Exhibit
10.1


 


Flextronics
Product and Manufacturing Development Agreement


 


This Product and Manufacturing Development Agreement (“Agreement”) is made as of May 3, 2004, between Medis
Technologies Ltd, having its place of business at 805 Third Ave, New York, NY
10022 (“Client”) and Flextronics International Ltd. having its place of
business at


 


 


1 Hatahasia
Street, Ramat Gavriel Industrial Zone, Migdal-Haemek 23108, Israel
(“Flextronics”).


 


 


Client has created specifications for fuel
cell products it desires to have manufactured in a low-volume New Product
Introduction (NPI) manufacturing environment (“Product Introduction
Center”).  Flextronics has developed
processes and practices for providing such services for many different electronic applications, and at
Client’s request desires to provide said services in accordance with Client’s
specifications. The parties agree as follows:


 


1.0    SCOPE, SERVICES, LICENSE.  This Agreement sets forth the terms and
conditions for the low-volume manufacturing, limited manufacturing and test
engineering, associated logistics and rework activities related to the Client’s
products or assemblies (“Products”) described in the written designs and
specifications of Client (“Specifications”). 
This Agreement does not apply to higher-volume manufacturing activities
occurring outside the Product Introduction Center.  Any agreement related to such manufacturing must be separately
negotiated between the parties.


 


Flextronics agrees to use
reasonable commercial efforts to perform the services (hereinafter “Services”)
pursuant to purchase orders or changes thereto issued by Client and accepted by
Flextronics.  Services shall mean the
items detailed in the Client’s written specifications attached hereto
(hereinafter “Statement of Services”) in Exhibit 1 or added later as defined in
the paragraph herein titled “Additional Services”.


 


Client grants Flextronics a non-exclusive license during the term of
this Agreement to use all of Client’s patents, trade secrets and other
intellectual property required to perform Flextronics’ obligations under this
Agreement.


 


2.0    Payment For
Services and Expenses.  Flextronics will invoice
Client and Client shall pay, in accordance with the terms stated in “Schedule
of Fees” herein (in Exhibit 2), the amount of such invoices submitted by
Flextronics.  In the event that Client
fails or refuses, for any reason, to make any payment due Flextronics pursuant
to this Agreement, and in the event such payment remains delinquent for a
period of thirty (30) days from and after the due date thereof, Flextronics may
after providing written notification to the Client’s representative (see
Section 7) stop all Services under this Agreement and retain all work in
process until all outstanding invoices are paid in full.  To the extent that Flextronics project
personnel cannot be reassigned to other billable work during such stoppage
and/or in the event restart cost are incurred, additional fees may be due and
payable before the Services can resume.


 


As set forth in the Schedule of Fees, Client shall reimburse
Flextronics at cost for all reasonable expenses incurred by Flextronics in the
performance of Services.


 


Client agrees to pay all invoices in U.S. Dollars within thirty (30)
days of the date of the invoice.  Client
agrees to pay one and one-half percent (1.5%) monthly interest on all late
payments.  


 

















 


Furthermore, if Client is late with payments, or Flextronics has
reasonable cause to believe Client may not be able to pay, Flextronics may
require prepayment or after providing written notification to the Client’s
representative (see Section 7) delay shipments or suspend Services until
assurances of payment satisfactory to Flextronics are received.


 


3.0           Materials Related To Services.  There are
three classes of materials covered by this contract:


 


1)             “Inventory” is the set of components,
boards, materials and supplies purchased with Client authorization by
Flextronics, or its designee, to be used by Flextronics to perform the
Services, and


 


2)             “Consigned Materials” is the set of
boards, materials and supplies provided by the Client to be used by Flextronics
to perform the Services, and


 


3)             “Total Inventory” is the set of
“Inventory” purchased by Flextronics plus “Consigned Materials” provided by the
Client.


 


A predictable and meaningful forecast against a stable bill of
materials (“BOM”) for the Product may not be immediately available and
Flextronics will therefore use written or email authorization from Client to
initiate procurement activities.  The
authorization will include a reference to a current BOM or list of
materials.  Client hereby authorizes
Flextronics to procure Inventory to perform the Services with two exceptions:


 


1)             Flextronics will not purchase materials
that the Client has specified in writing will be consigned, and


 


2)             Purchases in excess of $25,000 on behalf
of Client require the Client’s explicit written or email approval before being
placed.  Client will respond within
three (3) business days to these requests.


 


In the event Client provides Consigned Materials,
Client agrees to consign adequate quantities to timely manufacture Products and
agrees to cover any production-related attrition at Customer’s sole expense.
Title to Consigned Materials remains at all times with Client and Flextronics
has no obligation to purchase the Consigned Materials.  Flextronics shall ensure that such Consigned
Materials will be allocated part numbers to indicate Client’s ownership.  Flextronics will bear responsibility for any
damage or loss of Consigned Materials related to non-production causes while
they are on the premises of Flextronics. 
Upon reasonable notice, Client may observe the warehouse space in which
the Consigned Materials are stored.


 


Client agrees to pay Flextronics a fee, to be
negotiated later, of not less than [Subject
to a request for confidential treatment; Separately filed with the Commission]
or more than [Subject to a request for
confidential treatment; Separately filed with the Commission] of the
value of the Consigned Materials. 
During 2004 and 2005, Client expects that the value of the Consigned
Materials will exceed the value of Inventory purchased by Flextronics on the
Client’s behalf.  The value of each item
in the Consigned Materials list will be updated not more frequently than every
four (4) months by Client to reflect price adjustments realized by the Client.


 


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Client will be responsible for the Total Inventory, including Total
Inventory that may become excess or obsolete for several reasons, including,
without limitation, the following:


 


a.         Total Inventory purchased before a
Product design is complete in order to secure supply; such Total Inventory may
include Total Inventory with long lead times,


b.        Total Inventory in excess of requirements because of
minimum lot sizes available from suppliers,


c.         Total Inventory in excess of requirements in order to
achieve price targets,


d.        Total Inventory purchased in excess of current
requirements in order to establish a supply line and stockpile Total Inventory
for a later volume production ramp, or,


e.         Total Inventory purchased and later made obsolete by
Client’s design changes.


 


Client will pay Flextronics a monthly carrying fee of [Subject to a request for confidential treatment; Separately filed with
the Commission]  of the purchased value (excluding expediting fees) for all Inventory
(Note: not Total Inventory) that has been held by Flextronics for longer than
thirty (30) days from receipt at Flextronics’ facility and is not covered by a
PO backlog deliverable in the next thirty (30) days.


 


Client
agrees to pay any expedite charges required by suppliers to receive Inventory
prior to the end of the normal procurement lead-time of Inventory.  Such charges may include broker fees.  The term “lead time” in this Section shall mean the
lead time recorded on Flextronics’ MRP system at the time of procurement of
Inventory or at the time of the cancellation of the purchase order or
termination of this Agreement whichever is greater.


 


Flextronics will provide the Total Inventory status (including
Inventory procurement status) any time a reasonable request is received from
Client and the status will include on hand, receipt date, on order, and excess
and obsolete.  Client may then request
actions to limit Client’s liability for Inventory.  Flextronics will then use commercially reasonable efforts to
mitigate the liability of Client for Inventory.


 


In the event that any Inventory remains at the completion of the
Services in the Statement of Work or thirty (30) days after either party
earlier terminates this Agreement, Client agrees to pay all reasonable shipping
fees as well as a material handling fee capped at [Subject to a request for confidential treatment; Separately filed with
the Commission]  of the listed value of the Inventory. 
These fees are due and payable prior to Flextronics’ shipping the
Inventory elsewhere.  Additionally,
Client agrees to the disposal of the Inventory in the following manner:


 


i.            Inventory will be offered to a production facility
selected by Client.  If Flextronics is
required to sell the Inventory at a cost lower than its standard cost, Client
will pay any difference between this standard cost used in the production
facility and Flextronics’ standard cost.


 


ii.         Client may request that Flextronics return Inventory
to the supplier.  In this case, Client
will pay any supplier return fees such as a re-stocking charge.


 


iii.      Client will buy all remaining Inventory including
Inventory which is non-returnable, non-cancelable, or not sold pursuant to (i)
and (ii) above and will pay a price equal to Inventory cost.


 


3

















 


Upon request, Consigned Materials and/or capital equipment purchased or
provided by Client shall be returned to the Client with no additional or
“special” fees excepting reasonable shipping charges.


 


The term “cost” in this
section shall mean the cost represented on the bill of materials supporting the
most current Product price at the time of cancellation or termination or, if
the cost of an item of Inventory is not on a bill of materials for the Product,
than the amount actually paid for said item.


 


4.0    Confidential
Information.  During the term of this Agreement and for
three (3) years thereafter each party will not, disclose without the permission
of the other party any of the other party’s information which is conspicuously
marked to indicate its confidential or proprietary nature or which the other
party has otherwise instructed in writing to maintain as confidential.  This paragraph shall not apply to any
information which is publicly available or which is available from a third
party without similar restrictions on disclosure. Upon written request of a
party, the other shall return all such confidential information of the
requesting party and shall destroy all copies thereof.  In the event the parties have executed an
agreement related to confidential information prior to this agreement the terms
and conditions of that agreement shall govern confidential information.


 


5.0    Relationship Of
Parties, Nonsolicitation.  Nothing in this Agreement
shall be construed to constitute a partnership, joint venture, agency, or
employment relationship between Client and Flextronics or Flextronics’
employees or contractors.  It is
understood that Flextronics shall at all times remain an independent contractor
and that Client shall in no event be liable for the debts, liabilities, or
other obligations of Flextronics.


 


Each of the parties hereto agrees that, during the term of this
Agreement and for a period of six (6) months following termination of this
Agreement, neither party will, except with the other party’s prior written
approval, solicit, offer employment to, or contract with the other party’s
employees or contractors.  In the event
an employee or contractor of a party becomes an employee of the other party in
contravention of this section, then the other party shall promptly pay to the
party a sum equaling seventy-five percent (75%) of the said employee or
contractor’s annual base salary to be paid by said other party.


 


6.0    New Developments. 
Except for Flextronics’ existing intellectual property including,
without limitation, Flextronics’ design tools, methodologies, software,
algorithms, or other means that may be used to design production means or the
processes by which products are manufactured, assembled, or tested, Flextronics
agrees that all designs, plans, reports, specifications, drawings, schematics,
prototypes, models, inventions, copyrights, and all other information and items
made or conceived by Flextronics or by its employees, contract personnel, or
agents during the course of this Agreement and related to the Products and
Services shall be and are assigned to Client as its sole and exclusive
property.  Upon Client’s request
Flextronics agrees to assist Client, at Client’s expense, to obtain patents for
any such inventions, including the disclosure of all pertinent information and
data with respect thereto, the execution of all applications, specifications,
oaths, and assignments, and all other instruments and papers which Client shall
deem necessary to apply for and to assign or convey to Client, its successors
and assigns or nominees, the sole and exclusive right, title and interest in
such inventions, copyrights, applications and patents.  Flextronics agrees to obtain or has obtained
written assurances from its employees and contract personnel of their agreement
to substantially the same terms as contained herein with regard to confidential
information and such new developments.


 


4

















 


7.0    Client
Representative.
The Client Representative shall represent Client during the performance of this
Agreement with respect to the Services and deliverables defined herein, and has
authority to execute modifications or additions to this Agreement as defined in
the paragraph herein titled “Additional Services”.  Client may change its Client Representative upon 10 days prior
written notice to Flextronics.  Erik
Toomre, Director of Operations, will be the initial Client Representative.


 


8.0    Liability and
Indemnification.  Client and Flextronics hereby acknowledge
and agree that: (1) the Services to be performed hereunder by Flextronics may
be incorporated into a product, process or service to be developed by Client,
(2) Client is responsible for final review, testing, and approval of all
features of the Product and the results of the Services, and (3) Client has
provided Flextronics with data, information and/or Specifications regarding the
Product and the Services which have been used by and relied upon by Flextronics
without independent verification or investigation.  Accordingly, Client shall defend, indemnify, and hold
Flextronics, its affiliated companies, officers, directors, employees, and
agents (“Indemnified Parties”) harmless from any obligations, costs, claims,
judgments, losses, expenses and liabilities (including reasonable attorneys
fees) incurred in connection with any such claim or alleged claim suffered or
incurred by any of the Indemnified Parties as a result of any third party claim
or threatened claim which arises in connection with the Services, Flextronics’
performance under this Agreement, or any Product, process or service of Client,
including but not limited to any claim that any results from the Services
infringe any third party’s copyright, patent, trademark, or other intellectual
property rights. This section shall survive termination or expiration of this
Agreement.


 


9.0    Product
Acceptance and Warranties.


 


9.1                   Product Acceptance.  The Products delivered by Flextronics will be inspected and
tested as required by Customer within ten (10) days of receipt.  If Products are found to be defective in
material or workmanship, Customer has the right to reject such Products during
said period.  Products not rejected
during said period will be deemed accepted. 
Customer may return defective Products, freight collect, after obtaining
a return material authorization number from Flextronics to be displayed on the
shipping container and completing a failure report.  Rejected Products will be promptly repaired or replaced, at
Flextronics’s option, and returned freight pre-paid. Customer shall bear all of
the risk, and all costs and expenses, associated with Products that have been
returned to Flextronics for which there is no defect found.  If the Product is source inspected by
Customer prior to shipment, Customer will inspect goods five (5) days prior to
the requested shipment date.


 


9.2                     Express
Limited Warranty. 
Flextronics warrants that the Products will have been manufactured in
accordance with Customer’s applicable Specifications and will be free from
defects in workmanship for a period of ninety (90) days from the date of
shipment.  Materials are warranted to the
same extent that the original manufacturer warrants the Materials.  This express limited warranty does not apply
to (a) Materials consigned or supplied by Customer to Flextronics; (b) defects
resulting from Customer’s Specifications or the design of the Products; (c)
Product that has been abused, damaged, altered or misused by any person or
entity after title passes to Customer. 
With respect to first articles, prototypes, pre-production units, test
units or other similar Products, Flextronics makes no representations or
warranties whatsoever.  Notwithstanding
anything else in this Agreement, 


 


5

















 


                                    Flextronics
assumes no liability for or obligation related to the performance, accuracy,
Specifications, failure to meet Specifications or defects of or due to tooling,
designs or instructions produced or supplied by Customer and Customer shall be
liable for costs or expenses incurred by Flextronics related thereto.  Upon any failure of a Product to comply with
the above warranty, Flextronics’s sole obligation, and Customer’s sole remedy,
is for Flextronics, at its option, to promptly repair or replace such unit and
return it to Customer freight prepaid. 
Customer shall return Products covered by the warranty freight pre-paid
after completing a failure report and obtaining a return material authorization
number from Flextronics to be displayed on the shipping container.  Customer shall bear all of the risk, and all
costs and expenses, associated with Products that have been returned to
Flextronics for which there is no defect found.  Customer will provide its own warranties directly to any of its
end users or other third parties. 
Customer will not pass through to end users or other third parties the
warranties made by Flextronics under this Agreement.  Furthermore, Customer will not make any representations to end
users or other third parties on behalf of Flextronics, and Customer will
expressly indicate that the end users and third parties must look solely to
Customer in connection with any problems, warranty claim or other matters
concerning the Product.


 


FLEXTRONICS
MAKES NO OTHER WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED,
STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITH
CUSTOMER, AND FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR
CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.


 


 


 


 


 


 


10.0  Enforcement of
Agreement.  If the scope of any of the provisions of
this Agreement is too broad in any respect whatsoever to permit enforcement to
its full extent, then such provisions shall be enforced to the maximum extent
permitted by law, and the parties hereto consent and agree that such scope may
be judicially modified accordingly and that the whole of such provisions of
this Agreement shall not thereby fail, but that the scope of such provisions
shall be curtailed only to the extent necessary to conform to law.


 


11.0  Additional
Services.  Client and Flextronics agree:


 


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11.1     The fees quoted herein, whether on a “time
and materials” basis or a “fixed price” basis, are contingent upon the accuracy
and completeness of the Specifications and key assumptions, and the performance
of Client’s responsibilities, as described in this Agreement.  Additional fees will be due if Flextronics
is required to perform Additional Services or incur additional out-of-pocket
costs due to (1) changes in scope or Specifications, (2) invalid assumptions,
(3) failure of Client or a subcontractor of Client’s to perform its
responsibilities under this Agreement, or (4) extension of any milestone
completion schedule due to causes outside of Flextronics’ control. If
Flextronics identifies a requirement for Additional Services, it will notify
Client as soon as practical, and will receive Client’s written approval before
continuing.


 


11.2     Additional fees at Flextronics’ standard
hourly billing rates, plus any out-of-pocket costs incurred by Flextronics,
will be due if Flextronics must stop Services due to delays caused by Client or
a subcontractor of Client’s failure to perform its responsibilities, to the
extent that Flextronics project personnel cannot be reassigned to other
billable work.


 


11.3     It is the intention that specific work
packages will be covered by Addendums to Exhibit 1 of this Agreement.  Each Addendum will have a description of
work to be performed, deliverables and a price quotation.  Additionally, each Addendum will not be
considered accepted unless countersigned by both parties.


 


Examples include: a)
manufacturing of a specific product, b) rework activities covering the return
of product from a customer and its repair or replacement, c) logistics services
involved in sending manufactured product directly to a customer, and d) failure
analysis and rework associated with “fixing” product diagnosed as
non-conforming in the manufacturing and test steps of a product.


 


12.0  Notices. 
Notices to the parties should be addressed as follows:


 


	
  Medis
  Technologies Ltd:

  	
   

  	
  Flextronics:

  
	
  805 Third Ave

  New York, NY 10022

  Attn: President

  	
   

  	
  2090 Fortune Drive

  San Jose CA 95131

  attn: President

  



 


13.0  Assignment. 
Neither this Agreement, nor any duties or obligations under this
Agreement may be assigned by either party without the prior written consent of
the other party.  Except for this
prohibition on assignment, this Agreement shall be binding upon and inure to
the benefit of the heirs, successors, and assigns of the parties hereto.


 


14.0  Term and
Termination.  The term of this Agreement shall be from the
date first mentioned above until the Services have been completed in accordance
with the Statement of Work unless otherwise terminated or canceled as provided
herein.  Client can cancel the project
at any time upon written notice to Flextronics.  In the event of cancellation prior to completion of the Services,
Client shall pay Flextronics all outstanding invoices and shall compensate
Flextronics for all work in progress and out-of-pocket costs incurred up to the
date of cancellation plus reasonable shut-down costs.  Flextronics agrees to deliver all results of Services paid for up
to the time of cancellation.  In the
event that Flextronics cannot deliver under this Agreement due to causes beyond
its control, Client will compensate Flextronics for work performed at
Flextronics’s standard hourly billing rates quoted in Schedule of Fees, and for
out-of-pocket costs incurred prior to the date of stoppage.  In the event that Client cannot perform
under this Agreement through causes beyond its control, Flextronics will be
responsible for the return of payments 


 


7

















 


made prior to the date of stoppage that are in excess
of work performed and out-of-pocket costs incurred.  No such termination or cancellation shall affect the obligations
of the parties under the sections herein titled “Confidential Information” and
“New Developments”.


 


15.0  Dispute
Resolution.  Before invoking the binding dispute
mechanism set forth in this Agreement, the parties shall first participate in
mediation of any dispute arising under this Agreement. If such mediation is not
concluded within forty-five (45) days from the date of the notice of breach by
one of the parties, then any controversy or claim relating to this Agreement
(whether contract, tort, or both), or the breach of this Agreement, other than
claims for a temporary restraining order, order to show cause or other
extraordinary, equitable relief for which monetary damages are inadequate,
shall be arbitrated by and in accordance with the then existing commercial arbitration
rules of the American Arbitration Association. 
Judgment on the award rendered by such arbitrator(s) may be entered in
any court having jurisdiction.  If such
arbitration is not convened within seventy-five (75) days from the date of the
notice of breach by one of the parties, then either party may file a lawsuit to
resolve the dispute.  Any dispute that
arises under or relates to this Agreement shall be resolved in Santa Clara
County, California, or if necessary, in the state and federal courts located in
Santa Clara.  This Agreement, and any
dispute arising from the relationship between the parties to this Agreement,
shall be governed by California law, excluding its choice of law principles.  The parties consent to the exclusive
jurisdiction of the State and Federal courts in Santa Clara County,
California.  In any litigation,
arbitration, or other proceeding by which one party either seeks to enforce its
rights under this Agreement (whether in contract, tort, or both) or seeks a
declaration of any rights or obligations under this Agreement, the prevailing
party shall be awarded reasonable attorney fees, together with any costs and
expenses, to resolve the dispute and to enforce the final judgment.


 


16.0 Sales Tax.      Should all or any portion of the Services
performed by Flextronics under this Agreement be deemed, at any time, by the
California State Board of Equalization to be taxable as a result of any
determination, audit, regulation, or statute; Flextronics shall invoice Client
for such taxes and Client shall promptly pay all such invoices submitted by
Flextronics.


 


17.0
Complete Agreement.  This Agreement contains the entire agreement
between the parties hereto with respect to the matters covered herein.  No other agreements (other than a precedent
agreement related to confidential information), represented by or on behalf of
the parties hereto or by their employees, contract personnel, or agents, or
contained in any sales materials or brochures, shall be deemed to bind the
parties hereto with respect to the subject matter hereof.  Client acknowledges that it is entering into
this Agreement solely on the basis of the representations contained herein.


 


 


IN
WITNESS WHEREOF, the
parties hereto have signed this Agreement as of the date indicated below.


 




	
  Medis
  Technologies Ltd.:

  	
   

  	
  FLEXTRONICS International, Ltd.:

  
	
   

  	
   

  	
   

  
	
  /s/ 

  	
   

  	
  /s/ 

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
							






 


8

















 


EXHIBIT
1


 


STATEMENT
OF SERVICES


 


 


Power
Pack Industrialization


Phase
1 Proposal












Prepared for Medis Technologies Ltd.


Quote Number PTX2246


 


 


Contact Name: 
Michelle Rush


 


Medis
Technologies Ltd.


805
Third Avenue, 15th Floor


New
York, NY 10022


 


 


 


 


CONFIDENTIAL












 


Flextronics Design


Rev 1


April 28, 2004


 


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Revision
History


 


	
  Revision

  	
   

  	
  Release  Date

  	
   

  	
  Description

  	
   

  	
  Author

  	
   

  	
  Approval

  	
   

  
	
  1

  	
   

  	
  4/28/04

  	
   

  	
  Initial Release

  	
   

  	
  JR

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


10

















 


	
  1

  	
  PROJECT
  OVERVIEW

  	
   

  
	
   

  	
   

  	
   

  
	
  2

  	
  STATEMENT OF
  WORK

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Scope

  	
   

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Tasks

  	
   

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Assumptions

  	
   

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Deliverables

  	
   

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Project Assignments

  	
   

  
	
   

  	
   

  	
   

  
	
  3

  	
  SCHEDULE

  	
   

  
	
   

  	
   

  	
   

  
	
  4

  	
  QUOTATION

  	
   

  
	
   

  	
   

  	
   

  
	
  5

  	
  TERMS
  AND CONDITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  6

  	
  CHANGE APPROVAL AND
  RISK MANAGEMENT

  	
   

  



 


 


Project Overview


Flextronics understands
that Medis’ initial target market is in the US.  However, Medis’ R&D
and technical team is presently based in Israel.  Based on our observation
of our most successful customers, we strongly recommend that Medis’ build a
small but strong product development, procurement and operations team in the
next months.  This team should be organizationally separated from Medis’
base R&D team in Israel.  Elements of this team should be based in Medis’
primary markets.


 


In order to best support Medis’ existing
structure, Flextronics Israel will be Medis’ primary point of contact in the
early stages of the product, supported by Flextronics world-wide
resources.  As Medis’ build out Medis’ own operational team in North
America and identify an optimal manufacturing strategy, Flextronics will match
Medis’ structure with resources in appropriate locations.


 


Moreover, as Medis’ major OEM customers begin to
engage in the products integrated with tablet PC, PDA or
military products, Flextronics will provide resources from each of our centers
of excellence in such products to support Medis’ in these efforts.


 


From discussions with Medis and a review of the provided materials,
Flextronics believes that a multiple phase approach as outlined below is
appropriate for the industrialization and volume production launch 


 


11

















 


of the Power Pack Fuel Cell Cartridge We believe that the needs for the
product launch are dynamic and will evolve over the next few months.  Flextronics is prepared to provide support
in a number of tactical areas including design, tooling, compliance, build and
test.  On a more strategic level we can
assist with optimizing the Power Pack units for volume production.


 


New
Product Introduction Phases


Phase
1 Analysis and Planning


Phase
2 Design and Supply of Tooling


Phase
3 Development of Volume Manufacturing and Test Processes for both low and high
volumes


Phase
4 Low Volume Manufacturing


Phase
5 Logistics & Distribution


Phase
6 Product Transfer to High Volume Manufacturing


 


The specific focus
of this proposal is limited to the Phase 1 activities which will form the
foundation of the subsequent phases leading to volume production.  As efforts with Medis proceeds, proposals
for the later phases will be prepared.


 


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Statement
of Work


Scope


This proposal covers the
analysis and planning activities (Phase 1) of the product launch.


 


Tasks


•                  Review existing design in
detail with respect to opportunities to reduce cost of unit or production
process as well as improvements in quality or performance.


•                  Understand the existing  build
process


•                  Understand design validation test requirements


•                  Understand environmental, compliance & certification requirements


•                  Perform design for manufacturability analysis of existing design


•                  Perform mold flow analysis of existing design to optimize tooling
design


•                  Prepare specification document for production cartridges


•                  Review supply chain


•                  Develop strategy for volume manufacturing, assembly and production test
processes.  Assembly technology includes
consideration of


    a. Electrode framing - injection molding,
ultrasonic welding, etc.


    b. Cartridge assembly & valve assembly


    c. Safety issues (seals and glue)


    d. Testing and QC.


•                  Develop strategy for New Product Introduction


•                  Provide production pricing estimates


 


Optional activities that Flextronics could assist with
include:


 


•                  Structural and Thermal Analysis using Ansys (Structural) and Icepak
(Thermal) of existing product


•                  Analysis of chemical compatibility of materials and fuel leading to
selection of materials for production units. A key issue is the KOH
environment. Candidates today are PE, PP, PVC, and ABS.


•                  Develop industrial design concepts for appearance and operation of unit
with attention to finish, packaging and labeling


 


Assumptions


•                  Medis to provide appropriate
documentation and design materials in a timely manner


•                  Medis to provide access to technical
staff for questions and discussion


 


Deliverables


Flextronics will
deliver the following items at the completion of phase I.


•                  Product Specification


•                  Test Requirements


•                  DFM Analysis


•                  Mold Flow Analysis


•                  Volume manufacturing and test strategy


•                  Production price estimates


•                  New Product Introduction Plan


•                  Tooling phase proposal


•                  Low volume manufacturing proposal


 


Project
Assignments


Upon
receipt of an order to begin the project, Flextronics will assign staffing to
the project as follows:


 


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  Skill Set

  	
   

  	
  Location

  	
   

  	
  Loading

  
	
  Project
  Manager

  	
   

  	
  US

  	
   

  	
  50%

  
	
  Project
  Manager

  	
   

  	
  Israel

  	
   

  	
  50%

  
	
  Mechanical
  Engineer

  	
   

  	
  Israel

  	
   

  	
  75%

  
	
  Mechanical
  Engineer

  	
   

  	
  US

  	
   

  	
  50%

  
	
  Manufacturing
  Engineer

  	
   

  	
  Israel

  	
   

  	
  75%

  
	
  Manufacturing
  Engineer

  	
   

  	
  US

  	
   

  	
  50%

  
	
  Compliance
  Engineer

  	
   

  	
  US

  	
   

  	
  1
  Week Effort

  
	
  Electrical
  Engineer

  	
   

  	
  Israel

  	
   

  	
  50%

  



 


Total
effort is estimated at [Subject to a
request for confidential treatment; Separately filed with the Commission].


 


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Schedule


Flextronics can begin work on Phase I within one to
two weeks from receipt of approval to start.  
Phase I is estimated at a duration of [Subject to
a request for confidential treatment; Separately filed with the Commission]. 
However, depending on the efforts involved in the specific tasks phase 1
may take longer.


The following table presents high level milestones for
the project:


	
  Milestone

  	
   

  	
  Completion

  
	
  Detailed
  technical review at Medis facilities in Israel

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  DFM
  Analysis complete

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Mold
  Flow complete

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Preliminary
  Design Review & Project Status Presentation

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Delivery
  of initial production product specification

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Review
  & update of product spec

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Presentation
  on volume assembly and test strategy

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Tooling
  phase proposal

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  
	
  Low
  volume manufacturing phase proposal

  	
   

  	
  [Subject to a request for
  confidential treatment; Separately filed with the Commission]

  



 


 


Quotation


This proposal is quoted
as a time and materials program.  For
efforts by Flextronics’ staff, the rate will be [Subject to
a request for confidential treatment; Separately filed with the Commission]. 
With the assumption of 45 hours/person per week the total estimated
labor fees for Phase 1 is estimated at [Subject to
a request for confidential treatment; Separately filed with the Commission].  
Flextronics will invoice for actual time spent.


Travel (as approved by Medis in advance) will be invoiced at cost plus
5%.


 


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Terms
and Conditions


 


1)             This quotation is valid for 30 days from
date of issue.


 


2)             Please reference this quotation on any
resultant Purchase Order documents.


 


3)             In the event the project is cancelled or
a “Stop Work” is issued by Medis at any time, Flextronics has the right to
invoice for all work done to date, all equipment or services purchased or on
order, and work in progress on a time and materials basis.  This will be done according to Flextronics
standard rates and markup in effect at the time of the cancellation or stop
work.  For all prototype or production
type orders, cancellations are not allowed within 30 days of scheduled
delivery.  If a cancellation or “Stop
Work” order is received, Flextronics will be entitled to immediately invoice
Medis for the full price of all product scheduled for delivery within 30 days.
Medis will also be invoiced for raw material inventory and work in progress
beyond the 30 day window.


 


Change
Approval and Risk Management


Flextronics will be
working under a Change Approval and Risk Management procedure for this
program.  In essence, all changes
requested by Medis,  following release
of the purchase order, will be subject to the Change Approval process.  This process will include an acknowledgment
from Flextronics of a request to deviate from the original released project
scope.  This acknowledgment will include
the requested deviation and the impact of this change in cost and overall program
timing.  A signed approval from the
Medis Program Manager and the Medis Management representative will then be
required to complete the final approval of this change.  A commitment from Flextronics is to have a
submission of this Change Approval within 48 hours of the request.


 


16

















 


EXHIBIT
2


 


SCHEDULE
OF FEES


 


Hourly
billing rates for representative Flextronics contributors:


 


	
  Functional Area

  	
   

  	
  Hourly Rate

  
	
  Electrical Engineer

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Logistics Associate
  (Shipping & Receiving, Inventory)

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Manufacturing Engineer

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Manufacturing Associate
  (Assembly, Test, Pack Out, Inspection)

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
   

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Materials Sourcing

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Mechanical Engineer

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Product Manager

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Project or Program Manager

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Technician (including
  Failure Analysis and/or Rework)

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  
	
  Test Engineer

  	
   

  	
  [Subject
  to a request for confidential treatment; Separately filed with the
  Commission]

  



 


Note: 
This is not meant to be an exhaustive list of contributors and
Flextronics will perform the Services as it alone deems appropriate.  However, contributions made by individuals
in the functional areas above will be billed at the rate shown.


 


Travel
Expenses


 


Reasonable travel expenses will be reimbursed
by Client at cost plus 5%.  Air travel
will be by Economy class and reasonable efforts will be made to purchase
tickets at least one (and preferably two) weeks in advance of the start of the
trip.  Written authorization of Client
is required prior to purchasing tickets or initiating travel if the aggregate
cost for an individual or group attending a single meeting is in excess of [Subject to a request for confidential treatment;
Separately filed with the Commission].


 


 


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