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SULLIVAN & THORESON BANK OF AMERICA TOWER 7()1 FIFfI-! AVENUE, SUITE 3470 SEATTLE, WASHINGTON 98104 (206) 9Q3-0S04

MiCHAEL J. FO

3

FilEt)

06 FEB ~ 7 PM 3: 30 _KiNg', COUNTY SUf1,!';f.lJO;)f:'tv m-I 'C' c..-..v ~ _t~.t/!.~v':-:1\ -, " ,Li.....nn

St:.':1; I: lt~ W!~.

4

5

6

IN THE SUPERIOR COURT OF WASHINGTON FOR KING COUNTY

MICROSOFT LICENSING GP plaintiff

) ) ) ) ) ) )

~.~~ ~ 04 924'0 lSA SUMJ\10NS BY

PERSONAL SERVICE

7

8

-v-

TSR SILICON RESOURCES, INC., also known as International TSR Silicon Resources, Inc. defendant

9

10

II

THE STATE OF WASIDNGTON TO ALL NAMED DEFENDANTS:

12

13

1. A lawsuit has been started against you in the above entitled court by the plaintiff.

2. Plaintiffs claim is stated in the written complaint, a copy of which is served upon you with this summons.

3. In order to defend against this lawsuit, you must respond to the complaint by stating your defense in writing, and serve a copy upon the undersigned person within 20 days (if this was served on you within the State of Washington) or within 60 days (if this was served on you outside the State of Washington), excluding the day of service, or a default judgment may be entered against you without notice. A default judgment is one where the plaintiff may be entitled to what is asked for because you have not responded. 4. If you serve a notice of appearance on the undersigned person you are entitled to notice before a default judgment may be entered.

5. If not previously filed, you may demand that the plaintiff file this lawsuit with the court. If you do so your demand must be in writing and must be served upon the undersigned person. Within 14 days after you serve your demand, the plaintiff must file this lawsuit with the court, or the service on you of this summons and complaint will be void.

6. If you wish to seek the advice of a lawyer in this matter you should do so promptly so that your written response, if any, may be served on time.

7. This summons is issued pursuant to Rule 4 of the Civil Rules for Superior Court of the State 0 Washington.

14

15

16

17

18

19

22

Dated: February 6, 2006.

24

25

Phillip L. Thoreson, #9434,

Sullivan & Thoreson, attorneys for plaintiff.

J

----_ ... _._- -

'0'.

2

--_._ .. _._----

MICHAEL J. FOX

3

4

5

6

IN THE SUPERIOR COURT OF WASHINGTON FOR KING COUNTY

7

MICROSOFT LICENSING GP, a Nevada General Partnership comprised of Microsoft Corporation and Microsoft Management, LLC

plaintiff

8

9

-v-

TSR SILICON RESOURCES, INC., also known as International TSR Silicon Resources, Inc. defendant

COMPLAINT ON

UNPAID BUSINESS DEBT

IO

11

12

FOR ITS CAUSE OF ACTION HEREIN, PLAINTIFF ALLEGES:

1. Plaintiff is a Nevada General Partnership, comprised of Microsoft Corporation, a Washington Corporation, and Microsoft Management, LLC, a Nevada Corporation, has all necessary licenses and has paid all applicable fees and penalties.

2. Defendant TSR SILICON RESOURCES, INC., which also conducts business under the name INTERNATIONAL TSR SILICON RESOURCES, INC. is a Delaware corporation, and conducts business in Washington and throughout the United States.

3. This lawsuit is properly before this Court based on the terms of the Microsoft OEM Distributor Channel Agreement (hereinafter MODCA) pertaining to choice of forum for legal disputes, a copy of which is attached hereto as Exhibit C.

4. Defendant owes Plaintiff the principal sum of $2,674,780.00, plus interest at 12% per annum from the due date stated on each invoice until paid, plus costs of suit and attorney fees incurred herein, in accordance with the invoice summary, the Invoices, and the terms of the MODCA, copies of which are attached hereto and marked Exhibits A, Band C, respectively, and incorporated herein by reference, arising out of failure to pay for certain Microsoft OEM System

13

14

15

16

17

18

19

20

21

22

23

24

25

26

COMPLAINT ON UNPAID BUSINESS DEBT, lof2.

SULLIVAN & THORESON BANK OF AMERICA TOWER 701 FIFTH AVENUE, SUITE 3470 SEATTLE, WASHINGTON 98104 (206) 903-0504

2

3

4

5

6

Builder software and hardware purchased from Plaintiff.

5. In addition to the amounts set forth above, Defendant owes Plaintiff the sum of $853,519.00 in accordance with the results of an audit performed on the books and records of Defendant for the fiscal years 2002 (July 1,2002, to June 30, 2003) and 2003 (July 1,2003, to June 30,2004) based on the terms of the MODeA. A copy of the audit report is attached hereto as Exhibit D. Plaintiff may be entitled to additional amounts as it is entitled to audit the books and records for fiscal years 2005 and 2006 but to date Defendant has failed and refused to allow such audit.

7

8

9

10

11

12

13

5. Despite demand upon Defendant, the debt set forth herein has not been paid.

14

"WHEREFORE, plaintiff prays for judgment against Defendant as follows:

15

16

a) for $3,528,299.00 principal, plus attorney fees, plus interest;

b) for such additional sums as may be proven at trial following audits of the books and records of Defendant for fiscal years 2005 and 2006;

c) for costs of suit herein;

d) for such other and further relief as the Court deems just and equitable.

17

18

19

20

21 February 6, 2006

22

23

Phillip L. Thoreson, WSB #9434,

Sullivan & Thoreson, attorneys for plaintiff

24

25

26 COMPLAINT ON UNPAID BUSINESS DEBT, 20f2.

SULLIVAN & THORESON BANK OF AMERICA TOWER 70[ FIFTH AVENUE, SUITE 3470 SEATTLE, WASHINGTON 98104 (2\l6) 903·0504

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MICROSOFT OEM DISTRIBUTOR CHANNEL AGREEMENT

Agreement #5138670009 dated July 1,2004 with TSR SILICON RESOURCES INc..

a company organized under the laws of Delaware, USA.

Microsoft Corporation (or that Microsoft subsidiary or affiliate specifically identified in section ]4) and you (as identified in the signature block below) agree to be bound by (i) this agreement, (ii) the operations manual that is included with this agreement and located on the channel partner website, and (iii) the royalty and price list located on the channel partner website, all of which are incorporated into and fonn part of this agreement.

1. Pnrpose. In summary, this agreement grants yon the non-exclusive, limited right to order and deliver packages of Microsoft OEM

System Builder software and hardware in your territory.

2. Definitions. In this agreement, "you" means the company that has entered into this agreement with us, and "we", "us" or "Microsoft" means the Microsoft C011lpm1y specifically identified in section 14 that enters into this agreement and its affiliates. In addition, the following definitions apply to 111is agreement.

2.1 "affiliate" means any legal entity that is owned by you or us, that owns you or us, or fuat is under common ownership with

you or us. Ownership means control of more than a 50% interest.

2.2 "suthorizeti replicator" or "AR" means Microsoft or an entity licensed by us to manufu.cture and/or fill your orders for

software or hardware.

2.3 "cbannel partner website" means the website(s) to which we grant you access to obtain current royalty and price lists,

updated versions of the operations manual, or to obtain other program infonnation identified in this agreement. The url for this website is iocated in the "Additional Resources" section in fue appendix of the operations manual.

2.4 "hardware" or "hardware units" means the OEM system builder version of our hardware that we make available to you

in a package, including any hardware-related software and user documentation (in bard copy or electronic form).

< 2.5 "operations manual" means the hard copy or electronic document named the "Microsoft OEM Distributor Operations

Manual" that provides ordering, reporting, payment, trademark usage, and other guidelines and information.

2.6 "pacbge" means the Microsoft System Builder Pack consisting of software or hardware to which a Microsoft OEM

System Builder License is affixed or as we may deliver it in the future.

2.7 "royalty and price list" means the list of packages that we make available to you under this agreement and other related

information including software royalties and hardware prices. The urI for the royalty and price list is located in the "Royalty and Price List" section of the operations manual.

2..8 "software" or "individual software license" means the OEM system builder version of software that an authorized

replicator makes available to you in a package, or an individual software license that may come from a package, that may include software media, documentation (in hard copy or electronic form), certificates of authenticity, end user license agreements and any security devices.

2.9 "territory" means the geographic territory where you may deliver packages lIS specified in the royalty and price list.

3. Order and delivery of packages.

3.1 Order and delivery rights. We grant you the non-exclusive, limited right to order and deliver unopened and unaltered

packages in the territory onty. The following limitations apply;

(a) You order packages from authorized replicators;

(b) You order packages listed on the current royalty and price list only. If a package is discontinued from the current

royalty and price list, you may continue to deHver the discontinued packages remaining in your inventory nom the earjier of 0) the remaining discontinued packages are delivered; (ii) tnls agreement expires or terminates or (iii) we advise you of a final shipment date; and

(0) Unless otherwise provided in writing, you may not deliver packages to any other distributor who has an effective

Microsoft OEM Distributee Channel Agreement. If provided Jn writing, you will follow the reporting provisions for the deliveries as specified therein.

3.2 Your delivery of individual !oftware licenses under System Bnilder License. You may only deliver individual software

licenses or bardware units in your territory if you also agree to be bound by the Microsoft OEM System Builder License that is affixed to each package and available at httj):lIwww.microsoitcom/oem/sblicense. Tfyou deliver software or hardware pursuant to the Microsoft OEM System Builder License, you are also subject to your territory restrictions and sections 4.1, 4.2 and 5.

4. Reporting and payment. General reporting and payment requirements are provided below. For additional reporting and payment

requirements refer to the operations manual as described below.

~ 1

CONFIDENTIAL

03/16/04 Microsoft OEM Distributor Channel Agreement

Form 2.8.16

~

-4.1 ~PlJrting inventory ancAs. You wi11 provide us with inventozy and sales & regarding the packages, individual

software licenses. or hardware units as descnl,K- the "Record-Keeping and Software Destruction Guidelines," "Royalty and Price List, .. and "Royalty Reporting" sections oftbe operations manual. If you do not meet your reporting obligations as described in the operations manual, we

may .

(a) Cause authorized replicators to hold your pending orders;

(b) Terminate this agreement by written notice; and

(c) Invoice you for software royalties based on software shipment data received from the authorized replieators.

4.2 Payment of software royalties. For each package of software or individual software license that you deliver, you must pay

us the royalties that are on the royalty and price list. The royalty payment due is detennined by the current royalty and price list at the time of shipment If software is unaccounted for in the reconciliation of your reports, you will report the number of'unaccounted software units during the reporting period during which the absence of units is identified (see the "Record-Keeping and Software Destruction Guidelines" section of the operations manual).

4.3 Payment of hardware prices. For each package of hardware that you order, you must pay US the purchase price provided

on the royalty and price list The price for packages of hardware is determined by the current royalty and price list at the time of shipment by our supplier's warehouse to you (see the "Payments" section of the operations manual).

4.4 Price proteetion. We may provide price protection for packages of hardware. If We do, we will send you the tenns and

coruiiti<Jns fur price prereetion as outlined in the "OEM Hardware Ordering and Returns - Price Protection" section of the operations manual,

4.5 Rebates. We may offer rebates. If we do. we will send you the terms and conditions fur the rebate program as outlined in

the "Rebates" section of the operations manual. Your participation in a rebate offering will represent your acceptance of the terms and conditions outlined in the rebate documentation yon receive.

4.6 Late payments. All amounts that are not paid in a timely manner by yau as required by this agreement will be subject to a

late charge equal to 12% per annum, accrued, calculated and payable monthly (or, if less, the maximum allowed by applicable law). In the event that any payment due under this agreement. is overdue, we reserve the right to suspend our performance until your account is current.

4.7 Credit verification and payment assurances. We reserve the right to review your financial condition, payment history,

and overall credit worthiness during the tenn of this agreement. Your acceptance of this agreement spllcifically authorizes us to access any credit bureaus or agencies to inquire on your financial condition. In addition, we may require any combination of the following payment

assurances: '

(a) A third-party guarantee, performance bond. Jetter of credit or other security; or

(b) Written assurances of due performance; or

(c) A deposit amount equal to the estimated royalties and prices for the upcoming 3-month period of this agreement.

You may not recoup the deposit amount against royalties or prices due while this agreement is effective. If you are in compliance with all material terms of !his agreement when it ends, we will refimd the deposit amount (minus any amount due to us within 60 days of your finlll report(s) and payment due for packages delivered pursuant to this agreement). You may not apply the deposit amount against payments to any non~Microsoft authorized replicator. Until any required deposit amount is received and accepted by us. we may suspend your right to (i) place orders by notifYing the authorized rcplicators and/or (ii) deliver packages.

4.8 Hardware shipment terms. Prices (packages of hardware only) are calculated on an "EXW" ("Ex Works") basis

(Incotenns, 2000). You are solely responsible for shipping and insurance and all charges from this designated point (or any other designated fulfillment point in the future), as wen as all applicable sales or use taxes or other taxes, import and/or export fees, duties and/or tariffs, and any other taxes. duties or fees of any kind which may be levied in connection with the ordering and delivery of hardware. We reserve the right to change the foregoing pricing tenus andlor shipping terms upon 30 days prior written notice to you.

4.9 Returns. You may only return software and hardware as expressly provided in the "OEM Hardware Ordering and Returns"

and "Authorized Replicators, OEM Software Ordering and Returns" sections of the operations manual.

S. VerifYing compliance. During the tenn and for three years after this agreement ends, you must keep all usual and proper books and records (according to the set of accounting rules, regulations. authoritative pronouncements, principles and practices accepted in your jurisdiction) relating to your performance of this agreement, including without limitation, documents related 10 acquisition" delivery and destruction of packages, software, and hardware. During the same period. at our cost, our audit team may conduct audits of your applicable books. records, operations, processes and facilities during any selected period to verify your compliance with the tenus of this agreement as described further in the "Compliance Program" section of the operations manual. You will promptly correct any errors and omissions (including any underpayments of royalties or hardware prices) disclosed by the audits.

Any audit will be conducted during your normal business hours and in a !Ilanner that does not interfere unreasonably with your normal business activities, You will provide us with access to all applicable: books, records. operations, processes and facilities that we may need to review to complete a proper and thorough audit If an audit is conducted with notice, you will have all applicable books, records and operations available to us at the beginning of the audit You will pay US (a) the costs for the audit if any audit uncovers a discrepancy of 1% or more of the amount that was reported during the applicable audit period and (b) an additional royalty of 30% oftbe applicable royalty for each package of software that you failed to report. You acknowledge and agree that payment of 3OUio of the applicable royalty is not a penalty but a genuine estimate of the actual damages that we have suffered as a result of your breach of your obligation to pay the full amount of royalties due under this agreement. If the audit team makes any commercially reasonable recommendations to you on record keeping, you wilt implement the recommendations within a mutually agreeable timeframe.

2 CONFIDENTIAL

If we request, you will also provide ~ 70 (type 2) report or its equivalent. See www.S.e.com for further details. Such request would be discussed with yon first to ensure ~S 70 report sufficiently covers our auditobjectives before you engage a third party 10 conduct the SAS 70 review.

6. Warranty and indemnity obligations.

6.1 Our warranty and indemnity obligations.

<a) No warranty. Unless expressly stated otherwise in this agreement or mandatory under applicable law

despite this provision. we disclaim and exclude all warranties and representations (express or implied, by statute or othel"Wise) in relation to the software and hardware, including without limitation, warranties of title, merchantability! satisfactory quality. noninfringement. fitness for a particular purpose or any implied warranty arising from course of dealing or usage of trade. For purposes of this section, wilen we use tbe term "warranty'" we incl(lde any other applK:able terms or conditions.

(b) Defense of infringement claims. We win defend you, at our expense, in a lawsuit, and pay the amount of any

adverse final judgment (or settlement to which we consent) from such lawsuit, for any third~party claim(s) that the software or hardware infringes its copyrigltt(s), trademark right(s), or patent(s). in the geographical boundaries of those countries in which you order and deliver software or hardware. Our obligations are subject to the following conditions; (1) you must notifY us promptly in writing of the claim; (2) we will have sole control over defense and/or settlement of the claim; (3) you will provide US with reasonable assistance in the defense of the claim; and (4) our obligations to defend and pay a patent claim will be limited to patent claims where the licensed software alone, without combination or modification, constitutes direct or contributory infringement of such patent claim.

(e) Limitations on our defense obligation. We win not be liable for any claim to the extent that the claim is based

on you or your affiliate (i) delivering or using the software or hardware after we notify you to discontinue delivering or using.the software or hardware due to such a claim; (ii) combining the software or hardware with any other non-Microsoft technology, program or data; or (iii) altering the software or hardware. You will reimburse us for any costs or damages that result from these actions,

(d) Our option$. If we receive information concerning a claim, we may, at our expense. but without obligation to do

so, either; (i) procure for you copyright, trademark or patent rigbt(s) or license(s) to address the claim; or (il) replace or modify the software, hardware, or mark to make it non-infringing; or (iii) require you to discontinue delivering or using the software or hardware affected by the claim.

6.2 YOUI' warranty and indemnity obligations.

(8) No representations. You must not make any representation or warranty with respect to any software or hardware

or their use on our behalf

(b) Indemnity. You must defend. indemnify and hold us harmless from any claim from a third party arising as a

result of: (1) your acts and omissions in connection with this agreement and (ti) any loss or damage suffered by us which we would not have suffered if we were a third-party beneficiary, if the law prevents us from being a valid third party-beneficiary,

7. Remedies and liabilities.

7.1 Exclusive remedy and limitation on liability.

(a) Your and our only remedy for any claim arising out of or related to this agreement is to terminate this agreement,

regardless of'the form or cause of action or the alleged basis of the claim (including negligence).

(b) If 7.1 (a) is not enforceable under applicable law, your and our total cumulative liability under this agreement for

any liability not described in subsections 7.1(c}-(e) will be limited to 100% of the amount actually paid by you and any amounts owed by you to us during the then-current term of this agreement

(c) For copyright and trademark infringement claims, your and our cumulative liability arising within the

geographical boundaries of a given country will be limited to an amount not to exceed 100% of the amount you actually paid to us for the infringing software or hardware that you provided in10 or :from that country during the then-cmrent term of this agreement.

(d) For patent infringement claims arising within the geographical boundaries of Australia. canada, the European

Union member nations, 3apan, Nmway, Switzerland, or the United States your and our cumulative liability win be limited to an amount not 10 exceed t ()()tI1o of the amount you actually paid to us for the infringing software or hardware that you provided into or from that country during the then-current term of this agreement

(e) For patent infringement claims arising within the geographical boundaries of any country other than those in

subsection 7.I(d) above, your and our cumulative liability wiU be limited to infringement damages resulting from your direct provlsion of software or hardware located in the applicable country, and any such liability will be limited to an amount not to exceed 100% of the amount actually paid by you to us for the infringing software or hardware resulting in such infringement damages.

(f) The limits on liability in this section apply to third~par1Y claims under section 6.

(g) The limits on liability in this section do not apply to your and our liabilities and remedies for fraud, gross

negligence, unauthorized use of intellectual property and breach of confidentiality obligations.

(h) You release us and we release you, from all liability in excess of the limitations in this section, including any

claim for indemnification or contribution, whether arising under statutory or common law or otherwise.

-----------_ .. _--- ..

7.2 No liability for certain d.. tit

(8) In the absence offraud or gross negligence. neither you nor we will be liable to the other for any loss (whether

direct or indirect) of profits" business or anticipated savings. Our liability for loss or damage of any kind (including loss or damage caused by negligence) is reduced to the extent that you or your agents caused or contn1ruted to that loss or damage.

(b) The exclusion of liabiti1y in this section applies 10 third-party claims under section 6.

(e) The exclusion of liability in this section does not apply 10 your or our liability to the other for violation of its

confidentiality obligation or of'the other party's intellectual property rights.

7.3 Applh:ation. The limitations on and exclusions of liability for damages in this agreement apply to the maximum extent

permitted by applicable law, regardless of whether the liability is based on breach of contract, tort (including negligence), strict liability, statute, breach of wamm.ties, or any other legal theory.

7.4 Warranty of re-supply. You warrant that the packages acquired under this agreement are acquired solely for the purpose

ofre-supply and you indemnifY us for all costs, expenses and damages if you breach this warranty.

8. Term aDd termination.

8.1 Term. This agreement win take effect on July I, 2004. Unless tenninated earlier, the agreement will continue until June 30,

2005, at which date it will automatically end. By mutual agreement, you and we may enter into a new. agreement for another fixed period of time. Such new agreement will be governed by the tenus and conditions agreed upon by the parties at that time.

8.2 Termination without cause. Either party can terminate this agreement at any time without cause by giving the other 30

days prior written notice. Neither party will be responsible to the other for any costs or damages resulting from termination of this agreement uader this section.

8.3 Termination for cause. If you or we have breached this agreement and the cause for termination is curable, the

tenninating party win give 30 days prior written notice and opportunity to cure. If the cause for termination is· the type that is not curable during that time, termination wiIJ take effect immediately upon notice :from the party who is not in breach. Furthennore, either party may terminate this agreement effective upon notice. or as soon thereafter as is pennitted by applicable law, if the other party becomes insolvent; enters bankruptcy, reorganization. composition or other similar proceedings under applicable laws, whether voluntary or involuntaJy; admits in writing its inability 10 pay debts; or makes or attempts to make an assignment for the benefit of creditors,

8.4 Effect of expiratioR or termination

(a) When this agreement expires or terminates, you must immediately stop using all rights granted by this agreement

and submit all sales and royalty reports within five days. You must pay any amounts due 10 us under this agreement immediately upon expiration or termination. We may also require you to provide us with a certification of destruction for your inventory as outlined in the "Record-Keeping and Software Destruction Guidelines" section of the operations manual.

(b ) Yon agree that, except as otherwise provided in this agreement, the tennination or expiration of this agreement in

accordance with its terms will not cause us or any of our suppliers to pay any indemnification, severance or termination payment or benefit to you or any of your suppliers. H we or any of our suppliers are required by law, court order or otherwise to pay to you or any of your affiliates, or third party. any compensation, severance payor benefit other than as provided in this agreement, you must indemnifY us and/or our relevant supplier(s) from the payment as well as from any related reasonable costs and expenses (including, but not limited to, attorneys' fees and expenses).

8.5 Statutory form. Without any liability to you, we reserve the right to either terminate or vary this agreement without use of

a statutory form in any territory where use of such form may be appropriate or permitted. including in circumstances where a statutory form is required.

8.6 Waiver of rights and obligations. To the extent necessary to implement the termination of this agreement, you and we

each waive any right or obligation under any applicable law or regulation to request Or obtain intervention of the courts to terminate this agreement.

8.7 Survival. Sections 4, 6, 7. 8, 12. 13, 14 and 15 of this agreement will survive any termination or expiration of this

agreement.

9. Inullectual property.

9.1 Referential use of trademarks. This agreement does not gnmt you any right, title, interest, or license in or to any of our

names, word marks, logos, logotypes. trade dress, designs, or other trademarks. You may use our corporate name, technology names and trademarks in plain text (but not logos, trade dress, designs or word marks in stylized form) to accurately identify and refer to Microsoft and its technology and services, provided that such use is not likely to cause confusion about the source of your solutions and services or your relationship with us. For further assistance. please refer to the "Trademark Usage Guidelines" in the operations manual and our usage guidelines, located at http://www.microsoft.comImscorpfipftrademarks/oemguide.asp.

9.2 Proprietuy notices. You must not remove any copyright, trademark or patent notices contained in or on any of the

software and hardware, You must include our copyright notice on ail copies of the software, packaging and on any documentation for the software, including on-line documentation. You must use the appropriate trademark. licensed software descriptor and trademark symbol (either "TW' or "®"). and clearly indicate our (or our suppliers') ownership oftradernark(s) whenever the software or hardware name is first mentioned in any advertisement, brochure or in any other manner in connection with the software and hardware.

4 CONFIDENTIAL

'''''' , MO' ....' ~- ...... n'_. - Eiii-',-e;!'"

, .4 4Jd

9.3 Use of your marks. Your~ce of this agreement authorizes us to publish_names, trade names, trademarks, and

logos in connection with your participation as W~ed distributor for software and hardware as outlined on the channel partner website. We will not modify your names, trade names, trademarks and logos. Upon our request, you wilt provide us artwork for your logos. in printed or electronic fonn or both.

9.4 No technology transfer arrangement This agreement does not create a "technology transfer" agreement" as defined by

applicable law because (a) the technology (including any software) made available under this agreement is not an integrated part of a technology chain for production or management purposes and (b) the technology (including any software) will have its own technology license. You will not hold yourself out as our technology recipient and will not attempt to identify us as a technology provider under this agreement

9.5 Unsolicited commercial emsil. You may not use our marks in connection with the transmission or distribution of

unsolicited commercial email or in any manner that would violate local law or custom or conflict with our polictes,

10. License compliance. You must not engage OT particlpate with any third party in the unauthorized manufacture, duplication, delivery, transfer or use of counterfeit, pirated or illegal software, and you must not otherwise infringe any of our other intellectual property rights. You must reasonably cooperate with our affiliates and us in the investigation of counterfeit, pirated or illegal software. You must report to us, as soon as possible after you notice it, any suspected counterfeiting, piracy or other infringement of copyright in computer programs, manuals, marketing materials or other copyrighted materials owned by us and/or our licensors.

11. Taxes. The amounts to be paid to us under this agreement do not include any foreign. U.S. federal, state, provincial, local, municipal

, or other governmental taxes (including without limitation goods and services taxes), stamp or documentary taxes, duties, levies, fees, excises or tariffs, arising as a result of or in connection with the transactions contemplated under or any supply made under this agreement However, you must pay to us any applicable value added, goods and services, sales or use taxes or like taxes that are owed by you solely as a result of entering into this agreement and which are permitted to he collected from you by us under applicable law. You may provide to us a valid exemption certificate in which case we will not collect. the taxes covered by such certificate, We are not liable for any of your taxes that you are legally obligated to pay which are incurred or arise in connection with or related to the sale of goods and services, under this agreement, and all such taxes (including but not limited to net income or gross receipts taxes, franchise taxes, and/or property taxes) shall be your financial responsibility, Where such taxes are imposed on us by law. you must pay us an amount on account of such taxes as invoiced by us to you. You agree to indemnify, defend and hold us hannless from any taxes (including sales or use taxes paid by you to us) or claims, causes of action, costs (including, without limitation, reasonable attorneys' and legal fees) and any other liabilities of any nature whatsoever related to such taxes.

Unless otherwise expressly stated. all amounts stated to be payable under this agreement are exclusive of Goods and Services Tax (GST), Canada Harmonized Sales Tax (HST) and Canada Quebec Sales Tax (QST). If an amount payable under this agreement is consideration for a taxable supply. an additional amount on account of the GSTIHST/QST liability for that taxable supply will be payable by the recipient of the supply. The recipient must pay the GSTIHST/QST in addition to and at the same time as payment for the taxable supply is required to be made.

II; in accordance with local laws and regulations or after a detennination by foreign tax authorities, any taxes are required to be withheld, on payments made by you to us, you may deduct such taxes from the amount owed to us and pay them to the appropriate taxing authority; provided. however, that you shall promptly secure and deliver to us an official receipt for any such taxes withheld or other documents necessary to enable us to claim a U.S. Foreign Tax Credit. You will make certain that any taxes withheld are minimized to the extent possible under applicable law.

This tax section shall govern the treatment of all taxes arising as a result of or in connection with this agreement notwithstanding any other section of this agreement.

12. Notices.

12.1 General. All notices, authorizations, deliveries and requests in connection with this agreement must be sent in a manner

that confirms delivery to and from the contacts, addresses and numbers listed in (a) this section for you and (b) section 140ftMs agreement for the appropriate Microsoft contracting entity. Notices are considered to be delivered on the date shown on the confirmation of delivery. We have the right to give notice by publication on the channel partner website. If notice is given by website publication, publication is deemed confirmation of delivery.

5 CONFIDENTIAL

INVENTORYIPRICING CONTACT:

Patrick Chan I

~~CO. NRESOURCES INC. \ 10 I f) (I

16 West 30th Street -r a- I

New York, NY 10001 ..L- \ .::: '

UNITED STATES

.

12.2 Contact informatitm. wA, send correspondence to the following (See Aeratlonal Support" section of the

operations manual for a description oftbe respo~liti.es of the contacts you will designate below):

NOTICES:

Attn: Patrick Chan President

TSR SruCON RESOURCES INC. 16 West 30th Street

~~~lOOOl PJ=-52:0.37

Telephone: 212-683-8168 Fax: 212-683..8212

E-mml: Patrlck@tsrusacom

Witb c:opies m:

M"ll'Ilbel Lam

COO & Executive VP

TSR Sll..rCONRESOURCES INC. fY\ _ I .n. rt 30t 16 West 30th Street r~lD(J I J NewYorlc, NY 10001

UNITED STATES

Telephone: 212-633-8989

Fax:212-683~12

E-mail: mirabeI@tsrusa.com

Bn.LTO:

AnneLau

VP Operations

TSR SllJCON RESOURCES INC. ('}c:]. _ I 'L.f1(}r-... 16West3OtbStreet ~LOU '-f......) NewYorlc, NY 10001

UNITED STATES

Telephone: 212·683·8989 Fax: 212-683·8212 E·mail: ying@tsmsa.com

COMPANY VA T# (wbere applicable) COMPANY Web Site URL: www.tsrusacom

Telephone: 212·683-8168 Fax; 212-683-8212

E-mail: patrick@tsrusa.com

SALES BEPORT CQNTACf:

Mimbel Lam tAil

TSR SILICON RESOURCES INC. 10 1 T)

16 West 30th Street -r n -

NEW YORK. NY 10001 J- d- -

UNITED STATES

Telephone: 2]2-683-8168 Fax: 212-683-8212

E-mail: mirabel@tsrusa.com

MARKETlNGIPRQMOTIONS CONTACT:

David Liscom r1 '~

TSR Sn.ICON RESOURCES INC. ':-10 I "IV ..

18150 Rowland Street -r-> '1.... __ r

City oflndustry. CA 91748 .-L :.J

UNITED STATES

Telephone: 626-810-8866 Fax: 62&581-3387

E-mail: david_liscom@tstusa.com

REBATE PROGRAM CONTACT: ~O lK

Ben TIbollo. . __

VP Sales & Marketing --r-: } 1,:""""",,-

SILICON RESOURCES INC. .-L- ~

ISIS{) Rowland St . .

Cityoflndustry, CA 91748

UNITED STATES

Telephone: 626-81()..886ii Fax: 626·581-3387

E-mail: ben_tibollo@tsrusa.com

Packages of hardware will be delivered to your warehouses listed below (provide additional locations on separate pages if necessary):

Attn: Patrick Chan

P 'dent HO ca

~SILICON RESOURCES INC. ~/"jJ 8

16 West 30th Street \9J

NEW YORK, NY 10001

UNITED STATES

Telephone: 2]2-683·8]68 Fax: 212-683-8212

E-mail: Patrick.@tsrusa.com

6

AmyCben Branch Manager

SILICON RESOURCES INC. 4031 Clipper Court

Fremont, CA 94538 UNITED STATES

Telephone: 510-440-8222 Fax:SlO~-862S

&mail: amy_chen@tsrusa.com

Ben TiboUo

VP Sales & Marketing

Sn..ICON RESOURCES INC. ~ """"-5YJnr1

18150 Rowland Street \ L -- \:) I

City of Industry, CA 91748 n

UNITED STATES

Telephone: 626-S10-8866 Fax: 626·581-3387

E-mail: ben_tibollo@tsrusa.com

12.3 Changes in contact information. You will keep all information required in this section 12 complete and current You will

notii» us in writing with4t 10 days of any change of any individual, address or other information required by this section including your agreement number and notitJing us oftbe name, address, phone, fax. email or contact name change. Ifthere has been a company ownership or company name change, we have the right to require you to (a) provide us with additional infonnation and relevant documents relating to the circumstances oftbe cbange and (b) require you to enter into a new OEM distributor channel agreement as a result of the change.

13. General.

13.1 Entire agreement. This document, the operations manual, the royalty and price list and the applicable addenda constitute

your and our entire agreement concerning your delivery of software and hardware, and supersede any prior or contemporaneous communications including any prior agreement between you and us relating to your delivery of software and hardware. This agreement can be changed only by an amendment signed by both of us, except that by posting to the channel partner website andlor providing written notice, we may change the operations manual, royalty and price list, and our contact infurmation, and you agree to be bound by any changes therein.

13.2 Assignment. You may not assign or transfer this agreement or your rights or obligations under it. whether by contract or by

operation of law, without our prior written consent, which will not be withheld without a bona fide commercial purpose. We may transfer our rights and obligations hereunder without your consent, but only to one of our affiliates. Any prohibited assignment is void.

13.3 Confidentiality. The following terms and conditions apply to exchanges of information that take place under this

agreement.

(a) "Confidential infunnation" means nonpublic information that you, we, or an affiliate designates as being

confidential or which, under the circumstances surrounding disclosure, ought to be treated as confidential. You and we must refrain from disclosing any confidential information of the other for five years following the date of disclosure, except that iftbe confidential information is personal information, there is no time limit regarding non-disclosure. However, confidential information may be disclosed in accordance with a judicial or other governmental order, if the receiving party either: (i) gives reasonable notice of the order to allow the other party a reasonable opportunity to seek: a protective order or otherwise prevent or restrict its disclosure, or (ii) obtains written assurance from the applicable judicial or governmental entity that it will protect the confidential information to the maximum level allowed under applicable law or regulation. The term "residuals" means information in intangible form, which is retained in memory by persons who have had access to the confidential information, including ideas, concepts, know-how, or techniques contained therein. You and we are free to use the residuals resulting from access to or work with confldential information for any purpose, however. the receiving party may not disclose the confidential information except as expressly pennitted pursuant to the terms of this agreement The receiving party will not have any obligation to limit or restrict the assignment of such persons or to pay royalties fur any work resulting from the use of residuals. One party may provide the other party with suggestions, comments or voluntary feedback if it does not violate any other contractual or legal obligations. This feedback may be used, disclosed, reproduced, licensed, distributed and exploited by either party without obligation or restriction of any kind. Unless the parties specifically agree in writing. this feedback. even if designated as confidential, wiIl not create a confidentiality obligation. This sub-paragraph does not grant a license to the receiving party under the disclosing party's copyrights or patents.

(b) You agree to keep in confidence any customer information given to you by us under the terms of this agreement

You also agree to take reasonable security measures to protect the customer information from unauthorized use, access, disclosure,. alteration or destruction. Security measures will include access controls, encryption and any other security means that are required to comply with applicable laws. Upon tennination or expiration of tl:tis agreement, within 10 days and at our sale discretion, you will either (i) return all

7 CONFIDENTIAL

documents and materials (including any and ~Aes) containing customer information, together W1e other materials and property in your possession or under your control or (ii) destroYY~ch specified documents and materials (including any and aU copies) and provide us with a

certificate of destruction signed by an officer of your company. c

13.4 Relationship between the parties. Even though we may call you a "partner," you acknowledge that you are an

independent contractor for all purposes regarding this agreement and its provisions. At no time do you have the power to (a) bind us, (b) vary any terms, conditions, warranties or covenants made by us, or (c) create in favor of any person any rights which we have not previously authorized in writing. Neither this agreement, nor any of its provisions, will be construed as creating a partnership, joint venture, agency,

franchise relationship or any fiduciary duty between you and us. .

13.5 Language. We offer this agreement in several languages, The language version in which you enter into this agreement will

control. If you are in Canada, it is our express wish that this agreement, and any associated documentation, be written and signed in English. C'est la volonte expresse des parties que la presente convention ainsi que les documents qui s'y rattachent soient rediges en anglrus .:

13.6 Severability. If a court holds any provision of this agreement to be illegal, invalid or unenforceable, the remaining

provisions will remain in full force and effect and the parties will amend the agreement to give effect to file stricken clause to the maximum

extent possible. T-

13.7 Waiver. No waiver of any breach ofthis agreement shall be a waiver of any other breach. and no waiver will be effective

unless made in writing and Signed by an authorized representative of the waiving party.

13.8 CompUance witb Lsws,

(a) Export restrictions. You acknowledge that the licensed software is subject to U. S. export jurisdiction. You agree

to comply with all applicable international and national laws that apply to the licensed software. including the U.S. Export Administration Regulations, as wen as end-user, end-use and destination restrictions issued by U.S. and other governments. For additional information. see Jr!:W:I/www.microsoft.comlexporting/·

(b) Government approvals. You and your affiliates mnst, at your own expense, obtain and arrange for file

maintenance of any government approvals and comply with all applicable local laws and regulations necessary for your provision of the licensed software and your performance of1his agreement You may import, provide, or license licensed software in or to a country or territory only if allowed by. and in compliance with, all applicable laws and regulations of the country or territory as well as aU provisions of this agreement

(c) Compliance with collection, recovery and disposal of materials requirements. You agree to comply with all

applicable laws and regulations relating to collection., recovery and disposal of bard ware, batteries and/or packaging materials in the country in which you are resel1ing software and/or hardware. You also agree to comply with our reasonable requests that are aimed at ensuring compliance with applicable legal requirements on bardware, batteries and packaging materials collection, recovery and disposal. You agree to indemnify us in the event that your failure to comply with these undertakings results in a claim or action being made against us, or one of our affiliates.

13.9 Microsoft Corporation and affiliates - third-party beneficiaries. You acknowledge and agree that certain sections of

this agreement are fur the express benefit of Microsoft Corporation and its affiliates. As a result, we and our affiliates are entitled to require your due performance of each such provision. This agreement is being entered into by us not only in our own right but also as agent and trustee for each of our affiliates. Subject to the foregoing, this agreement does not create any enforceable rights by anyone other than the parties to this agreement

14. Microsoft contracting entity. The Microsoft contracting entity for this agreement is detennined by the country/region in which your

principal place of business is located as outlined below (for the most up-to-date list, please see bnp:llwww.miqosoft.comloemldistribmor):

14.1 Microsoft Licensing. GP is tbe Microsoft contracting entity for the following countries or regions;

American Samoa. Anguilla, Antigua and Barbuda, Argentina, Aruba, Australia and its external territories, Bahamas, Bangladesh. Barbados, Belize, BermUda. Bbutan, Bolivja, Brazil. Brunei Darussalam, Canada, Cambodia. Cayman Islands, Cbile, Colombia, Cook Islands! Costa Rica. Curacao. Dominies, Dominican Republic, East Timor, Ecuador, EI Salvador, Fiji. French Guiana, French Polynesia, French Southern Territories. Grenada, Guadeloupe, Guam. Guatemala, Guyana, Haiti, Honduras, Hong Kong, India, Indonesia, Jamai~ Japan. Kiribati. Lao Peeples Democratic Republic, Macao, Malaysia, MlIJdives. Marshall Islands, Martinique, Mayotte, Mexico, Micronesia,. Montserrat, Nauru, Nepal, Netherlands Antilles, New Zealand, Nicaragua. Niue, North~rn Mariana Islands, Palau, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Pitcairn, Puerto Rico, RepUblic of Korea, Saint Kitts and Nevis, Saint Lucia, Saint Pierre and MiqueloD, Saint Vincent and The Grenadines. Samoa. SingapDre, Solom&n Islands, Sri Lanka, SUriname, Thailand, Taiwan, Tokelau, Tonga, Trinidad and Tobago, Turks and Caicos Islands, TtlValu, United States, Uruguay, Vanuatu, Venezuela. Vietnam, Virgin blands (British) and Vb-gill Islands (U.S.), Wallis aJId Futuna Islands.

Microsoft Licensing, GP 6100 Neil Road, Suite 210 Reno, NV8951l-1l32' USA

8

CONFIDENTIAL

14.2 Microsoft Ireland Opera_Limited is the Microsoft contracting entity for th~ng countries or regions:

Afghanistan, Albanm, Alga-ill. Andorra, Angola, Armenia, Austria, Azerbaijan. Bahrain, Belarus, Belgium, Benin, Bosnia and Herzegovina, Botswana, Bouvet Island, Bulgaria, Burkina Faso, Burundi, Cameroon, Central Afriean Republic, Chad, Comoros, Congo, Cote d'boire, Croatia, Cyprus, Czech Republic. Democratic: Republic: of Congo, Democratic: Republic: of Sao Tome and Principe, Denmark. Djibouti, Egypt, Estonia, Etliiopia, Faeroe Islands, Finland, France, F.Y.R.O.M. Gabon, Gambia, Georgia., Germany, Ghana, Gibraltar, Greece, Greenland, GuineaRBissau, Hungary, Iceland, Ireland, Israel, Italy, Jordan, Kazakhstan, Kenya, Kosovo, Kuwait, Kyrgyzstan, Latvill; Lebanon, Lesotho, Liberia, Liechtenstein. Litbuania, Luxembourg, Madagascar, Malawi, Mali. Malts. Matlritania, Mauritius, Moldova, Monaco, Mongolia, Morocco, Mozambique, Namibia, Netherlands, New Caledonia, Niger, Nigeria, Norway. Oman, PakistanJ Poland, Portugal. Qatar, Republic: of Cape Verde, Republic of Equatorial Guinea, Republic of Guinea, Republic of Moldova, Republic of Senegal, Reunion. Romania, Russian Federation, Rwandese Republic, Saint Helens, San Marino, Saudi Arabia, Seycbelles, Sierra Leone, Slovakia, Slovenia, Somalia, South Afries, Spain, SV:IIlbard and Jan Mayen, Swaziland, Sweden. Switzerland, Tajikistan, Tanzania. Togo, Tunisil, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, Uzbekistan, Vatican City State, Yemen, Yugoslavia, Zambia, Zimbabwe. .

Microsoft Ireland Operations Limited BlockB

Cannenhall Road

Sandyford Industrial Estate

Dublin 18

Ireland

14.3 Microsoft (China) Company, Limited is the Microsoft contracting entity fui the People's Republic: of China (for tPe

purpose oftbis agreement, the People's Republic of ~ina does not include Hon& Kong SAR .• Macau SAR. or Taiwan).

Microsoft (China) Company, Limited 6F Sigma Center

No. 49 Zhicbun Road Haidian District Beijing 100080, P.R-C.

15. Applicable law; attorneys' and legal fees.. Applicable law, jurisdiction and venue for this agreement are identified in exhibit A This choice of jurisdiction and venue does not prevent either party from seeking injunctive relief with respect to a violation ofintel1ectua1 property rights. contidentiali1y obligations or enforcement of recognition of any award or order in any appropriate jurisdiction. If either party commences litigation in connection with this agreement, the prevailing party will be entitled to recover its reasonable attorneys' and legal fees,

costs and otber expenses. .

16. Exhibits. The terms of the document(s) attached to this agreement as exhibits are incorporated into this agreement by reference. If

there is any inconsistency between the terms of this agreement and exhibit(s), the terms of exhibit(s) will control.

The parties bave agreed upon and executed this agreement as ofthe date set forth below.

By:

• ~ _ 'II 6~ T ." •• +" , •

Name:

Title;

Title:

Date:

Date:

9 CONFIDENTIAL

Exhibit A

If your principal place of business is in one of the countries or regions listed below, this agreement is governed by the laws oftbe State of Washington. The parties consent to exclusive jurisdiction and venue in the courts sitting in King County, Washington. You waive all defenses of lack of personal jurisdiction and forum non conveniens.

American Samoa, Anguilla, Antigua and Barbuda, Argentina. Aruba. Bahamas, Bangladesh, Barbados, BeUze, Bermud~, Bbutal1& Bolivia, Brazil. Brunei Darussalam, Canada, Cambodia, Cayman Islands, Chile, Cook Islands, Curacao, Dominiea, Dominican Republic. East Timor. Eeoador, EI Salvador, Fiji, French Guiana, French Polynesia, French Southern Territories, Grenada. Guadeloupe. Guam, Guatemala, Guyana, Haiti, Honduras. Hong Kong, Jamaica. Kiribati, Lao Peoples Democratic Republic, Macao, Maldives, Marshall Islands. Martinique, Mayotte, MexiCo, Micronesia, Montserrat. Nauru, Nepa~ Netberlands Antilles, Nicaragua, Niue, Northern Mariana Islands, Palau, Panama, Papua New Guinea. Paraguay, Peru, Pitcairn, Saint Kitts and Nevis, Saint Lutla. Saint Pierre and Miquelon, Saint Vincent and The Grenadines, Samoa. Solomon Islands, Sri unka. Suriname, Tokelau, Tonga. Trinidad and Tobago, Turks and Caicos Islands, Tuvalu, United States, Vanuatu. VenezuelRt Virgin Islands (British) and Virgin Islands (U.S.). Wallis and Futuna Islands.

.... ~.~_ .................. lIlt'"'· ........ _"RI""-1 ••• R., ..... ~._ ..... u r .. '"'Io"I: ....... nnnn A

I ••.. ..z ,., .. ...."""'.oj "1_.. .• _ ... I'~ ••••• ".. l' '. ~ .... 0: ...

10 CONFIDENTIAL

June 1, 2005

TSR Silicon Resources Inc. 16 West 30th Street

NEW YORK NY 10001 United States

Attention: Attn: Patrick Chan

Re: Amendment to the Microsoft OEM Distributor Channel Agreement # 5138670009 ("distribution agreement") between Microsoft Licensing, GP ("we", "us" or "Microsoft") and TSR Silicon Resources Inc. ("you") to extend the distribution agreement through September 30, 2005.

Dear Attn: Patrick Chan:

This letter is to inform you that your current distribution agreement expires under its terms on June 30, 2005.

This letter extends your distribution agreement through September 30, 2005.

Except for the extension of the term of the agreement, your distribution agreement Shall remain in full force and effect. If there is any inconsistency between the terms of the agreement and this amendment, the terms of this amendment will control.

In accordance with section 13.1 of the agreement, this amendment does not require your counter signature. Once you order any packages of software or hardware from an authorized replicator after June 30, 2005, you reaffirm the terms of the agreement as amended by this amendment. The terms of this amendment are confidential and you will not disclose any portion of it to a third party.

Your account manager will contact you when information on the new program Is available. If you have any questions, please contact your account manager.

Sincerely,

Microsoft licensing, GP

cc: Bailey. leslie A. (lESlIEBA), MS Account Manager MGlP Accounting Services

Microsoft law and Corporate Affairs (pamjohn)

. '

, ,

September 1, 2005

TSR Silicon Resources Inc. 16 West 30th Street

NEW YORK, NY 10001 United States

Attention: Attn: Patrick Chan

Re: Amendment to the Microsoft OEM Distributor Channel Agreement # 5138670009 edistribution agreement") between Microsoft licensing, GP ("we", "us" or "Microsoft") and TSR Silicon Resources Inc. ("you") to extend the distribution agreement through December 31, 2005.

Dear Attn: Patrick Chan:

As described in a letter dated September 1. 2005, Microsoft will make two significant changes to its OEM distributor business model and processes during Microsoft's 2006 fiscal year:

• Invoicing and paying royalties based on authorized replicator shipments. OEM distributors will be invoiced for software royalties based on shipments to them from authorized replicators (ARs). This is a significant change to the current soft\.vare invoicing model, where OEM distributors are invoiced for software royalties after they ship the software to system builders.

• Tracking and authorizing all returns and software destructions. A new software returns/destruction process will track all returns and de~activate all destroyed COA product keys. Under the new process, Microsoft will pay AR destruction costs. Distributors will pay for retum freight and will not be reimbursed for the cost of the physical product OEM distribUtors will no longer be allowed to "self-destroy" excess, obsolete, or damaged software once the new process is implemented.

These changes will reduce the amount of under-reported and unpaid software royalties that put OEM distributors that comply with the terms of their agreement at a competitive disadvantage, They will also align business practices for Microsoft OEM Distributors with standard industry business practices, as well as with business practices in other Microsoft channels (e.g., full packaged product distributors).

Because these changes will not be introduced until after the time your current distribution agreement is scheduled to expire on September 30, 2005, Microsoft is extending your current distribution agreement through December 31, 2005, at which time It will expire of Its own terms.

In addition, OEM Distributor audits have revealed certain areas of non-compliance. This letter also reminds you of the following obligations that you have under .your distribution agreement

• Only Microsoft Licensing, GP is authorized to change the distribution agreement on Microsoft's behalf. Under section 13.1, the distribution agreement can be changed only "by an amendment signed by both of us, except that by posting to the channel partner website and/or providing written notice, we may change the operations manual, royalty and price list, and our contact information. and you agree to be bound by any changes therein.· For example, this includes the promotions that we may offer. For clarification, "signed by us" means an amendment or modification signed by Microsoft Ucensing, GP. No other agents or employees of Microsoft, including, but not limited to,

your account manager and local Microsoft offace, have any express, implied or apparent authority to modify or amend this agreement

• You must follow specific procedures for inter-dlstributortransfer and pay software royalties at time of shipment. Under section 3.1 (c), you may not deliver packages to any other distributor who has an effective Microsoft OEM Distributor Channel Agreement "unless otherwise provided in writing. D As a reminder, if you have this authorization from us in writing, you must follow the reporting provisions for the deliveries as specified in that documenl Regardless, please note that under section 4.2, you mu!?:t pay us royalties for each package of softWare or individual software license that you deliver, including deliveries to other OEM distributors.

Your distribution agreement will remain in effect except as modified by this amendment If there is any inconsistency between the terms of your distribution agreement and this amendment, the terms of this amendment will control.

This amendment does not require your counter Signature. By ordering any packages of software or hardware from an authorized replicator after September 30, 2005, you reaffirm the terms of the agreement as amended by this amendment The terms of this amendment are "confidential information- under your distribution agreement,

Your account manager will contact you when additional information on the changes become available. Jf you have any questions, please contact your account manager.

Sincerely,

Microsoft Licensing, GP

cc: Bailey, Leslie A. (Ieslieba) Microsoft Licensing, GP

Microsoft Law and Corporate Affairs

EXHIBIT

Dear Attn: Patrick Chan:

September 1, 2005

TSR Silicon Resources Inc. 16 west 30th Street

NEW YORK, NY 10001 USA

Attention: Attn: Patrick Chan

Re: Amendment to the Microsoft OEM Distributor Channel Agreement # 5138670009 ("distribution agreemenf') between Microsoft Licensing, GP ("we", "us" or "Microsoft") and TSR Silicon Resources Inc. ("you") to extend the distribution agreement through December 31, 2005.

As described in a letter dated September 1, 2005, Microsoft win make two significant changes to its OEM distributor business model and processes during Microsoft's 2006 fiscal year:

• Invoicing and paying royalties based on authorized replicator shipments. OEM distributors will be invoiced for software royalties based on shipments to them from authorized replfcators CARs). This is a significant change to the current software invoicing model, where OEM distributors are invoiced for software royalties after they ship the software to system builders.

• Tracking and authorizing all returns and software destructions. A new software returnsfdestruction process will track all returns and de-activate all destroyed COA product keys. Under the new process, Microsoft will pay AR destruction costs. Distributors will pay for return freight and will not be reimbursed for the cost of the physical product. OEM distributors will no longer be allowed to "self-destroy" excess, obsolete, or damaged software once the new process is implemented.

These changes will reduce the amount of under-reported and unpaid software royalties that put OEM distributors that comply with the terms of their agreement at a competitive disadvantage. They will also align business practices for Microsoft OEM Distributors with standard industry business practices, as well as with business practices in other Microsoft channels (e.g., full packaged product distributors).

Because these changes will not be introduced until after the time your current distribution agreement is scheduled to expire on September 30, 2005, Microsoft is extending your current distribution agreement through December 31. 2005, at which time it will expire of its own terms.

In addition, OEM Distributor audits have revealed certain areas of non-compliance. This letter also reminds you of the following obligations that you have under your distribution agreement:

• Only Microsoft licensing, GP is authorized to change the distribution agreement on Microsoft's behalf. Under section 13.1, the distribution agreement can be changed onry "by an amendment signed by both of us, except that by posting to the channel partner website andfor providing written notice, we may change the operations manual, royalty and price liSt, and our contact information, and you agree to be bound by any changes therein." For example, this includes the promotions that we may offer. For clarification, "signed by us" means an amendment or modification signed by Microsoft Licensing. GP. No other agents or employees of Microsoft, including, but not limited to,

EX.

. --

your account manager and local Microsoft office, have any express, implied or apparent authority to modify or amend this agreement

• You must follow specific procedures for inter..distributor transfer and pay software royalties at time of shipment. Under section 3.1(c), you may not deliver packages to any other distributor who has an effective Microsoft OEM Distributor Channel Agreement "unless otherwise provided in writing.» As a reminder, if you have this authorization from us in writing, you must follow the reporting provisions for the deliveries as specified in that document Regardless, please note that under section 4.2, you must pay us royalties for each package of software or individual software license that you deliver, including deliveries to other OEM distributors.

Your distribution agreement will remain in effect except as modified by this amendment. If there is any inconsistency betvveen the terms of your distribution agreement and this amendment, the terms of this amendment will control.

This amendment does not require your counter signature. By ordering any packages of software or hardware from an authorized replicator after September 30, 2005, you reaffirm the terms of the agreement as amended by this amendment. The terms of this amendment are "confidential information" under your distribution agreement,

Your account manager will contact you when additional information on the changes become available. If you have any questions, please contact your account manager.

Sincerely,

Microsoft Licensing, GP cc: Bailey, Leslie A.

Microsoft Licensing, GP

Microsoft Law and Corporate Affairs

EXHIBIT

UO/L~/ZUU~ 07:05 ~~ 7758260506

MICROSOFT LIe

~OOI

REPORT OF INDEPENDENT ACCOUNTANTS' ON APPLYING AGREED-UPON PROCEDURES

Mr. Jeff Jobes Microsoft Ucensing, GP 6100 Neil Road

Suite 100',

Reno, Nevada 89511

Re: The execution of agreed~upon procedures to the licenses listed below:

License License Type Effective Dates
5130250005 Microsoft OEM Distributor Agreement July 1, 2002 - March 31, 2003
5134200010 Microsoft OEM Distributor Agreement April 1,2003 -June 30,2004 PricewaterhouseCoopers LLP epwC or "we") have performed the agreed upon procedures ("AUPs") listed in Attachment D, which were agreed to by Microsoft Licensing, GP ("MSLlj, to the accounting records of TSR Silicon Resources Inc. ("TSRj. These procedures were performed solely to assist you in evaluating the licensee's

com pliance with certain terms of the above agreements during the period July 1, 2002 through June 3D, 2004 ('the inspection period'). Management of TSR is responsible for its compliance With provisions of the above agreements.

This engagement to apply agreed-upon procedures was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely MSLJ's responsibility. Consequently, we make no representation regarding the sufficiency of the procedures either for the purpose for which this report has been requested or for any other purpose.

The agreed~upon procedures we have performed and related findings are included with this report The monetary findings detailed in Attachments A to C are summarized in the table below.

Monetao! Findings:
Findins T}!2e Total
Overreported Royalties (a) $ (94,708)
Unaccounted Product (b) $ ~701513
Contractual Charges (c) $ 277,714
Total $ 853,519
Total Royalties Reported $ 46,136,037
Underreporting % 1.25% (a) See Sales Reconciliation on Attachment A. (b) See Product Reconciliation on Attachment 8.

rYWRIT

UlS/ ~9;ZUU~ ur : Uti 1<'AX 775HZtiU5U6

MICROSOFT LIC

141 002

(c) See Contractual Charges on Attachment C,

Our procedures cannot be relied upon to disclose errors. irregularities, or illegal acts, including fraud or defalcations that may exist.

We were not engaged to. and did not perform an examination, the objective of which would be the expression of an opinion on compliance. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

This report is intended solely for the information and use of 1I1e specified party listed above and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes.

PricewaterhouseCoopers lLP July 28, 2005

08/19/2005 07:06 FAX 7758260506 MICROSOFT LIe 141003
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ATTACHMENT D MICROSOFT UCENSING, GP

OEM DISTRIBUTOR AGREED-UPON PROCEDURES TSR Silicon Resources Inc.

July 1. 2002 - June 30,2004

A. Sales Reconciliation:

For those Product families with multiple royalty rates per Product type, data must be obtained in enough detail to facilitate collation of data by rate classification. During the planning phase, identify potential royalty rate risk within Product families and consult Microsoft Compliance as to the required level of detail necessary for reporting, (e.g. Gross Product family or SKU level).

1) Obtain· a data extract from the licensee's Enterprise Resource Planning (ERP) system that includes distribution and return of Microsoft Product to both internal and third party customers of the licensee for 1he inspection period. The data extract should include the transaction value of each transaction.

Findings: TSR implemented a new ERP system (NAVIS/ON) in early 2004. TSR only transferred general ledger baJances from the old system to the new system and did not transfer any detail. They did not maintain or backup data from the old system and as such they were unable to provide ERP data for 22 months of the review period (July 1, 2002 - Aprf130, 2004). TSR was able to provide hard copy MS sales reports for each of these 22 months which they also keyed into excel. TSR provided ERP data for May and June 2004.

2) From the sales extract obtained in 1) above, quantify by Microsoft Product. the number of licenses, in units, distrfbuted by the licensee.

Findings: 369,873 units of Microsoft Product were distributed during the review pened - reference line 1 in Attachment A.

3) Utilizing the extract obtained in 1) above, haphazardly select 25 return transactions and compare the retum details (e.g. price, quantity, product type, language, customer information) per the data extract to supporting documentation including a credit memo and, if available, Return Material Authorizations, original invoices, and f or receiving reports. Report on all discrepancies. If more than 5 tests result in discrepancies, consult Microsoft Compliance for consideration of additional testing.

Findings: PWC agreed 25 selected M;crosoft retum transactions to credit memos without exception.

4) Utilizing the extract obtained in 1) above, review the data for large, unusual or zero value returns. Investigate and report on the nature of these items.

Findings: PWC noted no unusual retums. In conjunction with step 3 above, PWC selected some lalga value and Zero value Microsoft retum transact;ons. All traoed to credit memos. However. in regard to the zero value returns (3 transactions) it was unclear as to the nature of the retum 8S it was not noted in the credit memo itself. PWC asked TSR to provide an explanation as to the nature of these zero value

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returns. TSR believes they have responded to our inquiry. However. PWC has no

record of an explanation to date. .

5) If applicable, quantify Microsoft Product distributed on a promotional basis (royaltyfree). Obtain supporting documentation from the licensee that demonstrates MS authorization to distribute promotional units. Obtain and compare licensee authorization to Microsoft authorization information defining the royalty~free nature of the promotional unit distribution. Confirm reporting treatment with Microsoft Compliance representative and cfassify promotional units in Attachments A and B as deemed appropriate by Microsoft Compliance.

Findings: Per TSR there wete 372 units (186 units of Windows XP Professional and 186 units of Office Professional 2003) used for internal use during the inspection period. These units were reported at a zero royalty to MSLI in the January 2004 royalty report. TSR provided a IIConfidentia/ Side Letter to Microsoft OEM Distributor Agreement #5000021154 ("Agreementj dated 0511011998 with TSR' Sificon Resources, me; a corporation of DE ("Companyj, regarding InternaJ Use Rights" for these units. PWC noted that the side Jetter was not s;gned by a MSLl representative and the agreement number referenced was not valid. PwC could not locate the final signed copy of the .internal use agreement. However, per discussion with MSLI, it was agreed to consider the intemal use agreement provided by TSR as valid. As these units were used for internal use only they were not considered a sale and as such they were not included in the sales data. We have included these units in the Product Reconciliation as a reduction to inventory turnover for the reView period - reference line 4 in Attachment B.

6) Utilizing the extract obtained in 1), haphazardly select 25 sale / distribution transactions and agree the details per the data extract to supporting documentation including a customer invoice and, if available, the purchase order and f or shipping records. If more than 5 tests result in discrepancies, consult Microsoft Compliance for consideration of additional testing.

Findings: PWC agreed the selected 25 Microsoft sales transactions to supporting customer invoice without exception.

7) Identify the highest Microsoft Product sales quarter within each 12 month period during the inspection period using the sales data extract obtained in 1) above. Request that the licensee provide a complete sales extract from the licensee's ERP system for the selected quarters. For each quarter selected, summarize the Microsoft Product sales in the complete sales extract and compare to the extract obtained in 1) above. Compare the net revenue as reported in the general ledger, monthly profit and loss statement, or monthly rnanaqernent reports to the net sales value (invoice value less credit note value) .included in the complete sales extracts from the licensee's ERP system. Report on all discrepancies.

Findings: Based upon the above, PWC selected first calendar quarter 2003 and first calendar quarter 2004 for compJete sales testing. TSR was unable to provide ERP complete sales data for the selected quarters as they went through a system migration in early 2004 and did not maintain backup saJes data. TSR did provide hard copy sales data for both quaders selected. PwC was able to scan this data into excel. ?we noted that for February 2003 the excel output did not agree to the hard

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copy report - this'Was less than 1% difference. TSR represented this was actually due to a system failure for the month where the total on the hardcopy was not correct.

The complete sales data included only invoice number and invoice dollar amount. Invoices can include Microsoft and non-Microsoft product Thus, PwC was unable to agree the Microsoft sales dollar amount for the selected quarters to the complete sales data. However, PWC was able to ensure that all Microsoft invoice numbers for the selected quarters were included in the complete sales data with the exception of some Microsoft invoices for January 2003 and January 2004. Per TSR this was due to cut-off issues - these Microsoft sales were recorded in different periods (December 2002 and December 2003). TSR did not provide any further documentation to support their representation. PwC also noted in conjunction with the testing of the Microsoft Product sales in step 6 above that the selected invoices included both Microsoft Bnd non-Microsoft product As applicable, PwC agreed selected invoices that covered selected quarters to complete sales data without exception.

PwC traced the net revenue per the complete sales data for the selected quarters into the financial statements within Jess than a 1% difference.

8) For the highest Microsoft Product sales quarter of each 12 month period during the inspection period identified in 7) above, haphazardly select a total of 25 nonMicrosoft Product sales transactions from the ERP data extract provided by the licensee, obtained in 7) above. Request that the licensee provide the customer invoice and validate that none of these invoices contained any licensed Microsoft Product. Report on all discrepancies. If more than 5 tests result in discrepancies, consult Microsoft Compliance for consideration of additional testing.

Findings: PWC agreed the selected 50 (25 each quarter) non-Microsoft sale transactions to supporting customer invoices, noting no Microsoft Product, with one exception. One invoice (8 fax) was provlded by TSR and was not legible. PWC asked TSR to either scan or mail the invoice to us. As of the date of the report TSR has not provided a legible version of this invoice.

9) Obtain the SAP billing data from MSlIlMlOl and compare units invoiced to the monthly royalty reports submitted by the licensee for the inspection period. Investigate any discrepancies, and report on all under or over invoicing.

Findings: Performed without exception. No under/over invoicing noted.

10)Using the monthly royarty reports submitted by the licensee, summarize total units reported by the licensee during the inspection pertod. Note whether the licensee has reported unaccounted units of software in the "Additional Products" section on the royalty report. Calculate total royalties paid during the inspection period using the monthly royalty reports and include this figure in the Summary of Monetary Findings section of this report.

Findings:

• 370,959 units of Microsoft Product were reported by TSR to MSLI during the inspection period - reference fine 2 in Attachment A.

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• PWC noted 463 units reported in the Additional Products section of the monthly royalty reports during the inspection period, TSR represented that they included these Microsoft Products in the Additional Products section of the royalty report as these products wele not included in the actual royalty reporl template itself. In addition they reported the internal use units (186 units of Windows XP Professional and 186 units of Office Pro 2003) in the Additional Products section. These do not appear to be unaccounted units. See table below.

Month Microsoft Part # Description Units
June 2004 588-02519 MS Office Small Business 15
Aprif2004 C10-01456 MS Windows Advance Server 2000 1
April 2004 E75-00650 MS Small Business Server 2000 3
April 2004 N09-00560 MS WindoVilS XP Home 15
January 2004 E95-02718 Windows XP Professional 186
January 2004 269-07179 Office Professional 2003 186
September N09-OO342 MS Windows XP Home 57
2003
TOTAL 463 • Total royalties paid during the inspection period equals $46,136,037.

Reference the Summary of Monetary Findings section of this report.

11) For each Microsoft Product family purchased by the licensee, reconcile net total units distributed (shipments less returns) to net total units included on the royalty reports. Report all figures on Attachment A.

Findings: There is a net overreporting of 1,086 units for the inspection period. The net total of overreporting is $94,708 - reference line 3 and 5 in attachment A.

TSR represented the over-reported units may represent royalties paid on Microsoft Product that was not covered under the license agreement. TSR purchased Microsoft Product from other DSPs prior to inception of their Hcense agreement with MSLJ. However. TSR did not segregate this product either in their sales records or in their inventory records and as such PwC was unable to break out these units in the Sales Reconciliation. Thus, per TSR, royalties may have been paid essentially twice to MSU (once when the DSP sold the Microsoft Product to TSR and the other when TSR soJd the Microsoft Product). PwC selected 5 Microsoft beginning inventory purchases to review in further detail (beginning inventory represented only Microsoft Product bought prior to the inception of license agreement). In all cases the price per unit paid by TSR to the DSPs was greater than the avemge royalty rate per the license agreement. As such, Microsoft Products appear to be purchased inclusive of the royalty fee. For further information reference Product Reconciliation Procedure 1.

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12) The royalty rate to be included in the Attachments to the report will be the weighted average royalty rate reported during the period under inspection. The calculation will be total royalty dollars reported by product type divided by total units reported by Product type.

Findings: The weighted average royalty rate was calculated by dividing total royalty doflars per Microsoft Product Family by total units reported per Microsoft Product Family for the inspection period - reference line 4 in Attachment A, line 10 in Attachment a, and line 2 in Attachment C.

If during the planning phase a specific risk related to royalty rate within a Product type is identified, Microsoft Compliance may require disaggregation of product type data by royalty rate classification.

Findings: No specific risk related to royalty rate within a Microsoft Product type was noted.

B. Product Reconciliation:

For those Product families with multiple royalty rates per Product type, data must be obtained in enough detail to facilitate collation of data by rate classification.

1) For all licensee locations that handle Microsoft Product, obtain from licensee an inventory archive or system-generated report that includes a listing of Microsoft Products held in licensee inventory as of the beginning (first day) of the inspection period (beginning inventory) and as of the end {last day) of the inspection period (ending inventory).

Findings: As the beginning of the review period was based on the inception of the agreement there should not have been any beginning inventory. However. TSR purchased Microsoft Produot from other DSPs prior to the inception of their agreement with MSLI. TSR did not segregate this product either in their sales records or in their inventory records and as such we included the beginning inventory in the Product Reconciliation. PwC agreed the beginning inventory (1.799 units) to a print out of a system generated report without exception - reference line 1 In Attachment B.

To ensure that the Microsoft Products purchased prior to this license agreement where inclusive of the royalty, PwC selected 5 of the beginning inventory purchases to review in further detail. In aI/ cases the price per unit paid by TSR to the DSPs was greater than the average royalty rate per the license agreement. As such, Microsoft Products appear to be purchased incfusive of the royalty.

PwC agreed ending inventory (17,318 units) to a print out of a system generated reporl without exception - reference line 6 in Attachment B.

2) Obtain Authorized Replicator (AR) shipment and return data from MSU/MIOL. This information will come from the Microsoft OEM Online (MOO) and Orion systems. From the licensee, obtain a data extract from the licensee's ERP system that includes Microsoft product acquisitions and returns data. The data should include the company from which the Microsoft product was sourced, or to which it was

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returned. If this is not available, obtain from the licensee. a list of vendors used to source the Microsoft product. Compare Microsoft product acquisitions and returns per the MOO and Orion data to Microsoft product acquisitions and returns per the licensee.

Findings: PwC obtained the AR shipment and return data from the Microsoft MOO system. TSR was unable to provide ERP purchase data for 22 months of the review period (July 11 2002 - April 30, 2004) as they implemented a new system in early 2004 and did not maintain or backup purchase data from the old system. TSR was able to provide hard copy purchase reports for each of these 22 months which they a/so keyed into excel. TSR provided ERP purchase data for May and June 2004. See results in step a - d below.

a) For Microsoft product acquisitions included in the licensee ERP data, but not in the MOO and Orion data, haphazardly select 25 transactions (or all if less than 25 exist) and obtain the supporting purchase order and invoice documentation from the licensee. Report on all acquisitions from sources other than an AR. Investigate how these purchases occurred and obtain supporting documentation such as purchase order and / or invoice.

Findings: There were 12 purchase transactions totaling 5,115 units of Microsoft Product in which the TSR purchase data was not included in the MOO data. PWC obtained supporting purchase order documentation and agreed details without exception. All purchases obtained from TSR are included in the Product Reconciliation - reference (ine 2 in Attachment B.

b) For returns included in the licensee ERP data, but not in the MOO and Orion data, obtain the supporting return documentation from the licensee and compare to the data extract. Request a confirmation of the return receipt with the AR.

Findings: No such occurrences were noted.

c) For acquisitions included in the MOO and Orion data, but not in the licensee ERP dam, request that the licensee search its files for the appropriate purchase order and AR invoice. If the licensee has no record of such acquisition, obtain supporting proof of delivery documentation (delivery note, packing list, and invoice) from the AR.

Findings: There were 14 purchase transactions that were in the MOO data and not in the TSR purchase data. TSR represented they did not have time to search their fifes for documentation. PwC obtained supporting proof of delivery documentation from the AR. See results in the table be/ow:

EX.r

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Month M"1CmSOII: P~II::t FmniIy ToiIl Units AR Adjustment Ren=1I
iJun-tlS ~W.NOOWSXP HOME3!J..PACK GOO QMedillIMne 600 AR shfpped a !DIal tillOO UIlHs YdlHa TSR
l'E~ed 0 UI1iIs as recelvQd.
Jun-DS MS Win 2000 Pre a pack SOD Q'kdiallvme 210 AR s!l~ped a wI cf 300 ullils \!fflIe TSR
recorded SO units Jea<Woo.
JuI.03 MSWlNDOVVSX? HOME 3-PACK 1 SBlesl..lnk PKlami [J
Replacement uni!- tIO aaJl5\mBllt l1eeded.
JuHl3 MSWlNDOWSXP pre oo.?ACl( 1500 Q MediaJmllll 610 AR sh~pW a Ict:ll O! 1500 unlts ~mie m
mmded 69IlWlits lIS raceNed.
Aug-OS MSWlNSXPPROWISP1 SoPACK 2 SalesUnkNsv.ark C
R~Iat:Snmt II1lib - no adJlI&tment n~
SepoOS MSWlNDOWSXP HOI.E3()..PACK 750 SBles!..l1lk Miami 700 AR slJJpped a 1tl!a1 of 750 Imlts ~!Ie 15n'
recorded Ounilsr_~.
'Oc!:~ MS WINS 2000 PRO WlSP4 SoPACK -1~ QMediaFif;lWA 0 ~ In PU!1lr.ase below· IlD adjustment
need9d.
fJd-ll3 MS WINDOWSXl'" HQME3D-PACK mlOO SalesUnkNawark 3000 AR shipped a tala! b! 31lOJ unl1s \\1119 TSR
1WOItI!!d 0 unltslll!:SlIed.
~an-D4 MS WlNDOWSXP HOM5S[l.PACf( 7500 fSeJ1!sLink Miami 900 AR shipped a b'Ilal of 751ltl UB wttlle TSR
recorc!ed saoo units rscelved:.
Ja1Hl4 MSWlNS2IlOO PROWlSP43-PACK 120 Q Media: FIfe WA [) Corresponds til !eturn above • no ad'jIISImmrt
naeded,
Jan..Q/J MS OFFICE 582!D3 WIBCM 3-PACK 150 QMadia Fi!9WA 150 AR Slipped a IDmlI!l/ 150 unilS IIf1ne TSR
recaJ'd1ld 0 unlts~ad.
~ MSWlNOOWSXP HOME3Q.PACK 9(lVO SalesLlllkNwark (} Tltlswasa timinglfilrelw1c;a froma prim'perltld ~
n~ adjusl!rentneadl!d.
Jun-tJ4 MSWlNOOWSXP HatE :m.PACK 600 Q hWdla FKa WA 0 TSR FeceiYec! on JUry1. 2004 v.tIlch ~ after end
d reviQWperiti1l-!1ll ~J$tmentneeOOd.
Jurr04 MS WlNDOWSXP HONE 3--PACK 30[1 Q Media flfa WA 0 TSR ~1veQ 011 Jury 1,200II which was mr end
d J'e\llewperiod· no adJustmGnt nsedecl.
TOTAL 237113 S4I!n Based on the above, purchases have been adjusted by 6,480 units for a total of 392,485 units- reference line 2 in Attachment B.

d) For returns included in the MOO and Orlon data, but not in the licensee's ERP data, request the return receipt documentation from the AR.

Findings: Reference one return in MOO and not in ERP in table is 2(0) above.

e) Obtain a data extract from the licensee's ERP system that includes Microsoft product destroyed during the inspection period. Obtain documentation from the licensee that supports the Microsoft product destruction including, but not limited to, a destruction log, scrap authorization forms, destruction certificates, and Certificate of Authenticity (COA) detail. Compare supporting documentation provided by the licensee to the scrap I destruction terms in the llcensee's contract and/or MS provided resource guides and classify on Attachment B as appropriate. Document any claimed scrap that is not classified as such.

Findings: TSR represented that they had no scrap for the inspection period - reference nne 5 in Attachment B.

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Using the information obtained in procedures 2a-2e! include all valid acquisition, returns, and scrap data which contribute to the most complete data population on Attachment B as appropriate.

Findings:

• Purchases from AR's :; 392,485 units (386,005 units per TSR purchase data + 6,480 adjustment for purchases in MOO and not in ERP).

• Purchases from Other Sources = 0 units.

• Internal Uses::: 372 units (reference step 5 in Sales Reconoiliation)

• Scrap Units = 0 unff:s.

Reference fines 2- 5 in Attachment B.

3) Request that the licensee provide ERP system reports of other reconciling items, such as transfers to or from affiliated companies for the inspection period, if applicable. Quantify and classify on Attachment B as appropriate.

Findings: TSR represented to us that there were no other reconciling items, transfer tolfrom affiliated companies.

4) Obtain a list of authorized sources of Microsoft Product~(ARs) from MSLlfMlOL Select 5 eOAs included in licensee inventory and enter the eOA numbers into the MOO "bulk" eOA trace application. Inspect each resulting eOA trace for evidence of purchase from an AR and for evidence that the COA was shipped to the licensee. Identify COAs that do not trace to an authorized source of Microsoft Product or that trace as shipped to an entity other than the licensee. Report on all irregular COA trace results.

Findings: PwC obtained COAs from Microsoft Product in inventory at TSR in New York City. All COAs selected from TSR"s inventory traced to an authorized source of Microsoft Product See results of bulk COA trace in MOO in table below:

COA Microsoft Product -Results of Bulk COA
Trace
00115-93£),,043-.856 Office Pro 2003 Shipped from Q Media
FifeWA
00035-936-781-893 Office S8 XP Shipped from Q Media
- FifeWA
00113-956-063-059 Office 88 Ed 2Q03 Shipped from Q Media
\ FifeWA
00043-560-339-327 Windows XP Home Edition Shipped from SalesLink
Miami
00033-948-913-726 Works Ste 2004 Shipped from SalesLink
Miami EXHIBIT.. O:~

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5) From the data obtained in 2) above, compare the vendors included on the list provided by the licensee to the list of authorized sources of Microsoft Product (ARs) as provided by MSU/MfOL. Identify and report on all acquisitions of Microsoft Product from an unauthorized source or from any other Microsoft licensee.

Findings: No acquisition of Microsoft Products from unauthorized sources or from any other Microsoft licensees during the inspection period noted. Two AR's noted during the inspection period, Q Media and Sales/ink.

~) Using the information obtained in procedures 1 to 3 above, reconcile Microsoft Product inventory turnover to "Microsoft Product distributed from Attachment A (Sales Reconciliation). Identify unaccounted units on Attachment B. Distributions in excess of Microsoft Product available for distribution should not be extended, as they do not represent over reported royalties.

Findings: There are 6, 721 unaccounted units for the inspection period - reference Hne 9 in Attachment B. Royalties due in relation to these unaccounted units are $670,513 - reference line 11 in Attachment B.

7) Investigate and document the reason for any unaccounted Microsoft Product. Where unaccounted Microsoft Product has arisen as a result of theft. obtain supporting documentation including, but not limited to, polIce reports. insurance claims and communications with MSLl/MIOL. Where unaccounted product is due to destruction. obtain supporting documentation including, but not limited to, a destruction logl scrap authorization forms, destruction certificates. and Certificate of Authenticity (eOA) detail. Where applicable. supporting documentation should be obtained for any other unaccounted Microsoft Product.

Findings: TSR stated that they believe the purchases as included in the Product Reconciliation are incorrect. They believe the 6,480 units that were in the MSLI MOO data and not in the TSR data do not represent true purchases and should not have been lncluded in the Product Recoocifiation - reference step 2 above for further informauon regarding the 6,480 units. They believe the AR shipments per the MSLI MOO data were incorrect. In addition TSR believes the mapping table (which maps internal TSR part numbers to Microsoft part numbers) they provided to us may have been incorrect as Microsoft part numbers changed each year. TSR did not provide any documentation to support their assertions.

B) Request that the licensee provide a current system-generated inventory listing of all Microsoft Product on hand. From the listing, haphazardly select 5 Microsoft product SKUs or part numbers (or an if less than 5 exist) and compare to the results of a testcount of the actual physical holdings on hand. From the floor. haphazardly select 5 Microsoft product SKUs or part numbers (or all if less than 5 exist) and compare to the results of a test-count of the system-generated inventorY listing. Report on all discrepancies. Discuss the nature and scope of inventory discrepancies with Microsoft Compliance team for consideration of additional procedures.

Findings: PWC performed the inventory test counts at TSR~s warehouse in New York City; New York oft'NfNf!fiiber 9, 2004 wfthout exception.

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During the count PwC noted approxtmately 4 opened boxes. Three of the boxes (Office SBE 2003) appeared to be just packaging tape that had come loose. However. one box of Windows 2000 Professional was opened and one of the 3 packs was missing. TSR represented they opened this box in order to send one replacement pack to their customer as customer had received a pack without a GOA and as such they needed another pack. PwG noted that the customer dId not retum the Microsoft Product without the COA and TSR did not attempt to get reimbursed from Microsoft. TSR stated they do not open boxes on a regular basis.

9) If applicable, agree the ending inventory balance of the previous inspection period to beginning inventory balance from the current inspection period.

Findings: This is not applicable as this is the first inspection period.

C. Contractual Charge Calculation:

1) If applicable, calculate the contractual charges for each under reported and I or unaccounted unit based on the contract tenns and include the results in Attachment C,

Findings: Per section 18(d) of the most current OEM Distributor Agreement (5134200010), Audits and inspections will be paid for by MSLI, unless a breach of delivery grants and conditions or Material discrepancies are disclosed. "Material will mean one percent (1%) of the amount that was reported during the applicable 12~ month period(s). If Material discrepancies are disclosed, (0 COMPANY agrees to pay MSU for the costs associated with the entire audit; and (if) COMPANY wifl pay MSLf an additional royalty of 30% of the applicable royalty for each Package of Software COMPANY failed to report".

..

PwC calculated contractual charges at 300A, of the applicable royalty rate. Total contractual charges due to MSLI ara $76,560 related to underreporting and $201,154 related to unaccounted Microsoft Product, a total of $277, 714 - reference lines 6, 8, and 9 of Attachment C.

D. Discussion of Findings with TSR Silicon Resources Inc.

1) Review final attachments and other findings (if applicable) with TSR and agree upon or otherwise resolve any issues.

Findings: PwC discussed the final attachments and other findings with TSR on February 12, 2005. Anne Lsu, TSR Director of Finance/Controller was present at the meeting. Patrick Chan. TSR President, was not pteseni at the meeting as he was out of the country. TSR does not agree with the purchases fine of the Product Reconciliation ~ reference step 7 of the Product Reconciliation for further information.

2) Obtain management representation letter from TSR.

Findings: As of the date of this report TSR had not signed the management representation letter. TSR stated that Patrick Chan, TSR President was out of the

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country and that he could not sign the management representation letter until his return.

As agreed upon with MSLI we have provided a limited amount of details in this report. Further detail is available upon request.

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ATTACHMENT E

MICROSOFT LICENSING, GP ADDITIONAL PROCEDURES AS AGREED WITH MLGP TSR SiUcon Resources Inc.

July 1, 2002 -June 30,2004

Pwe did not perform any additional procedures as agreed with MSU for this report.