC is in the business of manufacturing and selling high-performance vector supercomputers. Cray has expertise and capabilities for the distribution of such computers. B. NEC desires to appoint Cray as its exclusive North American distributor for NEC's vector supercomputers, as described more particularly in Section 3, and the software, component parts, and spare parts associated with such vector supercomputers, and as a non-exclusive distributor of the Products elsewhere in the world, and Cray is willing to be such distributor, all in accordance with the terms and conditions of this Agreement. C. Concurrently with this Agreement, the parties are entering into a Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") and certain other related agreements (collectively the "Other Agreements"). Except as otherwise defined in this Agreement, all capitalized terms shall have the meanings assigned to them in the Stock Purchase Agreement. Now, therefore, in consideration of the premises and covenants contained herein, the parties agree as follows: 1. Term. The initial term of this Agreement (the "Term") shall be conditioned upon and commence upon the closing under the Stock Purchase Agreement, and continue through March 31, 2011. Within ninety (90) days after the fifth anniversary of this Agreement, the parties shall, at the request of either party, meet to review the performance of the parties with regard to their obligations hereunder. If, pursuant to such meeting, it is found that either party has materially breached its obligations hereunder, the other party may terminate this Agreement upon thirty (30) days prior written notice to the breaching party. If neither party gives the other such notice of termination, this Agreement shall continue in effect for the Term; provided, however, that the Term shall be subject to early termination as provided in Sections 9, 14 and 19.11. 2. Products. As used herein, the term "Products" means (i) NEC vector supercomputers, present and future, including the SX-5, the SX-5X, and any other NEC supercomputers using vector processors, including spare parts, and (ii) their software products. The Products shall be specified in the product list to be separately provided by NEC from time to time. Nothing herein shall be construed 2 as obligating NEC to continue development of vector supercomputers beyond SX-5X. NEC reserves the right to discontinue supplying all or some of the Products at its option and at any time during the Term, provided that (i) NEC discontinues all sales of such Product in all countries, (ii) notwithstanding that a final decision on discontinuance has not been made, NEC gives Cray NEC's informal plan with respect to the expected date of discontinuance promptly after NEC believes that (A) all or some of the Products are likely to be discontinued, or (B) the date or any other material provision of any prior notice of discontinuance has changed, and (iii) NEC gives at least three (3) months prior notice to Cray of the date on which NEC will no longer accept purchase orders for such Products. The discontinuance of a Product shall not excuse NEC's obligation to fill accepted orders. 3. Territory/Exclusivity. Subject to the terms and conditions of this Agreement, NEC hereby grants Cray and Cray hereby accepts (i) the exclusive right to sell and distribute the Products in the United States, Canada and Mexico (together, the "Exclusive Territory") and (ii) to the extent permissible under EU and other applicable antitrust laws and regulations (as confirmed by opinions or other legal advice of qualified counsel to the respective parties) the non-exclusive right to sell and distribute the Products in the rest of the world (the "Non-Exclusive Territory" and together with the Exclusive Territory the "Territory"). In the event that the parties are unable to confirm that distribution in a particular territory is permissible under such laws and regulations, the parties will discuss in good faith the feasibility of amending this Agreement as it relates to such territory to the minimum extent necessary so that the grant of non-exclusive rights is permissible under such laws and regulations. Cray's non-exclusive distribution rights in the Non-Exclusive Territory are subject to NEC's existing exclusive distributor agreements, which are listed in the attached Exhibit A. During the Term, NEC will not without Cray's consent (i) sell Products knowingly (directly or indirectly) into the Exclusive Territory, (ii) appoint any other distributor of the Products for the Exclusive Territory, or (iii) sell the Products to any reseller that it knows is selling the Products for installation in the Exclusive Territory. During the Term, Cray will not sell vector supercomputers manufactured by any party unrelated to Cray or NEC. A vector supercomputer is any computer with a vector hardware unit as an integral part of its central processing unit boards. 4. Pricing. 4.1 Determination of Prices. NEC will sell the Products (excluding spare parts, the purchase prices for which are provided for in Section 2.2.4 of Schedule A of the Maintenance Agreement) to Cray at *% of the List - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 2 3 Prices for SX-5 computers and *% of the List Prices for SX-5X computers and Products released by NEC following the commencement of the Term. For this purpose the term "List Prices" refers to NEC's standard international list prices for the Products (which prices shall be the same for all countries, except Japan), as published from time to time (such publication, the "Price List"). NEC reserves the right to change any List Price at any time upon not less than thirty (30) days prior notice. Cray will have the exclusive right to control prices to its customers. NEC shall consider in good faith on a case-by-case basis any request by Cray to lower prices to Cray for special competitive situations; provided, that the final determination to lower prices shall be within NEC's sole discretion. In connection with any such request, Cray shall provide NEC with reasonably detailed information regarding the special situation. All transfer prices of the Products are CIP at Cray's designated port/airport in the Territory, provided, however, that NEC shall pay all export and shipping costs. "CIP" means "Carriage And Insurance Paid To" as defined in INCOTERMS 2000. 4.2 Most Favored Nation. The Marketing Coordination Board created pursuant to the Sales and Marketing Services Agreement shall meet twice during each year of the Term to discuss whether during the preceding twelve months the parties have achieved the objective that *. In the event that the parties agree that this objective has not been achieved, then the parties shall discuss what adjustments, if any, to the transfer prices set forth in Section 4.1 are appropriate. 4.3 RPQ. In the event that Cray receives a request from a customer or prospective customer for a special, nonstandard feature or capability of the Products supplied by Cray, and Cray determines that there is no reasonable alternative method of satisfying the request for such feature or capability without requesting that NEC modify the Product, and NEC agrees to such determination, Cray may submit to NEC a Request for Price Quotation ("RPQ") that NEC modify such Product. Provided that the Product in question is designed and manufactured by NEC, and has not been subsequently modified other than by NEC, NEC shall negotiate such RPQ in good faith with Cray and shall, if mutual agreement is reached as to terms and conditions, including reasonable charges for such RPQ, use its reasonable efforts to modify the Product in the manner requested by Cray. Cray shall also pay NEC's reasonable charges for consulting with Cray with respect to a proposed RPQ. Notwithstanding the foregoing, if the requested feature or capability is, in NEC's judgment, commonly applied to the Products for NEC customers, NEC will bear the cost. - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 3 4 4.4 Improvement and Enhancement. In the event Cray requests of NEC any improvements or modifications of the software products included in the Products or listed in NEC's Price List (the "Software Products"), NEC shall discuss with Cray in good faith the technical possibility of such requested improvements or modifications and, if they are technically possible, NEC and Cray shall further discuss in good faith (i) the specifications of such requested improvements or modifications, (ii) the possible time schedule of delivery of Software Products which include such requested improvements or modifications and (iii) the costs to be borne by Cray for such requested improvements or modifications. In the event that NEC produces Software Products with improvements or modifications, NEC shall not be obligated to furnish Software Products which include all accumulated improvements and modifications more frequently than twice a year. 5. Title; Delivery. Title to and risk of loss or damage to the Products ordered by Cray shall pass to Cray upon NEC's delivery of the Products to the carrier in Japan (the "Delivery"). Unless otherwise agreed upon between the parties, NEC shall pack the Products in accordance with NEC's standard overseas packing. 6. Forecasts; Orders; Shipment. 6.1 Forecast. On or before 5th business day of each month during the Term, Cray shall provide NEC with an eighteen (18) month rolling forecast which will state the number of the Products by model number and system configuration of which Cray reasonably forecasts it will request delivery. Such forecasts shall not constitute a firm order to purchase by Cray nor a firm commitment to sell by NEC. Cray shall use commercially reasonable efforts to provide NEC with accurate forecasts. Commitment to sell a particular Product shall arise only upon the acceptance by NEC of Cray's purchase order for such Product (such purchase order and acceptance, a "Contract"). 6.2 Orders. Cray shall make purchases by submitting firm purchase orders to NEC in such form and manner as NEC may reasonably request, provided, that the terms of such form comply with the terms of this Agreement, and NEC will promptly accept or reject such purchase orders. NEC shall accept such purchase orders with a requested delivery date at least six (6) months after the date of NEC's receipt of such purchase orders. Each purchase order that NEC is obligated to accept pursuant to the foregoing sentence is a "Standard Purchase Order." NEC may, at its sole discretion, accept purchase orders with an delivery date six (6) months or less from the date of NEC's receipt of such purchase orders. If a shortage of production capacity due to prior pending contracts will prevent NEC from delivering a Product by the delivery date requested in a Standard Purchase Order, then: (i) NEC shall promptly notify Cray that NEC will not be able 4 5 to meet the requested delivery date and provide Cray with a list of available delivery dates and (ii) the Standard Purchase Order shall become a Contract upon Cray's notice to NEC of Cray's acceptance of an available delivery date. If none of the available delivery dates provided by NEC are satisfactory to Cray or Cray's customer, Cray and NEC shall attempt to agree on an acceptable date. Cray's minimum order obligations pursuant to Section 9 shall be reduced by the amount of any Firm Orders (as defined in Section 9.1) lost due to NEC's inability to deliver Products by the requested delivery date in a Standard Purchase Order. The terms and conditions of this Agreement shall prevail over any inconsistent terms of sale in any Contract, unless such inconsistency is agreed to in a writing signed by both parties expressly stating that it is a deviation from this Agreement. Unless otherwise expressly agreed upon between the parties in writing, once accepted by NEC, a Contract will be binding upon the parties. 6.3 Shipment. NEC shall deliver the ordered Products to Cray in accordance with the relevant Contract and this Agreement. If NEC is unable to meet the requested delivery date specified in any Contract, the parties will promptly establish a date mutually acceptable to the parties; provided, however, that NEC shall deliver such Products to Cray as quickly as reasonably possible. Shipment will be by air freight from Japan to locations within the Territory reasonably specified by Cray. 6.4 Approvals. Export licenses and other legally required approvals for the Products shipped by NEC hereunder shall be the responsibility of NEC, and import licenses and other legally required import approvals shall be the responsibility of Cray (all such licenses and approvals, the "Approvals"). Each party shall use commercially reasonable efforts to promptly obtain the Approvals for which it is responsible, and NEC shall not be required to ship any Product until its receipt of all required Approvals. If shipment of the Products is delayed due to delays in granting or securing Approvals (other than by reason of a breach of the foregoing sentence), then the parties will seek to establish a mutually agreeable alternate date of shipment without penalty by reason thereof. 6.5 Restrictions on Use of Products. Cray agrees that the Products supplied hereunder shall not be used, sold and/or otherwise disposed for the development and/or manufacture of weapons of mass destruction, or for use in or as any other type of weapons. Should the Products be used for the development and/or manufacturing of weapons of mass destruction or for use in or as any other type of weapons, NEC shall have the right to immediately terminate the relevant Contract, disclaiming all liability on the part of NEC, and Cray shall indemnify NEC for all damages and losses of any nature caused by or arising out of Cray's breach of this Section 6.5. In connection with Cray's distribution of Products to its customers 5 6 hereunder, Cray shall first obtain from such customers a written contract with a provision having the same kind of disclaimer and indemnification as in this Section 6.5. 7. Acceptance. Prior to Delivery, NEC will test the Products for conformance to their respective specifications in accordance with its standard test procedures, certify all Products which pass as having passed such tests, and supply appropriate test details and results to Cray along with the Products. Cray may perform confirmation tests using NEC test procedures at Cray's or Cray's customer's site. Upon request, NEC will cooperate reasonably with Cray for such tests. 8. Payment. The purchase price for the Products will be paid in United States dollars within sixty (60) days following the Delivery by means of document against acceptance ("D/A"). Amounts not paid when due will bear a late payment charge of 1.5% percent per month or the maximum legal rate, whichever is less. If installation of any Product by Cray at the customer's site is delayed due to the fault of NEC, including without limitation any nonconformance of the Product with the warranty in Section 10.1, then NEC will pay Cray interest on the amount actually paid to NEC for such Product at the rate of 1.5% per month or the maximum legal rate, whichever is less, for any period of delay exceeding 60 days. In the event that D/A payment is not accepted by a bank or NEC cannot obtain cargo insurance for reasons attributable to Cray, both parties shall discuss in good faith and agree upon alternatives, including increase of the transfer price, opening a security account, or provision of letters of credit or other financial assurance, for reducing NEC's risks arising therefrom. 9. Cray Performance Requirements. 9.1 Minimum Orders. During each overlapping two-year period during the Term (each an "Order Period"), Cray must submit to NEC Firm Orders for Products to be sold that satisfy at least one of the two minimum volume options in Sections 9.1.1 and 9.1.2. For purposes of this Section 9, "Firm Orders" means all Standard Purchase Orders (as defined in Section 6.2) and any other purchase orders that are accepted by NEC hereunder. The initial Order Period runs from April 1, 2001 through March 31, 2003; the second Order Period runs from April 1, 2002 through March 31, 2004; and the third Order Period runs from April 1, 2003 through March 31, 2005, and so on throughout the Term. 9.1.1 Minimum Order Volume Option. To satisfy this option, during each Order Period Cray must submit Firm Orders that total at least 6 7 $* during the first Order Period, $* during the second Order Period, and $* during the third Order Period and each subsequent Order Period (each of the foregoing amounts, a "Minimum Order Volume"). To satisfy the requirements of this Section 9.1.1, not less than *% of the Minimum Order Volume for each Order Period must be attributable to sales by Cray in the Exclusive Territory. The balance of the Minimum Order Volume for each Order Period may be attributable to Incremental Sales. "Incremental Sales" are sales by Cray in the Non-Exclusive Territory (i) for which NEC did not submit a Best and Final Order (BAFO) in procurements for which a BAFO is required, or (ii) where no BAFO is required, sales in which NEC did not submit an offer equivalent to a BAFO. The parties shall consult regarding the identification of Incremental Sales. For the avoidance of doubt, Minimum Order Volumes shall be calculated on the basis of the transfer prices actually paid to NEC by Cray for the Products. 9.1.2 Percentage Order Volume Option. To satisfy this option, during each Order Period, Cray must submit Firm Orders to NEC representing Cray Revenues of at least the Minimum Percentage of SX Revenues. "Minimum Percentage" means, during the first Order Period, *%; during the second Order Period, *%; and during the third Order Period and each following Order Period, *%. "SX Revenues" means worldwide gross revenues from all sales of the Products, including, without limitation, revenues from sales by Cray of the Products hereunder, but excluding (i) revenues from sales by NEC in Japan and sales to NEC or to its majority-owned subsidiaries (to the extent that NEC or such subsidiaries are intended to be the end-users of the Products sold) and, (ii) revenues from Incremental Sales. "Cray Revenues" means Cray's gross revenues from Firm Orders for sales of Products in the Exclusive Territory. For purposes of this Section 9.1.2, revenue shall equal the price at which the Products are sold to end-users. If in any Order Period Cray fails to satisfy both of the minimum order volume options set forth above, NEC may as its exclusive remedy, after at least ninety (90) days written notice to Cray, (i) change the exclusive distributorship of Cray in North America into a non-exclusive distributorship, (ii) terminate Cray's distributorship in North America, or (iii) terminate this Agreement. The parties recognize that the above figures are minimums only, and that Cray's objective in entering into this Agreement is to sell greater volumes of Products as - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 7 8 follows: Firm Orders to NEC of $* in the first Order Period, $* in the second Order Period, and $* in the third and each subsequent Order Period. 9.2 Revenue Determination. 9.2.1 Cray Revenues and SX Revenues shall be determined by reference to the vector computer sales data published by the International Data Corporation ("IDC") following the close of each Order Period relating to such Order Period (the "Sales Data"). If either party disputes the Sales Data, it may request IDC investigate the Sales Data, in which event any adjusted Sales Data republished by IDC shall be the Sales Data; provided, that neither party is obligated to wait for IDC to investigate or publish adjusted Sales Data before pursuing the remedy set forth in Section 9.2.4 below. 9.2.2 NEC shall provide IDC with accurate information regarding its sales to the extent necessary to permit IDC to determine the SX Revenues. Cray shall provide IDC with accurate information regarding its sales to the extent necessary to permit IDC to determine the Cray Revenues. 9.2.3 In the event that the Sales Data published by IDC is insufficient to calculate SX Revenues or Cray Revenues or is not available or timely at the close of an Order Period, the parties shall request IDC prepare and publish a bulletin containing sufficient Sales Data to determine the SX Revenues and Cray Revenues. 9.2.4 In the event that either party disputes the Sales Data or cannot obtain all necessary Sales Data within thirty (30) days following the close of an Order Period, either party may submit the determination of the SX Revenues and Cray Revenues to determination by arbitration in accordance with Section 18.1. 9.3 Sales Efforts. Cray shall use commercially reasonable efforts to sell and promote the sale of the Products in the Exclusive Territory, which shall be at least equivalent to Cray's efforts to sell and promote the sale of its supercomputers in the Exclusive Territory. NEC's exclusive remedy for Cray's breach of this Section 9.3 shall be termination of this Agreement; provided, that Cray has acted diligently and in good faith to sell and promote the sale of Products. - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 8 9 9.4 Licenses and Regulations. Cray shall obtain and maintain in full force and effect all licenses and consents required to carry on business as a distributor of the Products hereunder, and shall in all material respects comply with any and all applicable laws, regulations and orders of governmental authorities and agencies in performing its obligations hereunder. 9.5 Export Control. Cray shall not re-export, directly or indirectly, any Product to any country for which the U.S. government or any agency of the U.S. government at the time of re-export requires a license or other government approval without first obtaining such license or approval, or otherwise export or re-export the Product in violation of U.S. or Japanese law. 10. Warranty/Warranty Claim Procedures/General Failures. 10.1 Warranty. NEC warrants to Cray that each Product and part thereof will (i) be in good working order and free of error or defect that materially impairs use, and (ii) conform in all material respects to NEC's published specifications for such Product. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES OR OBLIGATIONS, EXPRESS OR IMPLIED. NEC EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 10.2 Warranty Claims Procedures. Cray shall notify NEC in writing and reasonable detail of any nonconformance with the warranty in Section 10.1 with respect to a particular Product or part within three months after its Delivery in accordance with the procedures set forth in the Operational Plan (as defined in the Maintenance Agreement). In the event that the Product or part does not conform to the warranty in Section 10.1, NEC shall, as Cray's exclusive remedy, deliver a replacement for the nonconforming Product or part within ten (10) business days from NEC's receipt of such notification from Cray. If NEC cannot with commercially reasonable efforts deliver the replacement Product or part within such ten (10) business day period, NEC shall, prior to the expiration of such period, deliver to Cray a written schedule for delivery of the replacement and use commercially reasonable efforts to comply with such schedule. 10.3 Warranty Exclusions. The warranties for the Products shall not apply to defects resulting from (i) improper or inadequate maintenance by Cray or its customers; (ii) modification of the Products in a manner which is not expressly authorized by NEC; (iii) misuse; (iv) Cray or customer supplied parts, software or interfacing not authorized by NEC; or (v) operation outside the environmental specification for the Products. 9 10 10.4 Third Party Beneficiaries. All warranties that NEC provides to Cray hereunder are solely for Cray's benefit. Cray shall not transfer or assign any of such warranties to any other party, including Cray's customers. 11. Confidentiality. 11.1 Confidential Information. Each party agrees to keep all Confidential Information (as defined below) confidential and not to use or disclose such information except as required by law or stock exchange rule or regulation, authorized by this Agreement or otherwise authorized by the disclosing party in writing, and to accord such Confidential Information the same standards and protections that it uses to protect its own confidential business information. Each party will limit dissemination of Confidential Information to its employees, contractors and agents who reasonably require access in order to carry out the terms of this Agreement and who have been informed of and are obligated to maintain confidentiality. Except for Confidential Information necessary for the performance of obligations or exercise of rights under this Agreement, all materials or documents in the receiving party's possession containing Confidential Information will be returned to the disclosing party promptly following written request therefor. If the receiving party is subpoenaed or ordered by any court or governmental agency to disclose Confidential Information, it will provide prompt written notice to the other party so as to allow the other party to seek a protective order to protect the confidentiality of such information. As used herein, "Confidential Information" means (y) the terms of this Agreement and the Other Agreements, and (z) all data and information received by one party from the other (whether received orally or in electronic, written or other form) including, without limitation, know-how and trade secrets relating to or contained or embedded in the Products. Confidential Information does not include information: (i) that is or becomes generally available to the public through no fault or breach by the receiving party; (ii) that the receiving party can document was already known to it prior to disclosure by the disclosing party; (iii) that was independently developed by the receiving party without use of any of the other party's Confidential Information; and (iv) that the receiving party rightly obtained from a third-party who did not transfer or disclose it in violation of a confidentiality obligation to the other party. 11.2 Survival. The obligations of this Section 11 will survive expiration or termination of this Agreement for a period of two (2) years. 12. Indemnity. 12.1 By NEC. NEC will defend, indemnify and hold Cray harmless from all costs of any claim that Products infringe any patent, copyright or other 10 11 intellectual property right of any third party. If any such claim has occurred, or in NEC's opinion is likely to occur, NEC shall, at its option and its expense, either (i) procure for Cray the right to continue selling the relevant Product hereunder, (ii) replace or modify the relevant Product so that it becomes non-infringing, or (iii) if neither of the foregoing is practicable, refund the depreciated value of the relevant Product and accept return of the same. This Section 12 states the entire liability of NEC for infringement of intellectual property rights for the Products provided hereunder. 12.2 By Cray. Cray will defend, indemnify and hold NEC harmless from all costs of any claim (whether for infringement of patents, copyrights or other intellectual property rights or otherwise) resulting from (i) NEC's compliance with Cray's specifications, instructions or designs, (ii) modification of the Products by Cray or a third party, (iii) use of the Products other than as specified in relevant specifications provided by NEC, (iv) use of the Products with products not approved or supplied by NEC, if such infringement could have been avoided by the exclusive use of the Products, and (v) the improper furnishing of any information, service or technical support by Cray. 12.3 Notification and Procedures. In connection with any indemnity hereunder, the party seeking an indemnity shall: (i) promptly notify the indemnifying party of any claim or proceeding, or threatened claim or proceeding; (ii) permit the indemnifying party to take full control of such claim or proceeding; (iii) cooperate in the investigation and defense of such claim or proceeding; (iv) not compromise or otherwise settle such claim or proceeding without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld, conditioned or delayed; and (v) take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceeding. In any action in which the indemnifying party assumes control, the indemnifying party shall not enter into any settlement without the prior written consent of the indemnified party, which shall not be unreasonably withheld, conditioned or delayed. 13. Trademarks. 13.1 NEC Marks. To the extent it has the right to do so, NEC grants Cray, during the Term and in the Territory, a nonexclusive license to use NEC trademarks, including NEC model nomenclature, applicable to the Products (the "Marks") solely in connection with, and only to the extent reasonably necessary for, the marketing, distribution and support of Products during the Term, provided that any such use and display shall comply with NEC's then current trademark usage policies. NEC shall have the right to object to any use of its Marks by Cray in its sole discretion by providing written notice to Cray and Cray shall promptly 11 12 cease any such objectionable use. Cray hereby acknowledges that the Marks and all goodwill associated therewith are the property of NEC and that except as expressly provided in this Section 13, Cray shall not acquire any rights in or to the Marks. Cray agrees to fully cooperate with NEC with respect to the protection of NEC's rights in the Marks. 13.2 Co-Branding. The parties may brand certain of the Products with both Cray trademarks and the SX-5 and SX-5X model nomenclature (each a "Contribution"). In the event that such co-branding becomes a trademark (a "New Mark" ), such New Mark shall be jointly owned by NEC and Cray and each of NEC and Cray shall have the right to use the New Mark during the term of this Agreement solely in connection with Products distributed hereunder. Following the termination or expiration of this Agreement, neither party shall have the right to use the New Mark without the other party's written consent; provided that this Section 13.2 shall not (i) confer on either party any rights to the other party's Contribution following the expiration or termination of this Agreement or (ii) restrict either party's right to use its Contribution in association with products or services other than the Products during the Term or following the termination or expiration of this Agreement. 14. Termination. 14.1 Material Breach. Except for Cray's failure to satisfy the minimum order requirement provided for in Section 9.1 (which shall be governed by Section 9.1), either party may terminate this Agreement if the other party materially breaches any term of this Agreement and such breach is not cured (i) in the case of a breach of Section 8 within five (5) business days after receipt of notice of such breach or (ii) in the case of a breach of any other provision of this Agreement within thirty (30) days after receipt of notice of such breach. 14.2 Other. Either party may terminate this Agreement and any existing Contracts immediately if (i) the other party files a petition in bankruptcy or makes a general assignment for the benefit of creditors or otherwise acknowledges insolvency, (ii) the other party is adjudged bankrupt or goes into liquidation, (iii) a receiver is appointed for the benefit of the other party, or (iv) there shall occur a Change of Control of the other party. "Change of Control" means (a) (i) the merger or consolidation of a party into or with one or more entities, (ii) the merger or consolidation of one or more entities into or with a party or (iii) a completed tender offer or other business combination if, in the case of (i), (ii) or (iii), the stockholders of such party prior to such merger, consolidation or business combination do not retain at least a majority of the voting power of the surviving entity or (b) the voluntary sale, conveyance, 12 13 exchange or transfer to another entity of (i) the voting capital stock of a party if, after such sale, conveyance, exchange or transfer, the stockholders of such party prior to such sale, conveyance, exchange or transfer do not retain at least a majority of the voting power of such party or (ii) all or substantially all of the assets of a party. 14.3 Continuing Obligations. Termination of this Agreement or any Contract by expiration or otherwise shall not affect any obligation of Cray to pay for the Products shipped prior to such termination. Upon termination of this Agreement or any Contract, all payments required to be made by Cray to NEC hereunder or thereunder shall become immediately due and payable. 15. Software License. 15.1 Cray. NEC hereby grants Cray, during the Term and in the Territory, a non-exclusive license to distribute the Software Products in accordance with the terms and conditions of this Agreement. Section 4 shall be applied to the pricing of the Software Products. NEC hereby grants Cray, during the Term and in the Territory, a nonexclusive license to use the Software Products solely for internal use for purposes of marketing, distribution, sale, services and support of Products. Other than the rights provided above in this Section 15.1, nothing herein shall be construed as granting Cray any right or license to NEC's software products, including, without limitation, rights to copy, reproduce and modify. Cray agrees (i) not to reverse assemble or reverse engineer any Product, or decompile or otherwise attempt to derive source code from the Software Products, (ii) not to authorize or permit others to do so, and (iii) to promptly inform NEC of any such action taken by third parties of which Cray becomes aware. 15.2 Customers. NEC shall grant Cray's customers of the Products all software licenses NEC normally grants to NEC customers for the same Products, subject to any necessary third party consents in the case of any Software Product that is third-party software. Cray shall obtain customer signatures on such software license agreements, as required by NEC. All fees for such licenses shall be included in the price of the associated Products. If a Cray customer needs software source code, the parties shall agree, on a transaction-by-transaction basis, for NEC to license the applicable source code to such customer; provided, however, that (i) Cray will obtain and pay for any third party consents required for such license, with the reasonable assistance and cooperation of NEC, and (ii) the customer agrees to enter into any relevant NEC or third-party source code license(s). If such source code is NEC's source code, NEC will grant such a customer license for the source code to the extent NEC normally grants such licenses to its customers for the same Software Products. NEC shall not unreasonably refuse to license such a customer, but if NEC should 13 14 nonetheless refuse to license the source code, Cray's minimum order obligations pursuant to Section 9.1 shall be reduced by the amount of any Firm Orders lost as a result. 16. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Except for claims arising out of third party tort claims where a Product is determined by a court of competent jurisdiction to have caused bodily injury, death or property damage, or claims pursuant to Section 12.1, NEC's maximum liability arising out of or relating to the Products sold to Cray hereunder for any cause whatsoever, regardless of the form of any claim or action, whether based on contract, tort or any other legal theory, shall not exceed the transfer price paid by Cray for the relevant Product. 17. Contact Persons. Each party will appoint a senior management person to be its principal contact person for communications regarding the relationship between the parties created by this Agreement, and the contact persons will meet regularly to discuss plans, issues, and concerns. Each party may change its contact person at any time by written notice to the other party. The initial contact person for each party will be: CRAY INC. Rene G. Copeland 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 Phone: (206) 701-2152 Fax: (206) 701-2218 Email: renec@cray.com With a copy to: Kenneth W. Johnson 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 Phone: (206) 701-2091 Fax: (206) 701-2218 Email: ken@cray.com 14 15 NEC CORPORATION Tadashi Watanabe 7-1 Shiba 5-chome Minato-ku, Tokyo 108-8001 Phone: 81-3-3798-9139 Fax: 81-3-3798-9130 Email: watanabe@sxsmd.ho.nec.co.jp 18. Dispute Resolution. 18.1 Arbitration. Any dispute, controversy or claim arising out of or in connection with this Agreement that the parties are unable to resolve amicably shall be determined and settled by arbitration in London, U.K. in accordance with the rules then in effect of the International Chamber of Commerce, and both parties hereby consent to the jurisdiction thereof. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court having competent jurisdiction. 18.2 Performance Not Excused by Dispute. Except where clearly prevented by the matter in dispute, both parties agree to continue performing their respective obligations under this Agreement while any dispute is being resolved. 19. Miscellaneous. 19.1 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party; provided, however, that (i) without the consent of the other party, a party may assign any or all of its rights and delegate its obligations hereunder to any entity controlling, controlled by or under common control with such party, in which event the assigning party shall remain fully liable for the performance of all its obligations hereunder; and (ii) subject to Section 14.2, a successor in interest by merger, by operation of law, or by assignment, purchase or other acquisition of all or substantially all of the business of such party may acquire the respective rights and obligations of such party under this Agreement. Any prohibited assignment shall be null and void. 19.2 Construction. This Agreement is the result of negotiation between sophisticated parties and no provision hereof shall be construed against a party solely because that party was responsible for drafting the provision. 15 16 19.3 Entire Agreement. This Agreement and the Other Agreements constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect to such subject matter. 19.4 Severability. If any provision contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provision held invalid, illegal or unenforceable shall substantially impair the benefits to either party of the remaining provisions hereof. 19.5 Waiver and Amendment. No waiver of any violation or nonperformance of this Agreement in one instance will be deemed to be a waiver of any subsequent violation or nonperformance. All waivers must be in writing and signed by the party making such waiver. This Agreement may not be modified or amended except in writing signed by both parties. 19.6 Notice. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first class mail, return receipt requested, telecopier, courier or personal delivery to the address below: If to Cray: Cray Inc. 411 First Avenue South, Suite 600 Seattle, WA 98104-2866 Telecopy: (206) 701-2218 Attention: Kenneth W. Johnson With a copy to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204-1268 Telecopy: (503) 220-2480 Attention: Jere M. Webb 16 17 If to NEC: NEC Corporation 1-10, Nisshincho Fuchu City Tokyo 183-8501 Japan Telecopy: 81-42-333-6382 Attention: General Manager, Supercomputer Marketing Promotion Division With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019 Telecopy: (212) 757-3990 Attention: Marc E. Perlmutter All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by a recognized international express courier service, if delivered by courier: five (5) business days after being deposited in the mail, postage prepaid if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 19.6 designate another address or person for receipt of notices hereunder. 19.7 Survival. The provisions contained in this Agreement that by their sense and context are intended to survive the termination of this Agreement shall survive any such termination. 19.8 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 19.9 Headings. The headings in this Agreement are for convenience or reference only and shall not limit or otherwise affect the meaning hereof. 19.10 Choice of Law. This Agreement will be governed by the internal laws of the State of New York without regard to the conflicts of laws principles thereof. 19.11 Force Majeure. If the whole or any part of the performance by either party of any part of its obligations under this Agreement is prevented, hindered or delayed or otherwise made impracticable by reason of strikes, labor troubles, floods, fires, accidents, earthquakes, riots, explosions, wars, hostilities, acts of government, customs barriers or taxes, export/import 17 18 control regulations, interruption or shortage of or delay in transportation, inability to obtain key raw materials, components or supplies or other causes of like character beyond the reasonable control of that party, such party shall be excused from such performance (other than payment obligations) during the continuance of such contingency and for so long as such contingency shall continue to prevent, hinder or delay such performance. If the contingency specified in this Section 19.11 shall continue for more than six (6) months from its occurrence, either party may terminate this Agreement forthwith without any liability (subject to Section 14.3) by giving a written notice to the other party. Notwithstanding the foregoing, (i) Cray's minimum order obligation pursuant to Section 9.1 shall be reduced to the extent that NEC is unable to accept Cray purchase orders due to a force majeure and (ii) Cray may cancel any Contract if the corresponding order is cancelled by Cray's customer due to NEC's delay caused by a force majeure. 19.12 No Third-Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any person or entity other than the parties and each party's respective successors and permitted assigns. 19.13 Disclaimer of Agency. Cray is and shall remain an independent contractor of NEC. Neither party has the authority to make any statement, representation, warranty or other commitment on behalf of the other party. Nothing contained herein or done pursuant to this Agreement shall constitute the parties as entering into a joint venture or partnership, or shall constitute either party as the agent of the other party for any purpose whatsoever and neither party shall represent or hold itself out otherwise. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 18 19 IN WITNESS WHEREOF, the parties hereto have caused this Distribution Agreement to be executed in duplicate by their duly authorized representatives as of the date first above written. CRAY INC. By /s/ James E. Rottsolk ------------------------------------- Name: James E. Rottsolk Title: President and CEO NEC CORPORATION By /s/ Kazuhiko Kobayashi ------------------------------------- Name: Kazuhiko Kobayashi Title: Senior Vice President 19 20 EXHIBIT A NEC EXCLUSIVE DISTRIBUTION RIGHTS 1. * 2. * 3. * 4. * - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 20 EX-10.2 4 v72525ex10-2.txt EXHIBIT 10.2 1 Exhibit 10.2 SALES AND MARKETING SERVICES AGREEMENT SALES AND MARKETING SERVICES AGREEMENT, dated as of February 28, 2001, and effective as of the Effective Date (as defined in Section 3) (this "Agreement"), by and among NEC Corporation, a Japanese corporation with its principal place of business at 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan ("NEC"), HNSX Supercomputers Inc., a Delaware corporation with its principal place of business at 305 Foster Street, Littleton, MA 01460-2004 ("HNSX"), and Cray Inc., a Washington corporation with its principal place of business at 411 First Avenue South, Suite 600, Seattle, WA 98104-2860 ("Cray"). NEC, HNSX and Cray are sometimes hereinafter collectively referred to as the "parties." RECITALS A. NEC and Cray are parties to a Distribution Agreement, dated as of February 28, 2001 (the "Distribution Agreement"), pursuant to which parties have agreed that Cray shall become the distributor of certain products of NEC upon the terms and subject to the conditions set forth therein. B. Cray is interested in obtaining from NEC and/or HNSX certain services listed and described in Schedule A attached hereto commencing from the Effective Date. NOW, THEREFORE, the parties, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to become legally bound, hereby agree as follows: SECTION 1 AGREEMENT TO PROVIDE AND OBTAIN SERVICES 1.1 Definitions. Except as otherwise defined in this Agreement, all capitalized terms shall have the meanings assigned to them in the Distribution Agreement. 1.2 Scope of Services. (a) NEC or HNSX shall provide to Cray the services described on Schedule A (the "Services") for the period set forth on Schedule A for each such Service, in accordance with the terms, limitations and conditions set forth herein and on Schedule A. (b) If Cray identifies any additional Service it reasonably requires from NEC in order to perform the Distribution Agreement, Cray may request such additional Service and Schedule A will be amended to reflect any agreed additional service; provided, that this Section 1.2(b) shall not require NEC to provide any additional Services without NEC's express written consent, which NEC may withhold in its sole discretion. 2 (c) Any amendment, supplement, variation, alteration or modification to any Service as described on Schedule A shall be made in writing and duly executed by each party. 1.3 Access. Each party shall take all actions and make available on a timely basis all information and materials reasonably required for the other parties to perform their obligations hereunder. No party shall be liable for any claims, errors or omissions resulting from untimely or incorrect information provided by another party. Each party shall give the other parties access to its premises during regular business hours and at such other times as are reasonably required, after prior consent has been obtained, to the extent reasonably necessary for the other parties to perform their obligations hereunder. SECTION 2 SERVICES; PAYMENT; INDEPENDENT CONTRACTOR 2.1 Services to be Provided. (a) Unless otherwise agreed in writing by the parties, each party shall use commercially reasonable efforts to perform its obligations hereunder. Notwithstanding anything to the contrary contained herein, no party shall be in default of its obligations hereunder to the extent the inability to perform such obligations arises out of the another party's failure to perform in a timely manner such tasks as are required to be performed to enable the performing party to perform such obligations. (b) NEC and HNSX shall have the right to cease temporarily for maintenance purposes the operation of the equipment or facilities providing any Service whenever they determine in their reasonable and good faith judgment such action is necessary. In the event such maintenance is required, Cray shall be reasonably notified of such maintenance (which notice may be given during or after any emergency maintenance). Notwithstanding the above, NEC or HNSX shall give Cray as much advance notice of any shutdown as is reasonably practicable. Where written notice is not feasible, oral notice may be given. NEC and HNSX shall be relieved of their respective obligations to provide any Service during the period that the necessary equipment or facilities are shut down; provided, that NEC and HNSX shall use commercially reasonable efforts to restart such equipment or reopen such facilities as promptly as practicable. (c) HNSX shall be excused from performance of the Services to the extent that its ability to perform the Services is reduced or eliminated by loss of personnel to Cray, and HNSX shall have no obligation to hire any replacements for departing personnel. 2.2 Payment. Invoices for Services shall be due 30 days after receipt by the payor. All amounts due on invoices shall be paid in United States Dollars by wire transfer to an account specified by the payee. Invoiced amounts not paid when due shall be subject to late charges for each month and portion thereof that the invoice is overdue, with such late charges 2 3 calculated at the lesser of (i) 18% per annum and (ii) the maximum rate allowed by applicable law. 2.3 Independent Contractor. All Services required of NEC and HNSX shall be performed by them as independent contractors, and employees of NEC and HNSX providing Services shall at all times be under NEC's and HNSX's sole direction and control. Neither NEC, HNSX nor any other person or entity performing any Services hereunder on behalf of NEC or HNSX shall be deemed for any purpose to be the agent, servant, employee or representative of Cray in the performance of this Agreement. Nothing in this Agreement shall be construed to mean that NEC or HNSX is a partner or a joint venturer of Cray. The relationship under this Agreement of NEC and HNSX on the one hand and Cray on the other hand with respect to the Services shall be that of an independent contractor. SECTION 3 TERM The term of this Agreement shall be conditioned upon and commence upon on the date (the "Effective Date") of the closing under the Stock Purchase Agreement and shall terminate upon the earlier of (i) the expiration of the Distribution Agreement, and (ii) any termination pursuant to Section 5.2 or 5.3; provided that with respect to each Service listed in Schedule A, this Agreement shall terminate as set forth in Section 5.1. SECTION 4 LIABILITIES 4.1 Consequential and Other Damages. Neither NEC nor HNSX shall be liable for, and Cray expressly waives any right to recover, whether in contract, in tort (including, but not limited to, negligence and strict liability) or otherwise, any punitive, exemplary, special, indirect, incidental or consequential damages whatsoever, which in any way arise out of, relate to, or are a consequence of, NEC's or HNSX's performance or nonperformance hereunder, or the provision of or failure to provide any Service hereunder, including, but not limited to, loss of profits, business interruptions and claims of customers. 4.2 Limitation of Liability. In any event, the liability of any NEC Indemnitee (as defined in Section 4.4) which liability shall be several and not joint, with respect to this Agreement or anything done in connection herewith, including, but not limited to, the performance or breach hereof, or from the sale, delivery, provision or use of any Service or product provided under or covered by this Agreement, whether in contract, tort (including, but not limited to, negligence and strict liability) or otherwise, shall not exceed the aggregate of all fees then paid by Cray to NEC under the Maintenance Agreement, dated as of the date hereof, between NEC and Cray, within the twelve months immediately preceding the date of Cray's claim relating thereto. 3 4 4.3 Obligation to Reperform. In the event that Cray becomes aware of any material breach of this Agreement by NEC or HNSX with respect to any error or defect in the provision of any Service, and Cray notifies NEC and HNSX of said breach, NEC or HNSX (as applicable) shall promptly make commercially reasonable efforts to correct such error or defect. 4.4 Indemnity. Cray shall indemnify and hold harmless NEC and HNSX, their respective subsidiaries, affiliates, successors and assigns, directors, officers, shareholders, agents and employees (collectively, the "NEC Indemnitees"), from and against any and all claims, demands, complaints, liabilities, losses, damages, costs and expenses (collectively, "Losses") arising from or relating to the presence of Cray employees, agents or subcontractors on NEC's or HNSX's premises; provided, however, that no NEC Indemnitee shall be entitled to indemnification hereunder to the extent its claim for indemnification shall be finally adjudged to be attributable to its gross negligence, bad faith or willful misconduct, as may be finally determined by arbitration pursuant to Section 6.13. Subject to Sections 4.1 and 4.2, NEC shall indemnify and hold harmless Cray, its subsidiaries, affiliates, successors and assigns, directors, officers, shareholders, agents and employees (collectively, the "Cray Indemnitees"), from and against any and all Losses arising from or relating to the presence of NEC or HNSX employees, agents or subcontractors on Cray's premises; provided, however, that no Cray Indemnitee shall be entitled to indemnification hereunder to the extent its claim for indemnification shall be finally adjudged to be attributable to its gross negligence, bad faith or willful misconduct, as may be finally determined by arbitration pursuant to Section 6.13. 4.5 Notification and Procedures. In connection with any indemnity hereunder, the indemnified party shall: (i) promptly notify the indemnifying party of any claim or proceeding, or threatened claim or proceeding; (ii) permit the indemnifying party to take full control of such claim or proceeding; (iii) cooperate in the investigation and defense of such claim or proceeding; (iv) not compromise or otherwise settle such claim or proceeding without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld, conditioned or delayed; and (v) take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceeding. In any action in which the indemnifying party assumes control, the indemnifying party shall not enter into any settlement without the prior written consent of the indemnified party, which shall not be unreasonably withheld, conditioned or delayed. SECTION 5 TERMINATION 5.1 Termination of Particular Services. This Agreement shall terminate in part with respect to any individual Service on the earlier of the date (i) that such Service terminates in accordance with Schedule A hereto; (ii) Cray cancels such Service by written notice to NEC and HNSX; (iii) NEC and HNSX cancel such Service in accordance with the terms of Schedule A; and (iv) the parties agree in writing to cancel such Service. 5.2 Termination for Breach. This Agreement may be terminated by Cray if NEC or HNSX materially breaches any provision of this Agreement and such breach is not cured 4 5 within thirty (30) days after written notice from Cray, or if such breach is not susceptible to cure within thirty (30) days, then within a reasonable time thereafter provided that NEC or HNSX, as applicable, begins such cure and diligently pursues such cure within such thirty (30) days. This Agreement may be terminated by NEC and HNSX if Cray materially breaches any provision of this Agreement and such breach is not cured within thirty (30) days after written notice from NEC or HNSX, or if such breach is not susceptible to cure within thirty (30) days, then within a reasonable time thereafter provided that Cray begins such cure and diligently pursues such cure within such thirty (30) days. 5.3 Termination Upon Certain Events. NEC may terminate this Agreement immediately if (i) Cray files a petition in bankruptcy or makes a general assignment for the benefit of creditors or otherwise acknowledges insolvency, (ii) Cray is adjudged bankrupt or goes into liquidation, (iii) a receiver is appointed for the benefit of Cray, (iv) NEC terminates the Distribution Agreement or (v) there shall occur a Change of Control of Cray. "Change of Control" means (a) (x) the merger or consolidation of Cray into or with one or more entities, (y) the merger or consolidation of one or more entities into or with Cray or (z) a completed tender offer or other business combination if, in the case of (x), (y) or (z), the stockholders of Cray prior to such merger, consolidation or business combination do not retain at least a majority of the voting power of the surviving entity or (b) the involuntary sale, conveyance, exchange or transfer to another entity of (I) the voting capital stock of Cray if, after such sale, conveyance, exchange or transfer, the stockholders of Cray prior to such sale, conveyance, exchange or transfer do not retain at least a majority of the voting power of Cray or (II) all or substantially all of the assets of Cray. 5.4 Sums Due. In the event of a termination of this Agreement, each party shall be entitled to all outstanding amounts due to it from Services provided by it under this Agreement up to the date of termination. SECTION 6 MISCELLANEOUS 6.1 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other parties; provided, however, that (i) without the consent of the other parties, a party may assign any or all of its rights and delegate any or all its obligations hereunder to any entity controlling, controlled by or under common control with such party, in which event the assigning party shall remain fully liable for the performance of all its obligations hereunder and (ii) subject to Section 5.3, a successor in interest by merger, by operation of law, or by assignment, purchase or other acquisition of all or substantially all the business of a party may acquire the respective rights and obligations of such party under this Agreement. Any prohibited assignment shall be null and void. 5 6 6.2 Construction. This Agreement is the result of negotiation between sophisticated parties and no provision hereof shall be construed against a party solely because that party was responsible for drafting the provision. 6.3 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. 6.4 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 6.5 Amendment and Waiver. No waiver of any violation or nonperformance of this Agreement in one instance will be deemed to be a waiver of any subsequent violation or nonperformance. All waivers must be in writing and signed by the party making such waiver. This Agreement may not be modified or amended except in writing signed by each party. 6.6 Notice. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier or personal delivery: (i) If to Cray: Cray Inc. 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 Telecopy: (206) 701-2218 Attention: Kenneth W. Johnson With a copy to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204-1268 Telecopy: (503) 220-2480 Attention: Jere M. Webb (ii) If to HNSX (with a copy to NEC): HNSX Supercomputers Inc. 305 Foster Street Littleton, MA 01460-2004 6 7 Telecopy: (978)-742-4689 Attention: Akira Sekino With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Marc E. Perlmutter, Esq. (iii) If to NEC: NEC Corporation 1-10, Nisshincho Fuchu City Tokyo 183-8501 Japan Telecopy: 81-42-333-6382 Attention: General Manager, Supercomputer Marketing Promotion Division With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Marc E. Perlmutter, Esq. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by a recognized international express courier service, if delivered by courier; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 6.6 designate another address or person for receipt of notices hereunder. 6.7 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 7 8 6.8 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 6.9 Choice of Law. This Agreement will be governed by the internal laws of the State of New York without regard to the conflicts of laws principles thereof. 6.10 Force Majeure. If the whole or any part of the performance by NEC and HNSX of any part of their obligations under this Agreement is prevented, hindered or delayed or otherwise made impracticable by reason of strikes, labor troubles, floods, fires, accidents, earthquakes, riots, explosions, wars, hostilities, acts of government, customs barriers or taxes, export/import control regulations, interruption or shortage of or delay in transportation, inability to obtain key raw materials, components or supplies or other cause of like or different character beyond the reasonable control of NEC or HNSX, NEC and HNSX shall be excused from such performance during the continuance of such contingency and for so long as such contingency shall continue to prevent, hinder or delay such performance. If the contingency specified in this Section 6.10 shall continue for more than six (6) months from its occurrence, any party may terminate this Agreement (subject to Section 5.4) forthwith without any liability by giving a written notice to the other parties. 6.11 No Third-Party Beneficiaries. Except as provided in Section 4.4, nothing in this Agreement shall confer any rights upon any person or entity other than the parties and each party's respective successors and permitted assigns. 6.12 Confidentiality. This Agreement shall be covered by the confidentiality provisions in Section 10.11 of the Stock Purchase Agreement, which shall survive the termination or expiration of this Agreement for a period of two years. 6.13 Dispute Resolution. Any dispute, controversy or claim arising out of or in connection with this Agreement that the parties are unable to resolve amicably shall be determined and settled by arbitration in London, UK in accordance with the rules then in effect of the International Chamber of Commerce; and the parties hereby consent to the jurisdiction thereof. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court having competent jurisdiction. 6.14 Survival. Sections 4.1, 4.2, 4.4, 4.5, 5.4 and 6 shall survive the expiration or termination of this Agreement. 8 9 IN WITNESS WHEREOF, the parties have executed this Sales and Marketing Services Agreement as of the date first written above. CRAY INC. By: /s/ James E. Rottsolk ----------------------------------- Name: James E. Rottsolk Title: President and CEO NEC CORPORATION By: /s/ Kazuhiko Kobayashi ----------------------------------- Name: Kazuhiko Kobayashi Title: Senior Vice President HNSX SUPERCOMPUTERS INC. By: /s/ Akira Sekino ----------------------------------- Name: Akira Sekino Title: President and CEO 9 10 SCHEDULE A to SALES AND MARKETING SERVICES AGREEMENT A. Marketing Coordination Board. As soon as practicable following the Effective Date, the parties shall establish a Marketing Coordination Board (the "Board") composed of one representative of each party. The Board shall exist throughout the term of this Agreement and shall coordinate all aspects of the performance of this Agreement, which performance the parties intend to commence as soon as practicable following the Effective Date. B. NEC Support. The parties anticipate that HNSX will require NEC's assistance to perform certain of its obligations hereunder and that NEC shall use commercially reasonable efforts to provide such assistance; provided, that in no event shall NEC be liable for any obligations of HNSX hereunder. C. Marketing Support During the Initial Period. During the twelve (12) month period following the Effective Date (the "Initial Period"), NEC and HNSX will provide Cray with the following assistance in connection with the marketing, sale, installation and support by Cray of the Products. 1. Pre-Sales and Marketing Support. NEC and HNSX shall provide pre-sales and marketing support to Cray during the Initial Period on the terms and conditions set forth below: 1.1 Sales Product Training. Beginning within 30 days of the Effective Date, HNSX shall, without charge to Cray, train a reasonable number of Cray sales and marketing personnel in the descriptions, specifications, features and functions of the Products. Training shall take place at Cray facilities except where access to the Products at HNSX facilities is required. Cray shall bear the cost of travel, lodging and per diem expenses for Cray personnel receiving training. Cray shall provide appropriate training materials and tools (e.g. classroom aids, presentations and other materials); provided, that HNSX shall work with Cray to provide the content of the materials. 1.2 Pre-Sale Support. At the request of Cray and at times to be mutually agreed, HNSX shall provide pre-sale marketing support to Cray's sales and marketing personnel to assist in the promotion of the Products. This support may, as mutually agreed, (a) be provided electronically or through direct visits with Cray personnel to prospect and customer sites, and (b) include product presentations, product roadmap reviews, applications descriptions and/or technical capability explanations. 1.3 Benchmarking and Performance Optimization. HNSX will provide benchmarking and performance optimization assistance in support of Cray sales activities. HNSX and a designated Cray representative shall develop mutually agreeable schedules and 11 effort specifications/task definition for the accomplishment of this activity. Cray shall be responsible for prioritizing Cray employees' requests for use of this support. 1.4 ISV Application Benchmarking. Cray shall bear primary responsibility for ISV application benchmarking. Upon request by Cray and on a priority schedule established by NEC, NEC will assist in this activity. NEC shall assign to Cray any site licenses held by NEC that are necessary in connection with this Section 1.4 (subject to obtaining necessary third party consents) and Cray shall be responsible for obtaining any necessary site licenses that are not held by NEC. 1.5 Benchmark Systems. NEC shall make available the SX-5 Series systems installed at NEC facilities in The Woodlands, Texas and, as reasonably available (subject to other NEC commitments), SX-5 and SX-5X Series systems installed in Japan for the performance of benchmarks by Cray. The parties will discuss in good faith and mutually agree on the scheduling of these benchmarks based on overall system usage commitments, effort definition and support resource availability. 1.6 Promotional Activities. The Board will plan and implement a sales promotional program for the Products, including new product announcements, trade show schedules, advertisements, public/press relations, conference/seminar participation and sponsorship programs. 1.7 Marketing and Collateral Material. NEC shall advise Cray of the Product sales collateral material available or planned for development. Cray may then (a) request a reasonable supply of the material "as is", (b) request that the Cray logo be applied for a new printing or (c) request mechanicals or an electronic version for printing by Cray, in either case at Cray's expense. The collateral material shall be in English and shall be at least equivalent in scope to those provided to NEC's other distributors and customers. Through the Board Cray may participate with NEC in development of sales collateral material format, content and appearance. 1.8 Promotional Activities Cost Sharing. NEC and Cray shall share the costs of the activities conducted pursuant to Sections 1.6 and 1.7 (the "Promotional Costs") as follows: (i) NEC shall pay the first $* of Promotional Costs, (ii) NEC and Cray shall each pay one-half of the next $* of Promotional Costs, and (iii) Cray shall pay all subsequent Promotional Costs. 1.9 Proposal Development. HNSX shall assist Cray in the development of sales proposals, including recommendations regarding equipment and software configurations (collectively, "Sales Proposals") for use within the Exclusive Territory. Cray may request HNSX's assistance with the development of Sales Proposals for use outside the Exclusive Territory, which request HNSX may fulfill in its sole discretion. - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 12 2. Post-Sale Support. NEC and HNSX shall provide the following post-sale support to Cray during the Initial Period on the terms and conditions set forth below. 2.1 Site Physical Planning. HNSX shall provide a field service engineer to assist Cray and customer personnel in physical and environmental planning for installation sites. 2.2 Installation Support. HNSX shall provide installation assistance to Cray including unpacking, equipment positioning, cable stringing, power-up and performance of test and diagnostic routines and software installation. 2.3 Software Training. HNSX and Cray shall develop a mutually agreed schedule for training of post sale software analysts. Training will include SUPER-UX Operating System, Compilers, Tools, Libraries and Programming Aids. 2.4 Consultation on Applications Conversion and Optimization. HNSX will consult with Cray as reasonably needed to assist in the conversion and optimization of customer applications. 2.5 Technical Documentation. NEC shall provide to Cray reasonable quantities of available technical documentation in English in either electronic or hard copy form, including installation manuals, hardware and software technical specifications and programming documentation. D. Continuing Marketing Support. After the Initial Period, and during the term of the Distribution Agreement, NEC shall provide Cray with sales and marketing assistance on the terms and conditions set forth below: 1.1 Competitiveness. As part of NEC's formal high performance computer development function, Cray and NEC will meet to discuss products and market requirements for current and future products. 1.2 Benchmark System Availability. Cray will purchase from NEC a SX-5X to be used for benchmarking purposes. If Cray requires benchmarking capacity on a larger system, NEC will, subject to advance scheduling and task effort specification, make available a NEC system resource and support person either remotely or on location. In the event that Cray needs to benchmark a SX-5X prior to the date on which NEC delivers Cray's SX-5X, NEC shall make available (subject to other NEC commitments) a SX-5X system installed in Japan for the performance of benchmarks by Cray. The parties will discuss in good faith and mutually agree on the scheduling of these benchmarks based on overall system usage commitments, effort definition and support resource availability. The cost of system usage, telecommunications, courier service and travel, lodging and per diem for Cray personnel incurred in connection with the activities conducted under this Section 1.2 will be borne by Cray. 13 1.3 Prospect/Customer Visits to Japan. NEC will accommodate visits by Cray prospects and customers to NEC facilities on a scheduled, best efforts basis, subject to availability of NEC personnel. Travel, per diem and lodging costs will be borne by Cray. 1.4 Promotional Activity Coordination. At least yearly, NEC will provide Cray with its promotional agenda and schedule. 1.5 Marketing and Promotional Literature. NEC will provide to Cray without charge a reasonable number of copies of marketing and promotional brochures, product briefs, product descriptions, marketing aids and the like relating to the Products at such time and in such languages as NEC makes them generally available to its direct high performance computing system sales and marketing organizations throughout the world. 1.5.1. Cray may use the marketing and promotional literature to prepare Cray-specific marketing and promotional literature. 1.5.2. Cray shall take all appropriate legal measures to protect NEC's copyright and other rights in the marketing and promotional literature provided to Cray under this Agreement, and the use of such literature shall be governed by Section 13 (Trademarks) of the Distribution Agreement to the extent that it contains NEC trademarks. 1.5.3. If Cray adds to or otherwise modifies the marketing and promotion literature, Cray should provide to NEC a reasonable number of copies of the modified or added literature. 2. Post-SX-5X Sales and Marketing Support. In the event that NEC introduces a successor supercomputer system to the SX-5X, the parties anticipate that they will engage in sales and marketing support activities similar to the type contemplated by this Agreement with respect to such system upon commercially reasonable terms to be mutually agreed. EX-10.3 5 v72525ex10-3.txt EXHIBIT 10.3 1 Exhibit 10.3 MAINTENANCE AGREEMENT MAINTENANCE AGREEMENT, dated as of February 28, 2001, and effective as of the Effective Date (as defined in Section 3) (this "Agreement"), by and between NEC Corporation, a Japanese corporation with its principal place of business at 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan ("NEC"), and Cray Inc., a Washington corporation with its principal place of business at 411 First Avenue South, Suite 600, Seattle, WA 98104-2860 ("Cray"). NEC and Cray are sometimes hereinafter collectively referred to as the "parties." RECITALS A. NEC and Cray are parties to a Distribution Agreement, dated as of February 28, 2001 (the "Distribution Agreement"), pursuant to which parties have agreed that Cray shall become the distributor of certain products of NEC upon the terms and subject to the conditions set forth therein. B. The parties have agreed that the maintenance, repair and technical support of such products shall be handled in accordance with this Agreement, commencing from the Effective Date. NOW, THEREFORE, the parties, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to become legally bound, hereby agree as follows: SECTION 1 MAINTENANCE OF PRODUCTS 1.1 Definitions. Except as otherwise defined in this Agreement, all capitalized terms shall have the meanings assigned to them in the Distribution Agreement. 1.2 Scope. Pursuant to the terms and conditions of this Agreement, Cray will be the primary provider of maintenance services to customers, and will perform installation and support services (including, without limitation, preventative and corrective maintenance, upgrades and configuration changes) for all hardware (the "Hardware Products") and software (the "Software Products") contained in the Products (such services hereinafter individually and collectively referred to as "Maintenance Services"). NEC will provide technical support and other assistance to Cray in connection with the Maintenance Services in accordance with the terms of this Agreement. Schedule A sets forth the specific obligations of and procedures to be followed by NEC and Cray with respect to the Maintenance Services and NEC's support thereof. 1.3 Access. Each party shall take all actions and make available on a timely basis all information and materials reasonably required for the other party to perform its obligations hereunder. No party shall be liable for any claims, errors or omissions resulting from untimely or incorrect information provided by the other party. Each party shall give the other 1 2 party access to its premises during regular business hours and at such other times as are reasonably required, after prior consent has been obtained, to the extent reasonably necessary for the other party to perform its obligations hereunder. SECTION 2 SERVICES; PAYMENT; INDEPENDENT CONTRACTOR 2.1 Payment. Invoices issued hereunder shall be due 30 days after receipt by the payor. All amounts due on invoices shall be paid in United States Dollars by wire transfer to the account specified by the payee. Invoiced amounts not paid when due shall be subject to late charges for each month and portion thereof that the invoice is overdue, with such late charges calculated at the lesser of (i) 18% per annum and (ii) the maximum rate allowed by applicable law. 2.2 Independent Contractor. All services required of NEC under this Agreement shall be performed by NEC as an independent contractor, and employees of NEC providing such services shall at all times be under NEC's sole direction and control. Neither NEC nor any other person or entity performing any services hereunder on behalf of NEC shall be deemed for any purpose to be the agent, servant, employee or representative of Cray in the performance of this Agreement. The relationship of NEC to Cray under this Agreement shall be that of an independent contractor. Nothing in this Agreement shall be construed to mean that NEC is a partner or a joint venturer of Cray. SECTION 3 TERM The term of this Agreement shall be conditioned upon and commence upon the date (the "Effective Date") of the closing under the Stock Purchase Agreement and shall terminate (i) with respect to Sections 1, 2.1, 2.4, 2.5, 2.6, 2.7, 2.8 and 3.3 of Schedule A immediately upon a notice of termination delivered pursuant to Section 5, and (ii) with respect to all other provisions of this Agreement, five years after a notice of termination is delivered pursuant to Section 5. SECTION 4 LIABILITIES 4.1 Indemnity. Subject to Section 4.2, Cray shall indemnify and hold harmless NEC and its subsidiaries, affiliates, successors and assigns, and their respective directors, officers, shareholders, agents and employees (collectively, the "NEC Indemnitees"), against and from any and all claims, demands, complaints, liabilities, losses, damages and all costs and expenses (collectively, "Losses") arising from or relating to any act or omission of Cray, its subsidiaries, affiliates, directors, officers, agents, subcontractors or employees relating the Maintenance Services (including, without limitation, any failure by any of them to strictly comply with NEC's instructions and procedures relating to the Products); provided, however, that no NEC Indemnitee shall be entitled to indemnification hereunder to the extent its claim for 2 3 indemnification shall be finally adjudged to be attributable to its gross negligence, bad faith or willful misconduct, as may be finally determined by an arbitration pursuant to Section 6.13. Subject to Sections 4.2 and 4.3, NEC shall indemnify and hold harmless Cray and its subsidiaries, affiliates, successors and assigns, and their respective directors, officers, shareholders, agents and employees (collectively, the "Cray Indemnitees"), against and from any and all Losses arising from or relating to any act or omission of NEC, its subsidiaries, affiliates, directors, officers, agents, subcontractors or employees relating the Maintenance Services; provided, however, that no Cray Indemnitee shall be entitled to indemnification hereunder to the extent its claim for indemnification shall be finally adjudged to be attributable to its gross negligence, bad faith or willful misconduct, as may be finally determined by arbitration pursuant to Section 6.13. 4.2 Consequential and Other Damages. Neither party shall be liable for, and each party expressly waives any right to recover from the other party, whether in contract, in tort (including without limitation negligence and strict liability) or otherwise, any punitive, exemplary, special, indirect, incidental or consequential damages whatsoever, which in any way arise out of, relate to, or are a consequence of any NEC Indemnitee's or Cray Indemnitee's performance or nonperformance hereunder, or the provision of or failure to provide any service which either party is obligated to provide hereunder, including, but not limited to, loss of profits, business interruptions and claims of customers. 4.3 Limitation of Liability. In any event, the liability of any NEC Indemnitee with respect to this Agreement or anything done in connection herewith, including, but not limited to, the performance or breach hereof, or from the sale, delivery, provision or use of any service or product provided under or covered by this Agreement, whether in contract, tort (including without limitation negligence or strict liability) or otherwise, shall not exceed the aggregate of all fees then paid by Cray to NEC hereunder within the twelve month period immediately preceding the date of Cray's claim relating thereto. 4.4 Obligation to Reperform. In the event that Cray becomes aware of any material breach of this Agreement by NEC with respect to any error or defect in the provision of any service it is obligated to provide under this Agreement, and Cray notifies NEC of such breach, NEC shall promptly make commercially reasonable efforts to correct such error or defect. 4.5 Notification and Procedures. In connection with any indemnity hereunder, the party seeking an indemnity shall: (i) promptly notify the indemnifying party of any claim or proceeding, or threatened claim or proceeding; (ii) permit the indemnifying party to take full control of such claim or proceeding; (iii) cooperate in the investigation and defense of such claim or proceeding; (iv) not compromise or otherwise settle such claim or proceeding without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld, conditioned or delayed; and (v) take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceeding. In any action in which the indemnifying party assumes control, the indemnifying party shall not enter into any settlement without the prior written consent of the indemnified party, which shall not be unreasonably withheld, conditioned or delayed. 3 4 SECTION 5 TERMINATION 5.1 Termination for Breach. This Agreement may be terminated by Cray if NEC materially breaches any provision of this Agreement and such breach is not cured within thirty (30) days after written notice, or if such breach is not susceptible to cure within thirty (30) days, then within a reasonable time thereafter provided that NEC begins such cure and diligently pursues such cure within such thirty (30) days. This Agreement may be terminated by NEC if Cray materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice, or if such breach is not susceptible to cure within thirty (30) days, then within a reasonable time thereafter provided that Cray begins such cure and diligently pursues such cure within such thirty (30) days. 5.2 Termination Upon Certain Events. NEC may terminate this Agreement immediately if (i) Cray files a petition in bankruptcy or makes a general assignment for the benefit of creditors or otherwise acknowledges insolvency, (ii) Cray is adjudged bankrupt or goes into liquidation, (iii) a receiver is appointed for the benefit of Cray, (iv) NEC terminates the Distribution Agreement, or (v) there shall occur a Change of Control of Cray. "Change of Control" means (a) (x) the merger or consolidation of Cray into or with one or more entities, (y) the merger or consolidation of one or more entities into or with Cray or (z) a completed tender offer or other business combination if, in the case of (x), (y) or (z), the stockholders of Cray prior to such merger, consolidation or business combination do not retain at least a majority of the voting power of the surviving entity or (b) the involuntary sale, conveyance, exchange or transfer to another entity of (I) the voting capital stock of Cray if, after such sale, conveyance, exchange or transfer, the stockholders of Cray prior to such sale, conveyance, exchange or transfer do not retain at least a majority of the voting power of Cray or (II) all or substantially all of the assets of Cray. 5.3 Sums Due. In the event of a termination of this Agreement, each party shall be entitled to all outstanding amounts due to it from services provided by it under this Agreement up to the date of termination. SECTION 6 MISCELLANEOUS 6.1 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party; provided, however, that (i) without the consent of the other party, a party may assign any or all of its rights and delegate any or all its obligations hereunder to any entity controlling, controlled by or under common control with such party, in which event the assigning party shall remain fully liable for the performance of all its obligations hereunder; and (ii) subject to Section 5.2, a successor in interest by merger, by operation of law, or by assignment, purchase or other acquisition of all or 4 5 substantially all the business of a party may acquire the respective rights and obligations of such party under this Agreement. Any prohibited assignment shall be null and void. 6.2 Construction. This Agreement is the result of negotiation between sophisticated parties and no provision hereof shall be construed against a party solely because that party was responsible for drafting the provision. 6.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. 6.4 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 6.5 Amendment and Waiver. No waiver of any violation or nonperformance of this Agreement in one instance will be deemed to be a waiver of any subsequent violation or nonperformance. All waivers must be in writing and signed by the party making such waiver. This Agreement may not be modified or amended except in writing signed by each party. 6.6 Notice. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier or personal delivery: (i) If to Cray, to: Cray Inc. 411 First Avenue South, Suite 600 Seattle, WA 98104-2860 Telecopy: (206) 701-2218 Attention: Kenneth W. Johnson With a copy to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204-1268 Telecopy: (503) 220-2480 Attention: Jere M. Webb (ii) If to NEC: 5 6 NEC Corporation 1-10, Nisshincho Fuchu City Tokyo 183-8501 Japan Telecopy: 81-42-333-6382 Attention: General Manager, Supercomputer Marketing Promotion Division With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Marc E. Perlmutter, Esq. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by a recognized international express courier service, if delivered by courier; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 6.6 designate another address or person for receipt of notices hereunder. 6.7 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 6.8 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 6.9 Choice of Law. This Agreement will be governed by the internal laws of the State of New York without regard to the conflicts of laws principles thereof. 6.10 Force Majeure; Maintenance. (a) If the whole or any part of the performance by NEC of any part of its obligations under this Agreement is prevented, hindered or delayed or otherwise made impracticable by reason of strikes, labor troubles, floods, fires, accidents, earthquakes, riots, explosions, wars, hostilities, acts of government, customs barriers or taxes, export/import control regulations, interruption or shortage of or delay in transportation, inability to obtain key raw materials, components or supplies or other cause of like or different character beyond the reasonable control of NEC, NEC shall be excused from such performance during the continuance of such contingency and for so long as such contingency shall continue to prevent, hinder or 6 7 delay such performance. If the contingency specified in this Section 6.10 shall continue for more than six (6) months from its occurrence, either party may terminate this Agreement (subject to Section 5.3) forthwith without any liability by giving a written notice to the other party. (b) NEC shall have the right to cease temporarily for maintenance purposes the operation of the equipment or facilities providing any service it is obligated to perform hereunder whenever it determines in its reasonable and good faith judgment such action is necessary. In the event such maintenance is required, Cray shall be reasonably notified of such maintenance (which notice may be given during or after any emergency maintenance). Notwithstanding the above, NEC shall give Cray as much advance notice of any shutdown as is reasonably practicable. Where written notice is not feasible, oral notice may be given. NEC shall be relieved of its obligations to provide the applicable service during the period that the necessary equipment or facilities are shut down; provided, that NEC shall use commercially reasonable efforts to restart such equipment or reopen such facilities as promptly as practicable. 6.11 No Third-Party Beneficiaries. Except as provided in Section 4, nothing in this Agreement shall confer any rights upon any person or entity other than the parties and each party's respective successors and permitted assigns. 6.12 Confidentiality. This Agreement shall be covered by the confidentiality provisions in Section 10.11 of the Stock Purchase Agreement, which shall survive the termination or expiration of this Agreement for a period of two years. 6.13 Dispute Resolution. Any dispute, controversy or claim arising out of or in connection with this Agreement that the parties are unable to resolve amicably shall be determined and settled by arbitration in London, UK in accordance with the rules then in effect of the International Chamber of Commerce; and both parties hereby consent to the jurisdiction thereof. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court having competent jurisdiction. 6.14 Survival. Sections 4.1, 4.2, 4.3, 4.5, 5.3 and 6 shall survive the expiration or termination of this Agreement. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 7 8 IN WITNESS WHEREOF, the parties have executed this Maintenance Agreement as of the date first written above. CRAY INC. By: /s/ James E. Rottsolk ----------------------------------- Name: James E. Rottsolk Title: President and CEO NEC CORPORATION By: /s/ Kazuhiko Kobayashi ----------------------------------- Name: Kazuhiko Kobayashi Title: Senior Vice President 8 9 SCHEDULE A to MAINTENANCE AGREEMENT 1. SUPPORT SERVICES 1.1 General. 1.1.1 Cray will make commercially reasonable efforts, at Cray's expense, to develop its own capabilities to be the primary provider of Maintenance Services. 1.1.2 NEC will provide on-site support in emergency situations only, as determined by NEC in its sole reasonable discretion. 1.1.3 Upon prior written approval by NEC, Cray may subcontract all or any part of the Maintenance Services to a Cray subsidiary or a third party (each, an "Approved Third Party"). Cray shall guarantee the obligations of and performance by any such Approved Third Party. 1.1.4 Detailed procedures relating to the provision of the Maintenance Services, including remote and on-site support, training and special services, will be defined in the NEC/Cray Product Support Plan (the "Operational Plan"). The Parties may amend and/or supplement the Operational Plan in writing, as mutually deemed appropriate. The Operational Plan shall be used solely for operational purposes, and not for specifying contractual obligations of either party. 2. HARDWARE MAINTENANCE SERVICE 2.1 General. 2.1.1 Cray shall perform installation and maintenance service either directly or through an Approved Third Party on Products in strict accordance with the procedures recommended by NEC in the applicable documentation, provided, that if there is any procedure not adequately covered by the applicable documentation, Cray may perform such installation and maintenance service in a professional manner. 2.1.2 Maintenance service to be performed by Cray shall consist of (i) diagnosing hardware problems, (ii) tracing the problems to the Spare Parts level, and (iii) rectifying the problems by replacing Spare Parts. 10 2.1.3 It is further understood that no repair license is granted by NEC to Cray with respect to the Spare Parts and therefore NEC will not be required to provide to Cray any support, information or documentation for repair by Cray of such Spare Parts. 2.1.4 The term "Spare Parts" as used herein shall mean field replaceable units such as components and subassemblies of Hardware Products which shall have the same List Prices for all overall sales of Spare Parts. For this purpose the term "List Prices" refers to NEC's standard international list prices for the Spare Parts (which prices shall be the same for all countries, except Japan), as published from time to time in the Repairable Spare Parts List and the Consumable Spare Parts List. Spare Parts shall consist of "Repairable Spare Parts" and "Consumable Spare Parts" as shall from time to time be designated by NEC in the form of Repairable Spare Parts List and Consumable Spare Parts List, respectively. Spare Parts Lists, which contain part prices, repairable/non-repairable ID, repair charge of repairable part and part failure rate, will be periodically provided to Cray. 2.1.5 To ensure its proper maintenance service, Cray shall purchase from NEC and maintain in stock such quantities of Spare Parts as reasonably recommended by NEC and accepted by Cray, unless otherwise agreed. Cray shall store Spare Parts at all times in suitable, dry and clean premises and comply in all respects with any reasonable instruction for storage that may be given by NEC from time to time. Cray shall use Spare Parts supplied hereunder solely for its performance of maintenance service on Hardware Products and for no other purposes, unless maintenance service shall be subcontracted by Cray to an Approved Third Party in which case the Approved Third Party may use Spare Parts for the purpose of maintenance of Hardware Products. For avoidance of doubt, Cray may not use the Spare Parts to assemble a Product from scratch. 2.1.6 NEC will provide Cray, for use in performing installation and maintenance service on Hardware Products, such special (i) tools, test equipment and measuring instruments ("Tools") and (ii) test and diagnostic programs ("T&D Programs") as shall be recommended by NEC in writing for these purposes. The Tools will be provided at reasonable charges and the T&D Programs will be provided without charge. Cray shall use such Tools and T&D Programs supplied hereunder solely for its performance of installation and maintenance services on Hardware Products and for no other purposes, unless maintenance service shall be subcontracted by Cray to an Approved Third Party in which case the Approved Third Party may use the Tools and T&D Programs for the purpose of maintenance of Hardware Products. Cray shall not copy, reproduce, modify or disclose, or otherwise make available to any other person, all or any part of T&D Programs. Notwithstanding the foregoing, Cray may copy all or any part of T&D Programs, in printed or machine-readable form, for any purposes mutually agreed upon by NEC and Cray; 11 provided, that Cray shall reproduce NEC's copyright notice on each such copy. Cray shall have the right to make the material and information referred to in this Section 2.1.6 available to Approved Third Parties pursuant to a confidentiality agreement. 2.2 Supply of Spare Parts, Tools and Test Equipment 2.2.1 NEC agrees to supply the Spare Parts and Tools to Cray during the term of this Agreement and for a period of five (5) years after the discontinuance announcement of relevant Products by NEC to Cray or the termination of the Distribution Agreement. 1) On the fifth day of each month of the term of this Agreement, Cray shall provide NEC with an eighteen (18) month rolling forecast for Spare Parts and Tools together with and in the same manner as the Product rolling forecast called for by the Distribution Agreement. 2) In the event that NEC decides to discontinue supply of Spare Parts and Tools at any time after the expiration of the said period of five (5) years, NEC shall give Cray at least three (3) months' notice prior to the date of receiving final order for such Spare Parts and Tools. 3) Any orders for Spare Parts and Tools from Cray shall be subject to applicable lead time of not less than six (6) months, provided that in case of emergency order NEC shall make commercially reasonable efforts to promptly airfreight ordered Spare Parts and Tools to Cray, consistent with the nature of the emergency. 4) Except as provided in Section 5.2 of the Transition Agreement, Cray shall purchase the Spare Parts from NEC at the list price specified in the Spare Parts Lists, provided that such prices shall be no greater than the prices NEC charges its subsidiaries for the same Spare Parts. Except as otherwise expressly stated herein, the purchase and sale of Spare Parts shall be governed by the terms, conditions and procedures of the Distribution Agreement (including, without limitation, Sections 4, 5 and 6). 2.3 Repair or Replacement of Repairable Spare Parts 2.3.1 With respect to the failed Repairable Spare Parts of Products not covered by NEC's warranty obligations under the Distribution Agreement, NEC shall, if requested by Cray, at its sole option, repair or replace such Repairable Spare Parts at the Repair Charge of such Repairable Spare Parts. NEC will repair or replace such Repairable Spare Parts to then current latest revision level. The repair or replacement charge (the "Repair Charge") will be defined for each repairable part in the Repairable Spare Part List, provided, that the cost of transportation shall be borne by Cray. 12 2.3.2 In the event that Cray requests NEC to repair a Repairable Spare Part, Cray shall at its expense return the failed Repairable Spare Parts to NEC's manufacturing facilities in Japan. Cray shall, at the same time, furnish all information available to it regarding any failed Repairable Spare Parts to enable NEC to determine the cause and existence of the alleged failure. If NEC's inspection reveals that such failure does not exist, NEC shall return to Cray the Repairable Spare Parts at the expense of Cray and Cray shall pay the repair charge for "no-failure found" specified in the Operational Plan. 2.3.3 NEC shall use its reasonable efforts to repair the returned Repairable Spare Parts within thirty (30) working days after it has received such Repairable Spare Parts at its manufacturing facilities in Japan. Upon completion of such repair, NEC shall send to Cray repaired Repairable Spare Parts "CIP" (as defined in INTERCOMS 2000) named Japanese airport basis. If in the judgment of NEC the returned Repairable Spare Parts are not repairable, NEC shall return the Repairable Spare Parts to Cray at Cray's option and expense, and shall provide Cray with replacement Repairable Spare Parts in accordance with Section 2.2, if Cray so elects. 2.3.4 NEC agrees to repair or replace failed Repairable Spare Parts during the term of and in accordance with this Agreement and for a period of five (5) years after the discontinuance announcement of relevant Products by NEC to Cray or the termination of the Distribution Agreement. 2.4 Documentation 2.4.1 One set of maintenance documentation for the Hardware Products shall be provided by NEC to Cray without charge. The documentation will be listed in the Operational Plan. 2.4.2 A single copy of updates to the documentation shall be provided to Cray in the English language for maintenance and updating of existing field and library documentation. 2.4.3 Cray may use (which includes the right to translate, adapt, copy and modify) the documentation and updates to prepare Cray's maintenance, operation and support documents only for the purpose of maintenance of Hardware Products. 2.4.4 Cray shall take all appropriate legal measures to protect NEC's rights in the documentation provided to Cray under this Agreement, including securing NEC's copyrights in all jurisdictions in which Cray employs the documentation or portions thereof. 2.5 Training of Cray Personnel 13 2.5.1 NEC shall, upon request of Cray, conduct training courses in Japan or a place mutually agreeable to NEC and Cray to the extent necessary for performing installation and maintenance of Products hereunder. The number of Cray's trainees, the time schedule of such training and other details shall be determined in advance by agreement between the parties hereto. NEC shall, upon receiving Cray's request for training, make reasonable efforts to provide such training to Cray personnel in accordance with the time schedule given by Cray. 2.5.2 Cray shall cause its trainees who participate in training courses to be conducted in Japan to comply in all respects with NEC's internal rules and regulations. 2.5.3 NEC shall provide copies of all necessary materials to each trainee. Cray may record any or all training courses on video tape and, after NEC's review and consent to its contents, Cray may reproduce and distribute such video tape, for internal use only by Cray, under Cray's name. 2.5.4 In the Initial Period, NEC will provide training without charge. With respect to each training course under this Agreement, Cray shall be responsible for all costs associated with the travel and living expenses of Cray employees. In addition, following the Initial Period Cray shall pay to NEC (i) a training charge mutually agreed in advance, (ii) machine time and training materials provided by NEC, if any, at NEC's intra-company charges and (iii) round trip air fares by economy class for NEC instructors if it is agreed that the training is to be conducted in the U.S.A. (collectively, the "Training Reimbursement"). The Training Reimbursement shall be annually adjusted in each March during the term of this Agreement. Such adjusted Training Reimbursement for a given year shall be applied from the 1st day of April of that year. 2.6 Technical Support 2.6.1 If Cray or Approved Third Parties encounter in the performance of maintenance service on Hardware Products problems that require NEC assistance in spite of its reasonable efforts to complete the service without such assistance, Cray may, through facsimile and/or electronic mail, request technical consultation of NEC engineers in Japan by informing fully NEC of the nature of the problems ("Escalation Call"). Only the Cray personnel listed in the Operational Plan may make an Escalation Call. NEC shall make reasonable efforts to advise Cray of the solution to the problems as quickly as possible. If NEC does not have a known solution for the problems reported by Cray, NEC will make commercially reasonable efforts to develop a solution if so requested by Cray. In this case, Cray shall pay to NEC an escalation charge of $* per event (the "Escalation Charge"), provided, that no Escalation Charge will be paid by Cray for technical consultation on the problems caused by NEC's manufacturing defect or design fault in Hardware Products. The - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 14 Escalation Charge shall be annually adjusted in each March during the term of this Agreement after consultation with Cray. Such adjusted charge for a given year shall be applied from the 1st day of April of that year. 2.6.2 Upon Cray's written request, NEC will perform technical support through an NEC engineering team, by facsimile and/or electronic mail for the Products, during NEC's normal business hours, at a monthly technical support fee of $* per installed system (the "Support Fee"). Technical Support shall include (i) failure analysis of the Products, provided, that Cray agrees to notify NEC in writing of a technical description and/or data of such failure or defect of such Products and (ii) answers to Cray's technical inquiries (not related to any specific failure and/or problem in the field, for which technical support will be provided in accordance with Section 2.6.1 above). The Support Fee does not include charges for failed part analysis which is separately defined. The Support Fee shall be annually adjusted in each March during the term of this Agreement after consultation with Cray. Such adjusted charge for a given year shall be applied from the 1st day of April of that year. Only Cray personnel listed in the Operational Plan may make a technical inquiry. 2.7 Dispatch of NEC Engineers 2.7.1 NEC shall, upon Cray's reasonable request, dispatch engineer(s) to Cray in order to provide technical advice on installation, operation and maintenance of the Products supplied under the Distribution Agreement. The necessity of such dispatch, the number of NEC engineers to be sent, the time schedule of such dispatch and other details shall in advance be determined and agreed between the parties. Cray shall submit for review and acceptance by NEC a prior written request for such dispatch, stating the purpose of such dispatch, the desired number and qualification of NEC engineers, the time schedule and other details. 2.7.2 Unless otherwise agreed to by NEC, the working time of each NEC engineer dispatched shall not exceed eight (8) hours (excluding one hour lunch time) per day and five (5) days per week. 2.7.3 Cray shall reimburse NEC for travel and living expenses incurred in dispatching its engineers to Cray. In addition, Cray shall pay to NEC a dispatching fee calculated at the rate of $* per calendar day for each NEC engineer dispatched under this Section 2.7 (the "Dispatching Fee"), provided, that no Dispatching Fee will be paid by Cray for technical assistance on the problems caused by NEC's manufacturing defect or design fault in Hardware Products. The Dispatching Fee shall be applicable and paid for the workdays from the day the respective engineer leaves Japan to the day he leaves the place of destination (both inclusive). The Dispatching Fee shall be annually adjusted in - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 15 each March during the term of this Agreement. Such adjusted fee for a given year shall be applied as from the 1st day of April of that year. 2.8 Field Change Order 2.8.1 NEC shall issue Field Change Orders ("FCO") for Hardware Products and Spare Parts in case of recurring failure and as otherwise required. NEC shall provide FCO kits for Hardware Products and Spare Parts without charge in accordance with NEC's round-robin schedule. Cray shall promptly install such FCO kits at its own expense and its own responsibility, and shall return the replaced parts to NEC at Cray's cost. The detailed procedures shall be set forth in the Operational Plan. 3. SOFTWARE MAINTENANCE SERVICE 3.1 Maintenance Support 3.1.1 Scope: During the term of this Agreement, NEC shall provide to Cray maintenance support for the Software Products on a level consistent with that generally provided by NEC to its other customers, including updates or upgraded versions to the Software Products (collectively, "Updates"). The timing and content of all Updates shall be determined by NEC, in NEC's sole discretion. The software including Updates shall be furnished not more frequently than twice a year. NEC shall also correct any reproducible malfunctions and shall furnish the corrected Software, provided, that Cray provides the detailed information of malfunctions of the Software Products and test cases including, without limitation, a source program which demonstrates such malfunctions. NEC shall use commercially reasonable efforts to promptly correct such malfunctions and promptly upon such correction, furnish Cray with the corrected version (or portion) of the Software Products, provided, that, in the event NEC reasonably believes that any such malfunction will not cause serious problems with normal use of the Software Products, NEC may consult with Cray and Cray shall allow NEC additional time to furnish corrected Software Products. More detailed procedures regarding Updates and malfunction corrections shall be proved for in the Operational Plan. 3.1.2 Fee: In consideration of the software maintenance support under Section 3.1.1 Cray shall pay to NEC an annual software maintenance fee (the "Software Maintenance Fee"), due on March 31 of each year, equal to the greater of (i) * percent (*%) of the aggregate of the List Prices of all of the Software Products sold to Cray as of December 31 of the immediately preceding year and still in use (pro-rated pursuant to the following sentence), and (ii) $*; provided, that the $* minimum is waived for the Initial Period. The amount specified in - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. 16 subclause (i) shall be pro-rated, in the case of Software Products installed in the immediately preceding year, by the number of months that such Software Products were actually installed at the customer's site. 3.2 Technical Consultation 3.2.1 NEC shall provide Cray with technical consultation for the Software Products, for a consulting fee of $* (the "Technical Inquiry Fee") for each PSR (as defied in the Operational Plan). The scope of the procedures for technical consultation shall be defined in the Operational Plan. 3.3 Documentation 3.3.1 One set of maintenance documentation, including an English language copy of the user's manual for the Software Products shall be provided by NEC to Cray without charge. The documentation will be listed in the Operational Plan. 3.3.2 A single copy of updates to the documentation shall be provided to Cray in the English language. 3.3.3 To the extent that NEC has the right to permit Cray to do so without payment to third parties, Cray may use (which includes the right to translate, adapt, copy and modify) the documentation and updates to prepare Cray's maintenance, operation and support documents only for the purpose of maintenance of Software Products. 3.3.4 Cray shall take all appropriate legal measures to protect NEC's and third parties' rights in the documentation provided to Cray under this Agreement, including securing NEC's copyrights in all jurisdictions which Cray employs the documentation or portions thereof. - -------- * Confidential material has been intentionally omitted at this point pursuant to a request for confidential treatment, and such material has been filed separately with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----