Exhibit
10.14


 


Xplore
Technologies Confidential


 


PURCHASE AND DISTRIBUTION AGREEMENT


BETWEEN


XPLORE
TECHNOLOGIES CORP.


AND


PEGATRON CORPORATION


 


This Purchase and
Distribution Agreement (“Agreement”) is made by Xplore Technologies Corp. (“Buyer”)
and Pegatron
Corporation, (“Seller”) and is effective as of December 7, 2007
(Effective Date).  The terms and
conditions contained in this Agreement shall govern the development,
production, purchase, sale, service and distribution of the Products listed and
described in Exhibit A (“Products and Pricing”).  In the event of any conflict between this
Agreement and the terms and conditions of an Order, as defined below, this
Agreement shall govern.  Any reference to
Buyer or Seller, as the case may be, shall include Buyer’s Subsidiaries and
Seller’s Subsidiaries, respectively.  “Subsidiaries”
shall mean any entity of which more than fifty percent (50%) of the voting
rights are owned or controlled, directly or indirectly, by Buyer or Seller, as
the case may be, provided, however, that such entity shall be deemed to be a
Subsidiary only for so long as such ownership or control exists. All terms
shall have the meanings as set forth below or as defined in this Agreement.


 


DEFINITIONS:


 


“Build to Order” shall
mean standard Products built upon receipt of an actual purchase order from
Buyer.  Manufacturing build is only
initiated after a purchase order is received.


 


“Configure to Order”
shall mean Products with a flexible configuration for a broad set of commonly
requested hardware and software combinations.


 


“Customers” shall mean
Buyer’s customers, including its authorized resellers and distributors,
including end customers.


 


“Mass Production” shall
mean volume production quantities after all milestones have been successfully completed
and Buyer has formally released Seller to production.


 


“Order Cycle Time” shall
mean the time between Buyer’s receipt of a customer Order and fulfillment of
the Order to an end customer.


 


“Product Process Order
Cycle Time” shall mean the time between Seller’s receipt of the Order and the
Product shipment either to Buyer or an end customer.


 


“Products” shall mean all
items listed in Exhibit A “Products and Pricing” which may include
ruggedized mobile computing devices, options, subassemblies, or components, in
multiple configurations for different countries, packaged and including
documentation.


 


“Ship to First Commit”
shall mean Seller’s shipment performance against the first commitment made to
Buyer.


 


“Planning Horizon” shall
mean the time period for which Buyer furnishes Seller forecasted requirements
in either daily, weekly, monthly or quarterly periods.


 


“Epidemic Failure” shall
mean a greater than [Confidential Treatment has been requested] failure within
the warranty period for the same cause in any [Confidential Treatment has been
requested], provided that such failures shall not include those failures that
are the result of a software defect or bug that is contained in the third party
software itself but shall include defects and bugs in the software image
created by Seller.


 


“Buyer Unique Materials”
shall mean any obsolete or excess materials without a marketable value
purchased to support the forecast will be considered a Buyer Unique Material,
including those items defined in Section 19C referred to as Buyer Specific
materials.


 


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“Buyer Specific Materials”
shall mean product purchased within lead-time that is specific only to the
Buyer’s Product.


 


“Confidential
Information” shall mean means any non-public or proprietary information
relating to a Party, whether now in existence or hereafter developed, that (a) is
designated or identified as being “Confidential”, “Proprietary” or of some
similar designation, or (b) a Party knows or should know is considered to
be highly sensitive and confidential. 
The term “Confidential Information” includes, without limitation, any
non-public or proprietary information relating to a Party’s secrets, trade
secrets, copyrights, trademarks, patents, patent applications, record of
inventions, current and proposed business arrangements and dealings with third
parties, business operations, financial information, equipment, samples,
samples’ configuration, samples’ concept, procedures, purchases, accounting,
bookkeeping, marketing, merchandising, selling, leasing, servicing, finances,
infrastructure, business systems, business techniques or operational
techniques.  The term “Confidential
Information” does not include any information that is or becomes publicly known
through no fault of a Party or the Party’s agents, employees or
representatives.


 


“Buyer
Deliverable” shall mean any materials solely developed by Buyer for use in the
Product.


 


1.                                      INTENT


 


A.                                   Buyer
intends to purchase Product from Seller. 
As such, Seller agrees to cooperate with Buyer to further mutual
long-term goals, by sharing Product road map and technology directions.  Seller agrees to cooperate to achieve Buyer’s
program goals, which include, but are not limited to, shortening Product
lead-times, increasing volume flexibility, achieving Just-in-Time delivery,
direct ship logistics, meeting corporate re-engineering and supply chain
objectives, achieving ongoing cost reductions and specific quality goals, and
continuous quality improvement.


 


B.                                     This
Agreement is not a requirements contract and does not obligate Buyer to
purchase any minimum quantity of Product but only establishes the terms and
conditions for such purchases if and when they occur.


 


C.                                     The
Parties agree to execute all the Exhibits outlined in the Index of Exhibits of
this Purchase and Distribution Agreement.


 


2.                                      FORECAST/LIABILITY/PURCHASE
ORDER


 


A.                                  Buyer shall furnish Seller with a forecast of the quantity
and required delivery dates of Product that Buyer anticipates purchasing under
this Agreement commencing on a date in the current week as specified by Buyer
in such forecast through the end of the Planning Horizon. The planning horizon
will extend to a minimum of a six (6) month time period.  Such forecast may at times be communicated to
Seller via a mutually agreed upon EDI protocol. This forecast shall be used
only by Seller for material positioning, and not for manufacturing
Product.  Product shall only be built to
Orders.  The forecasted “Planning Horizon”
which is the six (6) month time period for which Buyer furnishes Seller
forecasted requirements in weekly, monthly and quarterly time periods.  Buyer’s forecast shall include Buyer’s part
number, quantity and required ship date. 
The forecast may include components, configure-to-order (CTO) modules,
subassemblies, or finished build-to-order (BTO) Product.  Within two (2) business day of Seller’s
receipt of Buyer’s forecast, Seller shall send to Buyer a forecast response
report, such report may at times be referred to herein as “Seller’s Acceptance
Report”, indicating Seller’s commitments to supply Product as requested in
Buyer’s forecast. The acceptance report must be received in accordance within a
mutually agreed upon format.  Seller
shall use its best efforts to ensure that the quantity and delivery dates
specified in its acceptance report are equal to those specified in Buyer’s
forecast. Failure to respond as stated in Section 2.A shall commit Seller
to Buyer’s forecast and upside as defined in Exhibit D, Flexibility
Exhibit.  The acceptance report must
comprehend capacity, materials, and any other limitations to supply.  The quantity set forth in Seller’s acceptance
report for any particular period is referred to herein as the “Maximum Quantity”.
Although Seller has no obligation to meet requested increases or decreases
beyond the levels indicated in Exhibit D, Flexibility Exhibit, Seller
agrees to make 


 


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best efforts to meet increased or decreased schedules in
accordance with Buyer’s forecast updates. 
Seller must notify Buyer of any and all excess within five (5) business
days of the caused change or Buyer bears no liability for such materials or
Product.


 


B.                                    Buyer’s
maximum liability for the volumes specified in the forecast shall be no greater
than the percentage numbers as stated in the Flexibility Exhibit, except as
otherwise agreed through written letters of authorization executed by the
parties.


 


C.                                    Seller
agrees to work with its material suppliers to enable Seller to either return
materials to such suppliers or delay the ship date of such materials in order
to minimize Buyer’s liabilities.  Any
materials or units that Buyer is liable for in accordance with the Flexibility Exhibit and
which Buyer pays Seller as stated above shall belong to Buyer.  At Buyer’s request, Seller shall build out
the materials into completed Product. 
Further, at Buyer’s request, Seller shall either store the materials or
finished Product, at Seller’s facilities, or ship the materials or finished
Product to Buyer or a location designated by Buyer at Buyer’s cost.


 


In no event shall
Buyer’s liability extend to any excess materials that Seller may have in
inventory or on order which are beyond required lead times for such materials
based on the forecast or which are the result of Seller’s inaccurate inventory
planning.


 


D.                                   Buyer may purchase Products by issuing from time to time a
purchase order to Seller (the purchase order may be referred to herein as the “Order”).   The Order shall set forth the quantity of Product,
price of Product, ship date for the Product, ship to location, and part
number(s). This Order may contain multiple configurable line items.  The Order may be sent to Seller utilizing a
mutually agreed upon EDI protocol.  
Manufacturing build is only initiated upon Seller receiving a Purchase
Order for units or options.  Seller shall
acknowledge and commit to Buyer using an “ Order Acknowledgement”, including
multiple line items if designated on the original Purchase Order.  All Purchase Orders must be processed within
24 hours of receipt. Seller shall accept any Order that materially conforms to
the terms of this Agreement. No additional or different provisions proposed by
Seller in any acceptance, confirmation or acknowledgment shall apply unless expressly
agreed to in writing by Buyer.  Buyer
hereby gives notice of its objection to any additional or different terms.  Subject to any change orders that may be
entered into in accordance with this Agreement, the Order represents the
obligation of Buyer to buy and Seller to sell the aggregate quantity of
Products specified in the Order in accordance with and subject to the terms of
this Agreement and at the price or prices specified in such Order (which prices
will be established in accordance with the other provisions of this
Agreement).  At no time will Buyer be
liable for Product built in excess of the current open orders.


 


E.                                     Buyer
will deliver to Seller an Order based upon customer orders.  These Orders may be configure-to-order (CTO)
Product, subassemblies with one or more line items.  The Order will contain, at a minimum, the
following items:  (i) Buyer Purchase
Order Number; (ii) Configuration/Model/Revision Level; (iii) Quantity;
(iv) Address for Delivery; (v) Delivery Date; (vi) Price; (vii) Ship
to Location; and (viii) Indication of ship complete or particles accepted.


 


F.                                     Seller will provide Buyer with a “Sales Order/Shipping
Status Report”, as a basis for reconciliation of purchase order backlog between
the parties.


 


G.                                    All Orders shall be issued, submitted or communicated, as
applicable manually or by a mutually agreed upon electronic data exchange (“EDI”).
It is Buyers intent to transition to electronic communications as soon as the
volume of business transactions necessitates.


 


H.                                   Seller
agrees that all Buyer sites, and subsidiaries, shall be entitled to make
purchases under this Agreement.


 


I.                                        The
ordering, billing, and shipping/distribution process for all Products to be
manufactured by Seller and shipped to Buyer’s destination of choice hereunder
shall be as follows:


 


(i)                                    Purchase
Order under this Agreement shall be sent to Seller by the authorized purchasing
representative of Buyer, Seller shall  acknowledge
and commit to Buyer using an “ Order Acknowledgement


 


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(ii)                                Upon
delivery of Product by Seller to Buyer’s authorized carrier at Seller’s
manufacturing center, Seller shall notify Buyer of product shipment via the
agreed upon method, referred to herein as the “Ship Notice”.  The Ship Notice may require multiple line
items to be transmitted on a single Order. Seller agrees to automate the Ship
Notice such that the Ship Notice is transmitted at the time the Product is
tendered to the freight carrier. Seller shall have a process to electronically
confirm (i.e. bar code process) that Product has been tendered to the freight
carrier and Seller shall develop a verification process to ensure an Ship
Notice transaction is not duplicated.  In
the event duplicate Ship Notice transactions are sent for the same shipment,
resulting in overpayments to the supplier, Buyer has the right to receive
immediate reimbursement for the value of the Product overpayment.


 


(iii)                             Seller shall invoice Buyer
via the “Invoice”.  Seller agrees to use
best efforts to transact matching invoices for all individual ship
notifications sent, including multiple line items. At no time shall an invoice
reflect two or more ship notification transactions.  In the event an invoice does not match a ship
notification, Buyer will withhold payment on that invoice until exceptions have
been reconciled.


 


(iv)                            Buyer
will pay Seller for the amounts invoiced in accordance with the terms of this
Agreement.  Invoices shall reflect the
prices specified in the Order.


 


J.                                       Buyer
shall be designated as Seller’s most preferred customer.  As such, Seller will provide Buyer with all
necessary support with Seller’s most experienced and talented resources.  In addition, Seller agrees to meet all of
Buyer’s Product development and purchase/distribution requirements on a
priority basis before any of its other customers.


 


3.                                      CHANGE
REPORTS, COMMITS AND OTHER COMMUNICATIONS


 


A.                                  Changes to
delivery dates may only be made by Buyer’s authorized representatives either
designated in writing from time to time or in the form of an EDI 860
transaction, referred to as a Purchase Order Change /Cancellation/Redirect
Request”.  Buyer may issue change
requests for Product quantities and schedule dates, subject to Buyer’s
liability obligations, in accordance with the Flexibility Exhibit attached
as Exhibit D (“Flexibility Exhibit”). 
Any such change request by Buyer shall be subject to Seller’s written
confirmation, referred to as a “Purchase Order Change Acknowledgement/Request”,
within one (1) business day following receipt of the change request.


 


4.                                      TERM OF AGREEMENT


 


The term of this
Agreement shall be three (3) years, commencing on the date this Agreement
is signed by both parties (“Effective Date”). This Agreement will be
automatically renewed at the conclusion of the initial three (3) year
period for successive one (1) year periods unless one of the parties
indicates by written notice to the other party not less than ninety (90) days
prior to the end of the term that it does not intend to renew the
Agreement.  Notwithstanding the
foregoing, the Agreement shall remain in full force and effect and shall be
applicable to any Order(s) issued by Buyer to Seller during the term of
this Agreement until any and all obligations of the parties under such Order(s) have
been fulfilled.  This Agreement may be
amended within the 3 years as required.


 


5.                                      PRICING


 


A.                                  The
prices for the Products shall be set forth in Exhibit A and shall be fixed
for the period set forth therein (the “Pricing Period”) and shall not be
contingent on purchased volumes.


 


B.                                    Prices
shall include all charges for materials such as packaging, packing, crating,
storage, forwarding agent or brokerage fees, freight shipping charges, document
fees, duties, and any and all sales, use, excise and similar taxes necessary to
deliver materials to the appropriate 


 


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Seller’s manufacturing
center. Seller will not be responsible for the freight, insurance costs, all
governmental duties/charges and other relevant expenses in connection with the
shipment of Product from Seller’s manufacturing center to Buyer’s destination
of choice.  Buyer shall reimburse Seller
for any applicable sales, use, excise and similar taxes actually paid by Seller
in completing the sales transaction to Buyer for the Product.


 


C.                                    Seller
shall maintain a vigorous cost reduction program to ensure that pricing is
competitive at all times. Seller is able and willing to drive automatic cost
reductions of [Confidential Treatment has been requested] for materials managed
by Seller and [Confidential Treatment has been requested] for non-materials to
Buyer. In addition Buyer and Seller agree to determine the material cost impact
to future component cost reductions based on forecast and order volume changes.
Not withstanding the foregoing, Buyer and Seller shall each have the right to
require an immediate review with the other party of the pricing of the Product
because of significant changes in the marketplace and the parties agree to work
together to reach a mutually acceptable price for the Product to achieve best
pricing.


 


D.                                   Notwithstanding
any other requirements in this Agreement, including section 5E below, and to
the extent permitted by applicable law, Seller shall offer Buyer the lowest
prices and most favorable terms net of any discounts or rebates that it affords
or intends to afford to its other customers for similar product. Seller’s
execution and delivery of any pricing schedule shall be its representation that
the prices and other terms reflected therein (the “Subject Terms”) comply with
the preceding sentence and that, except as disclosed by Seller to Buyer prior
to entering into a pricing schedule, the Prices and subject terms are the
lowest and most favorable offered by Seller to any of its other customers for
similar Product, regardless of quantity purchased. In the event Seller
discloses that the prices and subject terms are the lowest and most favorable
permitted by law but are not the lowest and most favorable offered to any of
its other customers, Seller shall furnish Buyer with such evidence as Buyer
requests, to confirm the basis on which prices and terms more favorable than
those offered to Buyer are being offered to any of Seller’s other customers.


 


E.                                     In
order to reduce the cost of components for the production of Products, Buyer
has requested in some instances that suppliers extend Buyer’s pricing to Seller  solely for components used in the manufacture of
Products.  In certain instances suppliers
will sell to Seller at prices equal to prices charged to Buyer.  In other instances, suppliers will sell to
Seller at pricing that will include an uplift to Buyer’s standard pricing.  This uplift will be included as part of the
pricing offered to Seller solely to protect the confidentiality of Buyer’s
pricing on such components.  This pricing
shall apply only to components sold to Seller for use in Buyer’s Products and
should not in any way affect pricing for any components which may be sold to
Seller outside of Buyer’s program. 
Furthermore, suppliers offering such pricing to Buyer have been
instructed not to represent that this pricing is anything other than pricing
for supplier components to be used exclusively in Products.  Suppliers have been given permission to provide
Seller with any and all technical information required by Seller concerning the
operation of supplier materials or their integration into Products.  All pricing offered by suppliers to Seller,
as well as the terms of this program, are subject to the terms of Section 30.


 


F.                                     Seller
shall submit to Buyer a vendor list for materials used in the Product.  In addition, Seller shall notify and provide
samples to Buyer of any changes in the vendor list forty-five (45) days prior
to implementing the change.


 


G.                                    Seller
shall provide Buyer proposed pricing, (by Buyer unique part number), and a
forecast of proposed future pricing by quarter per each geographic regional
configuration site, no later than the fifth business day of the last month of
each quarter end in accordance with Exhibit A.


 


H.                                   Seller
shall provide all necessary resources to support the procurement activity required
to acquire all materials and services to support the Product.


 


I.                                        Buyer
sets target cost goals for each of the components included in the Product
manufactured by Seller for Buyer.  From
time to time Seller may provide cost reduction incentives to Buyer to approve
AVL changes for mutual financial benefit.


 


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J.                                       All quotes
for mass production product must be finalized and electronically provided to
Buyer, three (3) days before the first calendar day of each month,
provided Buyer has extended pricing on components as agreed upon between the
parties at least one (1) week prior to the end of the previous month. The
effective date of each quote is to be the first calendar day of each month. If
Seller fails to provide finalized, mutually agreed upon pricing prior to this
date then Buyer shall have the right to recover the difference in the current
costs and the new agreed upon costs by offsetting Seller’s payables.


 


The quote format itself has two distinct parts,
the upper part of the format contains strictly material costs, and the lower
part of the quote contains strictly non-material costs.  Seller agrees to utilize commercially reasonable
efforts to adhere to this quote format as a means to communicate actual Seller
material and non-material costs to Buyer. If Seller fails to provide the quote
as defined above, Buyer shall have the right to recover any financial impact by
offsetting Seller payables.


 


6.                                      AGED
INVENTORY


 


A.                                   Aged
Inventory is defined as any critical component that is carried in inventory
through a pricing period change. All components shall be costed at current
market price.  Seller agrees that it
shall comply with the terms of Section 17 and Exhibit I, ODM
Requirements.


 


7.                                      EXCLUSIVITY
AND MANUFACTURING RIGHTS


 


A.                                   Seller
agrees that the Product listed in Exhibit A shall be manufactured by
Seller solely for purchase by Buyer and distribution to Buyer and or Buyer’s
customers.  Seller will preinstall the
software specified by Buyer for each model of the Product at Seller’s
manufacturing, distribution, and/or HUB centers. Seller will maintain control,
in its Taiwan location, of the master copy of the software to be preinstalled
on the Products. Seller shall also ensure adequate controls of all software in
its configuration sites.


 


B.                                     Buyer
shall own all rights to the Product hardware and software created by Seller
specifically for Buyer, to the extent defined under the Product specification
Exhibit. To the extent that Buyer does not own the rights to the Product
hardware and software, Buyer shall have the right to manufacture or have
manufactured the Products if Seller becomes unable or unwilling to support the
terms of this agreement. Seller hereby grants to Buyer the right necessary for Buyer to use, produce, manufacture and/or have manufactured quantities of
such Product for distribution of the
Product by Buyer.  Seller shall
provide to Buyer access to and use of all items that are necessary and/or
useful in the manufacture of the Products for distribution by Buyer, including
but not limited to, Seller’s drawings, software download images, bills of
materials, processes, tools, and vendors list, to enable Buyer to manufacture
and/or have manufactured Products for distribution by Buyer and create
improvements to the Products.  Seller
shall also provide to Buyer, at Buyer’s request and on a commercially
reasonable basis, telephone and on-site personnel support as Buyer may request from
Seller to assist and enable Buyer to manufacture or have manufactured and/or
distribute such Products in commercial quantities. Buyer agrees to pay Seller
reasonable expenses for such support. 
Buyer reserves the right to manufacture internally or have manufactured
at alternative sites such Products at their discretion. The parties agree that
all costs for first sets of tooling shall be specified into Product Tooling
Exhibit, as specifically set forth in this Agreement.    In the event of termination of this
Agreement or if Seller files for bankruptcy or voluntary liquidation, Buyer
shall have the right to purchase all tooling by paying the remaining tooling
costs.


 


The IP rights of,
in, and to, the work product created prior to this project shall be owned by
the respective Party. Seller shall be allowed to use the IP rights created for
this project provided that Seller requests approval in writing from Buyer.
Buyer shall not unreasonably withhold approval of Seller’s written request.


 


C.                                     Except
to the limited extent expressly stated in Section 19.D.2, Seller agrees
that it will not produce, manufacture, or sell for itself or for any of its
other customers any product that has the look and feel with regards to physical
styling of the Buyer Products.  All software
images created by Buyer or specifically created or developed by Seller for
Buyer Products shall be used by Seller solely for Buyer Products and for no
other purpose.


 


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D.                                    If
Seller becomes unable to support the planning / procurement / manufacturing and
distribution practices that are acceptable to Buyer, then Buyer reserves the
right, with advance notification, to support this Product by installing a
management team utilizing Seller’s facilities and resources until Seller is
once again able to support the Product adequately.  Seller shall bear all costs associated with
the implementation of Buyer’s management team, including, but not limited to,
travel, lodging, and salary for each team member.  In addition, Seller shall bear all costs
associated with Buyer’s support requested by Seller.


 


E.                                      Buyer
shall have the right to manufacture or have manufactured the Products if Seller
becomes unable or unwilling to support the terms of this agreement. Seller hereby
grants to Buyer a license under trade secrets, copyrights and patents to access
and use all of Seller’s drawings, bill of material, and vendors to make and
have made Products and create improvements to the Products.  Seller agrees that any improvements created
by Buyer shall be owned by Buyer.  Seller
agrees that presentation of this Agreement by Buyer to Seller’s successors and
assigns shall be sufficient for such successors and assigns to make Seller’s
drawings, bills of materials, and vendor lists accessible to Buyer. Buyer may
perform or have others perform any or all final assembly and regional
configuration of the Products.


 


8.                                      DELIVERY


 


A.                                   Seller
understands that time shall be of the essence in meeting Buyer’s requirements
and agrees that Buyer may be irreparably damaged should Seller not meet Buyer’s
specified delivery requirements. 
Delivery performance shall be measured by Seller’s ability to ship
pursuant to the performance metrics in Exhibit I.


 


B.                                     Unless otherwise set forth in the Order,
title and risk of loss shall pass to Buyer upon Seller’s delivery to Buyer’s
authorized carrier / or freight forwarder.


 


C.                                     Each
week Seller will provide a report of potential material shortages for the next
six (6) week period.  Seller shall
notify Buyer in writing immediately if Seller has knowledge of any event that
could result in any change to the agreed delivery plan.


 


D.                                    Seller
shall be responsible for shipping Product on the date and in the quantities
identified in the Order from Buyer and acknowledged by Seller, including any
upsides identified in Exhibit D, or as otherwise agreed to by the parties
in writing.  In the event that Product
committed for delivery by Seller does not meet the original committed date,
Buyer may request that such Product be shipped and delivered via a different
mode of transportation at Seller’s expense. In the event that Buyer requests
expedited delivery of Product at its expense, Buyer shall do so in writing.


 


E.                                      If
Seller is unable to provide Product as specified within the forecasts and the
Order, then Buyer has the right to either cancel the specified Orders or allow
them to roll into the next manufacturing period, at Buyer’s discretion. Unless
otherwise specified by Buyer, Seller shall be liable for any Product not delivered
by the confirmed ship to first commit date prior to the stated production end
date for each program as specified in the Order where such failure is solely
attributable to Seller. Seller may dispose of the excess Product in accordance
with Section 16.


 


F.                                      If Seller ships Product in advance of the ship date, Buyer
may, at its option, either (i) return such Product to Seller at Seller’s
risk and expense (in which case Seller, at its expense, shall redeliver such
Product to Buyer on the correct ship commit date) or (ii) retain such
Product and make payment on the date payment would have been due based on the
correct ship date.


 


9.                                      PACKING, MARKING, AND SHIPPING INSTRUCTIONS


 


A.                                   All
Product shall be prepared and packed in a commercially reasonably manner so as
to secure the lowest reasonable transportation rates and meet carrier’s
requirements or those set forth in the Product specification Exhibit B (“Specification”).


 


B.                                     Each
pallet in each shipping container shall be marked to show Buyer’s Order number,
part number, revision level, lot number, quantity contained therein, and
appropriate country of origin 


 


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marking.  In addition, Seller and Buyer will agree on a
bar code specification which shall govern the marking on the Product, including
the serial numbering scheme.  A packing
list showing the Order number shall be included in each shipment.


 


10.                               QUALITY
AND SERVICE


 


A.                                  Seller
shall establish and/or maintain a quality improvement plan and a service and
support plan acceptable to Buyer.  The
Quality Agreement and Service and Support Agreement are incorporated into this
Agreement as Exhibit C and Exhibit E, respectively.


 


B.                                    At
Buyer’s request, Seller shall facilitate on-site visits and inspections by
Buyer during normal business hours and upon prior notice.  Buyer’s inspections shall in no way relieve
Seller of its obligation to deliver conforming Product or waive Buyer’s or
Buyer’s customers’ right of inspection and acceptance at the time the Products
are delivered.


 


C.                                     Seller
agrees to provide relevant outgoing inspection, quality, and reliability data
upon Buyer’s request and in accordance with the Quality Agreement.


 


D.                                    Seller
agrees to ship Product that conforms to the formally released revision level as
stated on Buyer’s Order and acknowledged by Seller.  Buyer’s revision levels will not be effective
unless mutually agreed to between Buyer and Seller utilizing a completed
Engineering Change Request (ECR) by written confirmation.


 


E.                                      Seller
agrees to advise Buyer of any changes at least forty-five (45) days, (or as
otherwise agreed to in writing by the parties), prior to process, materials, or
sources of supply and ensure that such changes do not compromise
specifications, quality, reliability, or the delivery times of Products ordered
by Buyer.


 


F.                                      Any
form of rework requested by Buyer shall be at Buyer’s expense, provided that
such request is authorized in writing via a purchase order by an authorized
Buyer representative. If Seller does not secure written authorization for the
expense prior to the rework, then the parties agree that the rework will be at
Seller’s expense. The format of the estimate of rework costs from Seller shall
be agreed upon by the parties. All estimates of rework costs will include but
are not limited to the following; materials, freight, labor, profit, overhead,
duties and any other subject that the parties may agree upon.


 


11.                               INSPECTION,
ACCEPTANCE, AND RETURNS


 


A.                                   Products
purchased/distributed pursuant to this Agreement shall be subject to inspection
and test by Buyer or Buyer’s Customers, as the case may be, including during
the period of manufacture or development. 
“Customers” as used in this Section shall mean Buyer’s customers,
including its authorized resellers and distributors, and end users.  Unless otherwise specified in the Order,
final inspection and acceptance of Product by Buyer or Buyer’s Customers shall
be at Seller’s manufacturing, configuration, distribution, and/or HUB center or
Buyer’s Customers’ location.  Buyer
and/or Buyer’s Customers reserve the right to reject Product which does not
conform to the specifications, drawings, samples or other descriptions
specified by Buyer.  The time period
covering DOA of Product will be within [Confidential Treatment has been
requested] from date of receipt. All rejections of Product by Buyer or Buyer’s
Customers shall be returned to a location mutually determined by the parties
for processing in accordance with Section 11.B below.


 




	
  CLASSIFICATION 

  BY BUYER

  	
   

  	
  DISPOSITION BY 

  BUYER

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  New/Functional

  	
   

  	
  Return to Seller

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  






 


8

















 




	
  New/Nonfunctional

  	
   

  	
  Return to Seller

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Used/Functional

  	
   

  	
  Treat as used equipment

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Used/Nonfunctional

  	
   

  	
  Treat as used
  equipment

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  






 


B.            Buyer
and Seller agree that the following shall apply to Product returns, including
but not limited to:  (i) refused
shipment returns; (ii) service returns; (iii) dead on arrival (“DOA”)
returns;  (iv) factory fallout.


 


(1) Buyer will
inform its Customers that all returns of Product shall be delivered to Buyer by
Buyer’s Customers.  Buyer shall screen
all returned Product to determine whether the Product is new or used, and
functional or nonfunctional.  Buyer will
classify each returned Product unit as either (a) New/Functional; (b) New/Nonfunctional;
(c) Used/Functional; or (d) Used/Nonfunctional.


 


(2) Following Buyer’s
classification of whole unit returns, the units will be dispositioned based
upon the terms outlined in Exhibit E. If Seller determines that Buyer
misclassified any returned New/Functional Product as New/Nonfunctional Product,
such returned Product shall be handled as a New/Functional Product provided
that Buyer has verified that the Product was misclassified.  Product required to be corrected or replaced
shall be subject to the same inspection and warranty provisions of this
Agreement as Product originally delivered under any Order.


 


C.            In
the event that Buyer returns new Product to Seller for correction or
replacement, Seller shall repair or replace all such defective Product within
five (5) days of receipt of such Product. Buyer shall obtain a “Return
Material Authorization” (RMA) from Seller for all returns that Buyer ships to
Seller.  Seller will issue an RMA
immediately on telephone contact.  Buyer
will issue a debit memo for each Product returned by Buyer based on the price
of the Product in the calendar quarter that the Product is returned by
Buyer.  The next Buyer Order released
will be at the same cost as the debited Product. Seller agrees to provide
failure analysis of rejected material within ten (10) days after receipt
of reject materials.  Seller shall
provide a written corrective action report addressing the steps that will be
taken to eliminate the cause of the problem. 
All FRU returns shall be handled in accordance with the Service
Agreement.


 


D.            Seller
represents and warrants that it will use only new materials or components to
correct or replace defective Product that will be sold as new Product to Buyer.


 


E.             The
parties agree that at the Product’s end of life Buyer shall not ship such
Product to Seller for restocking purposes unless mutually agreed.


 


12.                               WARRANTY


 


A.                                   Seller
warrants that title to all Products delivered to Buyer and Buyer’s customers
under this Agreement shall be free and clear of all liens, encumbrances,
security interests or other claims and that for a period of [Confidential
Treatment has been requested], as identified for the applicable Product in Exhibit B
and Exhibit E, beginning on the date the Order is shipped, in accordance
with the Order, that all Products shall be free from defects in material,
workmanship, and design and that they shall function for their intended
purpose.  Seller further warrants that
all Products shall conform to applicable specifications, drawings, samples, and
descriptions referred to in this Agreement. 
The warranty for replaced or repaired Product will be the same as the
original Product, or as required by law.


 


9

















 


The
warranties in this Section will not apply to any Product (i) has been improperly installed or altered by
Buyer, (ii) has been subjected to
misuse, abuse, negligence or accident, (iii) has been used in a manner contrary to agreed
Specifications (iv) whose component is supplied by Buyer, (v) whose defect is caused by 1) Buyer’s design(s), 2)  modifications to the Products not by Seller or 3) Buyer’s combination with other product(s) not supplied by Seller.


 


B.                                     Notwithstanding
the provisions of Sections 10.B or 11.A of this Agreement, Seller agrees that
in case of Epidemic Failure, as defined below, Seller shall provide correction
or replacement, which may include design, component, or subassembly changes,
within ten (10) days of Seller’s issuance of the failure analysis report
provided to Buyer as required by this Section 12.B.  Epidemic Failure shall mean a greater than [Confidential
Treatment has been requested] failure within the warranty period for the same
cause in any [Confidential Treatment has been requested], provided that such
failures shall not include those failures that are the result of a software
defect or bug that is contained in the third party software itself but shall
include defects and bugs in the software image created by Seller.  In
the event such Epidemic Failure is solely attributable to Seller, Seller
shall bear all risk and costs for such correction, replacement, or changes
including but not limited to labor, material, inspection, and shipping to and
from Buyer’s facilities or designated location, provided that Seller may use
its best reasonable judgment in determining the appropriate method of
correction or replacement with approval by Buyer.  If Buyer incurs any such costs, it may either
recover them directly from Seller or set-off via a debit note any amounts due
to Seller.  Seller agrees to provide
failure analysis of rejected material within ten (10) days after receipt
of reject materials.  Seller will also
provide a written 8D corrective action report addressing the steps that will be
taken to eliminate the root cause of the problem.


 


C.                                    Seller
agrees that in the event of an Epidemic Failure solely attributable to Seller, Seller shall bear all expenses
necessary to refurbish or replace all Products affected by the root causes
identified as being Seller’s fault. 
Seller shall have the option of designating whether the defective
Product shall be refurbished or replaced. 
The direct expenses to be borne by the Seller shall include, but are not
limited to the following:


 


a)              [Confidential
Treatment has been requested]


b)             [Confidential
Treatment has been requested]


c)              [Confidential
Treatment has been requested]


d)             [Confidential
Treatment has been requested]


e)              [Confidential
Treatment has been requested]


f)                [Confidential
Treatment has been requested]


g)             [Confidential
Treatment has been requested]


 


D.                                    Seller
represents and warrants that the materials and components used in the Product
shall be new, including those materials and components obtained from its
vendors and subcontractors.


 


13.                               IN
WARRANTY AND OUT OF WARRANTY SERVICE AND SUPPORT


 


A.                                   In
warranty and out of warranty service and support shall be as provided for in Exhibit E.


 


14.                               PAYMENT AND SET-OFF


 


A.                                   Payment
terms shall be OA [Confidential
Treatment has been requested] from date of invoice, provided that Products have
been confirmed as having been delivered by Seller to Buyer’s authorized carrier
at Seller’s configuration centers. 
Payment of invoices shall not constitute final acceptance of the
Product.  Payment shall be made by
Automated Clearing House (ACH) to the U.S. bank account designated by Seller.


 


B.                                     Buyer
retains the right to immediately setoff rejections of Product or discrepancies
on invoices against current or future invoices for all RMAs, and any other
circumstances that Buyer deems appropriate.


 


10














 


C.                                   Buyer will pay Seller for the amounts
invoiced in accordance with the terms of this Agreement.  Invoices shall reflect the prices specified
in the Orders. Unless otherwise specified in Exhibit A or agreed to in
writing by the parties, payment shall be in U.S. dollars unless prohibited by
regional legal code.


 


D.                                  [Confidential Treatment has been
requested.]


 


15.                               CHANGES


 


A.                                 Buyer may from time to time change the
specifications for the Products and Products’ FRUs, and Seller agrees to make
best efforts to comply.  Buyer shall be
responsible for the costs of implementing the engineering changes requested by
Buyer.  If changes result in a change in
Seller’s costs or in the time for performance, an adjustment will be made
subject to mutual written agreement of the parties.  Any adjustment must be in writing and must be
requested within ten (10) days of receipt by Seller of the notice of
change.


 


B.                                   No changes shall be made by Seller in the
form, fit, function or compatibility of Products purchased hereunder without
Buyer’s prior written approval.  In the
event of a request for change (regardless of who initiates such request),
Seller shall issue an “Engineering Change Request” form, and Buyer shall
respond within five (5) business days. 
If changes are necessary to correct design defects, Seller shall bear
risk of correction.  If Buyer incurs any
costs for such corrections, it may either recover them directly from Seller or
set-off via a credit note any amounts due to Seller.  Seller shall be liable for any and all loss
or damage incurred to Buyer if an ECN is implemented without Buyer’s prior
written approval.


 


C.                                   Upon request by Buyer, and in accordance
with the Service and Support Agreement, and Quality Agreement, Seller will
provide test procedures and test results to Buyer’s Product Engineer indicating
that there will be no adverse consequences resulting from the Engineering
Change Request.


 


16.                               OBSOLETE
AND EXCESS MATERIALS


 


A.                                 From time to time Buyer may, at its
option, in accordance with Exhibit D, request Seller to change
manufacturing schedules to support the changing market requirements.  As a result of these requested changes from
Buyer, Seller may have materials on hand or on order that either cannot be
rescheduled for delivery at a later date, or that cannot be returned to the
component supplier for restocking. This impact of the schedule changes could
become obsolete or excess to the program requirements.  Seller agrees to inform Buyer in writing each
week of any potential obsolete or excess materials based upon the Forecast
received. Buyer will advise Seller in writing of the proper disposition of such
materials based on the information provided by Seller.  Seller also agrees to comply with the terms
of Section 16, as they apply to obsolescence of materials.  Buyer bears no liability if written
notification is not received within five (5) business days of the change.


 


B.                                   Seller agrees, as stated in Section 2(C) to
work with its suppliers to return all materials or delay shipments in order to
minimize Buyer’s liabilities.  Buyer
shall only be liable for materials that were purchased inside lead-time and
which are necessary to support Buyer’s Orders and the forecast.   After Seller has exhausted all efforts to
limit Buyer’s liability, Buyer may, at its option, request Seller to dispose of
the excess or obsolete materials at Buyer’s cost. The process / procedures to
be utilized for disposition of this material shall be mutually agreed upon by
the parties, with the appropriate level of authorization from Buyer and Seller.


 


11

















 


C.                                   Seller shall be prohibited from selling
any Buyer Specific Materials, as set forth in Section 19C, to any third
party unless approved in writing by Buyer.


 


D.                                  The parties intend that Seller shall
reduce liability for obsolete materials by implementing the supply chain
reengineering processes and ODM initiatives as defined in Exhibit I.  Therefore Buyer shall only be responsible for
Buyer Unique Materials. Any obsolete or excess materials without a marketable
value purchased to support the forecast will be considered a Buyer Unique
Material, including those items defined in Section 19C referred to as
Buyer Specific materials.  Buyer shall
provide commercially reasonable assistance to Seller in order to implement the
requirements of Exhibit I. 
Notwithstanding the foregoing, the parties agree that certain
obsolescence may be created by certain unique program requirements, including
without limitation, engineering changes, program cancellations, or quantity
decreases over and above the flex model in Exhibit D.  In such instances, the parties shall agree on
the appropriate amount of reimbursement pursuant to the procedures described in
Section 16A and 16B above.


 


E.                                    The parties shall collaboratively reach
agreement on the timing and remaining volumes available for EOL of the Product.
The Product EOL shall be documented and included in the forecast communicated
to Seller. Seller shall provide commitment for the Product EOL forecast based
on the forecast process described in Section Two (2).


 


17.                               ODM REQUIREMENTS AND METRICS


 


The parties agree that
Seller shall implement ODM requirement pursuant to the milestones and
implementation dates set forth in Exhibit I.


 


18.                              ALTERNATIVE
DISPUTE RESOLUTION


 


The parties agree that
disputes shall be resolved pursuant to the Dispute Resolution Procedures set
forth in Exhibit G.


 


19.                               TERMINATION FOR CAUSE


 


A.                                 Seller may terminate this Agreement
and/or any Order issued hereunder at any time by written notice in the event
that Buyer:


 


1.                                      Fails to comply with any material
provision of this Agreement or any Order issued hereunder, and, in the case of
a breach which is capable of remedy, fails to remedy same within thirty (30)
days of notification of said breach, or


 


2.                                      Becomes insolvent or makes an assignment
for the benefit of creditors, or a receiver or similar officer is appointed to
take charge of all or a part of Buyer’s assets and such condition is not cured
within thirty (30) days.


 


B.                                     Buyer may terminate this Agreement and/or
any Order issued hereunder at any time by written notice in the event Seller:


 


1.                                      Fails to comply with any material
provision of this Agreement or any Order issued hereunder, and in the case of a
breach which is capable of remedy, fails to remedy same within thirty(30) days
of notification of said breach, or


 


2.                                      Becomes insolvent or makes an assignment
for the benefit of creditors, or a receiver or similar officer is appointed to
take charge of all or a part of Seller’s assets and such condition is not cured
within thirty (30) days, or


 


3.                                      Seller shall not assign or attempts to
assign, or subcontracts or attempts to subcontract, any or all of its rights or
obligations under this Agreement or any Orders issued hereunder to a third
party without Buyer’s prior written approval.


 


C.                                     Upon termination by Seller of the
Agreement and/or any Order issued under 19A above, Buyer’s entire liability
shall be to purchase all materials, including Buyer Specific Materials and 


 


12

















 


finished goods that have
been purchased within lead time by Seller to fulfill Buyer’s Order(s) in
accordance with the Flexibility Agreement.


 


D.                                    Upon termination by Buyer of the
Agreement and/or any Order issued under 19B above:


 


1.                                      Buyer shall have the option to purchase
any materials, work in progress or finished goods, which Seller may have
purchased or processed for the fulfillment of any Order, at Seller’s cost plus
a reasonable amount for any value already added by Seller; and


 


2.                                      Seller shall not use any of the Buyer
Specific Materials in any other product or resell any of the Buyer Specific
Materials.  Other than the Buyer Specific
Materials, Seller may use, resell or otherwise dispose of all other materials
as it deems appropriate; and


 


3.                                      Buyer shall have no liability beyond
payment for any balance due for Products delivered by Seller before notice of
termination.


 


20.                               TERMINATION FOR CONVENIENCE


 


A.                                  Either party  (“Terminating Party”) may terminate this Agreement at any time
for any reason upon giving a three (3) months written notice of termination to the other party (“Terminated Party”). 
Upon receipt of such notice, the Terminated Party shall immediately cease to incur
expenses pursuant to this Agreement that has been terminated unless otherwise
directed in the termination notice.  The Terminated
Party shall also take
all reasonable steps to mitigate the cost to the Terminating Party for terminating this Agreement and/or
any Order.  Within thirty (30) days from
the date of notice, Seller shall notify Buyer of costs incurred up to the date
of termination.  In no event shall such
cost exceed the unpaid balance, per the Flexibility Agreement.


 


B.                                    In addition to the foregoing, in the
event that this Agreement is terminated by Buyer pursuant to this Section,
Buyer’s entire liability shall be to purchase all finished goods, work in
progress, and materials, including Buyer Specific Materials that have been
purchased within lead time by Seller to fulfill Buyer’s Order(s), in accordance
with the Flexibility Agreement, provided that Seller shall also take all
reasonable steps to mitigate the cost to Buyer for terminating this Agreement
and/or any Order.


 


21.                               LIMITATION OF LIABILITY


 


EXCEPT
FOR A BREACH OF SECTION 21, 25 OR 29 OF THIS AGREEMENT, NEITHER PARTY
SHALL BE LIABLE FOR ANY CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOST
PROFITS, UNLIQUIDATED INVENTORY, ETC.), INCIDENTAL, INDIRECT, SPECIAL, OR
PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.


 


BUYER’S
TOTAL LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED].


 


SELLER’S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED].


 


EXCEPT AS
SPECIFICALLY SET FORTH IN THE PURCHASE AND DISTRIBUTION AGREEMENT FOR THE
PRODUCTS, NEITHER PARTY SHALL HAVE LIABILITY FOR EXPENSE
INCURRED BY THE OTHER PARTY, INCLUDING WITHOUT LIMITATION
EXPENSES ARISING FROM THE DEVELOPMENT, MANUFACTURING OR DISTRIBUTION OF THE PRODUCT.


 


13

















 


22.                               FORCE MAJEURE


 


A.                                  Neither party shall be liable for its
failure to perform any of its obligations hereunder during any period in which
performance is delayed by fire, flood, war, embargo, riot, labor strike, or the
intervention of any government authority (“Force Majeure”), provided that the
party suffering such delay immediately notifies the other party of the
delay.  If, however, the Party’s
performance is delayed for reasons set forth above for a cumulative period of
fourteen (14) calendar days or more, the other Party, notwithstanding any other
provision of this Agreement to the contrary, may terminate this Agreement
and/or any Order issued hereunder by notice to Seller.  In the event of such termination, Buyer’s
sole liability hereunder will be for the payment to Seller of any balance due
and owing for conforming Product delivered by Seller prior to Seller’s
notification of delay to Buyer.  In the
event the parties do not terminate this Agreement and/or Order due to a Force
Majeure, the time for performance or cure will be extended for a period equal
to the duration of the Force Majeure.


 


23.                               NOTICES


 


Any notice given under
this Agreement shall be in writing and will be effective when delivered
personally or deposited in the mail, postage prepaid and addressed to the
parties at their respective addresses set forth below, or at any new address
subsequently designated in writing by either party to the other:


 


	
  If to Seller :

  	
   

  	
  Pegatron Corporation.

  
	
   

  	
   

  	
  5th F
  No. 76 LI-GONG STREET

  
	
   

  	
   

  	
  TAIPEI, TAIWAN 112
  R.O.C.

  
	
   

  	
   

  	
  ATT: STEVE HWANG

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
  Pegatron Corporation.

  
	
   

  	
   

  	
  5th F
  No. 76 LI-GONG STREET

  
	
   

  	
   

  	
  TAIPEI, TAIWAN 112
  R.O.C.

  
	
   

  	
   

  	
  ATT: LEGAL DEPARTMENT

  
	
   

  	
   

  	
   

  
	
  If to Buyer:

  	
   

  	
   

  
	
   

  	
   

  	
  XPLORE TECHNOLOGIES
  CORPORATION

  
	
   

  	
   

  	
  14000 SUMMIT DRIVE
  SUITE 920

  
	
   

  	
   

  	
  AUSTIN, TEXAS 78728

  
	
   

  	
   

  	
  ATT: RANDY PARAMORE

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
  XPLORE TECHNOLOGIES
  CORPORATION

  
	
   

  	
   

  	
  14000 SUMMIT DRIVE
  SUITE 920

  
	
   

  	
   

  	
  AUSTIN, TEXAS 78728

  
	
   

  	
   

  	
  ATT: MICHAEL RAPISAND

  



 


24.                               COMPLIANCE WITH LAWS


 


A.                                  All Product supplied and work performed
under this Agreement shall comply with the applicable laws and regulations in
the regions specified in Exhibit B. 
In particular, Seller agrees that its performance under this Agreement
shall comply with all laws governing its relationship with its employees,
agents or subcontractors and with the chlorofluorocarbon labeling requirements
of the U.S. Clean Air Act of 1990, and the RoHS requirements for Product
shipping into Europe.  Upon request,
Seller agrees to certify compliance with such applicable laws and regulations.


 


B.                                    The parties agree that amendments to this
Agreement may be required to satisfy local or national legal requirements.


 


14

















 


25.                               PATENT, COPYRIGHT AND TRADEMARK
INDEMNITY


 


A.                                  Except for any claims which may arise
from Buyer Deliverables, Seller shall defend, at its expense, any claim against
Buyer alleging that Products furnished under this Agreement infringe any
patent, copyright, trade secret, trademark, or other intellectual property
right and shall pay all costs, including attorney’s fees, expenses and damages,
provided Seller is notified in writing of such claim and permitted to defend
and compromise such claim.  “Buyer
Deliverables” shall mean materials solely developed by Buyer and all third
party titles licensed to Buyer for the Products.


 


Notwithstanding
foregoing, the Seller shall not be
liable for any claim arising out of (I) the modification of the Product
not by Seller; (II) the use of the Product in combination with other
hardware or software not made by the Seller ; (III) component(s) or
part(s) provided by Buyer.


 


Except for any claims
which may arise from Seller Deliverables, Buyer shall defend, at its expense,
any claim against Seller alleging that Buyer Deliverables furnished under this
Agreement or any claim arising out of (I) the
modification of the Product or any unauthorized combination by Buyer; (II) component(s) or
part(s) provided by Buyer infringing on any patent, copyright, trade
secret, trademark, or other intellectual property right and shall pay all
costs, including attorney’s fees, expenses and damages, provided Buyer is
notified in writing of such claim and permitted to defend and compromise such
claim.  “Seller Deliverables” shall mean
materials used by Seller or solely developed by Seller for use in Buyer’s
Product.


 


B.                                    If, subject to the foregoing, during the term of this agreement, an
injunction or exclusion order issues that precludes Buyer’s use, sale,
manufacture or importation of any Product (or, if Buyer reasonably believes
such an injunction or exclusion order is likely, with the exception of Buyer
Deliverables) Seller shall, at its expense, and at Buyer’s request, use
commercially reasonable efforts to obtain for Buyer the rights necessary to
permit Buyer to use make, have made, sell and import such Product.  In the event that Seller cannot obtain such
rights for Buyer, Seller shall repurchase all such Products from Buyer at the
purchase price.


 


C.                                    Seller warrants that there are no claims
of infringement with respect to the Product.


 


D.                                   Seller shall be authorized to use Buyer
logo and trademark only to the extent necessary to meet the required
specification for the Product(s). No other rights with respect to Buyer’s
trademarks, trade names or brand names are conferred, either expressly or by
implication, upon Seller.


 


26.                               CAPACITY


 


A.                                  As specified in this Agreement, Buyer
will provide Seller with six (6) month forecasts of Buyer’s quantity
requirements.  Seller will commit to be
able to meet all of Buyer’s forecasts by putting in place plans for capacity,
materials supply, mother boards, chassis, manufacturing centers and software
download capability.  In addition, upon
four (4) months prior notice by Buyer, Seller will have the capability to
increase manufacturing capacity by 100% of Buyer’s forecasts in order to meet
Buyer’s increased quantity requirements. 
Seller agrees to review forecasts provided by Buyer and advise Buyer if
Seller anticipates that it will be unable to achieve the requested
volumes.  Buyer volume forecasts will be
provided to Seller in accordance with Exhibit A.  Seller may from time to time request Buyer to
review Buyer’s forecast and advise of any changes.


 


B.                                    Seller commits to Buyer that Seller shall
have enough capacity and sufficient materials allocated to the appropriate
manufacturing centers to be able to meet the forecast and provisions of the
Flexibility Exhibit, if required by Orders. From time to time, as reasonably
necessary due to critical material shortages, Buyer may provide Seller with a
reasonable amount of assistance to procure such materials.


 


15

















 


27.                               GRATUITIES


 


Each party represents
that it has not offered nor given and will not offer nor give any employee,
agent, or representative of the other party any gratuity with a view toward
securing any business from the other party or influencing such person with
respect to the business between the parties.


 


28.                               INSURANCE AND STATUTORY OBLIGATIONS


 


A.                                  If any party’s work under this Agreement requires
access by such party to
any of the other party’s
premises or the premises of the other party’s customers or subcontractor, or locations where the other
party conducts
business, or with material or equipment furnished by the party, such party shall take all necessary precautions to
prevent the occurrence of any injury to persons or property during the progress
of such work and, except to the extent that such injury is due solely and
directly to the other party’s acts or negligence. Such party shall indemnify the other
party against all
loss which may result in any way from any act or negligence of such party, its employees, servants, agents or
subcontractors.


 


B.                                    Seller agrees to observe commercially
reasonable loss prevention practices to prevent accidental loss or damage to
inventory, whether in the form of raw material, WIP, or finished goods, that
Seller has in its possession for the purpose of fulfilling Buyer’s Orders.


 


29.                               INDEMNIFICATION


 


Except for any claims
which may arise from Buyer Deliverables, Seller agrees to protect, defend,
indemnify and save Buyer harmless from all sums, costs and expense which Buyer
may incur or be obliged to pay as a result of any and all loss, expense, damage,
liability, claims, demands, either at law or in equity, of every nature
whatsoever in favor of any person, including both Seller’s and Buyer’s
employees, resulting from any personal injury or death resulting from the use
of any product sold to Buyer by Seller hereunder, irrespective of whether Buyer
or any other party is found to have been negligent or strictly liable in
connection with such personal injury or death.


 


The foregoing liabilities
and indemnification do not include any loss, damage, liability when the Product
(i) have been improperly installed or altered, (ii) have been
subjected to misuse, abuse, (iii) component is designated or supplied by Buyer (iv) whose defect
is caused by Buyer’s Deliverables (v) unauthorized modifications to the
Products or (vi) combination with other product(s) not supplied by
the Seller.


 


Subject to the foregoing,
the Buyer agrees to indemnify and hold Seller harmless against all expense,
losses, costs, damages and liabilities including reasonable attorney’s fees
arising out of or in connection with (1) Buyer’s unauthorized use,
modification or combination; (2) the defect of the Product caused by Buyer’s
Deliverable or materials or components supplied by Buyer.


 


30.                               CONFIDENTIAL INFORMATION


 


A.                                  Each party recognizes that it may have
previously entered or will in the future enter into various agreements with the
other party which obligates it to maintain as confidential certain information
disclosed to it by the other party. To the extent that such information or any
further confidential information, which might include but is not limited to
business plans, forecasts, capacity, pricing, inventory levels, trade secrets,
product specifications, manufacturing processes, etc., (collectively referred
to hereinafter as “Information”) is disclosed in furtherance of this Agreement
or any Order issued hereunder, such Information shall be so disclosed pursuant
to the minimum terms and conditions listed below; provided, however, the
minimum terms and conditions listed below shall in no way relieve the parties
from any obligation or modify such obligations previously agreed to in other
agreements. Both parties agree that this Agreement and its terms and conditions
shall be confidential.


 


B.                                    Maintain confidentiality for
the term of Agreement. Upon termination return information or destroy it.


 


16

















 


C.                                    Each party shall protect the
other party’s Information to the same extent that it protects it own
confidential and proprietary information and shall take all reasonable
precautions to prevent unauthorized disclosure to third parties.


 


D.                                   The parties acknowledge that
the unauthorized disclosure of such Information will cause irreparable harm.
Accordingly, the parties agree that the injured party shall have the right to
seek immediate injunctive relief enjoining such unauthorized disclosure. In the
event an unauthorized disclosure occurs, the breaching party shall conduct an
immediate investigation to determine the source of such disclosure, including
the individuals responsible. All individuals found responsible for such
disclosure shall be promptly reprimanded and potentially terminated. Within ten
(10) days notice that such breach of confidentiality has occurred, the
breaching party shall provide a detailed report specifying the cause of the
unauthorized disclosure and the remedial measures that will be implemented to
prevent such disclosures in the future.


 


In addition to the foregoing, the breaching
party shall pay for liquidated damages in the event of any unauthorized
disclosure of information inoculation of this section as follows:


 


Unauthorized disclosure of information
Liquidated Damages


 




	
  First

  	
  [Confidential Treatment has been requested]

  
	
  Second

  	
  [Confidential Treatment has been requested]

  
	
  Third

  	
  [Confidential Treatment has been requested]

  
	
  Any additional

  	
  [Confidential Treatment has been requested]

  






 


The parties agree that non-breaching party
shall have the right to offset such liquidated damages against any amounts owed
to the breaching party. The rights set forth under this section 30 shall not
otherwise limit Non-breaching Party’s rights under this Agreement or law or
equity.


 


Seller agrees that it shall promptly
implement all measures necessary to satisfy compliance standards identified by
Buyer, including but not limited to those related to confidentiality.


 


E                                      This provision shall not apply
to information (1) known to the receiving party at the time of receipt
from the other party, (2) generally known or available to the public
through no act or failure to act by the receiving party, (3) furnished to
third parties by the disclosing party without restriction on disclosure, (4) furnished
to the receiving party by a third party as a matter of right and without
restriction on disclosure, or required by operation of law or court order, or (6) disclosed
for audit or accounting purposes.


 


F.                                   Immediately upon termination of this
Agreement or at the request of the other party, each of the parties shall
promptly return all materials in its possession containing Information of the
other Party.


 


31.                               COUNTRY OF ORIGIN


 


A                                     For each Product purchased under this
Agreement, Seller shall furnish Buyer with the applicable country of origin
(manufacture), by quantity and part number (Buyer’s and Seller’s) if necessary.  All Product shipped by Seller will comply
with all applicable country of origin requirements of the destination country
of the Product.


 


B.                                    Seller agrees to provide the necessary
export documents and to facilitate export of Product.  Seller further agrees to assist Buyer’s
import of Product as reasonably requested by Buyer.


 


32.                               PROPERTY FURNISHED BY BUYER


 


A.                                   The parties anticipate that, from time to
time, Buyer shall sell to Seller certain material to be used in manufacturing
Product (the “Buyer Furnished Material”). Seller agrees that each item of 


 


17

















 


Buyer Furnished Material
shall be used solely for the purpose of manufacturing Product ordered by Buyer
under this Agreement.


 


B.                                    Seller shall issue a Purchase Order for
the purchase price of the material sold by Buyer to Seller.


 


C.                                  Any drawings, specifications, or other
materials furnished by Buyer or purchased by Seller for Buyer for use by Seller
in its performance under this Agreement or any Order issued hereunder shall be
identified and shall remain the property of Buyer and shall be used by Seller
only in its performance hereunder.  Such
property shall be delivered, upon request, to destination specified by Buyer in
good condition, except for normal wear and tear.


 


D.                                   Any consigned Buyer Furnished Material
will be physically isolated and segregated from all other materials. Seller
will ensure through normal cycle counting and other procedures that on-hand
physical quantities are accurately reflected in the perpetual inventory system
and balances reported to Buyer on a monthly basis or more frequently, as
business conditions require.


 


E.                                     Buyer reserves the right to immediately
debit Seller for the cost of Microsoft Products, including the cost of the
royalty, if any Microsoft Certificates of Authenticity (COAs) can not be
accounted for either through perpetual inventory records or shipments made to
Buyer’s customers.  Seller agrees to
record all COAs shipped with the Product and be able to provide such
information to Buyer upon twenty-four (24) hours notice for all shipments.  Such COA tracking process shall be
incorporated in Seller’s manufacturing verification system (MVS) and Product
verification system (PVS) process.


 


33.                               SOFTWARE HANDLING


 


A.                                  Seller agrees to comply with the terms of
the Installation Agreement set forth in Exhibit F.


 


34.                               AUDIT RIGHTS


 


A.                                  Buyer shall have
the right to have third party auditor to
audit Seller to ensure that services in support of the Product are being
adequately performed,  that adequate
controls and security measures are being maintained, and Seller billings to
Buyer are accurate. Buyer shall provide five (5) business days prior notice.


 


B.                                    With the exception
of audits for Seller billings to Buyer, Buyer may,
subject to Seller’s prior approval, conduct audits at its
discretion and expense, no more than twice per Product program and no later
than six (6) months following the later of the last shipment of Product or
the last invoice received by Buyer for such program.  In connection with the foregoing, Seller will
provide to Buyer, their third party auditors that Buyer designates in writing,
access to (i) any part of any facility in which Seller or its
subcontractors is providing any of the services in support of the Product, (ii) data
and records relating to support of the Product; and (iii) individuals who
are familiar with Seller support of the Product and any other supporting
information which relates to the audited transaction.


 


C.                                    Buyer agrees that it shall comply with all applicable
legal requirements in its use of information obtained pursuant to such
audit.  However, Seller shall not be
required to provide information pursuant to an audit when it may cause the
breach of its confidential obligations to a third party or is otherwise
prohibited by law.


 


18

















 


D.                                   All confidential information disclosed to Buyer’s third
party auditors shall be subjected to the items of Section 30 and Buyer
shall cause all third party auditors to execute a non-disclosure agreement,
reasonably determined by the parties.


 


E.                                     Failure
to comply with the provisions set forth in this Section 35 shall
constitute a material breach of this Agreement.


 


35.                               QUARTERLY BUSINESS REVIEW


 


A.                                  The parties agree that they will hold a
Quarterly Business Review.  These
meetings shall be used by the Buyer to set expectations and provide feedback on
performance. Seller will use the Quarterly Business Review to understand performance
expectations, and their performance to the expectations, share information
regarding Company activities, and the Company’s strategic direction. In
conjunction with this effort, Buyer has established a rating system to be used
to evaluate Seller on its performance in the preceding quarter.


 


B.                                    Seller’s
performance will be evaluated on the following elements: Quality &
Reliability, Responsiveness, Cost / Delivery Performance, and Customer
Service.  In addition Seller’s progress
on supply chain reengineering and ODM shall be assessed. Other performance
areas may be added or current performance metrics modified as agreed in writing
by the Parties.


 


C.                                    Failure to demonstrate continued
improvements in the Quarterly Business Review ratings shall constitute a
material breach of this agreement.


 


36.                               GENERAL


 


A.                                  Seller understands that Buyer is engaged
in a corporate re-engineering and ODM effort and agrees that it will use
commercially reasonable efforts to adjust its business and design processes for
order placement, product manufacturing, product delivery mechanisms and
processes, quality plan definition and goals, and service mechanisms, in order
to meet Buyer’s re-engineering goals as communicated to Seller by Buyer from
time to time.


 


B.                                    If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, such provision shall be
enforced to the fullest extent permitted by applicable law and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.


 


C.                                    No action, except those regarding claims by third
parties, or claims with respect to patents, copyrights, trademarks or trade
names or the unauthorized disclosure of Confidential Information, regardless of
form, arising out of this Agreement may be brought by either party more than
two (2) years after the cause of action has arisen, or, in the case of
non-payment, more than two (2) years from the date the payment was due.


 


D.                                   Any waiver of any kind by a party of a breach of this
Agreement must be in writing, shall be effective only to the extent set forth
in such writing and shall not operate or be construed as a waiver of any
subsequent breach.  Any delay or omission
in exercising any right, power or remedy pursuant to a breach or default by a
party shall not impair any right, power or remedy which either party may have
with respect to a future breach or default.


 


E.                                     Seller hereby gives assurance to Buyer that it shall
not export, re-export or otherwise disclose, directly or indirectly, technical
data received from Buyer or the direct product of such technical data to any
person or destination when such export, re-export or disclosure is prohibited
by the laws of the United States or regulations of a Department of the United
States.


 


19

















 


F                                        This Agreement is considered to be
Confidential.  The Parties will keep the
terms and existence of this Agreement confidential.  Either Party will not publicly disclose or
issue any statement or press release that references this Agreement or the
other Party without the other Parties prior written approval.


 


G.                                    Reporting requirements associated with
this agreement will be summarized in Exhibit K, “Reporting Requirements”.  The summary identifies the report content,
report frequency, responsibility, and due date.


 


H.                                   The entire Agreement between the parties
is incorporated in this Agreement and Appendices attached hereto, and it
supersedes all prior discussions and agreements between the parties relating to
the subject matter hereof.  The parties,
upon mutual agreement, may from time to time amend or modify this
Agreement.  This Agreement can be
modified only by a written amendment duly signed by persons authorized to sign
agreements on behalf of both parties, and shall not be supplemented or modified
by any course of dealing or trade usage. 
Variance from or addition to the terms and conditions of this Agreement
in any Order, or other written notification from Seller will be of no effect.


 


I.                                        THE CONSTRUCTION, VALIDITY, AND PERFORMANCE
OF THIS AGREEMENT AND ANY ORDER ISSUED UNDER IT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS, U.S.A. AND THE LAWS OF THE UNITED STATES OF AMERICA, AND
IN THE EVENT OF ANY CONFLICT UNDER THIS AGREEMENT, THE PARTIES AGREE TO SUBMIT
TO THE JURISDICTION OF THE TEXAS STATE COURTS IN TRAVIS COUNTY, TEXAS AND THE
FEDERAL COURTS OF THE SOUTHERN DISTRICT OF TEXAS.


 


J.                                       Sections 12, 13, 14, 19, 20, 21, 23, 25,
29, 30, 32, 33,  and Exhibit E shall
survive termination (for any reason) or expiration of this Agreement.


 


IN WITNESS WHEREOF, THE
AUTHORIZED REPRESENTATIVES OF THE PARTIES HAVE EXECUTED THIS AGREEMENT.


 


	
  For Buyer

  	
   

  	
  For Seller

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Randy Paramore 

  	
   

  	
  /s/ Dixon Cheng 

  
	
  Randy Paramore 

  	
  (date)

  	
   

  	
  Dixon Cheng 

  	
  (date)

  	
   

  
	
  Vice
  President Supply Chain

  	
   

  	
  Vice
  Chairman

  	
   

  
	
  Xplore
  Technologies Corp.

  	
   

  	
  Pegatron Corporation

  	
   

  
						



 


20














 


EXHIBIT
SUMMARY


 


	
  ·

  	
  Exhibit A

  	
   

  	
  Products and Pricing

  
	
  ·

  	
  Exhibit B

  	
   

  	
  Specifications /
  Milestones

  
	
  ·

  	
  Exhibit C

  	
   

  	
  Quality Exhibit

  
	
  ·

  	
  Exhibit D

  	
   

  	
  Flexibility / Liability

  
	
  ·

  	
  Exhibit E

  	
   

  	
  Service &
  Support

  
	
  ·

  	
  Exhibit F

  	
   

  	
  Installation Agreement
  for Microsoft Products

  
	
  ·

  	
  Exhibit G

  	
   

  	
  Dispute Resolution
  Procedures

  
	
  ·

  	
  Exhibit H

  	
   

  	
  Tooling Exhibit

  
	
  ·

  	
  Exhibit I

  	
   

  	
  ODM Requirements

  
	
  ·

  	
  Exhibit J

  	
   

  	
  EDI Transactions

  
	
  ·

  	
  Exhibit K

  	
   

  	
  Product Reporting
  Requirements

  



 


21

















 


EXHIBIT A


PRODUCTS AND
PRICING


 


Products shall mean
current and future personal computer systems or subsystems that Xplore may
purchase from Pegatron pursuant to this Agreement and shall include all
software and hardware that Xplore specifies for inclusion with each Product shipped.
Xplore shall be responsible for the applicable software royalties payable to
the third party software suppliers.


 


Pegatron and Xplore agree
to determine the manner in which main components for the Products will be
purchased to optimize resulting total cost to Xplore.  At Xplore’s request and expense, Pegatron
will source certain critical components from vendors specified by Xplore and in
such situations, Xplore may assist Pegatron, where appropriate, to obtain
improved allocation, capacity, and pricing terms from vendors for such critical
components to be used in Products for Xplore. Pegatron ‘s cost reduction goals
are to deliver [Confidential Treatment has been requested] material cost
reduction, [Confidential Treatment has been requested] for the material that
Pegatron controls and a [Confidential Treatment has been requested] non
material cost reduction.


 


Pegatron agrees that the
prices specified below are firm until the end of the quarter. Day five (5th
day of the last month of the quarter) 
and each subsequent quarter thereafter, Xplore and Pegatron will meet to
negotiate firm prices for the immediately following quarter and projected not
to exceed prices for the next quarter thereafter.  Pegatron Xplore and Pegatron will agree to
work together to determine the category in which each major material component
will reside.  Each material category
shall be defined as listed below;


 


a)              category 1 - Xplore secures pricing, allocation and supports the
program requirements by utilizing Xplore planning and procurement systems.  Xplore ships components to each individual
Pegatron demand location, or has the product drop shipped by the individual
component supplier.  Xplore supplies a
weekly material summary sheet which details the time phased requirements,
material deliveries to each Pegatron demand location, and the Pegatron purchase
orders to support the deliveries. 
Pegatron agrees to validate each weekly material summary sheets
accuracy, and purchase 100% of the category 1 material from Xplore, (unless agreed
by the parties in writing). If Pegatron purchases any of the category 1
material from a source other than Xplore, (without authorization in writing),
Xplore shall have the right to offset Pegatron payables for 100% of the
material cost and ship the Category 1 material to Pegatron.


 


b)             category 2 - Xplore secures allocation and pricing, Pegatron
performs all planning, forecasting, and procurement activities to support the
program.  Pegatron agrees to provide a
written order status on a regular basis, at least once per month, or more
frequent if business conditions require. Pegatron agrees to utilize appropriate
planning time fences, forecasting techniques, and procurement practices to
support the program, and any 3-way agreements reached between the parties and
any component supplier.  If Pegatron
fails to support the 3 way agreements, by utilizing the aforementioned
processes, Xplore will have the right to recover any financial impact by
offsetting Pegatron’s payables.  Pegatron
agrees that it shall not use any Category 2 components in any other products.


 


c)              category 3 - Any components Pegatron utilizes within the
manufacturing process of any Xplore Product that does not fit into the category
1 or 2 as defined above.  Pegatron agrees
to source and support the planning / forecasting and logistical movement of the
component to support the project


 


22

















 


Attachment One (1)


 


Unit Cost
Quotation




	
  DATE:
  Jan. 16, 2008

  	
   

  	
   

  
	
  ver: 01

  	
   

  	
   

  






 


[Confidential Treatment
has been requested.]


 


23

















 


Unit Cost
Quotation




	
  DATE:
  Jan. 16, 2008

  	
   

  	
   

  
	
  ver: 01

  	
   

  	
   

  






 


[Confidential Treatment
has been requested.]


 


24

















 


Attachment Two (2)


Component Cost
Exceptions


 


Buyer and Seller shall
maintain a vigorous cost reduction program to ensure that pricing is
competitive at all times. Seller is able and willing to drive automatic cost
reductions of [Confidential Treatment has been requested] for materials managed
by Seller and [Confidential Treatment has been requested] for non-materials to
Buyer. Initially there are a small number of unique components that need to be
managed using an exception process for cost reduction purposes. The small
number of unique material components are outlined in the table below. Buyer and
Seller agree that the intent of the cost reduction program is to include all
components in the standard process and that mutual efforts will be required to
migrate the components listed below to the standard cost reduction process.
This table will be amended as progress is made to migrate each component to the
standard cost reduction process.


 


[Confidential Treatment
has been requested.]


 


25

















 


EXHIBIT B


SPECIFICATIONS
/ MILESTONES


 


[Confidential Treatment
has been requested for pages 26-108.]


 


26














 


EXHIBIT
C – QUALITY


 


Introduction


 


This Exhibit defines
the quality system and product quality requirements for the products and / or
support provided by the Seller to the Buyer. 
In the event that additional issues arise during the design,
manufacture, quality evaluations, and support of the product, the Seller agrees
to implement additional requirements that both Parties deem necessary to
improve or assure the product quality and customer satisfaction.  Seller agrees to consolidate all data
collected regarding quality without limitation, including production and
materials issues from all the Seller’s production facilities and supplier
base.  Seller will provide reports to
Buyer that shows the current status of product quality and related activities
defined in this Exhibit in the time intervals and format agreed to in Exhibit K
“Reporting Requirements”.  The format of
the report will be agreed to by the Seller and Buyer Quality
Representatives.  Buyer and Seller will
meet on a monthly basis or more frequently as needed to review the consolidated
quality data for the previous month or agreed time period to identify
appropriate actions required to improve the overall product quality and
customer satisfaction of the Seller’s products and support.


 


REVISION
HISTORY


 


	
  Revision

  	
   

  	
  Date

  	
   

  	
  Description
  of Change

  	
   

  
	
  [Confidential Treatment
  has been requested]

  	
   

  	
  [Confidential
  Treatment has been requested]

  	
   

  	
  [Confidential Treatment
  has been requested]

  	
   

  



 


1.0                               Scope


 


This Exhibit is
applicable to all parties of the attached procurement agreement.  The following are example activities required
to reduce the opportunity for incidents of non-conforming product, reduced
production tool life, and customer dissatisfaction.  Other actions may be required of the Seller
depending on the circumstances:


 


a)                                      Product
Qualification & Issues Tracking


b)                                     Annual
Quality & Reliability Assurance Plan


c)                                      Product
Quality & Process Yield Rate Management Plan


d)                                     Product
and Process Documentation Requirements


e)                                      Procured
Product & Production Tooling Qualification & Management


f)                                        Critical
Performance Metrics Definition and Reporting


g)                                     Production
Process Capability Study & Planned Quality Control Checks


h)                                     Closed
Loop Corrective Action process, including closure verification methods


 


2.0                               References


 


·                  The
Contract Agreement


·                  Buyer’s
Service and Support Exhibit


·                  Buyer’s
Product Visual Quality Requirements


·                  Seller’s
Quality & Reliability Assurance Plan


·                  Seller’s
Product Qualification & Product Release Plan


·                  Seller’s
Product Reliability Test Procedure, including ORT


·                  Seller’s
Product Reliability Failure Prediction Procedure


·                  Seller’s
Product Test Matrix (Production, ORT, & OBA)


·                  Seller’s
Defective Product Return Procedure


·                  Seller’s
Product Workmanship Standard


·                  Seller’s
Production Tool Management Plan


 


3.0                               Definitions


 


3.1                               CLOSED
LOOP CORRECTIVE ACTION (CLCA). 
Process resulting in the identification of the root cause of a problem
and activities that both corrects the condition and ensures measures are taken
to prevent the possibility for recurrence of the same condition.


 


109

















 


3.2                               CRITICAL
PRODUCT PARAMETER.  Product feature,
attribute, or function that directly impacts the form, fit, function, or visual
quality requirements of the product.


 


3.3                               CUSTOMER
INDUCED DAMAGE (CID).  A condition
created by the Buyer or Buyer’s customer by using the product in a manner other
than its’ design intended usage.  This
would include damage caused by handling, transportation, and / or storage.


 


3.4                               DEAD
ON ARRIVAL (DOA).  Product that is
less than [Confidential Treatment has been requested] old from the date shipped
plus transportation time by the Seller and has been identified as defective by
the Buyer or Buyer’s customer, depending on the original ship to address from
the Seller.  This defective condition may
be cosmetic, workmanship, configuration, or functional in nature.


 


3.5                               DEFECTIVE
PRODUCT.  Product that has been
identified as not conforming to 100% of the Buyer’s product Engineering and /
or Quality form, fit, functional, and visual requirements.  Also, any product that is grouped in lots /
shipment, if defective product is found in a lot sample the entire lot is
deemed defective product and is subject to rejection.


 


3.6                               DEMO
PRODUCT.  Product supplied to the Buyer
or Buyer’s customer for  evaluation.  This type unit is typically used in
connection with a future sales opportunity / order.


 


3.7                               DEVIATION
REQUEST.  A process for the Seller to
request a deviation from the Buyer to deviate from an approved Engineering or
Quality product or process requirement.


 


3.8                               FIRST
PASS YIELD (FPY).  The total number
of disruptions in the Buyer’s configuration process cause by defective product
divided by the total number of new starts on the Buyer’s configuration
line.  Product shipped by the Seller
under prior Buyer approved deviation will not be counted when calculating FPY
rate during a configuration process.


 


3.9                               MISSING,
WRONG, or DAMAGED (MWD).  This is a
product quality condition whereas the product is missing items on the BOM,
including literature, the wrong product or configuration, or has been damaged
prior to or during shipment to its’ intended destination.


 


3.10                        PRODUCT
QUALIFICATION.  The process of
validation and verification that the product meets all defined Engineering and
Quality requirements.


 


3.11                        PRODUCTION
TOOLING.  Any tool, jig, or fixture,
including software that is used by the Seller or a sub-supplier to produce,
inspect, or test an individual piece part, sub-assembly, or the final product
for use in the Seller’s production or shipment to the Buyer.


 


3.12                        QUALITY
ALERT.  A process used by the Seller
or Buyer to communicate product quality related issues prior to discovery by
the other party.


 


3.13                        QUALITY
PRODUCT.  100% conformance to the
Buyer’s approved Engineering drawings / specifications and Quality
requirements.


 


3.14                        QUARTERLY
BUSINESS REVIEW (QBR).  A meeting to
communicate information related to the Seller’s performance for a given time
period (usually 1 business quarter).


 


3.15                        REPEAT
FAILURE.  Any time [Confidential
Treatment has been requested] occurrences of the same type product defect or
process error occurs within a rolling [Confidential Treatment has been
requested] period.


 


3.16                        SPECIAL
PROCESS.  A process or procedure that
the quality of work or product can not be verified during the actual
process.  Examples of special processes
are; welding, plating, painting, adhesive bonding, coating, injection molding,
sheet metal stamping, etc.


 


110

















 


3.17                        SUPPLIER
CORRECTIVE ACTION REQUEST (SCAR).  A
form used by the Buyer to document a formal request for CLCA be taken by the
Seller to resolve a defined issue impacting product delivery, quality, cost, or
customer satisfaction.


 


3.18                        SUPPLIER
SCORECARD.  A document used by the
Buyer to communicate to the Seller their overall performance for a defined
period of time related to the contract requirements and any other agreed upon
activity to be performed by the Seller during the period.


 


3.19                        TOOL LIFE.  The total number of “shots” or “cycles” a
production tool is capable of exercising over its’ life.  Product quality and the yield rate of a
product will diminish as the tool ages over time.  It should also be noted that welding on a
production tool will reduce the expected tool life and must be controlled and
minimized by the Seller.


 


3.20                        VALIDATION.  A method used to validate that something has
been completed, such as a piece part has been physically replaced or a process
has been changed.  This is not intended
to verify that it was done correctly or effectively only that it did or did not
occur.


 


3.21                        VERIFICATION.  A process or activity that will objectively
demonstrate that a product or process change has been implemented per the
defined requirements through the use of representative samples of the
product.  This should also determine its’
effectiveness.


 


3.22                        WARRANTY
COST.  Buyer’s total cost of
addressing customer complaints and / or repairing a product returned by the
Buyer’s customer for repair, replacement, or credit.


 


4.0                               Quality
System Requirements


 


4.1                               General.  The Seller’s quality management system will
be in full compliance with ISO 9001-2000. 
Any exceptions to the requirements defined in ISO 9001-2000 Standard
must be approved by the Buyer or they are not valid exceptions for this
agreement.  If the Seller is registered
under the ISO 9001-2000 Standard, the Seller will provide a copy of their
current registration certificate to the Buyer’s QA Representative.  The Seller will be responsible to update the
certificate each year with the Buyer. 
The Seller will also notify the Buyer in writing within 15 calendar days
if the Seller’s quality system is determined to no longer be in full compliance
with the ISO 9001-2000 Standard and identify a date when the quality system
will return to full compliance.


 


4.2                               Product
Quality Performance Requirements.


 


4.2.1                     Seller’s
Production & Configuration Process. 
The Seller will maintain up-to-date performance metrics, which shows
current performance measurements for the quality metrics / goals defined in
this section.  The Seller will implement
a Quality Alert process whereas product is segregated and verified in
compliance before shipment to the Buyer whenever their internal yield rate
drops below [Confidential Treatment has been requested].  If the Seller’s product yield rate is below [Confidential
Treatment has been requested] for a period of [Confidential Treatment has been
requested] or the Seller has “stopped production or shipments” of the product
the Buyer’s QA and Purchasing representatives will be notified.


 


4.2.2                     Product
Direct Shipped   The Buyer will
provide  feedback to the Seller
with regard to the product’s quality as received by Buyer’s Customers.  The acceptable quality level for product
delivered to the Buyer’s customers is [Confidential Treatment has been
requested] for a [Confidential Treatment has been requested].  This will be calculated by the number of
defective units divided by the number of nonconforming products returned or
failed during source inspection


 


4.2.3                     Demo Product
Ship Direct to Customer.  If the
Seller is required to supply a  “demo”
unit for customer evaluation, the Seller will be responsible to supply 100%  defect free product for all customer
demonstration units.  A copy of all inspection
and test reports for each demo unit will be provided to the Buyer’s QA
representative at the time of the shipment from the Seller’s facility.


 


111

















 


4.2.4                     Continual
Improvement.  Continual improvement
activities will be identified at each QBR and during periodic Quality
Performance Reviews.  The Seller will be
responsible to complete these improvement activities in a timely manner and
report to the Buyer when requested the status of each item, including providing
verification evidence that the activities have been properly addressed.


 


4.3                               Advanced
Product Quality Planning (APQP).  The
Seller will provide an annual Quality & Reliability Assurance Plan
(QP), which identifies how the Seller will achieve the Buyer’s quality goals
for the products, services, and support provided by the Seller or Seller’s
supply chain.  The revised QP will be
provided to the Buyer’s QA Representative whenever it is updated.  The Buyer has the right to modify or offer
recommendations to the goals, priorities, and activities in the QP to ensure
that the QP is in full support of the Buyer’s business needs.  Some of the areas that should be addressed in
the QP are;


 


·                  Annual
quality objectives necessary for achievement of FPY rate


·                  New
product qualification requirements


·                  Design tolerance
evaluations to assure no mismatches in mating parts exist


·                  Product quality
requirement definitions, including cosmetic


·                  Product
quality requirements for production release


·                  Production tool
identification, tracking, and reporting requirements


·                  Nonconforming
product control and material purge requirements


·                  Product
inspection and test requirements, including burn-in time


·                  Inspection and
test sampling plans, IQC, in-process, final, OBA, and ORT


·                  Product test
matrix management and verification requirements


·                  Quality Alert
process definition, escalation, and closure criteria


·                  Product change
control verification and validation requirements


·                  Customer
complaint response, escalation, and closure requirements


·                  Sub-supplier
part qualification and production release requirements


 


4.4                               Document
and Change Control.  The Seller will
maintain an up-to-date document control system for all products produced for
the Buyer.  No changes to the product
will be made without documented approval of those changes on an ECR or ECO by
the Buyer.  The Seller assumes all
financial responsibility for product changes made by the Seller without an
approved ECR or ECO by the Buyer.  The
Seller will provide to the Buyer’s QA representative a Product Change Status
Report, which identifies all current and proposed changes to the product, their
current status, and description of verification activity used to verify the
change during production by the 5th day of each month.


 


4.4.1                     Engineering
Change Control.  The Seller will
maintain an up-to-date Bill of Materials (BOM) for all products produced for
the Buyer.  The BOM will contain all part
numbers of the individual piece parts and sub-assemblies required to produce
the product for the Buyer, including any documentation, such as labels,
operating manual, product literature, software, etc.  Copies of the BOM, engineering specifications
and drawings, and other product documentation will be made available to the
Buyer in English within 24 hours of the time requested.


 


4.4.2                     Records
Management.  The Seller will maintain
accurate records of all product drawings, specifications, standards, and BOMs
for a period of 12 calendar months after end of support life.  The end of manufacturing and support product
life will be set by the Buyer.  Copies of
all product records will be made available to the Buyer in English upon
request.


 


4.4.3                     Working
Documents.  Working documents, such
as production SOPs, inspection & test work instructions, production
test procedures, product test matrix, etc. will be revision controlled by the
Seller.  All documents will be made
available to the Buyer in English upon request.


 


112

















 


4.4.4                     Product /
Material Certifications.  When
required by the Buyer, the Seller will provide material / product
certifications (Certificate of Compliance) to the Buyer for products shipped to
the Buyer or the Buyer’s customer.  The
Seller will retain a copy of all material / product certification documents for
a period of 12 months past the end of support life of the product.


 


4.5                               Production
Process Controls.  The Seller will
maintain documented production assembly & test work instructions
(SOPs).  A complete set of all production
SOPs, including test procedures will be made available in English to the Buyer’s
Quality Representative upon request.  The
Seller will also perform process capability studies for their internal and
critical Tier 1 sub-supplier’s production processes to ensure the process is
capable of producing product at [Confidential Treatment has been requested] FPY
quality level.  The Seller will review
the results of these process evaluations with the Buyer’s QA Representative and
identify areas of concern related to product quality and production capacity
limitations.


 


4.6                               Inspection &
Test


 


4.6.1                     Incoming
Quality Control (IQC).  The Seller
will ensure that all materials used in the production of the Buyer’s product(s) meets
100% of the Engineering and Quality requirements prior to releasing the
material for use in production or shipment to the Buyer.  The Seller will maintain documented
Inspection Procedures which defines the quality requirements for each part
number procured from their supplier base for delivery to the Buyer.  In addition, any functional testing performed
by the Seller or a sub-supplier will have product test work instructions
defining how the test is performed and the detailed acceptance criteria for the
test.


 


4.6.2                     In-Process
Quality Control (IPC).  The Seller will
ensure that there are adequate internal controls in place and at sub-suppliers
to detect defective product during the production process and prevent it from
being released for shipment to the Buyer. 
The Seller will also establish minimum acceptable yield rates for the
production of the product and define escalation criteria when the yield rate is
not being achieved.  These yield rate
requirements and escalation criteria will also include the Seller’s
sub-supplier base.


 


4.6.3                     Final
Inspection & Test.  All
products shipped to the Buyer or Buyer’s customer will be verified that it is
in 100% compliance with the Buyer’s Engineering and Quality requirements prior
to release for shipment.  The Seller is
not relieved of this responsibility if the product is shipped directly from a
sub-supplier to the Buyer.  The Seller
will also verify that all functional testing of the product internally and at
sub-suppliers meets the Buyer’s Engineering and Quality requirements.  Any product that is not in 100% compliance with
these requirements will be rejected and the Seller does not have the authority
to apply a “USE AS IS” disposition to the product without an approved Deviation
Request from the Buyer.  All final
inspection results will be documented and made available in English to the
Buyer.


 


4.6.4                     Source
Inspection.  The Buyer reserves the
right to perform on-site inspection of product at the Seller’s production
location(s).  This inspection activity
may be performed by the Buyer or an authorized Buyer representative.  The sample plan / size for source inspection
and acceptance criteria will be at the discretion of the Buyer.  Whenever the Buyer elects to perform source
inspection, the Seller will ensure adequate space, tools, and support for
performing this activity.  Any product
found to be nonconforming as a result of the source inspection activity will be
the responsibility of the Seller to bring to a state of acceptance.


 


4.6.5                     Out of Box
Audits (OBA).  The Seller will
establish a process for performing OBA of the Buyer’s products.  This process will include sample size,
acceptance criteria, minimum yield rates, and escalation criteria.  The Seller 


 


113

















 


will correlate the
functional testing of the product with their internal production line and the
Buyer’s OBA requirements.  Each product
feature on the product test matrix and Buyer’s Product Requirements Document
(PRD) will be evaluated during OBA testing. 
The Seller will maintain OBA procedures, test matrix, and records.  The Seller will provide these records in
English to the Buyer upon request.


 


4.6.6                     On-Going
Reliability Testing (ORT).  The
Seller will implement an ORT plan for the Buyer’s products and submit this plan
to the Buyer for approval prior to production release of the product.  The Seller will maintain records of such
testing for a period of 12 months past the product end of manufacturing life.


 


4.7                               Control
of Inspection & Test Devices.  The
Seller will implement a documented equipment identification and calibration
program that is in full compliance with ISO 9001-2000.  This program will include all devices used by
the Seller to determine the acceptability of the product to the Buyer’s
Engineering and Quality requirements, including software, production fixtures,
and visual aides or templates.  Any
devices provided to a sub-supplier by the Seller will be subject to the
requirements of this program.  Any
product inspected or tested with a device under the control of this program
during the time the device is in a state of “out of calibration” the product
will be deemed unacceptable until the Seller re-inspects / test the product
with a measurement device that is deemed to be “in a state of calibration”.


 


4.8                               Nonconforming
Product Control.  The Seller will have
a documented process defining how nonconforming product is identified,
segregated, dispositioned, and controlled. 
The Seller does not have the authority to disposition any nonconforming
product “Use As Is” without an approved Deviation Request from the Buyer.  The Seller will maintain records of such
activity for 12 months past the end of support life of the product.


 


4.8.1                     Inventory
Control.  The Seller will manage
their inventory such that they have the capability to segregate nonconforming
product to prevent its’ usage, purge existing inventory by part number and
revision level, and identify materials that have special requirements, such as
shelf life, storage temperature requirements, ESD, or light exposure risk.  The Seller will have a material purge
procedure, which includes their sub-suppliers and control of inventory until
final disposition.


 


4.8.2                     Buyer Quality
Alerts.  The Seller will develop and
obtain the Buyer’s approval for a Quality Alert process for the Buyer’s
products.  The process will include
severity classifications of problem levels, escalation criteria, and the
identification of key points of contact within both the Seller’s and Buyer’s
organizations.


 


4.9                               Production
Tooling Management.  The production
tooling paid for by the Buyer, either through direct payment (NRE), amortized
through the product, or otherwise is the property of the Buyer when paid.  The Seller is responsible to manage these
tools to ensure the maximum tool life is achieved to support both the Seller’s
and Buyer’s business needs.  All tool
design, qualification, maintenance, and repair records of each tool are to be
maintained by the Seller and presented to the Buyer in English upon
request.  Each production tool will have
a unique tool identification number assigned by the Seller clearly marked on
the tool prior to the tool being released for production.  The Seller or its’ sub-supplier is not
authorized to make changes to the tool after tool qualification without
documented approval from the Buyer.


 


4.9.1                     Production Tool
Qualification.  The Seller will have
a documented process for qualification of production tooling approved by the
Buyer’s Engineering and Quality Representatives.  If a tool produces multiple parts, such as a
multiple cavity mold then each cavity must be qualified independently.  The tool qualification records will be
provided to the Buyer in English upon request.


 


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4.9.2                     Tool Life
Maintenance.  The Seller will have a
documented process that defines how the tool life of each production tool is
tracked.  There will be a defined
escalation process to notify the Buyer whenever a tool’s condition changes such
that the support of production is at risk or the first pass yield rate drops
below [Confidential Treatment has been requested] from the tool and / or [Confidential
Treatment has been requested] for the overall production process.


 


4.9.3                     Tool
Tracking.  The Seller will maintain
an up-to-date list of all production tools used to produce product for the Buyer.  This tool list will include the minimum
information and be provided to the Buyer in English upon request;


 


·                  Seller’s unique
tool identification number


·                  Part number
and revision level produced by the tool


·                  Number of
cavities in the tool


·                  Part description
of the part produced by the tool


·                  Buyer’s product
name(s) the tool supports


·                  Supplier’s name,
address, and contact person where the tool is located


·                  Date the tool
was initially qualified


·                  Cost of tool
(billed to Buyer)


·                  Expected tool
life from date of qualification


·                  Date last First Article Inspection
(FAI) was perform on each cavity


·                  Estimated number
of shots or cycles remaining on the tool’s life per cavity


·                  Actual FPY rate
of the tool


·                  Actual overall
FPY rate of the supplier’s overall process to produce the part


·                  Date of next
schedule formal tool examination and part FAI


 


5.0                               New
Product Assurance & Production Release


 


5.1                               General.  All product  intended for shipment to the Buyer will be  qualified by the Seller  prior to shipment  to the Buyer.  The Seller will be  responsible to maintain documented records
of the product’s qualification in English, such as FAI Reports, regulatory
compliance test reports, product test reports, ECOs, mother board qualification
test reports, RoHS material qualification records, UL test reports, etc. and
provide them to the Buyer upon request. 
The Seller and Buyer’s Quality representatives will agree on the product
specific qualification criteria prior to beginning qualification inspection &
test activities.


 


5.2                               Product
Assurance and Design Reviews.


 


5.2.1                     General.  The Seller will present to the Buyer’s
Quality representative a documented QP that defines how the Seller will assure
that product qualified for use in the Seller’s production process and shipped
to the Buyer will be in full compliance with the Buyer’s approved engineering
specifications / drawings and applicable quality requirements.


 


5.2.2                     Product
Design Reviews.  The Seller’s Quality
representative will participate in product design reviews which involves the
Seller and identifies product related quality risk that will or may impact the
quality or reliability of the product provided to the Buyer.  The Seller will rank all identified quality
risk in order of severity with regard to their impact to the product’s quality &
reliability.  After the product or part(s) have
been qualified, the Seller’s Quality representative will track all product
deviations requested by the Seller’s engineering functions with regard to
product testing, qualification, and production pilot builds.


 


5.2.3                     Design for
Manufacturability.  The Seller will
perform a review of the product’s design with regard to its’ impact on the
current plan for assembly and test of the product in the Seller’s production
facilities.  The Seller’s Quality
representative will provide to the Buyer’s Quality representative a list of all
issues and improvements that may negatively impact the assembly, test, or
quality of the product.


 


115

















 


5.2.4                     Product Test
Correlation.  The Seller will provide
a plan to the Buyer’s Quality representative for assuring that there is adequate
correlation between the Seller’s and Buyer’s production and configuration
facilities with regard to product acceptance testing, both during production,
burn-in, and OBA activities.  The Seller
will provide upon request a complete product test matrix to the Buyer showing
how each requirement of the Buyer’s Product Requirement Document are tested,
during the Seller’s production process. 
If required, the Seller will provide “golden” units to validate test
correlation between the Seller’s and Buyer’s facilities.


 


5.2.5                     Warranty Cost
Predictions.  Prior to Engineering
product qualification, the Seller’s Quality representative will provide a list
of all major components of the Buyer’s product and identify each components
expected warranty life prediction in operating hours.  Some of the typical major components on the
list are;


 


·                  Motherboard
(MLB)


·                  Display (LCD)


·                  Mechanical
assembly


·                  Keypad or
keyboard (number of key strokes)


·                  Battery Life


·                  External
connectors (number of insertions)


 


5.3                               Product
Qualification


 


5.3.1                     New
Product Qualification.  Each component of a new product
will be  qualified individually and in the
product / system prior to release for
production.  A record of the qualification and the
specification it was qualified to will be retained by the Seller as a quality
record of the activity.  The Buyer and
Seller agree to collaborate to define the product qualification documentation
requirements for each new product project performed with the Seller.


 


5.3.2                     Product
Re-Qualification.  The Buyer has the
right to require full or partial re-qualification of the product if there has
been a significant change to the product, there has been a high rate of product
changes within a 12 month period, the quality of the product is suspect, or the
Seller and Buyer mutually agree to perform such activities due to other
business issues.  If the re-qualification
is due to poor quality performance or changes made by the Seller without the
Buyer’s approval then the Seller will be responsible for the total cost of
product re-qualification.


 


5.4                               Production
Part Approval Process (PPAP). 
The Seller will have a documented production part approval process,
which clearly defines how a piece part or sub-assembly is qualified within
their supply chain, how the activity is documented, the allowable tolerance
usages, the allowable dispositions, and how deviations or waivers are addressed
with regard to the Engineering and Quality requirements.  The records from these activities will be
maintained by the Seller for a period of 12 months after the end of business
with the sub-supplier supplying the part to the Seller.  These records will be made available to the
Buyer in English upon request.


 


5.5                               Product
Compliance & Regulatory Compliance.


 


5.5.1                     New Product
Compliance.  The Buyer will be
responsible to ensue there is documented evidence that product regulatory
compliance requirements have been satisfied prior to release for the first
production build by the Seller.


 


5.5.2                     Certificate
of Compliance (CofC).  The Seller
will provide a CofC in English if required by the Buyer.  The acceptable format of the CofC will be
provided to the Seller by the Buyer’s Quality Representative.


 


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5.6                               Production
Release.  Production release of a
product will only occur when both the Seller and Buyer agree that the product
design and quality requirements have been achieved.


 


5.6.1                     Quality
Criteria.  The quality criteria for
production release will be as follows:


 


·                  All individual
part numbers on the BOM have been fully qualified


·                  All
sub-assemblies produced by suppliers have been qualified


·                  The packaging
has been defined and qualified, including labels


·                  All production
tools have been qualified and properly identified


·                  The Seller’s
production SOPs have been released and verified


·                  The production
test matrix has been verified to meet the Buyer’s PRD


·                  The
product cosmetic and final inspection criteria has been defined and agreed to
by the Buyer’s Quality representative


·                  A
copy of the up-to-date indented BOM with manufacturer part numbers and
descriptions has been provided to the Buyer


   All product regulatory requirements have
been satisfied


·                  All Severity 1
issues on the Quality Action Register have been closed


·                  All Severity 2
issues on the Quality Action Register have a plan for closure within 30 days
from release to production


·                  The Seller has
produced a pilot build of >[Confidential Treatment has been requested] with
a FPY [Confidential Treatment has been requested]


·                  A copy of all
deviations or waivers for the engineering qualification build has been provided
to and approved by the Buyer


 


5.6.2                     Product
Quality Verification & Validation Requirements.  The Seller is responsible to perform both
product verification and validation activities to ensure that the product
design and quality requirements have been satisfied during the pilot production
build.  The Seller will review the
results with the Buyer’s Engineering and Quality representatives within 5 days
of production release.  A copy of all
documentation will be provided to the Buyer’s representatives in English two (2) working
days prior to the review.


 


5.6.3                     New Product
Quality Information Package.  The
Buyer’s Quality representative will identify to the Seller the content
requirements of the Quality Information Package.  Below is a list of the typical items (in
English) in this package, but additional items may be added:


 


·                  List of all open
and closed deviations / waivers during the design process


·                  Production
tooling list, including identify those amortized in the part


·                  Complete
complex indented BOM of product


·                  List
of options provided by the Seller, ie. Battery, HDD, memory, etc.


·                  Copy
of Seller’s Production SOPs with quality requirements


·                  Copy
of Seller’s product production test matrix (functional test & burn-in)


·                  Process
map of Seller’s production process with quality check points


·                  Seller’s
cosmetic and dimensional requirements for production


·                  Copy
of all mechanical FAIs for parts produced from production tooling


·                  OBA
and ORT quality requirements, including sample plans


·                  Warranty
failure predictions for all major components


 


6.0                               Sub-Supplier
Quality Management Requirements


 


6.1                               General.  The Seller will have a Supplier Quality
Management program and make the details of the program available to the Buyer
upon request.  The Seller will have a
defined process to verify and validate that their Tier 1 suppliers are in full
compliance with the requirements of the Supplier Management Program.


 


6.2                               Supplier
Qualification.  The Seller will
maintain a revision controlled Approved Vendors List (AVL) that identifies all
approved suppliers for the Buyer’s parts / product(s).


 


117

















 


6.3                               Product
Qualification.  All qualifications
will be documented and made available in English to the Buyer upon
request.  The specification the part,
sub-assembly, or product was qualified to will also be made available to the
Buyer upon request.  If there is a
tolerance applied to a specific dimension or requirement, the Buyer has the
right to specify specific acceptance limits within that tolerance range for
final acceptance.  If there are multiple
suppliers for the same part number, the Seller will ensure that each supplier
is qualified to the same requirements and there is no difference in the
performance of the parts in the Buyer’s product.


 


6.4                               Production
Tool Qualification & Management. 
Each production tool used to produce product to be delivered to the
Buyer will be qualified, prior to production release of the part being produced
by the tool.  The tool will also be
qualified and evidence in English of the tool qualification with copies of the
piece part engineering specification / drawing will be supplied for acceptance
to the Buyer’s Quality and Engineering representatives, prior to the Buyer
paying for the tool.


 


6.4.1                     Tool
Identification.  Each tool will have
a unique identification number applied to the tool in a location that it is
visible to the Buyer without opening the tool. 
If there is more than one cavity in a single tool then the number of
cavities will also be identified below the identification number on the
tool.  If there is more than one cavity,
then each cavity will have a unique cavity number in a location that the number
will appear in a “none cosmetic” location of the finished part.


 


6.4.2                     Tool
Maintenance.  The Seller will
maintain an up-to-date Tool Log, per Section 4.9.3 of this Exhibit.  The format for this log will be provided to
the Seller by the Buyer’s Quality representative.  The Seller will have a defined escalation
process to notify the Buyer any time a production tool violates a requirement
of Section 4.9.3 of this Exhibit. 
Any violation by the Seller or Seller’s supplier of these production
tooling requirements and the Buyer has the right to delay or defer payment of
the tooling until all the requirements have been satisfied.


 


6.5                               Supplier
Surveillance.  The Seller will ensure
their supply base is operating continually within the requirements of this
Exhibit.  The Seller is responsible to
identify, segregate, and manage any product identified or suspect as
nonconforming at their supplier.  The
Seller will also have a defined process for purging, sorting, segregating, and
dispositioning sub-supplier materials / products and prevent the product from
being used in the Seller’s production process or shipped to the Buyer.  The Seller is not authorized to disposition
any suspect or nonconforming product located at a sub-supplier “Use As Is”
without a documented and approved Deviation request from the Buyer.


 


6.6                               Supplier
Records.  The Seller will ensure that
there are adequate records of their supplier management program.  These records will be made available to the
Buyer in English when requested.   The records will be retained for a period of
12 months past the end of life of the product being produced by the
supplier.  If the Seller discontinues
business with the sub-supplier, the Seller is responsible to obtain all the
records and production tools from the supplier prior to discontinuing the
business and retaining those records for 12 months from the date of
discontinuance of business.


 


7.0                               Product
End of Life (EOL) Quality Requirements


 


7.1                               General.  The Seller is responsible to meet all the
requirements of this Exhibit for the full term of the products life
cycle.  The Seller is responsible to
track and report to the Buyer the required performance metrics for the full
term of the product’s life cycle.


 


7.2                               Quality
Planning.  The Seller will create a
documented “End of Support Life” (EOSL) Quality Plan and present it to the
Buyer for approval within 30 days from the written notification from the Buyer
for a product’s scheduled end of life. 
This plan will include those topics defined by the Buyer’s Quality representative.  The plan will include how 


 


118

















 


the Seller will
ensure the quality of the product for both the shipment of product to the Buyer
and the quality of spare parts for service provider facilities.


 


7.3                               Quality
Records.  The Seller agrees to retain
a copy and make available in English upon request for a term of 12 months past
the EOL of a product to the Buyer all records defined or implies in the
Exhibit.  These records will be retained
in such a manner as to prevent damage by storage or hazardous conditions over
time.


 


7.4                               Product
Quality Package.  The Seller will
provide a complete Product EOL Quality Package to the Buyer within 90 days from
the date of request.  This package is
intended to provide historical evidence of the product’s quality over the term
of the product’s life.  The Buyer’s
Quality representative will provide to the Seller a list of documents
(information) related to this agreement within 60 days from the notification of
a product’s end of life that will make up the Product Quality Package.  Some examples of documents in this package
are;


 


·                  Performance
metrics for last 12 months of product’s life


·                  List of current
status and location of all production tooling, including software


·                  Seller’s End of
Manufacturing & Support Life Plan


·                  List of all know
outstanding (open) quality issues with the product


·                  List of all
known nonconforming product that requires disposition by the Buyer


 


119














 


EXHIBIT D


FLEXIBILITY
AGREEMENT


 


Buyer will provide Seller
with a forecast as specified in this Agreement. 
Buyer’s liabilities to Seller for Product units specified in the
forecast are as follows:


 


	
  Number of weeks

  prior to requested

  ship dates

  	
   

  	
  Buyer’s liability

  	
   

  	
  % increase without

  additional Buyer

  liability *

  	
   

  	
  % decrease without

  Buyer liability

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  0-3 weeks

  	
   

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4-7 weeks

  	
   

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8-11 weeks

  	
   

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12 weeks

  	
   

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  



 


EXAMPLES:


 


A.             Buyer
shall be permitted to increase quantities set forth in the forecast pursuant to
the Flexibility Model set forth above. 
For example, if there are 100 units committed during the next 0-3 week
period, Buyer will have the ability to increase this amount during the same 0-3
week period by [Confidential Treatment has been requested] or [Confidential
Treatment has been requested] without any additional cost. Example for
calculating liability would be as follows: 
[Confidential Treatment has been requested]


 


[Confidential
Treatment has been requested.]


 


B.               Additional
example: For instance, if there are 4000 units committed during the 4-7 week
period, Buyer will have the ability to increase this amount during the same 4-7
week period by [Confidential Treatment has been requested] or [Confidential
Treatment has been requested] without any additional cost. Example for
calculating liability would be as follows;


 


[Confidential
Treatment has been requested.]


 


120














 


EXHIBIT E


SERVICE AND
SUPPORT


 


1.         DEFINITIONS.  In addition to the capitalized terms set forth in Article 1
of the Agreement, the following capitalized terms as used in this Exhibit shall
have the meaning assigned to such term as set forth below:


 


1.A.         “Core(s)” means a defective or nonconforming Spare.


 


1.B.         “Core Price” means the value of the raw FRU, CRU, or DRU assumed to be
in a defective state, excluding the cost of packaging, labeling, kitting,
documentation, and software.


 


1.C.         “Advanced Exchange” means a process whereby the Seller shall ship to
Buyer or Buyer’s customer a replacement Spare before the receipt of a defective
Spare.


 


1.D.         “Advanced Exchange Pricing” means
Repair cost plus a mutually agreed upon cost markup to cover the cost of
handling and other administrative expenses as set forth on Attachment 1 hereto.


 


1.E.          “FRUs” means field-replaceable units up to and including the whole
product, but not limited to, products, documentation, packaging, and software,
kitted, labeled, packaged, and ready for shipment to dealers.


 


1.F.          “CRUs” means Customer Replaceable Units, which is a spare that can be
easily replaced by an end user customer.


 


1.G.         “DRUs” means Depot Replaceable Units, which is a spare which can only
be replaced /repaired in a controlled, depot environment.


 


1.H.         “Rush” means shipment within four (4) hours
of request by Buyer’s authorized agent. 
Buyer shall designate its agents before production.


 


1.I.           “Spare(s)” means FRUs, CRUs, and DRUs.


 


1.J.          “Field Return Rate” or “FRR” means the
current month’s number of Spares returned, divided by the installed base of
that FRU up to the current month, as determined by the quantity of the Seller’s
product shipped to Buyer or Buyer’s customers.


 


1.K.         “Like New” condition means meeting Buyer’s
current engineering and quality specifications at the time of submission for
repair.


 


1.L.          “Refurbish” means replacement of parts
that do not conform to Buyer’s specifications.


 


1.M.        “Refurbish Cost” means Seller’s total
incurred costs for Refurbishing Spares in warranty.


 


1.N.         “Repairs” means the process to restore a
defective Spare to a working condition that meets all buyers’ Engineering and
Quality specifications.


 


1.O.         “Repair Cost” means Seller’s total
incurred costs during out-of-warranty, including, but not limited to a charge
for refurbishing the units if needed.


 


1.P.          “New Orders” means orders for additional
new, repaired, or refurbished Spares.


 


1.Q.         “De-coupled Flow” means the return to
Seller of Spares without obligation to repurchase.


 


1.R.         “Supplier
Fulfillment Center” or “SFC” means a Buyer zero inventory ownership 


 


121

















 


support methodology, whereby Seller’s service and
support of Spares requires Seller to repair, warehouse, distribute and receive
defective field spares in support of Buyer’s customers.  The SFC methodology is discussed in more
detail in Attachment 2 hereto.


 


2.             PAYMENT TERMS


 


2.A.         Payment
terms hereunder shall be net [Confidential Treatment has been requested] (T/T)
from the date of invoice, provided that Spares have been confirmed as having
been delivered by the Seller to Buyer’s Preferred Carrier at Seller’s service
and support centers. Payment terms shall be the same as is indicated in the
base Agreement. Payment of invoices shall not constitute final acceptance of
the Spares.


 


2.B.         Buyer
retains the right to immediately set off cost of nonconforming Spares or
discrepancies on invoices against current or future invoices for all RMA’s and
any other circumstances that Buyer deems appropriate.


 


2.C.         Buyer
shall pay Seller for the amounts invoiced in accordance with the terms of this
Agreement. Invoices shall reflect the prices specified in Buyer’s orders.
Unless otherwise specified in an attachment quarterly pricing sheet or agreed
to in writing by the parties, payment shall be in U.S. dollars.


 


3.             IN WARRANTY SERVICE


 


3.A.         PRICING


 


3.A.1       Spares/Advanced Exchange pricing is set forth in
the attached pricing sheet. Pricing shall remain fixed for the contract pricing
period as set forth herein of ninety (90) days. 
Thirty (30) days before the end of the then current contract pricing
period, Buyer and Seller shall meet to review the pricing of Spares.


 


3.A.2       The Spares List with pricing must be submitted
thirty (30) days prior to first customer shipment.


 


3.A.3       If agreement is reached, an
amendment to this Agreement shall be executed, memorializing said agreement.


 


3.A.4       The sum of all Spares pricing on the Product’s
RSL (Recommended Spares List) shall not exceed [Confidential Treatment has been
requested] of the total Product price.


 


3.A.5       Following expiration or termination of the
Agreement, said Agreement shall be governed by the terms as stipulated in the
Spares Term of Availability clause herein. The terms that govern pricing during
this period are set forth below;


 


3.A.6       For two (2) years
from the date of the last shipment of Product, Spares/ Advanced Exchange
Pricing shall not exceed the then current Spares/ Advanced Exchange Pricing as
listed in the attached pricing sheet.  However, if such a case arises that requires an increase in pricing then
it will discussed between both Buyer and Seller and mutually agreed. For the
remainder of the term of availability, which is three (3) years, Seller
and Buyer will negotiate in good faith to ensure spares pricing is competitive.
Justification for all pricing increases must be substantiated in writing by
Seller, and Buyer must agree with all substantiation before implementation of
all new pricing.


 


3.A.7       Buyer and
Seller will collaboratively pursue aggressive pricing for spare parts, and will
allow Buyer to take advantage of these opportunities


 


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when they are available..


 


3.A.8       Seller
shall maintain a vigorous cost reduction program to ensure that the prices
charged to Buyer are aggressive and competitive at all times.


 


3.B.         TERM OF
AVAILABILITY


 


3.B.1       Seller shall make commercially
reasonable efforts to make Spares available for purchase by Buyer, for at least
five (5) years after the last delivery of a Product by Seller. Seller and
Buyer will use commercially reasonable efforts to extend this support based on
market requirements. The commencement of such five (5)  year period shall
be defined and communicated to Seller by Buyer’s Program management.  Delivery shall be as stated on Buyer’s Order.
Seller shall have the option to make available a functionally equivalent or
better Spare during such five (5)  year period so long as such Spare is
compatible and subject to the terms of Section 4.G (Engineering Changes).


 


3.B.2       Grant to Buyer a
royalty-free, nonexclusive, worldwide manufacturing license to have made, use,
sell or otherwise dispose of the Spares, and furnish Buyer all necessary
documentation, requirements, drawings, and other data, including its sources
for raw materials necessary to make such Spares. If Buyer elects this option,
Seller shall in addition;


 


3.B.2.a    Implement an end of life plan to be mutually agreed
upon.


 


3.B.2.b    Sell Buyer
sufficient quantities of Spares, as Buyer deems necessary on a one time purchase
basis. Buyer and Seller will collaborate to find alternative methods to support
the customer.


 


3.C.         WARRANTY
TERMS


 


3.C.1       Seller hereby warrants that for [Confidential
Treatment has been requested] from date of acceptance of Spares by Buyer and/or
Buyer’s customers, that Spares shall be free from all defects in material,
workmanship and design and shall conform to applicable specifications,
drawings, samples, and descriptions referred to in this Agreement, and shall be
suitable for the purpose for which they were intended. Cosmetic damage to
mechanical parts such as scratches to the A and D panels are excluded from the
standard warranty after the initial DOA period. Seller further represents and
warrants that Spares purchased hereunder shall:


 


3.C.1.a    vest in Buyer good and valid title to said Spares
free and clear of all liens, security interests, encumbrances, burdens, and
other claims, and


 


3.C.1.b    that Spares do not infringe on any intellectual
property interest.


 


3.C.2       Buyer or Buyer’s customer(s) shall return
in-warranty Spares to Seller for full credit or replacement (less packing
material) at Buyers option for non conforming spares. Cosmetic damage to
mechanical parts such as scratches to the A and D panels are excluded from the
standard warranty after the initial DOA period. Seller shall issue credit 


 


123

















 


at receipt of Spare at current negotiated prices under
the terms of Seller’s warranty. Buyer may elect to utilize a debit system for this transaction.


 


3.C.3       Buyer or Buyer’s customer(s) shall return
items to Seller for legitimate warranty return as determined by Buyer or Buyer’s
customer(s). Buyer or Buyer’s customer(s) cannot arbitrarily return items
under the guise of “warranty return” unless substantiated. Buyer and Seller
agree to collaborate to ensure the NTF rate of returned Product stays below an
acceptable level. The goal for the NTF level should not exceed a maximum of [Confidential
Treatment has been requested.]


 


3.C.4       Except as stated otherwise in this Agreement, all charges Buyer and
Seller agree to pay one leg of freight for logistical movement of Product.


 


3.C.5       Spares shall be date coded indicating date of
repair or refurbishment, to include human readable characters, in English and
host country language where applicable and in plain sight.


 


3.C.6       Seller shall provide flow-through warranty for
Spares that are sold to Buyer from Seller utilizing 3rd party suppliers.  This warranty passed to Buyer from Seller
shall be no less than the warranty provided by the Seller.


 


3.C.7       Buyer may appoint a network of authorized
service providers to administer the warranty process.   Seller shall recognize said appointment and
shall assist Buyer’s authorized service agent, as required by Buyer, to
maintain the warranty process described herein.


 


3.C.8       Seller shall notify Buyer within three (3) working days after
receipt of materials if any non-functional Spares are attributable to customer
abuse, and therefore not the responsibility of Seller.  Upon notification, Buyer retains the right to
audit the Spare, and shall provide disposition either by return to Buyer or
repair at Buyer’s expense within three (3) working days.


 


3.C.9       Seller agrees to maintain a buffer stock
of Spares that Seller deems adequate at each geographical location to meet fill
rate performance commitments as defined in this Exhibit. Seller and
Buyer agree that Spares shall be owned and held by Seller until requested by
Buyer. Buyer and Seller shall use commercially reasonable efforts to
effectively manage the consigned inventory at each mutually agreed geographic
location.


 


3.C.10     Seller
agrees that in order to minimize the Buyer’s customer’s down time, requests
labeled “Rush” shall have worldwide priority over production shipments.  “Rush” orders shall be placed only if one or
more customers are unable to utilize their Product for its intended purpose
until the Spare arrives.  Seller agrees
to use commercially reasonable efforts to ship Buyer designated “Rush” orders within same business day
the Rush order is received of receipt assuming material is available anywhere
in the pipeline. Invoices for “Rush” orders must be accompanied by a copy of
the waybill(s) for the shipment(s).


 


3.C.11     Buyer or Buyer’s customer(s) shall
make best efforts not to assert a claim of in-warranty return for Spares, that
are not covered by a repair warranty or that have been obviously subjected to
user negligence or abuse.  In the event
that a Spare submitted for return has been damaged beyond repair, Seller shall
not be obligated to make in-warranty repairs or provide a credit for the return
due to customer abuse.


 


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3.D.         ADMINISTRATION


 


3.D.1       Buyer and Seller shall create the initial
Spares List, which shall be based on Seller’s Product design and annualized
projected field return rates.  Buyer and
Seller shall complete the first pass Spares List and estimated annualized
projected Field Return Rates within [Confidential Treatment has been
requested] after Buyer’s receipt
of engineering samples, or [Confidential Treatment has been requested] prior to first customer ship from the
buyer.


 


3.D.2       Seller agrees that during the term of
this Agreement, it shall designate a spares manager for each Seller Service
Center who shall act as Buyer’s primary contact for issues regarding parts
procurement, engineering changes, quality issues and part exchanges.


 


3.E.          IN WARRANTY METRICS


 


3.E.1        Fill Rate – Seller shall ship spares by
the second business day, as long as the spare is included in the mutually
agreed upon spares list.  Performance
goal is [Confidential Treatment has been requested] on time and shall be measured by Buyer
weekly based on system documented shipments and customer orders from SFC
finished goods stock.


 


3.E.2        In
support of the metrics referenced above, both parties agree to have a monthly
meeting with management representation, to review critical parameters affecting
the attainment of these metrics.  This
should include a three (3) month non-binding forecast, purges, holds,
buffer stock, and performance to date against these established metrics.


 


3.E.3        Compliance with these metrics shall be
assessed on a quarterly basis and presented at the quarterly business review.


 


3.E.4        For performance goals not  met, Buyer may immediately escalate to Seller management
with weekly review sessions until performance returns to the agreed performance
metrics.


 


3.E.5        Seller does not have the obligation to
provide Buyer credit for spare returns passed [Confidential Treatment
has been requested.]


 


3.F.          DELIVERY


 


3.F.1        Buyer
and Seller agree to utilize the Supplier Fulfillment Center (SFC) methodology
to meet Buyer’s delivery requirements. 
The SFC is a program which obligates Seller to stock Seller owned
inventory to meet Buyer’s requirements. Requirements shall be met by Seller by
storing Seller owned inventory located within each designated geographic area..
Seller shall utilize Buyer Spares forecasts, in combination with Seller’s
failure data or other information available to Seller, known only to Seller as
manufacturer of said material, to establish the stocking levels to meet the
aforementioned Buyer requirements.  Buyer
and Seller shall work together to create a process for transmitting and receiving
orders via electronic transmission.


 


3.F.2        Delivery of warranty Spares shall be per the
SFC process as stated above coupled with the utilization of a periodic Advanced
Exchange delivery methodology if needed, the steps of which are described
below;


 


3.F.3        Once a Spare has been
determined by Buyer or Buyer’s Customer to be defective, Buyer shall generate
an order to Seller for a replacement spare


 


125

















 


3.F.4        Seller shall pick, pack,
inspect, and ship order to Buyer as per SFC delivery metrics and packaging
specifications.


 


3.F.5        Seller shall invoice Buyer
at the Advanced Exchange Price as stated in the attached pricing exhibit, upon
shipment of replacement unit.


 


3.F.6        Buyer shall measure Seller’s performance based upon the date stated on
Buyer’s order, for the purpose of establishing Seller’s rate of timely
shipment.


 


3.F.7        Seller understands that TIME IS OF THE ESSENCE
in meeting Buyer’s requirements and agrees that Buyer may be irreparably
damaged should Seller not meet specified shipment requirements.  Shipping performance shall be measured by
Seller’s ability to ship pursuant to the performance metrics defined in this
Exhibit.


 


3.F.8        Spares listed in the attached pricing
attachment as expendable shall not be returned to Seller.


 


3.F.9        Seller agrees to notify Buyer’s service
organization within two (2) working days of receipt of material if there
are discrepancies in quantities, part numbers, or freight damage.


 


3.F.10      Buyer
agrees to notify Seller within two (2) working days of receipt of Spares
if there are discrepancies in quantities, part numbers, or freight damage.


 


3.F.11      Seller
agrees to use the Quality Alert process defined in the Quality Exhibit to
notify Buyer whenever the quality of Spare parts is suspect or is discovered to
be nonconforming after shipment by the Seller.


 


3.G.         RIGHTS AND ASSISTANCE TO REPAIR


 


3.G.1       Seller grants to Buyer the right to repair or have
repaired Spares and that Seller shall provide Buyer, at Buyer’s request, a list
of related components and the list of Seller approved suppliers for those
components. The components that are not available to Buyer from sources other
than Seller are to be listed and unit prices identified with quantity
discounts, if any. Those components having generic industry identification (not
proprietary to Seller) and available to Buyer, shall be cross-referenced to
generic part numbers. Seller further agrees to provide Buyer with the
applicable test specifications, applicable diagnostic programs, test procedures
and drawings required for testing the finished Spares, and/or Repairs, along
with a full description, manufacturer’s model numbers, etc, of the test
equipment involved/required to perform such tests.  Seller shall provide all requested information
to the Buyer within forty-five (45) days from such written requests by Buyer
and insure updates to the publication are provided for two years after the date
of last product shipment.


 


3.G.2       Buyer reserves the right to have Spares repaired
by the Seller, its authorized repair center or to select a third (3rd)
party repair centers for such repairs. 
In any event Seller shall agree to support  Buyer’s
selected repair centers.


 


3.G.3       Upon Buyer’s request, Seller agrees to assist,
provide and support Buyer or Buyer’s selected authorized third (3rd) parties,
with respect to the repair and refurbishment process development,
including.  This support shall continue
for a period of three (3) years after the last delivery of a Product, (as
stated in the Agreement) by Seller.


 


126

















 


3.H.         Engineering Changes


 


3.H.1       No changes shall be made by Seller in the form,
fit, or function, including cosmetic, reliability and compatibility, of Spares
without Buyer’s prior written approval initiated by an Engineering Change (EC)
approved by Buyer.  Seller shall perform
appropriate test(s) to establish conformity with the specifications and
quality of Spares as required under the Agreement.  Seller shall issue a “Supplier Change Request”
form and shall provide to Buyer the test documentation and results, documenting
that the appropriate tests were performed in English.  Buyer’s authorized representative shall
respond within two (2) business days of Buyer’s receipt of the Supplier’s
Change Request form and test documentation and results.


 


3.H.2       Approved
ECs that affect form, fit, or function, including cosmetic, reliability, and
compatibility of any Spare must be implemented on all of those Spares before
delivery to Buyer. Unless otherwise specified by Buyer, all approved ECs that
affect form, fit, or function, including cosmetic, compatibility or
reliability, for the purpose of addressing design defects shall require a hold
and purge of all such Spares.  All costs
incurred by Buyer or Seller relating to any such hold and purge shall be borne
by Seller, provided such change to the form, fit, or function was solely
attributable to Seller’s design or workmanship or a change made by Seller
without Buyer’s written approval.


 


3.H.3       ECs must not create incompatibilities
among Spares of various revision levels.


 


3.H.4       Copies of all ECs shall be provided by
Seller to Buyer, shall include necessary rework instructions, any specific
quality specifications, and shall be in English.


 


3.H.5       All
holds and purges that are caused by Seller’s workmanship and/or design defects
shall be performed at Seller’s expense. 
Seller agrees to provide the rework instructions in English and
replenish all Spare stock with conforming stock as soon as reworked stock is
available.  Unless otherwise specified by
Buyer the replenishment of Spare stock due to holds and purges shall have
worldwide priority over production shipments.


 


3.I.           REFURBISHMENT OF SPARES


 


3.I.1         Seller agrees to refurbish to “Like New”
condition, any in-warranty Spare that is requested by Buyer or Buyer’s customer
in writing, at the agreed Refurbish Cost. This includes upgrade to the latest
engineering revision then in effect. 
This obligation shall be satisfied by either refurbishing the Spare
submitted by Buyer or replacing such Spare with a refurbished Spare of the same
part number.


 


3.I.2         Spares submitted by Buyer or Buyer’s
customer for refurbishment, or credit shall, in Buyer’s opinion, be in
reasonably good condition.  In the event
Spare submitted for refurbishment has been damaged beyond repair, Seller shall
not be obligated to refurbish.


 


4.             OUT OF WARRANTY SERVICE


 


4.A.         PRICING


 


4.A.1       Spares/Advanced Exchange pricing is set forth in
the attached pricing 


 


127

















 


sheet.  Pricing
shall remain fixed for the contract pricing period as set forth herein of
ninety (90) days.  Thirty (30) days
before the end of the then current contract pricing period, Buyer and Seller
shall meet to review the pricing of Spares.


 


4.A.2       The new agreed pricing sheet shall be included
by reference to this exhibit.


 


4.A.3       If Buyer and Seller cannot agree upon a pricing
schedule for a subsequent Contract Pricing Period during the aforementioned
thirty (30) day period, those items of Spare(s) for which pricing cannot
be agreed upon shall remain the same as in the previous pricing period.


 


4.A.4       Following expiration or termination of the
Agreement, said Agreement shall be governed by the terms as stipulated in the
Spares Term of Availability clause herein. The terms that govern pricing during
this period are set forth below;


 


4.A.5       For two (2) years
from the date of the last shipment of Product, Spares/Advanced Exchange pricing
shall not exceed the then current Spares/Advanced Exchange pricing as listed in
the attached pricing sheet.  For the
remainder of the term of availability, which is three (3) years, Seller
and Buyer will negotiate in good faith to ensure the spares price is
competitive. Justification for all pricing increases must be substantiated in
writing by Seller, and Buyer must agree with all substantiation before
implementation of all new pricing.


 


4.A.6       Buyer and
Seller will collaboratively pursue aggressive pricing for spare parts, and will
allow Buyer to take advantage of these opportunities when they are available..


 


4.A.7       Seller
shall maintain a vigorous cost reduction program to ensure that the prices
charged to Buyer are aggressive and competitive at all times.


 


4.B.         TERM OF AVAILABILITY


 


4.B.1       Seller shall make commercially
reasonable efforts to make Spares available for purchase by Buyer, Spares for
at least [Confidential Treatment has been requested] after the last delivery of a Product by
Seller. The commencement of such [Confidential Treatment has been
requested] shall be defined and
communicated to Seller by Buyer’s Program management.  Delivery shall be as stated on a Buyer’s
order. Seller shall have the option to make available a functionally equivalent
or better Spare during such [Confidential Treatment has been requested] period so long as such Spare is
compatible and subject to the terms of Section 4.G (ECs). Seller and Buyer
will use commercially reasonable efforts to extend this support based on market
requirement.


 


4.B.2       Thereafter, Seller may
discontinue availability of Spares by giving Buyer six (6) months or as
long as commercially reasonable efforts will allow prior written notice or a
backward compatible replacement is available, provided that, at Buyer’s option,
Seller shall:


 


4.B.2.a    Grant to Buyer a royalty-free,
nonexclusive, worldwide manufacturing license to have made, use, sell or
otherwise dispose of the Spares, and furnish Buyer all necessary documentation,
requirements, drawings, and other data, including its sources for raw materials
necessary to make such Spares. If Buyer elects this option, Seller shall in
addition;


 


4.B.2.b    Implement an end of life plan to be mutually agreed
upon.


 


128

















 


4.B.2.c    Sell Buyer sufficient quantities of Spares, as
Buyer deems necessary on a one-time purchase basis. Buyer and Seller agree to
collaborate to ensure support of the customer is adequate.


 


4.C.         WARRANTY TERMS


 


4.C.1       Seller hereby warrants that for [Confidential
Treatment has been requested] from date of acceptance of Spares by Buyer and/or
Buyer’s customers, that Spares shall be free from all defects in material,
workmanship and design, and shall conform to applicable specifications,
drawings, samples, and descriptions referred to in this Agreement, and shall be
suitable for the purpose for which they were intended. Cosmetic damage to
mechanical parts such as scratches to the A and D panels are excluded from the
standard warranty after the initial DOA period. Seller further represents and
warrants that Spares purchased hereunder shall:


 


4.C.1.a    vest in Buyer good and valid title to said Spares
free and clear of all liens, security interests, encumbrances, burdens, and
other claims, and


 


4.C.1.b    that Spares do not infringe on any intellectual
property interest.


 


4.C.2       Non conforming spares shall be returned by Buyer
or Buyer’s customers for repair or replacement.


 


4.C.3       Except
as stated otherwise in this Agreement, all charges necessary to ship or return
Spares shall be paid by Buyer.


 


4.C.4       Spares shall be date coded indicating date of
manufacture, repair or refurbishment, to include human readable characters, in
English and host country language where applicable and in plain sight.


 


4.C.5       Seller shall insure that all serialized spares
are tracked in a “closed loop” tracking system to ensure failure analysis of
individual spares as needed.


 


4.C.6       Seller
shall notify Buyer within three (3) working days if any non-functional
Cores are attributable to customer abuse. 
Upon notification, Buyer retains the right to audit the Cores, and shall
provide disposition either by return to Buyer or repair at Buyer’s expense
within three (3) working days.


 


4.C.7       Seller
agrees to maintain a buffer stock of Spares that Seller deems adequate at each
geographical location to meet the agreed upon metrics. Seller and Buyer
agree that Spares shall be owned and held by Seller until requested by Buyer.
Buyer and Seller shall use commercially reasonable efforts to effectively
manage the consigned inventory at each mutually agreed geographic location.


 


4.C.8       Seller
agrees that in order to minimize the Buyer’s customer’s down time, requests
labeled “Rush” shall have worldwide priority over production shipments.  “Rush” orders shall be placed only if one or
more customers are unable to utilize their Product for its intended purpose
until the Spare arrives.  Seller agrees
to use commercially reasonable efforts to ship Buyer designated “Rush” orders within same business day
the Rush order is received of receipt assuming material is available anywhere
in the pipeline. Invoices for “Rush” orders must be accompanied by a copy of
the waybill(s) for the shipment(s).


 


129














 


4.D.         Out of Warranty Metrics


 


4.D.1      Seller shall ship spares by the second
business day, as long as the spare is included in the mutually agreed upon
spares list. Seller performance metric is [Confidential Treatment has been
requested] on time and shall be measured by Buyer weekly based on system
documented shipments and customer orders from SFC finished goods stock.


 


4.D.2      In
support of the metrics referenced above, both parties agree to have a monthly
meeting with management representation, to review critical parameters affecting
the attainment of these metrics.  This
should include a [Confidential Treatment has been requested] non-binding
forecast, purges, holds, buffer stock, and performance to date against these
established metrics.


 


4.D.3      Compliance with this metric shall be
assessed on a quarterly basis and presented at the quarterly business review.


 


4.D.4      For the goals not  met,
Buyer may immediately escalate to Seller management with weekly review sessions
until performance returns to the agreed performance metrics.


 


4.D.5      All
costs solely attributable to defects in Seller’s design, material, and
workmanship shall be borne by Seller. 
These costs shall include the cost of holds/purges, result of reworks,
fees charged by third parties for reworks/repairs, and account recovery program
fees incurred due to epidemic failures.


 


4.D.6      Seller does not have the obligation to
provide Buyer credit for returns not processed within [Confidential Treatment
has been requested.]


 


4.E.          Delivery


 


4.E.1       Buyer
and Seller agree to utilize the Supplier Fulfillment Center methodology to meet
Buyer’s delivery requirements.  The SFC
is a program which obligates Seller to stock Seller owned inventory to meet
Buyer’s requirements. Requirements shall be met by Seller by storing Seller
owned inventory located within each designated geographic area.. Seller shall
utilize Buyer Spares forecasts, in combination with Seller’s failure data or
other information available to Seller, known only to Seller as manufacturer of
said material, to establish the stocking levels to meet the aforementioned
Buyer requirements.. Buyer and Seller shall work together to create a process
for transmitting and receiving orders via electronic transmission.


 


4.E.2       Delivery of out of warranty Spares shall be per
the SFC process as stated above coupled with the utilization of a periodic
Advanced Exchange delivery methodology if needed, the steps of which are
described below;


 


4.E.2.a    Once a Spare has been determined by Buyer or Buyer’s
Customer to be nonconforming, Buyer shall generate an order to Seller for a
replacement spare. At Buyer’s option, Seller shall accept a blanket purchase
order for authorization of these transactions.


 


4.E.2.b   Seller shall pick, pack and ship order to Buyer as
per SFC delivery metrics and packaging standards.


 


4.E.2.c    Seller shall invoice Buyer at the Advanced Exchange
Price as stated in the attached pricing sheet, upon shipment of 


 


130

















 


replacement unit.


 


4.E.2.d   Buyer shall have thirty (30) days from Seller’s ship
date to return a Core.  Cores submitted
by Buyer for repair or replacement shall be in reasonably good condition and
repairable.   Cores submitted for repair
or replacement that have been damaged beyond repair as determined by Seller
shall not be considered for credit.  A
non-repairable core is defined as: assemblies, sub assemblies or options
received at Sellers site with missing, misused, cannibalized or mishandled
components.  Non repairable Cores
received at Seller’s site require Buyer’s review and approval before Core
reconciliation. Seller agrees to notify Buyer’s Service Organization within two
(2) business days of receipt of discrepant Cores.


 


4.E.3       Buyer shall measure
Seller’s performance based upon the date stated on Buyer’s order, for the
purpose of establishing Seller’s rate of timely shipment.


 


4.E.4       Seller understands that TIME IS OF THE ESSENCE
in meeting Buyer’s requirements and agrees that Buyer may be irreparably
damaged should Seller not meet specified shipment requirements.  Shipping performance shall be measured by
Seller’s ability to ship pursuant to the performance metrics defined in this
Exhibit.


 


4.E.5       Spares listed in the attached pricing
sheet as expendable shall not be returned to Seller.


 


4.E.6       Seller agrees to notify Buyer’s Service
organization within two (2) working days of receipt of material if there
are discrepancies in quantities, part numbers, or freight damage.


 


4.E.7       Buyer agrees to notify Seller within two
(2) working days of receipt of Spares if there are discrepancies in
quantities, part numbers, or freight damage.


 


4.F.          RIGHTS
AND ASSISTANCE TO REPAIR


 


4.F.1       Seller
grants to Buyer the right to repair or have repaired Spares and that Seller
shall provide Buyer, at Buyer’s request, a list of related components and the
list of Seller approved suppliers for those components. The components that are
not available to Buyer from sources other than Seller are to be listed and unit
prices identified with quantity discounts, if any. Those components having
generic industry identification (not proprietary to Seller) and available to
Buyer shall be cross-referenced to generic part numbers. Seller further agrees
to provide Buyer with the applicable test specifications, test procedures and
drawings required for testing the finished Spares, and/or Repairs, along with a
full description, manufacturer’s model numbers, etc, of the test equipment
involved/required to perform such tests. 
Seller shall provide all requested information to the Buyer within forty-five
(45) days from such written requests by Buyer.


 


4.F.2       Buyer reserves the right to have Spares repaired
by the Seller, its authorized repair centers or to select and qualify third (3rd)
party repair centers.  In any event
Seller shall agree to support  Buyer’s
selected repair centers.


 


4.F.3       Upon Buyer’s request Seller agrees to assist,
provide and support Buyer or Buyer’s selected authorized third (3rd) parties
with respect to the repair and refurbishment process development including 


 


131

















 


documentation Spare parts within seven (7) calendar
days.  This support shall continue for a
period of three (3) years after the last delivery of a Product (as stated
in the Agreement) by Seller.


 


4.G.         EC


 


4.G.1      No changes shall be made by Seller in the form,
fit, or function, including cosmetic, reliability and compatibility, of Spares
without Buyer’s prior written approval initiated by an Engineering Change (EC)
approved by Buyer.  Seller shall perform
appropriate test(s) to establish conformity with the specifications and
quality of Spares as required under the Development Agreement and Purchase
Agreement.  Seller shall issue a “Supplier
Change Request” form and shall provide to Buyer the test documentation and results,
documenting that the appropriate tests were performed.  Buyer’s authorized representative shall
respond within two (2) business days of Buyer’s receipt of the Supplier’s
Change Request form and test documentation and results.


 


4.G.2      Approved
ECs that affect form, fit, or function, including cosmetic, reliability and
compatibility of any Spare must be implemented on all Spares before delivery to
Buyer.  Unless otherwise specified by
Buyer, all approved ECs that affect form, fit, or function, including cosmetic,
compatibility or reliability, for the purpose of addressing design defects
shall require a hold and purge of all Spares. 
All costs incurred by Buyer or Seller relating to any such hold and
purge shall be borne by Seller, provided such change to the form, fit, or
function was solely attributable to Seller’s design or workmanship


 


4.G.3      ECs must not create incompatibilities
among Spares of various revision levels.


 


4.G.4      Copies of all ECs shall be provided by
Seller to Buyer, shall include necessary rework instructions, quality
specifications and shall be in English.


 


4.G.5      All
holds and purges that are caused by Seller’s workmanship and design defects
shall be performed at Seller’s expense. 
Seller agrees to replenish all Spare stock with conforming stock as soon
as reworked stock is available.  Unless
otherwise specified by Buyer the replenishment of Spare stock due to holds and
purges shall have worldwide priority over production shipments.


 


4.H.         REFURBISHMENT OF SPARES


 


4.H.1      Seller agrees to refurbish to “Like New”
condition any in-warranty Spare that is requested by Buyer or Buyer’s customer
in writing, at the Refurbish Cost listed in the attached pricing sheet.  This includes upgrade to the latest
engineering revision then in effect. 
This obligation shall be satisfied by either refurbishing the Spare
submitted by Buyer or replacing such Spare with a refurbished Spare of the same
part number.


 


4.H.2      Spares submitted by Buyer or Buyer’s
customer for refurbishment shall, in Buyer’s opinion, be in reasonably good
condition.  In the event Spare submitted
for refurbishment has been damaged beyond repair, Seller shall not be obligated
to Refurbish.


 


5.             DOCUMENTATION


 


5.A.        Buyer shall develop the Maintenance
Service Guide (“MSG”).  Seller agrees to
provide to Buyer the input required to develop the MSG, including all assembly 


 


132

















 


drawings in paper and
electronic format not later than thirty (30) days prior to anticipated First
Customer Shipment (FCS).


 


5.B.         Seller shall write the first draft of
the Technical Reference Guide (“TRG”) for the Products and transmit it in
electronic form to Buyer as soon as possible, but no later than one (1) month
after Seller’s first shipment of Design Verification build two Products to
Buyer.


 


5.C.         Seller shall provide Buyer with
specifications for all Spares listed in Attachment 1A not later than 30 days
prior to anticipated FCS.


 


6.             BUYER’S ADDITIONAL REQUIREMENTS


 


6.A.        Any other services that Buyer requests
Seller to do shall be done at prices quoted by Seller and mutually agreed upon
by both parties.


 


6.B.         The SFC operational model shall begin
when the product launches in North America and shall be implemented in other
geographies according to a schedule that is mutually agreed between Buyer and
Seller.


 


6.C.         Before implementation of SFC operational
model Seller and Buyer will operate under the existing operational model.


 


6.D.         In selected geographies Seller and Buyer
may mutually agree to Seller providing a level of consigned Spares inventory
that equals the Field Return Rate in place of SFC operating model.


 


7.             ESCALATION


 


7.A.         Technical Escalation:


 


7.A.1      Seller agrees
that during the term of this Agreement, it shall designate a Seller
Representative who shall act as Buyer’s primary contact for any service issues
regarding parts procurement, exchange, repair or quality.  Seller must prepare and present to Buyer an
internal written escalation process.


 


7.A.2      Seller shall provide third (3rd) level technical
support to Buyer for duration of this Agreement including the three (3) calendar
years after Buyer shipment of last end unit product.  Buyer shall provide First (1st), Second
(2nd), and Third (3rd) level technical support to its customers.  Seller shall resolve all issues deemed to be
product “bugs”, correct any problems with production, and provide a service
solution to Buyer for its customers. 
Seller shall acknowledge escalated cases within one (1) business
day and both parties shall agree to provide a resolution within a mutually
acceptable time to be decided on a case by case basis.  At Buyer’s request, and if available locally,
on-site technical support by Seller shall be made available to Buyer or its
authorized third (3rd) party.  This shall
be determined on a case by case basis.


 


8.             TRAINING


 


8.A.        Seller shall provide to Buyer personnel
a “Train the Trainer” Engineering Seminar taught by Seller and Buyer engineers
in accordance with criteria and locations upon mutual agreement, not to exceed
one (1) seminar or as mutually agreed upon not less than 45 days prior to
anticipated FCS.


 


8.B.        Each party shall bear its own expenses
for this training seminar. Seller’s training hardware requirements will include
one functioning unit per student and shall be the responsibility of Seller.


 


133

















 


9.             MARKING


 


9.A.        Seller shall mark all Spares indicated
on the attached spares price sheet with Buyer’s human-readable part number, in
English, and the bar-code containing part number (which shall be specified in
Buyer’s Packaging Specification as communicated by Buyer to Seller), revision
level, date code, Spare description, and serial number (where applicable).  This Buyer human-readable part number and the
bar-code shall also be marked on the equivalent Spare within production units
of Product for Buyer.


 


Seller shall mark all Product production units
and Whole Units with a serial number as defined in the Product specifications.


 


10.           TERMINATION


 


10.A.      In the event
of termination of Agreement, Buyer and Seller shall cooperate with each other
in good faith on the formulation of a transition plan for Repairs.  Upon completion and mutual agreement of the
transition plan, Buyer and Seller shall begin transition of the Repairs
operation.  The transition shall not
exceed six (6) months from the date of a written termination notification
as provided above.


 


134

















 


ATTACHMENT 1


Spares Pricing


 


The parties agree to incorporate by reference the Product and Spare
pricing as set forth in the Spare Pricing Sheet.  Seller agrees that the prices specified are
firm for the current quarter.  Thirty
(30) days before the end of current quarter and each subsequent quarter
thereafter, Buyer and Seller shall meet to negotiate firm prices for the
immediate following quarter and projected not to exceed prices for the next
quarter thereafter.


 


	
  PART 

  NUMBER

  	
   

  	
  DESCRIPTION

  	
   

  	
  PROGRAM

  	
   

  	
  Launch

  date

  	
   

  	
  EXPENDABLE

  	
   

  	
  ADVANCE

  EXCHANGE

  PRICE

  	
   

  	
  CORE

  PRICE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Buyer may also
purchase from Seller [Confidential
Treatment has been requested] and [Confidential Treatment has been requested] warranties on all
Product at an additional cost of TBD (USD) and TBD (USD) respectively, except
for the Product battery which warranty, in all cases, will not exceed one (1) year.  


 


135

















 


Attachment 2


Service
Fulfillment Center (SFC) - Scope of Work


 


The Service Fulfillment Center
concept has been developed to enhance the overall efficiency and cost
effectiveness of Buyer’s service material distribution structure.  The concept removes Buyer from direct
involvement in the material handling and distribution process.  Within this concept, Buyer will manage the
field contact and customer interface activities, process customer material
orders and communicate those orders to the ODM partners electronically in a
medium to be mutually agreed among the parties. 
The ODM partner may have a Service Fulfillment Center in each of Buyer’s
geographic business areas; North America (NA), and Europe (EMEA).  Material transactions may be performed within
an Advance Exchange model where replacement materials are sent before the
receipt of defective cores


 


The scope of work of the SFC involves
all of the activity to kit, inventory, warehouse, ship, and receives materials
in support of Buyer’s customer service and warranty programs.  The ODM partner will receive nonconforming
material directly from Buyer’s end customer and authorized service provider
(ASP) base.  These materials must be
received and have the transaction validated by verifying the shipment content
against the appropriate system transaction. 
Incomplete, or shipments containing the wrong product, will be returned
to the shipper freight collect within two (2) working days.


 


Orders will be shipped
directly from the ODM partner’s local geography shipping facility to the
destination designated on the order provided by Buyer.  The ODM partner will be expected to maintain
sufficient spares inventory to support a two (2) business day fill rate.


 


	
  Figure 1 SFC
  Order Flow

  	
  

  



 


136

















 


Attachment 3


Component Warranty Time Period


 


The overall warranty
period for the Product from Pegatron is for a [Confidential Treatment has been
requested] time period, this time period starts from the ship date of
the Product. Not withstanding the foregoing there are a small number of unique
components that may not initially support this time period as defined below. It
is Buyer and Seller’s understanding that mutual efforts will be required to
assist the selected source’s for these unique components to provide the
required warranty time period support in the future. As the failure rates
become known for these unique components a review session with the Parties
concerned will be held with the mutual goal of migrating each to the required [Confidential Treatment has been
requested] warranty time period. This table will be amended as progress
is made to migrate each component to the required warranty support time period.


 


The following table
outlines the warranty time period exceptions that deviate from the standard [Confidential Treatment has been
requested] as of the execution of this agreement.


 


	
  Component

  	
   

  	
  Current Warranty Period

  	
   

  
	
  1)  [Confidential Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
  2)  [Confidential Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
  3)  [Confidential Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  
	
  4)  [Confidential Treatment has been requested.]

  	
   

  	
  [Confidential
  Treatment has been requested.]

  	
   

  



 


137

















 


EXHIBIT F


 


MICROSOFT INSTALLATION AGREEMENT


Placeholder
Only


 


138














 


EXHIBIT G


 


DISPUTE RESOLUTION
PROCEDURES


 


All Disputes (as
defined below) between Seller and Buyer shall be resolved exclusively as
provided in this Exhibit G.


 


1.                Informal Dispute Resolution. 
Prior to the initiation of formal dispute resolution procedures, the
Parties shall first use the informal means set forth below in a good faith
attempt to resolve any disputes, controversies, claims, or differences arising
out of, relating to, or having any connection with this Agreement, including
any question relating to its existence, validity, interpretation, performance,
breach or termination, (hereafter “Dispute”):


 


(a)               Normal Channels.  Every
effort should be made to resolve all Disputes through normal channels and
procedures at the lowest possible level of authority.  If this is unsuccessful, then the Parties
shall attempt to resolve the Dispute in the following manner:


 


(b)              Authorized
Representatives.  Either Party
may make a written request for a conference call with the other Parties’
representatives with respect to a Dispute, which shall be defined with
reasonable particularity.  Within
seventy-two (72) hours of the receipt of such written request, each Party shall
designate a representative with full authority to resolve and compromise the
Dispute (hereafter “Authorized Representative”).  The Authorized Representatives shall
communicate promptly to endeavor to resolve the Dispute in question.  Pursuant to this subsection (b), the Parties
agree that the following escalation path shall be used in order to resolve such
dispute:


 


Buyer:


 


1.             Program Manager


2.             Vice President Supply
Chain


 


Seller:


 


1.             Program Manager


2.             Vice President
Operations


 


The Parties agree that time is of the essence with respect to the
resolution of such Disputes.


 


(c)               Procedures for Authorized Representative Meetings.  The Authorized Representatives
shall communicate as often as is reasonably necessary to discuss the problem
and negotiate in good faith in an effort to resolve the Dispute without the
necessity of any formal proceeding.  The
specific format for the discussions will be left to the discretion of the
Authorized Representatives, but may include the preparation of agreed-upon
statements of fact or written statements of position.  During the course of discussions between the
Authorized Representatives, all reasonable requests made by one Party to the
other for non-privileged information, reasonably related to resolution of the
Dispute in question, will be honored.


 


(d)              Vice
Presidents.  If the Authorized
Representatives fail to resolve disputes within thirty (30) calendar days of
the initiation of the dispute resolution process set forth in sub-paragraphs 1(b) and
(c) above, the Vice-President of Buyer and the President of Seller shall
attempt to resolve the Dispute.  Upon the
written request of either Party, the said Vice President and President shall
meet in person [or, in extraordinary cases, by telephone,] within 10 days of
the date of such written request.


 


(e)               Mediation.  Should the
Vice President of Buyer and the President of Seller fail to reach agreement on
the resolution of the Dispute within thirty (30) calendar days of the written  request referred to in sub-paragraph 1(d) above, then
the Parties shall attempt to resolve the Dispute by mediation in accordance
with the [CPR Model Mediation Procedures for Business Disputes.] upon the
written request of either Party, the parties shall within ten (10) calendar
days of the date of such written request jointly select a mediator from one of
the CPR Panels of Neutrals to assist in resolution of the Dispute.  If the parties are unable to jointly select a
mediator within this period, either Party may in 


 


139

















 


writing request
CPR to initiate a selection process.  CPR
shall select a neutral mediator within ten (10) calendar days of receipt
of such written request; the mediator so selected shall promptly confirm his or
her acceptance of the selection.  The
mediation shall be conducted in (Austin, Texas, U.S.A.] The Parties shall
cooperate with the mediator in order to assure that he or she shall have every
reasonable opportunity to facilitate resolution of the Dispute within 60 days
of his or her written acceptance of selection.


 


(f)               Confidentiality.  The
Parties acknowledge that any statements (oral or written), including written
statements of position and any materials provided in the course of procedures
under sub-paragraphs 1(b)-(e) above will be prepared in connection with
settlement and compromise negotiations, and as such will be privileged and
confidential settlement materials.  No
such statements or materials shall be admissible or used in any formal
proceedings, except that documents which were otherwise admissible and in the
possession of the Party seeking to make use thereof shall not be inadmissible
by virtue of this sub-paragraph.


 


(g)              Commencement
of Formal Proceedings.  Formal proceedings for the
resolution of a Dispute pursuant to Section 2, below, may be commenced
after the earlier of:


 


(I)                 the Authorized
Representatives or Vice Presidents jointly concluding in good faith that
amicable resolution of the Dispute through continued negotiation does not
appear likely; or


 


 (II)                sixty (60) calendar days after the
Dispute has been referred to the mediator referred to in paragraph l(e) above.


 


(III)                Nothing in this Exhibit is
intended to, or should be construed to, prevent a Party from instituting, and
each Party is authorized to institute, formal proceedings pursuant to Section [2]
below with respect to any Dispute at any time in order to avoid the expiration
of any applicable limitations period, to preserve a superior position with
respect to other creditors, or otherwise to prevent irreparable or serious
injury to its interests.


 


2.                Arbitration.  If the
Parties are unable to resolve any Dispute after making use of the procedures
contemplated by Section I above, then such Dispute shall be referred to
and finally resolved by binding arbitration as follows:


 


(a)               Arbitration Rules and Procedures. 
The arbitration shall be conducted in accordance with the Rules of
Arbitration of the International Chamber of Commerce with (the “ICC Rules”).


 


(b)              Number and
Selection of Arbitrators.  Unless
otherwise agreed by the Parties, the number of arbitrators shall be three.  Each Party shall nominate one arbitrator in
accordance with the ICC Rules.  The two
party-appointed arbitrators shall jointly nominate a third arbitrator.  In the event that the two party-appointed arbitrators
cannot agree, the third arbitrator shall be appointed by the International
Court of Arbitration of the International Chamber of Commerce in accordance
with the ICC Rules.


 


(c)               Site of Arbitration.  Unless
otherwise agreed by the Parties, the sites of the arbitration shall be Austin,
Texas.


 


(d)              Applicable
Law.  All Disputes shall be
resolved exclusively under the laws of the State of (Texas) (without reference
to the choice of law principles thereof). 
The Agreement, including this Exhibit 1, shall be governed
exclusively by and interpreted exclusively in accordance with, the laws of the
State of [Texas] (without reference to the choice of law principles
thereof).  The arbitrators shall have no
power or authority to (i) decide ex aequo et bono, (ii) amend or
disregard any provision of the Agreement or applicable law, (iii) award
punitive, exemplary or comparable damages, or (iv) award consequential
damages (except as specifically provided for in the Agreement), The arbitrator(s) shall
allow reasonable discovery between the parties in the forms permitted by the
Federal Rules of Civil Procedure.


 


(e)              Conduct of
Arbitration.  The arbitration hearing
shall be commenced promptly and conducted expeditiously, with Buyer and Seller
each being allocated one-half of the time for the presentation of its
case.  Each Party agrees to use all
reasonable efforts to conclude the arbitration 


 


140

















 


within [one
hundred twenty (120) calendar days] from the date of submission of the dispute
to arbitration.  Unless otherwise agreed
to by the Parties, an arbitration hearing shall be conducted on consecutive
days.  The language of the arbitration
shall be English.


 


(f)               Award.  The
arbitrators shall make a reasoned award setting forth their findings of fact
and conclusions of law.  The arbitrators)
shall use all reasonable efforts to make their award within fifteen (15)
calendar days following the conclusion of the arbitration hearings.  The arbitrator(s) award shall be final
and binding on the Parties, and judgment thereon may be entered in a court of competent
jurisdiction.  The parties waive any
rights to appeal or challenge such award to the fullest extent permitted by
law.


 


(g)              Time of the
Essence.  Time is of the
essence in the arbitration, and the arbitrator(s) shall have the right and
authority to issue monetary and/or other sanctions against either of the
Parties if, upon a showing of good cause, that Party is unreasonably delaying
the proceeding.


 


(h)              Legal
Expenses.  Except in cases
involving one Party’s unreasonable delay, each Party shall bear its own
attorneys’ fees and related expenses.


 


3.          Litigation.


 


(a)               Immediate Injunctive Relief. In circumstances involving irreparable,
immediate, and severe damage to a Party, not capable of redress after the fact,
it may seek interim injunctive relief or other provisional measures in aid of
arbitration from a court of competent jurisdiction.  If a party seeks injunctive relief or other
provisional measures from a court of competent jurisdiction, and is not successful,
then it shall pay all of the attorneys’ fees, expenses and other costs relating
thereto.


 


 (b)             Forum Selection.  Any actions seeking injunctive
relief or other provisional measures pursuant to subparagraph 3(a) above
shall be litigated solely and exclusively in Austin, Texas, provided that enforcement
of any relief, judgment or order of a court in Austin, Texas may be sought in
any Court of competent jurisdiction.


 


3.          Continued
Performance.  Each Party shall
continue performing its obligations under this Agreement while any Dispute is
being resolved unless and until such obligations are terminated by the
termination or expiration of this Agreement. 
The covenant of Seller to meet its obligations are terminated by the
termination or expiration of this Agreement. 
The covenant of Seller is independent of Buyer’s covenants under this
Agreement, and Seller assures that it will not discontinue or threaten to
discontinue provision of any of its obligations as a means to force resolution
of any Dispute hereunder.


 


141

















 


EXHIBIT H


Tooling Exhibit


 


QUOTATION FOR COBRA TOOLING


 


[Confidential Treatment has been requested.]


 


142

















 


[Confidential Treatment has been requested.]


 


143

















 


EXHIBIT I


ODM REQUIREMENTS


 


Seller’s performance is
critical to the success of Buyer’s Optimized Distribution Model (ODM).  Buyer has created a new distribution model
designed to meet customers’ comprehensive needs for products and service in the
most cost effective, efficient means possible. The Buyer Optimized Distribution
Model (ODM) incorporates the manufacturing efficiencies of the direct model
with the value-added services and expertise provided by resellers (the indirect
model).  Buyer is committed to ensuring
that our customers can order the products they want, configured exactly the way
they want them, in partnership with our channels.  As such, Seller agrees to use best efforts to
support the following ODM requirements. 
In the event any of these requirements are not currently in place,
Seller is expected to have a fully documented plan of action with milestones to
achieve each of these.


 


REQUIREMENTS:


 


1)  Electronic Commerce Model – Electronic Data
Interface will be used to communicate between the parties.  This will enable high frequency data
interfacing and eliminating the need for manual interactions.


 


2)  Forecasting – Seller must be able to forecast
and plan for a combination of CTO SKU’s, and Component/Subassembly Parts.  Buyer’s Forecast should have the capability
to be processed systematically, without manual intervention, to enable rapid
responses on materials, and capacity utilization.  This includes interfaces to Seller’s shop
floor control systems and MRP.  Seller’s
data integrity and timeliness is critical to Buyer’s business execution.  As such, best efforts shall be taken to
insure the signals exchanged are accurate and timely.  All Forecast Responses that do not meet the
baseline or upside quantities must be verified and confirmed by Seller prior to
sending the Forecast Response to Buyer. All forecasts exchanged between the
parties shall be used for positioning material and not for building Product.


 


3)  Production Scheduling – Seller must have the
shop floor control systems and flexibility to process orders on a FIFO basis
with component material visibility for the next 6 weeks.


 


4)  Supply Planning – Establish supplier owned
warehouses (HUBS) when volume demand necessitates with price protection for all
major components and insure all other components are delivered
just-in-time.  Guarantee supply
availability through the use of contractual flexibility models and buffer
stocks with Seller suppliers.


 


5)  Direct Ship – Seller must be able to direct
ship to Buyer’s end customers utilizing Buyer’s carriers.


 


6) 
Performance Metrics – Seller’s delivery performance is critical to Buyer’s
ability to meet customer demand with a predictable, on-time supply.  As such, Seller’s delivery performance will
be measured and evaluated by the following table detailed below.


 


Delivery Model


 


	
  Fulfillment Model

  	
   

  	
  Ship to First Commit

  (STFC)

  	
   

  	
  Ship to Requested

  Date (STRD)

  	
   

  	
  Product Process

  Order Cycle Time

  (PPOCT)

  	
   

  
	
  BTO Product

  	
   

  	
  100%

  	
   

  	
  100%

  	
   

  	
  XX hours

  	
   

  
	
  CTO Product

  	
   

  	
  100%

  	
   

  	
  100%

  	
   

  	
  XX hours

  	
   

  



 


144

















 


EXHIBIT J


EDI TRANSACTIONS


 


All EDI orders, verifications, forecasts, responses,
acknowledgments and other communications shall reference and be subject to the
terms and conditions of this Agreement and be in an industry standard format.
In the event any or all of these transactions do not exist at the execution of
this Agreement, the parties will agree upon a manual process to compensate in
the interim until such transactions can be implemented.  The following represents the required
transaction sets by site, but may be changed from time to time.   A schedule shall be mutually agreed upon if
other Seller sites require EDI capabilities. Seller agrees to adhere to the
agreed upon EDI 856 signal cut-off times as described below. Buyer and Seller
agree to a 12 hour response reply to the 860 and 865 and Buyer will use
commercially reasonable efforts to provide a 36 hour advance notification prior
to Product shipment. Buyer and Seller agree to a response reply of 72 hours to
the 870 transaction.


 


Signal Cut-Off
Time (local time)


 


	
  Transaction

  	
   

  	
  Description

  	
   

  	
  Taiwan

  	
   

  	
  US

  	
   

  	
   

  	
   

  
	
  EDI 830

  	
   

  	
  Forecast

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Future Add

  	
   

  
	
  EDI 997

  	
   

  	
  Technical Confirmation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 870

  	
   

  	
  Forecast Response

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Future Add

  	
   

  
	
  EDI 997

  	
   

  	
  Technical Confirmation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 850

  	
   

  	
  Purchase Order

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 855

  	
   

  	
  Purchase Order Acknowledgement & Ship Date
  Confirmation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 870

  	
   

  	
  Sales Order/Shipment Status

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Future Add

  	
   

  
	
  EDI 860

  	
   

  	
  Purchase Order Change

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 865

  	
   

  	
  Purchase Order Change Acknowledgement.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 856

  	
   

  	
  Ship Notice

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 824

  	
   

  	
  Shipment Confirmation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 810

  	
   

  	
  Invoice

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EDI 824

  	
   

  	
  Invoice Confirmation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


1.     EDI
997 Technical acknowledgements will be used by both parties to ensure that
delivery of the EDI transactions have occurred. The technical acknowledgements
do not indicate the success or failure of processing the intended document but
are used to validate that the document has been successfully delivered. Other responses
will be utilized to acknowledge the success or failure of processing EDI
documents by the recipient system.


 


2.     Seller
will take the steps necessary to ensure that the EDI 856 is sent to Buyer on
the same dates as the shipment is physically conveyed to the carrier.  Seller will ensure that each EDI 856 contains
a Seller world wide unique shipment ID according to the numbering definition as
stated in the mapping of the document.


 


3.     Seller
will take the steps necessary to ensure that the EDI 856 is sent once and only
once, unless specifically requested by Buyer. Additionally, Seller will ensure
that the serial numbers transmitted in the EDI 856 match Buyer’s required
numbering scheme and are unique, with no duplication of serial numbers. Seller
will provide soft copies of all daily shipping reports.


 


4.     Seller
will ensure that all required fields in all transactions are consistently and
accurately populated.


 


5.     Sellers
EDI 870  must be received prior to XXX
CST and as often as agreed upon between the parties.


 


145

















 


EXHIBIT K


PRODUCT REPORTING
REQUIREMENTS


Placeholder
Only


 


	
  Report Title

  	
   

  	
  Report Content

  	
   

  	
  Report

  Frequency

  	
   

  	
  Responsibility

  	
   

  	
  Due Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


146