Document:

Exhibit 10.1

 

UTSTARCOM MANUFACTURING AGREEMENT

 

This Manufacturing Agreement, including the
attached Exhibits (the “Agreement”), is
entered into as of  12/31/2009  (the “Effective Date”)
by and between UTStarcom Telecom Co., Ltd  (“UTS”), a
company organized under the laws of the People’s Republic of China, on behalf
of itself and its affiliates, having its principal place of business at 368
Liuhe Road, Hi-Tech Industrial Development Zone (Binjiang), Hangzhou 310053, P.
R. China and Sanmina-SCI Corporation,
a company organized under the laws of the state of Delaware, USA, on behalf of
itself and its subsidiaries and affiliates (collectively, “EMS”,
having its principal place of business at 2700 North First Street, San Jose,
California 95134, each a “Party” and, collectively, the “Parties”.

 

In consideration of the mutual promises set forth
herein, the Parties hereby agree as follows:

 

1.     Scope
of Contract

 

EMS agrees to manufacture, assemble, support
and provide complete Products for sale to UTS in accordance with the terms and
conditions hereof.  This Manufacturing
Agreement applies to all products and services related to Products sold, or
provided by EMS to UTS.

 

Any additional terms and conditions for
specific Products and services shall be set forth in an Addendum to this
contract.  The Addendum has to be signed
by both Parties to be in force and once so signed is incorporated into this
Agreement.

 

2.     Term
of Contract

 

Unless terminated earlier in accordance with the
provisions of this Agreement, this Agreement shall have a term of one (1) year
commencing on the Effective Date.

 

This Agreement shall automatically renew for
additional successive one (1) year periods, unless written notice of
non-renewal is received by the other Party no later than ninety (90) days prior
to the expiration of the then-current term.

 

3.     Place
of Performance of Services

 

EMS shall only manufacture each Product at the
applicable Approved Manufacturing and Product development location(s) for
that Product.  Each location approval from
UTS shall specify not only plant location, but also Product family(ies),
building location, line location, and the stage to which the Product is
released for manufacture (i.e. prototype versus mass production).

 

EMS will not change location of the facilities,
building location or line location for the manufacture and assembly of the
Products without UTS’ prior written consent.

 

Unless otherwise explicitly agreed, UTS shall in no
event be obliged to pay any “learning costs”, or any other costs, referable to
or resulting from EMS’ establishment of new manufacturing facilities, work with
new products/services etc., such as, but not limited to employee training
programs, 

 

UTStarcom Confidential

 

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installations of equipment, erection of buildings,
preparation of production facilities and obtaining of necessary approvals,
licenses and permits.

 

EMS shall ensure that all of UTS’ property (which
shall include but not be limited to all Products) shall be kept distinct and
separate from EMS’ or other third parties’ property and shall be clearly
identified as UTS’ property.  EMS shall
ensure that none of UTS’ property is seized by any third party, whether
pursuant to an order of court or otherwise, while in EMS’ possession.

 

4.     Product
Definition

 

EMS agrees to manufacture each of the Products in
accordance with this Agreement, the applicable Specifications, and related
supporting documents, and any other instructions provided in writing by UTS.

 

During and upon the completion of the manufacturing
of each Product, EMS will submit such Product to the mutually agreed testing
procedures, in this Agreement or as agreed to in writing by UTS and EMS from
time to time.  At UTS’ discretion, UTS shall
provide training in the testing procedures set forth herein to certain
personnel designated in writing by EMS. 
EMS shall perform final testing of all Products at the designated EMS
manufacturing facility.

 

5.     Purchase Order

 

During the term of this Agreement, UTS shall
provide EMS with a Purchase Order that instructs EMS of Products to be
manufactured and shipped by EMS.  Except
as specifically requested, UTS shall, no later than the last week of each
month, submit Purchase Orders for Products to be delivered during the
subsequent month to EMS in writing, by fax, email or via Electronic Data
Interchange (“EDI”).   Each Purchase Order shall include:

 

(i)      Identification
of Products ordered by UTS Part Number;

 

(ii)     Quantity
to be purchased;

 

(iii)    Price
of Products ordered;

 

(iv)   Requested
delivery dates and location;

 

(v)    Shipping
and invoicing instructions; and

 

(vi)   Purchase
Order Number.

 

(a)           Review of Purchase Order. 
EMS shall at all times use its commercially
reasonable efforts to verify whether a Purchase Order is complete and accurate.  In the event EMS has reason to believe that
the Purchase Order or Forecast is in any respect erroneous or for other reasons
must be adjusted, EMS shall immediately notify UTS. All Purchase Orders that are
within the Forecasted lead times, shall be acknowledged by EMS within two (2) business
days of receipt.   If EMS does not
acknowledge or reject a Purchase Order within the two day period, the Parties
shall confirm that the Purchase Order was received by EMS. If a Purchase Order
is rejected by EMS, 

 

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EMS shall provide clear reasons for such rejection.  EMS
shall provide UTS with Purchase Order status reports within one (1) business
day of UTS’ request for such report.

 

(b)           Order Cancellation. 
UTS may cancel all or any portion of a Purchase Order upon five (5) business
days  written notice to EMS without
liability other than: a) as specified in Section 6 “Manufacturing Capacity and
Demand Changes” and Section 11
“Inventory Management and Responsibility”, and; b) all Products, semi-finished Products
that have been manufactured by EMS according to Purchase Order and agreed
production quantity.

 

6.     Manufacturing Capacity and Demand Changes

 

During the term of this Agreement, UTS will
provide EMS with a limited-binding, good faith four (4) month forecast (“Forecast”) reflecting the total volume of Products that UTS
anticipates ordering from EMS during the forecasted period, detailed by device,
package and/or module type or product variant as agreed between the Parties.  Such Forecast shall be binding for
Non-passive Components, and non-binding for Passive Components.  The
Forecast shall be updated at least weekly and shall be used by EMS to plan for
production capacity and Components needed to support UTS’ anticipated orders.

 

(a)   Initial Forecast.  Upon the execution of this Agreement, UTS
shall provide EMS with (i) a thirty (30) day firm Purchase Order and (ii) a
Forecast for Product requirements (in monthly buckets) for an additional three (3) months
(“Forecast”).  All Purchase Orders shall be binding, except
as otherwise stated in this Agreement, and may be rescheduled only as set forth
herein or cancelled upon payment of (1) the purchase price of the Product
(if the cancellation is made within 30 days of the scheduled delivery date) or (2) the
amounts set forth in Section (c) below (if cancellation is made
outside of such 30-day period).   EMS
shall make purchase commitments (including purchase commitments for Long
Lead-time Components) to its Component suppliers (“Vendors”)
based upon the Purchase Order and Forecast, and UTS shall be responsible for
all such Non-passive Components purchased in support of UTS’ then-current
Forecast.  For all other purposes,
however, the Forecast shall be non-binding.

 

(b)   Subsequent Forecasts.  On the first business day of each calendar
month after the initial Order and Forecast, the first Forecast month shall
automatically become part of the Purchase Order, a new Forecast month shall be
added, and a new firm Purchase Order issued, so that a rolling Forecast of
ninety (90) days is always maintained.

 

(c)   Customer Component Liability.  UTS acknowledges that it shall be financially
liable for all Non-passive Components ordered and non-cancellable in accordance
with this Section, unless otherwise agreed. 
Specifically, UTS’ Component liability shall be equal to EMS’ Delivered
Cost of all Non-passive Components ordered in support of any Purchase Order or
Forecast, including any excess Non-passive Components resulting from any minimum
buy quantities, tape and reel quantities, and multiples of packaging quantities
required by the Vendor less the actual cost (per the bill of materials) of
those Non-passive Components which are returnable to Vendor (less any
cancellation or restocking charges).  At
UTS’ request, EMS shall use commercially reasonable efforts to minimize UTS’
Component Liability by attempting to return Components to the Vendor; provided,
however, that EMS shall not be obligated to attempt to return to Vendor
Components which are, in the aggregate, worth less than $1,000.

 

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(d)   Supplier
Managed Inventory Program.  UTS
acknowledges that the concept of “purchase commitments to a Vendor” as
used in this Agreement includes not only EMS purchase orders issued to
Vendors, but also forecasts (which are based on UTS’ Forecasts) provided to
Vendors in accordance with EMS’ Supplier Managed Inventory Program (“SMI Program”).  Should
UTS agree to implement the SMI Program, EMS provides Vendors with forecasts of
anticipated Component requirements, and the Vendor is obligated to supply EMS
with all forecasted Components, but EMS does not issue Vendor a purchase order
until the Component is actually required by EMS for production.  However,
under the SMI Program, EMS is obligated to either consume a sufficient level of
the forecasted Components or pay the Vendor for a certain level of unused
Components.  For the purpose of this
Agreement, UTS’ Component Liability [pursuant to Section (c) above]
shall include the cost of any required Vendor payments under the SMI Program as
well as any Components actually ordered from the Vendors based on UTS’
Forecast.

 

Supply Chain Flexibility Targets

 

EMS shall make best efforts to purchase Components
in accordance with the Forecast, EMS shall commit the manufacturing capacity
flexibility set forth below, as well as provide reasonable required Components
to meet UTS Purchase Order demand fluctuations.

 

	
  Number of Weeks Until Delivery Date

  	
   

  	
  Percent Increase or Decrease
  from

  Forecasted Quantity

  	
   

  
	
  Less than or equal to 2
  weeks

  	
   

  	
  +/- 0%

  	
   

  
	
  More than 2 weeks but
  less than or equal to 4 weeks

  	
   

  	
  +/- 20%

  	
   

  
	
  More than 4 weeks but
  less than or equal to 8 weeks

  	
   

  	
  +/- 30%

  	
   

  
	
  More than 8 weeks but
  less than or equal to 12 weeks

  	
   

  	
  +/- 50%

  	
   

  
	
  More than 12 weeks

  	
   

  	
  +/- 100%

  	
   

  

 

UTS
acknowledges that, in order to sustain ongoing flexibility beyond the normal,
EMS will need to procure additional inventory.

 

If
at any time unexpected Purchase Orders result in a depletion of the established
inventory level (“Excess Demand Requirement(s)”), UTS and EMS will meet to
address EMS’ commercially reasonable efforts recovery plan and mutually
agreeable solutions to resolve supply chain constraints preventing EMS from
meeting UTS’ Excess Demand Requirement(s). Upon UTS’ advanced written approval,
UTS will be responsible for premium freight charges required to meeting UTS’
Excess Demand Requirement(s).

 

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7.     Product Delivery and Acceptance

 

All
Products shall be packaged and shipped in the manner specified in Section 4
herein. Without limiting the foregoing, EMS shall comply with bar code labeling
specifications provided by UTS from time to time.

 

(a)           Title and Risk of Loss.   Except as agreed otherwise in
writing, all Products sold to UTS are delivered DDU within China (INCOTERMS
2000), and for Products sold outside China, the Parties shall separately agree
in writing to the appropriate shipping term(s). 
For Products delivered DDU, title and interest to Products and risk of
loss will pass to UTS upon delivery to UTS’ designated receiving point per UTS’
written instructions.  UTS shall be
the exporter and importer of record for all shipments of Products outside of
China.

 

(b)           All
Products specified in a Purchase Order are to be shipped complete.  EMS shall use its commercially reasonable
efforts to meet any delivery date (“Delivery Date”)
specified in the Purchase Order or otherwise mutually agreed between the
Parties.  A delivery is considered on
time if the actual delivery to UTS’ designated receiving point is made during
the Delivery Window.  The Delivery Window
is defined as three (3) days early and zero (0) days late.  Delivery shall be deemed to have occurred
upon delivery of Products at the designated receiving point.  In any event, EMS shall promptly notify UTS
of any anticipated inability to meet the Delivery Dates requested in a given
Purchase Order.

 

(c)          Acceptance of the Product shall occur no later than fifteen
(15) days after receipt of Product and shall be based solely on whether the
Product passes a mutually agreeable acceptance test procedure or inspection
designed to demonstrate compliance with the Specifications.  Product cannot be rejected based on criteria
that were unknown to EMS or based on test procedures that EMC has not approved
or does not conduct.  Notwithstanding
anything to the contrary, Product shall be deemed accepted if not rejected
within this fifteen-day period.  Once a
Product is accepted, all Product returns shall be handled in accordance with Section 18
“Warranty”.  Prior to returning any
rejected Product, UTS shall obtain a Return Material Authorization (“RMA”) number from EMS, and shall return such Product in
accordance with EMS’ instructions; UTS shall specify the reason for such
rejection in all RMA’s.  In the event a
Product is rejected, EMS shall have a reasonable opportunity to cure any defect
which led to such rejection.

 

(d)           In the event a shipment does not meet the Delivery Date, EMS shall, upon
UTS’ request, arrange for premium transportation. EMS shall bear the expense of
any difference in freight costs for such premium transportation if the delay in
shipment is caused by EMS.

 

(e)           UTS
shall measure EMS’ on-time delivery performance against commitments.  UTS and EMS shall monitor lead-time and cycle
times and mutually agree to improvement programs to maintain best of industry
performance.

 

(f)            EMS shall accommodate a pull-in request to
expedite the ship date, if reasonably able to do so.  Any additional expedition charge resulting
from rescheduled deliveries must be approved by UTS in writing prior to being
incurred.  Rescheduling later delivery of
Products from the date of original commitment date up to thirty (30) days shall
be made at no charge to UTS.

 

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(g)           If
UTS incurs any Customer related penalty charges or expedition costs resulting
from EMS not meeting their committed delivery dates and the delay is caused by
EMS, EMS shall pay as liquidated damages (and not as a penalty) to UTS at the
per diem rate of 0.1% of the value of the delayed shipment from the date that
is one (1) week from the committed delivery date.  The total liquidated damages
for any such delayed delivery shall be a maximum of 4%.  The foregoing represents
UTS’ sole remedy in the event EMS fails to timely deliver Product.  UTS shall use its best efforts to communicate with EMS on late delivery
liquidated damage clause UTS agreed with UTS’ customer(s) before the Purchase
Order is submitted to EMS.  In the case
where a Component Vendor is the cause for the delay, the Parties shall work
together to pursue costs and damages from the Component Vendor.

 

(h)           In
the event of an Allocation Situation, EMS shall use its commercially reasonable
efforts to fulfill accepted Purchase Order(s) in their entirety, and in
any event, in accordance with EMS’ allocation plan, which shall be equal or more
favorable to UTS than that provided to any other EMS customers in the plant
where the Products are being manufactured. EMS shall
immediately notify UTS if it has reason to believe that EMS’ output of the
Product will not be sufficient to meet all of accepted requirements for any
period.  In its notice, EMS shall inform
UTS of the percentage of Products ordered it commits to deliver to UTS during
the Allocation Situation and the expected length of the Allocation Situation.

 

8.     Product
Price

 

Product prices to UTS shall be based on the
accepted quoted prices set forth in the Product quotation set forth in Exhibit A
which may be amended from time to time upon mutual agreement in writing and
incorporated herein by reference. Prices shall be based on EMS supplying all
Components except Consigned Materials supplied by UTS in accordance with the
terms of this Agreement.   Price review shall be conducted with UTS on a weekly basis.

 

EMS
shall submit a monthly inventory reconciliation with proposed inventory buy up/down to
UTS for approval.

 

EMS
shall submit a monthly price variance report to UTS for approval.   EMS shall not purchase Components which the
Parties have received notice of price increase(s) without the prior
written approval of UTS.

 

Prices (a) are in RMB, (b) include EMS’ standard packaging, (c) exclude
the items set forth in Section 8.1 below, and (d) are based on (i) the
configuration set forth in the specifications provided to EMS on which EMS’
quotation was based (the “Specifications”)
and (ii) the projected volumes, minimum run rates and other assumptions
set forth in EMS’ quotation.   The Parties shall account for any changes above or below 3% in the exchange
rate between the currency in which the pricing is calculated and the currency
in which EMS pays for the Components. On the first business day of the third month of any
calendar quarter prior to the quarter of application, the Parties shall
establish the exchange rates (“Contract Rates”)
to be applied to the following quarter’s costs (for those costs
denominated in currencies different from the currency in which the Price is
denominated).  The source of the Contract
Rates will be the spot rates published by the Wall Street
Journal or the Financial Times of London (UTS’
option) reflecting the previous day’s closing rates.

 

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8.1   Exclusions
from Price.  Prices specifically exclude (a) export
licensing of the Product and payment of broker’s fees, duties, tariffs and
other similar charges; (b) taxes or charges (other than those based on net
income of EMS) imposed by any taxing authority upon the manufacture, sale,
shipment, storage, “value add” or use of the Product; and (c) setup,
tooling, or non-recurring engineering activities (collectively “NRE Charges”).

 

8.2      Other Price Adjustments:

 

(a)   UTS acknowledges that the Prices quoted are based on the
Forecasted volumes provided by UTS to EMS. 
In the event UTS fails to purchase Product in sufficient volumes
consistent with the quoted prices, EMS reserves the right update its future
monthly quotes to reflect decreased volumes.

 

(b)   UTS acknowledges that the Prices are based on the
Specifications and the assumptions set forth in EMS’ quotation.  In the event EMS experiences an increase in
cost as a result of changes in the pricing assumptions or the Specifications,
EMS shall be entitled to re-quote the Product to account for such changes.

 

8.3   Price
Premium Exclusion.  UTS
shall not pay any price premiums or other additional charges for production
effort or services, including price premiums associated with production effort
and services carried out during times other than the usual working hours on
Business Days, unless agreed by the Parties upfront in writing. Where a premium
is required, EMS shall not proceed without prior written authorization from UTS
in respect of the applicability and amount of any such premium.

 

9.     Payment
Terms

 

EMS shall invoice UTS with each delivery of Products.
All invoices submitted from EMS shall be reviewed. Prior to UTS making payment
of an invoice, EMS shall provide UTS with the official receipt approved by the
applicable tax authorities for the amount of the invoice after settlement.    UTS shall make payment within
forty five (45) days after date of invoice.

 

Invoices shall contain, at a minimum, UTS’ or
Customer’s invoice-to and ship-to addresses as specified in the corresponding
Purchase Order, the Purchase Order number, UTS part number, quantity and
shipment date and unit price.

 

10.  Cost
Reviews/Cost Reduction Targets/Cost Sharing

 

EMS shall use its commercially reasonable efforts
to formulate and implement cost reduction programs agreed to in writing,
including both Component cost reductions and transformation cost reductions.
EMS shall commit its commercially reasonable efforts to achieve average
quarterly BOM cost reduction target of 3% for EMS sourced materials.  The annual plan to achieve a 12% cost
reduction target shall be jointly developed at the beginning of the year.  Cost reduction review shall be conducted on a
quarterly basis. Without limiting the foregoing, EMS agrees to institute any
cost reduction proposals reasonably suggested by UTS, and to reduce the
purchase price of the Products to UTS by an amount equal to the per-unit
savings realized there from.  Appropriate
management and/or technical representatives of each of EMS and UTS shall
discuss these cost reductions proposals weekly as requested by UTS.

 

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UTS approved Product quotation may be changed to
reflect (i) changes to the costs of the Components, and (ii) changes
in the transformation costs due to manufacturing process improvements or
Engineering Change Orders identified subject to UTS approval

 

Each Party shall be responsible for actively taking
steps required of that Party to reduce the cost of the Components for the
Products, as agreed upon by the Parties during the periodic price reviews.  UTS shall notify EMS of price changes for
Components that UTS has negotiated with its Component supplier(s), and may
revise its instructions by written notice to EMS regarding quantities and sources
of supply from time to time as permitted herein.  EMS shall pass through one hundred percent
(100%) of such cost-savings negotiated by UTS to UTS, by reducing the cost of
units of the Product by the amount of the applicable cost savings when the cost
reduction becomes effective.

 

After any price adjustment, and unless agreed that
the new prices shall have retroactive effect, the new prices shall be
applicable for all Purchase Orders issued after the effective date of the
relevant price change.

 

In addition, each Party shall be responsible for
actively taking steps required of that Party to reduce the costs of
acquisition, transformation costs and SG&A (Administration) costs.  Targets for the reduction of these costs shall
be agreed on a quarterly basis. Savings in the cost of acquisition realized by
UTS or reduction in transformation costs due to process improvements or ECO
implementation by UTS shall be passed through to UTS 100% after EMS has
recovered all UTS-approved implementation costs.

 

EMS shall warrant to UTS that its prices for similar
goods and services as offered to UTS hereunder are no higher than prices
offered to any other customers for similar products based on similar trade
volumes and similar terms and conditions during the same period of time.

 

If more favorable prices, terms or conditions than
the prices, terms or conditions set out herein are granted to any customers of
EMS under similar trade terms during the same period of time for similar goods
and service, EMS shall advise UTS in writing within fifteen (15) days thereof and
the prices, terms and conditions, as applicable, of this Agreement shall be
deemed to be amended accordingly to reflect such more favorable prices and/or
terms and conditions. EMS shall advise UTS in writing within fifteen (15) days
thereof and the prices, as applicable, of this Agreement shall be deemed to be
amended accordingly to reflect such more favorable prices.

 

11.  Inventory
Management and Responsibility

 

EMS is responsible for making available sufficient
Inventory to meet the Forecast, Supply Chain Flexibility Targets and on-time
Delivery requirements as defined in this Agreement.

 

EMS is responsible for setting Inventory targets in
line with the Forecast and Supply Chain Flexibility Targets.  These targets shall be reviewed with UTS
during the monthly and quarterly review meetings.

 

Upon UTS’ request, EMS shall order and make
available qualified materials prior to the initial production run for research
and development and new product introduction purposes.

 

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EMS shall also procure Long Lead-Time Inventory and
Minimum Order Inventory, as reasonably required for the fulfillment of future
Purchase Orders as approved by UTS in writing.

 

UTS may assist EMS in securing certain Inventory
for a Product.  Such assistance may
include the identification of the Supplier, negotiation of supply agreements
and frame contracts with the chosen supplier. 
In this case, all relevant details of such agreements shall be shared by
UTS with EMS.  The responsibility of EMS shall
be to execute the day-to-day purchasing of the Inventory, under the terms of
the supply agreement and frame contract, to fulfill EMS’ role in obtaining
adequate on hand Inventory to ensure on-time Delivery of Purchase Orders.

 

UTS shall work with EMS to review and set inventory
targets for Long Lead-Time Inventory based on Forecast, Supply Chain
Flexibility Targets, known Purchase Orders and the Component lead-time.  These targets shall be reviewed and agreed
monthly between UTS and the EMS.

 

EMS is responsible for making reasonable efforts to
reduce Component purchasing lead-times and manufacturing lead-times.  UTS and EMS will review such lead-times on a
regular basis.

 

UTS shall provide EMS with
an AVL (Approved Vendor List) to be used by EMS for the purchase of
Inventory.  EMS may recommend in writing
new suppliers for addition to the AVL and UTS shall provide timely review and
consideration of such recommendations. 
If approved, UTS shall add the proposed supplier to the AVL and notify
EMS in writing of such addition, such UTS approval not to be unreasonably
withheld or delayed.  UTS reserves the
right, at its sole discretion, to direct EMS to purchase designated Components
from AVL suppliers in accordance with an order distribution formula provided by
UTS.

 

11.1  Purchase of UTS-Owned
Materials and Components and Open Purchase Order Transfer to EMS.

 

In addition to the
foregoing provisions, the Parties shall abide by the provisions set out in Exhibit B
with respect to purchase by EMS of UTS-owned Components and transfer of open
purchase orders for Components issued by UTS to Component suppliers.

 

Excess and Obsolete Material

 

A.    Downward Variances

 

In
this section, Downward Variance represents the deficient amount of the Purchase
Order quantity from the Forecasted quantity.

 

UTS’
sole liability to EMS and the sole remedy available to EMS with respect to
Excess Inventory and Obsolete Inventory is set forth in this Section.

 

1.  Excess Inventory

 

For
the purposes of this Section, Excess Inventory
shall mean those Non-Passive Components in inventory consistent with UTS’
Forecast, purchased at lead-times reasonably prevailing at the time of
Components.

 

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UTS
shall inform EMS with at least one (1) month prior written notice before
the intended EOL of any Product under this Agreement. EMS shall provide UTS
with the EOL Excess Inventory Report within fourteen (14) days.

 

UTS
shall be liable for Excess Inventory and Long Lead-Time Inventory purchased
with UTS’ written approval, that is held in inventory over one hundred and
eighty (180) days from the date when such inventory is purchased by EMS due to
UTS’ Downward Variance. UTS shall provide EMS with a list of Non-Passive
Components agreed in advance by both Parties.

 

The
Parties shall manage Excess Inventory
as follows:

 

a.             EMS shall
prepare and provide UTS with monthly reports documenting any Downward Variances
in Forecasts.

 

b.             The Parties
shall jointly review EMS’ monthly reports, as set forth above, to determine
UTS’ liability for Excess Inventory.

 

c.           EMS shall use
commercially reasonable efforts to mitigate the disposition or rescheduling of
Excess Inventory for a minimum of one month commencing from the date when the
inventory is identified & recognized by UTS as excess inventory.

 

d.           At UTS’
discretion, one of the following options or any combination of following
options to dispose the Excess Inventory UTS shall be taken.

 

(1)      Buy-Back. 
UTS shall buy-back Excess Inventory from EMS pursuant to this Agreement. Such
buy-back shall be at the last approved BOM cost after making price reduction as
agreed by the Parties.  UTS shall make
payment for buy-back under the same payment terms provided to UTS from the
issuance of official receipt for the corresponding amount.  Before procuring any additional quantities
from Component suppliers, EMS shall re-purchase any such Excess Inventory from
UTS until depleted.

 

(2)       EMS shall hold the
Excess Inventory if there is
demand in the following one (1) month on a one-time basis.

 

e.          UTS shall inform EMS with at least one (1) month
prior written notice before the intended end of life (“EOL”) of any Product
under this Agreement. EMS shall provide UTS with the EOL Excess Inventory
Report within fourteen (14) days.

 

2.             Obsolete
Inventory

 

For purposes of this
Section, “Obsolete Inventory” shall mean those
Non-Passive Components in inventory or non-cancellable consistent with UTS’
Forecast, purchased at lead-times reasonably prevailing at the time of order, and
Long Lead-Time Inventory purchased with UTS’ written approval, that do not
appear on the current UTS’ BOM, or which appear on the

 

10

 

current UTS’ BOM but cannot be used to manufacture
Products for UTS or EMS’ other customers in the same plant due to engineering
changes, Product cancellations, purchase order cancellation, or program
cancellations by UTS.

 

a.  UTS shall
provide EMS with written notification of any engineering change, Product
cancellation, Purchase Order cancellation or program cancellation.  Within
five (5) business days of such written notice, EMS shall send UTS
waterfall analysis, evidencing UTS’ maximum exposure of Obsolete
Inventory.  Upon receipt of such notification, EMS shall use commercially
reasonable efforts to dispose of Obsolete Inventory resulting from such changes
or cancellation within a thirty (30) day period, unless mutually agreed
otherwise by the Parties.

 

b.  UTS shall
either purchase such Obsolete Inventory, at the latest approved BOM price,
or shall direct EMS to dispose of such Obsolete Inventory, as mutually
agreed.  Purchase by UTS is subject to EMS’ commercially best efforts to
dispose of such Obsolete Inventory during the thirty day period from the day
when such Inventory becomes Obsolete.

 

c.  EMS’
failure to provide timely report to UTS, shall result in EMS’ responsibility
for all costs associated with such Obsolete Inventory.  The Parties shall consider the accepted
report as final and accepted by the Parties.

 

EMS’
Reporting Obligations

 

EMS shall provide UTS, no less frequently than
monthly, written reports for the purpose of reviewing Excess Inventory and
Obsolete Inventory levels.  UTS has the
right to review such written reports.

 

B.    Upward Variances

 

In this section, Upward Variance represents the
excess amount of the Forecasted quantity.

 

EMS shall use commercially reasonable efforts to
accommodate Upward Variances outside the flexibility target with no expedite
charges, overtime costs payable by UTS.

 

EMS shall use reasonable commercial efforts to accommodate any upside
schedule changes beyond the firm Purchase Order periods.

 

1.             Process
for Downward and Upward Variance Resolution

 

a.       Downward Variances

 

(i)    Inventory Liability for Downward Variance.
EMS shall provide written notice to UTS to initiate a claim for a Downward
Variance, such notice to be provided within thirty (30) days of each month’s
end for any Downward Variance occurring within such month.  UTS shall have
five (5) business days from the date of receipt of the notice to review
EMS’s 

 

11

 

documentation and to respond to EMS with any
questions or requests for additional information. EMS shall then have five
(5) business days to respond to UTS’ questions and requests for additional
information.

 

(ii)   Failure of EMS to timely (one full quarter)
provide the requisite notices and documentation shall preclude EMS from
receiving any compensation from UTS for inventory liability or conversion cost
liability for the applicable Downward Variance.

 

b.     Upward
Variances

 

Within
five (5) business days after receipt of UTS’ Forecast, EMS shall notify
UTS in writing of EMS’ inability to meet any Upward Variances.  Within two
(2) business days of such notification, EMS shall schedule a meeting with
UTS to discuss alternative solutions for meeting UTS’ Product schedule.

 

12.  New
Product Introduction

 

New Product Inclusion (“NPI”) UTS shall notify EMS if it wishes to add new product(s) or
services to this Agreement and EMS shall provide quotes for such products.  UTS and EMS shall then proceed to establish
pricing and delivery schedules for each such new product(s) or
services.  Upon agreement of these items,
such product(s) and services shall be considered Products under this
Agreement, and shall be purchased and sold or provided under the terms and
conditions of this Agreement.  In
addition, if EMS implements any improved technology (e.g., without limitation,
improved manufacturing processes or improved or additional cores), EMS shall
promptly so advise UTS and, at UTS’ request, discuss with UTS the possibility
and advantages of using such improved technology in the manufacture of
Products.

 

For each new Product,  UTS
shall provide at least one (1) week NPI run advance notice and EMS shall
ensure line and resource availability.  The
manufacturing lead time shall be less than
one (1) week.  UTS shall only pay Component cost and
transportation charges for a maximum of three (3) NPI runs. The NPI charge
model for additional NPI runs shall be determined subsequently  and the mass production of such new Product
shall continue to stay with EMS.  All
other costs associated with NPI run shall be paid by EMS.  UTS shall provide custom parts which are not
on the current BOM, while EMS shall supply the rest of the Components at agreed
BOM cost.  EMS shall purchase the NPI
Components after receiving Purchase Order or other authorization from UTS.

 

For each pilot run and NPI production run EMS may
be required to support and provide the following items, to include, but not be
limited to: mass manufacturing process development, product manufacturing
quality plan development, test and system integration, reliability evaluation,
manufacturing yield analysis, design for manufacturability review, process
capability analysis, Component supply and inventory management, supplier
management, ECO management and implementation, quality management, yield
improvement, cost reduction, distribution, RMA and repair service.

 

12

 

13.  Non-Recurring
Engineering Costs

 

All Non-Recurring Engineering Costs, as identified
during New Product Introduction or ongoing engineering support activities will
be agreed by UTS and EMS before any purchase order is generated.  All Non-Recurring Engineering charges such
as, but not limited to, tooling, fixtures, jigs, testing or assembly apparatus,
shall be identified and specified by both UTS and EMS to meet operational
requirements.

 

All Non-Recurring Engineering Costs agreed between
UTS and EMS shall, unless otherwise agreed by the Parties, be subjected to the
provision of three independent quotes from reputable suppliers.  UTS will have the final choice of quotes
and/or supplier accepted.

 

EMS responsibilities related to physical inventory,
custody and maintenance of UTS paid fixtures, fittings, jigs and test equipment
is detailed in Section 19.

 

14.  Engineering
Change Orders

 

EMS shall not make any changes to any manufacturing
source, production process, or the controlled process parameters or sources or
types or grade classifications of Components which would affect the form, fit
or function, design, performance, or appearance of such Product without first
obtaining UTS’ prior written approval. EMS is obligated to identify any cost
changes resulting from an Engineering Change Order for agreement with UTS (to
be provided in writing) prior to implementation.

 

Any Specification or other identification (including,
without limitation, any Engineering Change Order  that details a change in the Specification
and/or design of a Product) provided by UTS to EMS shall be deemed accepted by
EMS unless receipt of it is not acknowledged by EMS in writing within five (5) business
days of receipt by EMS.  For clarity,
such acknowledgement does not involve a cost analysis by EMS.

 

EMS  shall provide free
of charge ECO implementation on software and small batch of hardware
upgrades.  EMS may charge UTS a
reasonable cost if substantial rework is
required.  UTS shall be responsible for related obsolete and additional
components as required.

 

All engineering changes resulting from EMS warranty
defects shall be implemented at the sole expense of EMS, unless the defect or
nonconformity results from UTS’ provision of defective Specifications.

 

15.  Intellectual
Property Rights

 

15.1.                Ownership of Industrial Design and Tooling

 

If UTS provides UTS Industrial Design and/or UTS
Tooling to EMS, UTS shall solely own all right, title, and interest in and to
the UTS Industrial Design and UTS tooling for the Product and all Intellectual
Property related thereto.  As between the
Parties, EMS shall solely own all right, title, and interest in and to the EMS Industrial
Design and EMS Tooling for the Product and all Intellectual Property related
thereto.  Each party agrees to use its
good faith efforts to 

 

13

 

take all action as may be necessary, proper, or
advisable to evidence, record and perfect the above allocation of ownership,
without demanding any further consideration therefore.

 

15.2.                Ownership of Other Intellectual Property

 

Except as expressly set forth in subsection 15.1
above, each party shall retain sole ownership of Intellectual Property created,
developed or conceived solely by such party, whether prior to or during the
term of this Agreement. Except as expressly set forth in this Agreement, any
Intellectual Property developed jointly by personnel of both Parties in
connection with the Products or this Agreement shall be jointly owned, without
a duty of accounting or obligation to obtain the consent of the other party to
license or exploit such Intellectual Property by reason of such joint
ownership. The Parties will discuss in good faith the prosecution of such joint
inventions, including the allocation of costs and/or right to obtain the
ownership interest of the other party.

 

15.3.                Limitation

 

Notwithstanding anything to the contrary in the
Agreement, in no event shall EMS or UTS use any Confidential Information of the
other Party to manufacture any Product for any third party.

 

15.4.                License of Industrial Design and Tooling

 

If UTS provides UTS Industrial Design and/or UTS
Tooling to EMS, UTS hereby grants to EMS the non-exclusive, non-transferable,
non-sublicenseable right to use the UTS Industrial Design and UTS tooling
solely to perform EMS’s obligations under this Agreement on behalf of UTS.  EMS acknowledges that UTS hereby reserves all
rights except those expressly granted herein, and that no right or license will
arise by implication, estoppels or otherwise by operation of law.  EMS shall not reverse engineer, disassemble
or decompile any prototypes, software or other tangible objects provided by UTS
unless expressly authorized to do so in writing by UTS.  EMS hereby grants to UTS the non-exclusive,
non-transferable, non-sublicensable right under EMS’s Intellectual Property to
use the EMS Industrial Design and EMS Tooling solely to enable UTS to exercise
UTS’ rights under this Agreement.

 

15.5.                Trademark License

 

UTS hereby grants to EMS a non-exclusive,
non-transferable, non-sublicenseable, worldwide license to use the UTS
Trademarks only as reasonably necessary to fulfill its obligations under this
Agreement.  EMS shall comply with any and
all reasonable and customary guidelines provided by UTS in writing concerning
the use of the UTS Trademarks.  EMS
acknowledges and agrees that its use of the UTS Trademarks is limited to the
use licensed in this Agreement and that EMS has not acquired, and will not
acquire, any ownership or other rights therein.

 

16.  Quality Requirements

 

The following provisions as well as the provisions
contained in Exhibit C as agreed by the Parties, Quality Assurance
Agreement, shall govern quality issues arising out of this Agreement.

 

14

 

Stop Build/Stop Ship UTS may issue stop build/stop ship notices from time to time to prevent
Products with possible quality issues from being manufactured or entering UTS’
customer base. To accommodate this action, EMS must have in place a fully
documented Stop Build/Stop Ship processes to remove and isolate UTS’ Product
from EMS’ assembly and final shipping area such that the affected Products will
not be manufactured or shipped to UTS.

 

Epidemic Failure Costs   EMS will be responsible for all
costs and damages incurred by UTS (or its subcontractors) in rectifying any
Epidemic Failure, including without limitation, all costs incurred in removing,
re-soldering, testing and reworking the Products and the Components in which
they are incorporated.  EMS shall be
responsible for the documented direct costs of the Epidemic Failure up to a
maximum of $2 million per Epidemic Failure event, excluding the costs of
repaired or replaced Products, which would be covered pursuant to the warranty
remedy. The remedy stated for this Epidemic Failure shall be the sole and
exclusive remedy.

 

Epidemic Failure Procedure In the event of any Epidemic Failure, EMS and UTS shall cooperate to
implement the following procedure:

 

(i)        The
discovering party shall notify the other party upon discovery of the
Epidemic  Failure;

 

(ii)       Within
two (2) business days after discovery of or receipt of notice of discovery
of the Epidemic Failure, EMS will give an initial response indicating its
preliminary plan for diagnosing the problem;

 

(iii)      EMS
and UTS shall jointly exert all commercially best efforts to diagnose the
problem and plan a work-around or more permanent solution;

 

(iv)      EMS
shall use commercially best efforts to complete all necessary analyses to
define cause and establish responsibilities, and provide a final written report
within ten (10) business days of notification of the Epidemic Failure;

 

(v)       EMS
shall apply its engineering change order procedure in appropriate circumstances
for hardware problems originating in the manufacturing process;

 

(vi)      EMS
shall prepare and consult with UTS regarding an appropriate recovery plan as
well as an appropriate work-around, as an interim solution, if one is needed;

 

(vii)     EMS
and UTS shall mutually agree on a recovery plan, provided that UTS shall be
entitled to require EMS to recall or perform field replacement of all defective
Products as well as all Products which may be susceptible to the same failure
mode as required; and

 

(viii)    In
the event of an Epidemic Failure, UTS may, at its option, place on hold all
open orders for the specific Product, or substantially similar Products, until
EMS has submitted the completed 8-D Report and the Parties have agreed on the
specific recovery plan to be implemented, or else UTS may cancel all open
orders without any liability to EMS.

 

15

 

17.  General
Representations and Warranties

 

17.1.                Warranty of Title

 

EMS represents and warrants to UTS that (i) UTS
shall acquire good and clear title to the Products (except the Consigned
Materials incorporated therein, if any, title to which is already with UTS),
free and clear of all Encumbrances; (ii) all Components and services
provided hereunder including, without limitation, the Products, are either
owned or properly licensed by EMS or are in the public domain and the use
thereof by UTS, its representatives, distributors, dealers, end users, and
other direct and indirect customers will not, to the best knowledge of EMS,
infringe any proprietary rights of any third party; (iii) EMS has the full
power to enter into this Agreement, to carry out its obligations under this
Agreement and to grant the rights and licenses granted to UTS in this Agreement.
EMS represents and warrants that it has not granted to any third party any
rights which conflict or interfere with or supersede the rights granted to UTS
hereunder; and (iv) EMS’s compliance with the terms and conditions of this
Agreement will not violate any applicable laws, regulations or ordinances or
any third party agreements.

 

17.2 
Materials Warranty  EMS warrants that all Products purchased from or repaired by EMS shall
consist of new Components (not used (except in the case of “hot swap” Products,
recycled or of such age as to impair its usefulness or safety, except as may be
approved in advance and in writing by UTS).

 

17.3  Guarantee of Materials Supply.  The Parties
shall work together to notify each other in the case that any Component supplier
provides notice that a Product Component is going to be discontinued.  Any last time buys of such Components shall
be mutually agreed by the Parties as to purchases of such Components.

 

18.  Warranty

 

18.1   EMS warrants that the Products manufactured by
EMS and delivered and sold to UTS under the terms of this Agreement will be
free from defects in EMS workmanship and will conform to the quality standards
issued by UTS to EMS prior to production and agreed to by both Parties (the
“Quality Standards”), for a period of eighteen (18) months after the
date of shipment by EMS (“Warranty Period”). 
Products shall be successfully
complete any mutually agreed Product acceptance test.  EMS shall, at its option and at its expense
(and as UTS’ sole and exclusive remedy for breach of EMS’ workmanship
warranty), repair, replace or issue a credit for Product found defective during
the warranty period.

 

18.2   In
addition, EMS  will pass on to UTS all
Vendors’ (and manufacturers’) Component warranties to the extent that they are
transferable, as well as manage and enforce such Component warranties, but will
not independently warrant Components. 
All warranty obligations will cease upon the earlier of the expiration
of the warranty period set forth above or the return (at UTS’ request) of any
test equipment or test fixtures.  ALL
CLAIMS FOR BREACH OF WARRANTY MUST BE RECEIVED BY EMS NO LATER THAN THIRTY (30)
DAYS AFTER THE EXPIRATION OF THE WARRANTY PERIOD.

 

16

 

18.3    Return and Replace Procedure.  EMS shall
concur in advance on all Products to be returned for repair or rework.  UTS shall obtain a RMA number from EMS prior
to return shipment.  All returns shall
state the specific reason for such return, and will be processed in accordance
with EMS’ RMA process.  EMS shall pay all transportation costs for valid
returns of the Products to EMS and for the shipment of the repaired or
replacement Products to UTS, and shall bear all risk of loss or damage to such
Products while in transit; UTS shall pay these charges, plus a handling charge,
for invalid or “no defect found” returns.  Any
repaired or replaced Product shall be warranted as set forth in this Section for
a period equal to the greater of (i) the balance of the applicable
warranty period relating to such Product or (ii) sixty (60) days after it
is received by UTS.

 

18.4 
Warranty Exclusions.  The above
warranties will not apply to Products that have defects or failures
resulting from (a) UTS’ design of Products including, but not limited to,
design functionality failures, specification inadequacies; (b) accident,
disaster, neglect, abuse, misuse, improper handling, testing, storage or
installation including improper handling in accordance with static sensitive
electronic device handling requirements; (c) non-EMS authorized
alterations, modifications or repairs by UTS or third parties; or (d) defective
UTS-provided test equipment or test software. 
UTS bears all design responsibility for the Product.

 

18.5   THE SOLE REMEDY UNDER THIS WARRANTY SHALL BE
THE REPAIR, REPLACEMENT OR CREDIT FOR DEFECTS AS STATED ABOVE.  THIS WARRANTY IS THE SOLE WARRANTY GIVEN BY
EMS AND IS IN LIEU OF ANY OTHER WARRANTIES EITHER EXPRESS OR IMPLIED.  EMS DOES NOT MAKE ANY WARRANTIES REGARDING
MERCHANTIBILITY, NONINFRINGEMENT, COMPLIANCE WITH RESTRICTION ON THE USE OF
CERTAIN HAZARDOUS SUBSTANCES (“ROHS”) (OR SIMILAR LEGISLATION), OR FITNESS FOR
A PARTICULAR PURPOSE, AND SPECIFICALLY DISCLAIMS ANY SUCH WARRANTY, EXPRESS OR
IMPLIED.

 

19. Indemnification.

 

19.1  EMS Indemnification.  EMS shall indemnify, defend, and hold UTS and
UTS’ Affiliates, shareholders, directors, officers, employees, contractors,
agents and other representatives (the “UTS-Indemnified Parties”)
harmless from all third party demands, claims, actions, causes of action,
proceedings, suits, assessments, losses, damages, liabilities, settlements,
judgments, fines, penalties, interest, costs and expenses (including fees and
disbursements of counsel) of every kind (each a “Claim,” and, collectively
“Claims”) (i) based upon personal injury or death or injury to property
(other than damage to the Product itself, which is handled in accordance with Section 
18 “Warranty”) to the extent any of the foregoing is caused by the negligent or
willful acts or omissions of EMS or its officers, employees, subcontractors or
agents, and/or (ii) arising from or
relating to any actual or alleged infringement or misappropriation of any
patent, trademark, mask work, copyright, trade secret, or any actual or alleged
violation of any other intellectual property rights arising from or in
connection with EMS’ manufacturing processes.

 

19.2  UTS’ Indemnification.  UTS shall indemnify, defend, and hold EMS and
EMS’ Affiliates, shareholders, directors, officers, employees, contractors,
agents and other representatives (the “EMS-Indemnified Parties”) harmless from
all third party Claims (i) based upon personal 

 

17

 

injury or death or injury to
property to the extent any of the foregoing is caused by a defective Product,
by the negligent or willful acts or omissions of UTS or its officers,
employees, subcontractors or agents, and/or (ii) arising from or relating to any actual or alleged infringement or
misappropriation of any patent, trademark, mask work, copyright, trade secret
or any actual or alleged violation of any other intellectual property rights
arising from or in connection with the Products, except to the extent that
infringement occurs as a result of use by UTS of EMS’ manufacturing processes.

 

19.3  Procedure. A Party
entitled to indemnification pursuant to this Section (the “Indemnitee”) shall promptly notify the other Party (the “Indemnitor”) in writing of any Claims covered by this
indemnity.  Promptly after receipt of
such notice, the Indemnitor shall assume the defense of such Claim with counsel
reasonably satisfactory to the Indemnitee. If the Indemnitor fails, within a
reasonable time after receipt of such notice, to assume the defense with
counsel reasonably satisfactory to the Indemnitee or, if in the reasonable
judgment of the Indemnitee, a direct or indirect conflict of interest exists
between the Parties with respect to the Claim, the Indemnitee shall have the
right to undertake the defense, compromise and settlement of such Claim for the
account and at the expense of the Indemnitor. Notwithstanding the foregoing, if
the Indemnitee in its sole judgment so elects, the Indemnitee may also
participate in the defense of such action by employing counsel at its expense,
without waiving the Indemnitor’s obligation to indemnify and defend. The
Indemnitor shall not compromise any Claim (or portions thereof) or consent to
the entry of any judgment without an unconditional release of all liability of
the Indemnitee as to each claimant or plaintiff.

 

20. 
Insurance

 

EMS agrees to maintain during the
term of this Agreement  (a) workers’
compensation insurance as prescribed by the law of the state in which EMS’
services are performed  (b) commercial
general liability insurance, including blanket contractual liability and broad
form property damage, with limits of at least $1,000,000 combined single limit
for personal injury and property damage for each occurrence; and (c) commercial
general liability insurance endorsed to include products and liability and
completed operations coverage in the amount of $1,000,000 for each
occurrence.  EMS shall furnish to UTS
upon request certificates or evidence of the foregoing insurance indicating the
amount and nature of such coverage and the expiration date of each policy.  Each Party agrees that it, its insurers(s) and
anyone claiming by, through, under or in its behalf shall have no claim, right
of action or right of subrogation against the other Party and the other Party’s
affiliates, directors, officers, employees and customers based on any loss or
liability insured against under the insurance required by this Agreement.

 

21.  Consigned Equipment and Consigned Fixed Asset

 

Assembly and Test Equipment and Fixtures.  At its option, UTS may agree to
purchase and provide to EMS certain assembly equipment, test equipment,
handlers, and fixtures required for assembly and final testing of Component,
PCB, and finished Products. Ownership, maintenance and accountability for all
such equipment are defined below.

 

EMS shall use Consigned Equipment provided by UTS
to EMS exclusively for the manufacture of Products for UTS under this
Agreement.  Consigned Equipment list may
be amended from time to time by UTS in writing.

 

18

 

Shipping, Receipt, Title and Risk of Loss

 

(i)        UTS
shall ship or have shipped the Consigned Equipment to EMS’ premises.  UTS shall bear the cost of shipping and risk
of loss of or damage to the Consigned Equipment during shipping. UTS may
utilize the most economical means of transportation for all shipments.

 

(ii)       At
the time of shipment of the Consigned Equipment to EMS, UTS agrees to provide
EMS with packing slips (“Packing Slips”)
that show quantity and stock keeping unit (SKU) numbers describing the complete
shipment.  Upon receipt of Consigned
Equipment, EMS shall inspect the Consigned Equipment to verify whether EMS has
received the number of boxes indicated on UTS’ Packing Slips and whether there
is any visible damage to the boxes or equipment.  Any discrepancies or visible damage
discovered shall be reported to UTS upon EMS’ inspection. In the case of
discrepancies, the Parties will promptly confer with one another to resolve the
discrepancy.  If no such notice is
received, the shipment shall be deemed complete as specified on UTS’ Packing
Slip.

 

(iii)      Title
to the Consigned Equipment shall remain with UTS.  EMS shall bear risk of loss of or damage to
the Consigned Equipment after delivery of said Consigned Equipment to EMS at EMS’
site until such Consigned Equipment is delivered back to UTS.  While risk of loss of Consigned Equipment is
with EMS, EMS shall insure the Consigned Equipment for losses or damages at
UTS’ then-current equipment cost unless a comparable equivalent replacement
unit of equipment can be found by EMS.    For
claims arising out of or related to loss or damage to the Consigned Equipment
at EMS’ facility, EMS’ various insurance policies shall be the primary
insurance.  All Consigned Equipment will
be promptly returned to UTS at UTS’ costs and risk, in good condition, ordinary
wear and tear excepted, upon prior reasonable notice and request of the
designated UTS representative.

 

(iv)     While
consigned to EMS the maintenance (including preventative maintenance), calibration  and upkeep (maintenance fit for purpose) will be the
responsibility, and at the cost, of the EMS. If calibration and maintenance
must be performed by a 3rd party and approved by UTS, UTS shall be responsible
for the charges through NRE. EMS warrants that the maintenance (including
preventative maintenance) calibration and upkeep (maintenance fit for purpose)
shall be undertaken to the guideline issued by the Consigned Equipment
manufacturer.

 

(v)      UTS
warrants that the Consigned Equipment shall be in good condition to be used for
the manufacture of the Products in accordance with this Agreement.  In the event any part of the Consigned
Equipment is found to be defective, UTS shall thereafter, at its sole discretion,
procure and replace such part(s) of the Consigned Equipment for EMS to
enable EMS to manufacture the Products ordered by UTS under this Agreement.

 

(vi)     EMS
shall conduct inventory audits and physical counts of Consigned Equipment in
the same manner and in accordance with its policies pertaining to its own
equipment 

 

19

 

inventory; provided, however, that each SKU number
of the Consigned Equipment shall be physically counted and reported to UTS at
least once every twelve (12) months.

 

(vii)    EMS
shall permit UTS employees reasonable access to specified areas within EMS’s
premises where the Consigned Equipment is located and specific manufacturing
areas applicable to UTS Purchase Orders during normal business hours, provided
however, that such access shall be subject to prior reasonable notice to and
approval from EMS and shall be escorted by an employee of EMS.  In addition, UTS reserves the right to
perform audits of all Consigned Equipment during normal business hours, upon
prior reasonable notification to EMS. All such audits by UTS shall be conducted
at its own costs and UTS shall at all times ensure that such audits do not
interfere, disrupt, nor hamper the business operations of EMS.  Notwithstanding the foregoing, UTS may in the
course of such audits request EMS to suspend or halt the manufacturing of
Products, and EMS shall use reasonable efforts to comply with such requests,
provided however, that in the event of such suspension or halt in production,
UTS shall not hold EMS liable for any delay in the production or shipment
schedule.

 

Return of Consigned Equipment

 

If EMS terminates this Agreement, EMS shall return
all Consigned Equipment in EMS’ possession to UTS and at EMS’ expense within 5
business days, and EMS shall bear risk of loss of or damage to Consigned
Equipment during return shipment. UTS can request the return of any and all Consigned
Equipment at any time. EMS shall return all Consigned Equipment in EMS’
possession to UTS at UTS’ direction at UTS’ expense within 5 business days
after receipt of such request from UTS, and UTS shall bear risk of loss of or
damage to Consigned Equipment during return shipment.   EMS’ production and warranty obligations
which require the utilization of the returned UTS Consigned Equipment will cease
upon EMS’ fulfillment of the return obligations hereunder.

 

Security Interest.  EMS shall not allow any Encumbrances to be
placed on any Consigned Equipment.  EMS
shall give UTS immediate written notice should any third party attempt to place
or place any Encumbrance on the Consigned Equipment.

 

22. 
Subcontractors/Assignments

 

EMS agrees that no portion of the assembly of the
Products will be subcontracted to third parties without UTS’ prior written
consent. Any permitted subcontractor approved in writing by UTS (“Subcontractor”) that EMS may use to assist EMS shall be
obligated to comply with the terms of this Agreement and EMS shall remain
responsible for such Subcontractors’ performance.  UTS’ consent to EMS’ use of any Subcontractor
shall not be deemed a waiver of any UTS rights hereunder nor relieve EMS of any
of its obligations pursuant to this Agreement. 
EMS shall enter into a written agreement with each approved
Subcontractor which includes terms and conditions no less protective of UTS’
proprietary and intellectual property rights than those set forth in this
Agreement prior to EMS permitting any such Subcontractor to perform any
obligation hereunder.  EMS shall be
solely responsible for the payment of all amounts payable to, and the
performance of all of EMS’ obligations for, all such Subcontractors.  Immediately upon request of UTS, EMS shall 

 

20

 

commence such proceedings as necessary (i.e.
termination notice, request to cure default) to terminate any Subcontractor
that, in UTS’ sole opinion, does not perform to the standards set forth by UTS
in this Agreement.

 

Assignment This Agreement
shall be binding on the Parties hereto and their permitted successors and
assignees; provided, however, that neither party shall assign or transfer, in
whole or part, whether by operation of law or otherwise, other than to an
Affiliate of such party, this Agreement or any of its rights or obligations
arising hereunder without the prior written consent of the other party which
shall not be unreasonably withheld or delayed. 
Any purported assignment without such consent shall be null and
void.  Notwithstanding the foregoing, the
parties and their assigned Affiliates shall have the right to assign all of its
rights and obligations in the case of merger, consolidation or sale of assets
involving substantially all its assets or substantially all the assets of a
particular Product line or business line in which a Product line is included,
to the merged entity or acquirer of such assets.  This
Agreement may be assigned in whole or in part by either Party to any Affiliate
of such Party provided that such assigning Party remains secondarily liable
under this Agreement.  Notwithstanding
the foregoing, either Party may assign its right to payment to a
third party without the need for consent from the other Party.

 

23. 
Force Majeure and Business Interruptions

 

23.1  Force
Majeure

 

(a) Neither party
shall be considered in default of performance of its obligations under this
Agreement to the extent that performance of such obligations is delayed by
force majeure such as fire, flood, earthquake or other acts of God, war,
terrorism, riot, or any other cause beyond the reasonable control of the
claiming Party and in the absence of the claiming Party’s negligence or
omissions.

 

(b) Notice of Force Majeure Event.  Neither Party shall be
responsible for any failure to perform due to a force majeure event provided
that such Party gives notice to the other Party of the force majeure event as
soon as reasonably practicable, but not later than five (5) days after the
date on which such Party knew or should reasonably have known of the commencement
of the force majeure event, specifying the nature and particulars thereof and
the expected duration thereof.

 

(c) Termination
of Force Majeure Event.  The Party
claiming a force majeure event shall use reasonable efforts to mitigate the
effect of any such event and to cooperate to develop and implement a plan of
remedial and reasonable alternative measure to remove the event; provided,
however, that neither Party shall be required under this provision to settle
any strike or other labor dispute on terms it considers to be unfavorable to
it.  Upon the cessation of the force
majeure event, the Party affected thereby shall immediately notify the other
Party of such fact, and use its best efforts to resume normal performance of
its obligations under the Agreement as soon as possible.

 

(d) 
Limitations.  Notwithstanding that
a force majeure event otherwise exists, the provisions of this Section shall
not excuse (i) any obligation of either Party, including the obligation to
pay money in a timely manner for Product actually delivered or other
liabilities actually incurred,

 

21

 

that
arose before the occurrence of the force majeure event causing the suspension
of performance; or (ii) any late delivery of Product, equipment,
materials, supplies, tools, or other items caused solely by negligent acts or
omissions on the part of such Party.

 

(e) Termination
for Convenience.  In the event a
force majeure event continues for a cumulative period of sixty (60) days or more
from the date of such Party’s notification to the other Party then the other
Party at its option may extend the corresponding delivery period for the length
of the delay, or terminate this Agreement or cancel the Purchase Order for
convenience in accordance with Section 25.2 herein.

 

23.2 
Disaster Recovery Plan

 

EMS represents and warrants that it currently has
business continuity and disaster recovery plans (together, “Recovery Plans”) in place and that it will maintain and
update such Recovery Plans as necessary or appropriate so that it will be able
to perform its obligations under this Agreement during the term.  EMS shall provide the Recovery Plans to UTS
for review and approval.  Any breach of
this provision by EMS shall be deemed a material breach of this Agreement.

 

24. 
Dispute Resolution Governing Law and Jurisdiction

 

24.1 
Dispute Resolution

 

If any controversy or claim arises relating to this
Agreement, the Parties will first attempt in good faith to negotiate a solution
to their differences, including progressively escalating any controversy or
claim through senior levels of management.

 

If negotiation does not result in a resolution
within sixty (60) days of the date when one party first notifies the other of
the controversy or claim, either party may submit the dispute to Hong Kong
International Economic & Trade Arbitration Commission (CIETAC) for
arbitration in accordance with the CIETAC arbitration rules.  Both Parties shall share the cost of
arbitration equally.  The location of the
arbitration shall be conducted in Hong Kong.

 

24.2 
Governing Law

 

This Agreement, including all matters of
construction, validity, and performance, shall be governed by and construed and
enforced in accordance with the laws of Hong Kong, without regard to its conflict
of law rules.  The provisions of the United Nations
Conventions on Contracts for the International Sale of Goods shall not apply to
this Agreement.  The prevailing Party
shall be entitled to recover its costs and reasonable attorney’s fees from the
non-prevailing Party in any action brought to enforce this Agreement.

 

25.  Termination

 

25.1  This
Agreement may be terminated by a Party for cause immediately by written notice
upon the occurrence of any of the following events:

 

(i)                 If the other Party
ceases to do business, or otherwise terminates its business operations;

 

22

 

(ii)             If the other Party
breaches any material provision of this Agreement and fails to cure such
material breach within thirty (30) days after receipt of written notice
describing the material breach;

 

(iii)          If the other Party
is adjudicated bankrupt, or is the subject of any proceeding relating to its
liquidation or insolvency which is not dismissed within sixty (60) days of
filing, or if any assignment for the benefit of creditors is made.

 

25.2               In addition to
termination in accordance with the above provision, either Party may terminate
this Agreement by giving six (6) months’ advance notice in writing to the
other Party without incurring any liabilities other than that specifically
provided in this Agreement. The Parties shall work together to reduce UTS’
exposure for Component and work in process liability.

 

25.3  Consequences of Termination.

 

a.           Termination for Reasons other than EMS’ Breach.  In the event this Agreement is terminated for
any reason other than an uncured material breach by EMS (including but not
limited to a force majeure or termination for convenience), UTS shall pay EMS,
termination charges equal to (1) the contract price for all finished
Product under valid Purchase Orders existing at the time of termination; (2) all
work in shall be finished out into finished Product; and (3) UTS’
Component liability pursuant to Section 6 above.

 

b.           Termination Resulting from EMS’
Breach.  In the event
UTS terminates this Agreement hereunder as a result of an uncured material
breach by EMS, UTS shall pay EMS, termination charges equal to the following: (1) the
contract price for all finished Product existing at the time of termination; (2) EMS’
cost (including labor, Components) for all work in process; and (3) UTS’
Component liability pursuant to this Agreement; provided, however, that for the
purposes of this subsection only, UTS’ Component liability shall be calculated
based on the quoted cost of Components as stated on the BOM rather than the
delivered cost (e.g., exclusive of any markup); provided, however, that in the
event UTS terminates the Agreement as a result of EMS’ failure to timely
deliver and provided that, as a result of EMS’ failure to timely deliver, the
UTS customer cancelled its order and UTS has not been able to generate any
other customer order to consume the Components used (or which would have been
used) to manufacture that cancelled customer order, then UTS shall not be
responsible for the Components which were consumed or would have been consumed
in the late-delivered order(s).  For example, in the event EMS had on hand
$1,000,000 worth of Components for which UTS were responsible for under the
Agreement, but $400,000 of such Components would have been consumed by a UTS
customer who cancelled its order as a result of EMS’ late delivery, and UTS has
not been able to generate any additional customer order(s) to consume the
$400,000 worth of Components, then UTS shall only be liable for $600,000 worth
of Components.

 

25.4  Support after Termination.  No termination of this Agreement by
expiration or otherwise shall affect any obligation accrued prior to such
termination and such obligation shall be fulfilled in accordance with the
applicable provisions herein.  The
provisions of this Agreement relating to warranty, repair, product liability,
intellectual property, confidential information, indemnification, limitation of
liability, shall survive termination or expiration of this Agreement.  In the event of any termination or expiration
of this Agreement, EMS and UTS agree to cooperate in good faith to minimize the
negative impact of any such termination or expiration.  In the event of any termination

 

23

 

or expiration of this Agreement, EMS shall continue
to provide maintenance support, after-sales repair service to UTS at EMS’
prevailing rates for services on similar products.  The support shall be provided a minimum of
two (2) years after termination or expiration. UTS will take back
consigned test equipment once termination of this agreement, if the above
maintenance support is necessary, test equipment will be consigned to EMS. UTS
shall bear the expense of such transportation and related set up cost.

 

26.  Limitation of Liability.      IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL,
PUNITIVE OR SPECIAL DAMAGES, OR ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF
USE, DATA OR PROFITS, EVEN IF SUCH OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.  FOR THE
PURPOSE OF THIS SECTION, BOTH LOST PROFITS AND DAMAGES RESULTING FROM VALUE
ADDED TO THE PRODUCT BY UTS SHALL BE CONSIDERED CONSEQUENTIAL DAMAGES.  IN NO EVENT WILL EMS BE LIABLE FOR COSTS OF
PROCUREMENT OF SUBSTITUTE PRODUCT BY UTS. 
IN NO EVENT SHALL EITHER PARTY’S LIABILITY FOR ALL CLAIMS ARISING OUT OF
OR RELATING TO THIS AGREEMENT EXCEED THE GREATER OF EITHER (1) $4,000,000
OR (2) 10% OF THE TRAILING TWELVE (12) MONTHS REVENUE FOR PRODUCT SUPPLIED
HEREUNDER.  THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.  Notwithstanding the foregoing, the provisions
of this Section shall not apply to limit (i) UTS’ obligation for
termination payments in accordance with Section 25.3 (ii) a Party’s
obligation to indemnify the other Party. 
THE LIMITATIONS SET FORTH IN THIS SECTION SHALL APPLY WHERE THE
DAMAGES ARISE OUT OF OR RELATE TO THIS AGREEMENT.

 

24

 

27.  Notices

 

Any notices required for or permitted by this
Agreement are effective as follows: (i) immediately when delivered by
personal delivery to the individuals identified below, (ii) upon written
verification of receipt when delivered by overnight courier, or (iii) upon
verification of receipt when delivered by certified or registered mail, return
receipt requested.  All notices must be
in writing, sent via one of the methods indicated in this Section, and sent to
the addresses set forth below or to such other address that the receiving party
may have provided in writing for the purpose of notice in accordance with this
Section:

 

	
   

  	
  UTS:

  
	
   

  	
   

  
	
   

  	
  UTStarcom Telecom Co. Ltd

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  368 Liuhe Road

  
	
   

  	
   

  
	
   

  	
  Hi-Tech Industrial Development Zone (Binjiang)

  
	
   

  	
   

  
	
   

  	
  Hangzhou 310053, P. R. China

  
	
   

  	
   

  
	
   

  	
  With a copy to: 
  Vice President of supply Chain and General Counsel and a copy to
  legalnotice@utstar.com

  
	
   

  	
   

  
	
   

  	
  EMS:

  

 

	
  If
  to SANMINA-SCI:

  	
  with
  a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
  SANMINA-SCI Corporation

  	
  SANMINA-SCI Corporation

  	
   

  
	
   

  	
   

  	
   

  
	
  2700
  N. First Street

  	
  2700
  N. First Street

  	
   

  
	
   

  	
   

  	
   

  
	
  San Jose, California 95134

  	
  San Jose, California  95134

  	
   

  
	
   

  	
   

  	
   

  
	
  Att’n:  EVP, Sales

  	
  Att’n:  Vice President & Corporate
  Counsel

  	
   

  
	
  Phone:  (408) 964-3600

  	
              Phone:  (408) 964-3600

  	
   

  
	
   

  	
   

  	
   

  
	
  Fax:
  (408) 964-3636

  	
  Fax:
  (408) 964-3636

  	
   

  

 

28. 
General

 

28.1 
Compliance with Laws

 

Each Party shall comply with all applicable laws,
regulations, and rules of any governmental authority having jurisdiction
and shall obtain all necessary permits, licenses, and consents of 

 

25

 

governmental authorities necessary for the
manufacture, sale, export, import, or other performance contemplated by this
Agreement.  EMS hereby represents and
warrants that no consent, approval or authorization of or designation,
declaration, or filing with any governmental authority is required in
connection with the valid execution, delivery and performance of this
Agreement.  EMS shall be responsible for
providing regulatory agencies and standards organizations with proof of
compliance for applicable Parts and Components associated with the Product. EMS
shall mark the Products, and as applicable the Parts and Components, with
regulatory, safety and standards organizations marks which signify compliance
with the requirements of those organizations. 
EMS will obtain the prior approval of the relevant agencies or
organizations prior to implementing any change that may affect the compliance
status of any Product previously approved. 
Upon request by UTS, EMS shall provide a report indicating appropriate
approvals obtained.

 

EMS shall comply with the legal requirements and
standards of its industry as applicable under the national law of the countries
in which EMS is operating. This includes, but is not limited to, the laws and
regulations governing the following: environmental, health, safety, labor,
employment, child labor, intellectual property, discrimination and human
rights.  EMS must not use forced
labor.  EMS shall ensure the compliance
of its Products with specific legal requirements applicable to the countries
into which Products are being sold as provided by UTS in writing to EMS.

 

EMS shall comply with the United States Foreign Corrupt Practices Act,
which prohibits the offering, giving or promising to offer or give, directly or
indirectly, money or anything of value to any official of a government,
political party or instrumentality thereof in order to assist EMS or UTS in
obtaining or retaining business.  EMS
shall not act in any fashion or take any action, in the performance of its
obligations under this Agreement, which violates, or would render UTS liable
for a violation of, either the United States Foreign Corrupt Practices Act or
any similar statute or regulation in any jurisdiction in which EMS does
business.  EMS’ violation of this
provision shall be deemed a material breach of this Agreement, entitling UTS
terminate this Agreement immediately by written notice to EMS.  EMS agrees to defend, indemnify and hold UTS
harmless from all liabilities, claims, losses and damages arising from EMS’s
breach of this obligation.

 

28.2  Taxes

 

Each party shall be solely responsible for
reporting to the appropriate tax authority the income it may derive from performance
of this Agreement and making payment of any applicable taxes, including but not
limited to business tax, value-added tax and income tax imposed thereon.

 

EMS shall timely make and file all related reports
and timely pay the related taxes and/or levies required by law.  EMS shall indemnify and hold UTS harmless for any such
taxes, levies, penalties and/or interest imposed on UTS that arise out of EMS’s
failure to timely and properly comply with such requirements.

 

In the event of any audit of either Party by any
tax authority in respect of sales/use, property, inventory, business and
occupation, excise, or similar taxes that arises from the performance of either
Party under this Agreement, either Party will cooperate to provide the audited
party with 

 

26

 

relevant information, documentation, and data that
is reasonably necessary and sufficient for the audited Party to fully respond
to the conduct of the audit.  The audited
Party shall have the sole right and authority to direct its response to the
audit, including the pursuit of negotiations with the tax authority and the
completion of settlement agreements, offers in compromise, or their
equivalents.  Should both Parties become
a party to the audit, the audited Party for purposes of this provision shall be
deemed the Party with the ultimate responsibility to pay any liability for tax
arising out of the audit and under the laws of the taxing jurisdiction.

 

28.3 
Records; Audit Rights

 

EMS shall keep complete, true, and accurate books
of accounts and records for the purpose of verifying EMS’s compliance with the
terms of this Agreement.  Such books and
records shall be kept for at least five (5) years following the end of the
calendar quarter to which they pertain.  UTS shall reserve the right to perform audits relating to UTS Purchase Orders
during normal business hours with
reasonable notification to EMS. Any audit conducted under this section shall not
unduly disrupt EMS’ conduct of its business operations and all information
accessed in connection with any such audit shall be deemed to be the
Confidential Information of EMS.

 

28.4 
Independent Contractors

 

EMS shall perform its obligations hereunder as an
independent contractor and shall be solely responsible for its own financial
obligations.  Nothing contained herein
shall be construed to imply a joint venture or principal and agent relationship
between the Parties, and neither party shall have any right, power or authority
to create any obligation, express or implied, on behalf of the other in
connection with the performance hereunder.

 

28.5 
Modification

 

No alteration, amendment, waiver, cancellation, or
any other change in any term or condition of this Agreement shall be valid or
binding on either party unless the same shall have been mutually assented to in
writing by both Parties.

 

28.6  Waiver

 

The waiver of any term, condition or provision of
this Agreement must be in writing and signed by an authorized representative of
the waiving party.  Any such waiver will
not be construed as a waiver of any other term, condition or provision, nor a
waiver of any subsequent breach of the same term, condition or provision.

 

The failure of either Party to enforce at any time
any of the provisions of this Agreement, or the failure to require at any time
performance by the other Party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the right of either Party to enforce each and
every such provision thereafter.

 

27

 

28.7 
Severability

 

If any term, condition, or provision of this
Agreement, or portion thereof, is found to be invalid, unlawful, or
unenforceable to any extent, the Parties shall endeavor in good faith to agree
to such amendments that will preserve, as far as possible, the intentions
expressed in this Agreement.  Such
invalid term, condition or provision will be severed from the remaining terms,
conditions and provisions, which will continue to be valid and enforceable to
the fullest extent permitted by law.

 

28.8  No
Third Party Beneficiaries

 

Unless otherwise expressly provided, no provisions
of this Agreement are intended or shall be construed to confer upon or give to
any person or entity other than UTS, EMS, and Designated Third Parties any
rights, remedies or other benefits under or by reason of this Agreement.

 

28.9 
Interpretation

 

Unless the context clearly indicates otherwise, in
this Agreement, the terms set out in Exhibit E Definitions shall have the
meaning assigned to them therein.  This
Agreement represents the negotiated agreement of the Parties, with the advice
and assistance of counsel, and shall not be construed against either party as
the drafter thereof.  This Agreement is
written in English and the controlling language of the Agreement shall be
English.

 

28.10 
Entire Agreement

 

This Agreement and the exhibits attached hereto,
represent and constitute the entire agreement between the Parties and supersedes
all prior agreements between the Parties, whether written or oral.  The Non-Disclosure Agreement executed by the
Parties is attached as Exhibit F and shall be incorporated into this
Agreement.  The provisions of the
Non-Disclosure Agreement shall survive the termination of this Agreement. This
Agreement may only be amended in writing signed by duly authorized
representatives of both Parties.

 

28.11 Order of Precedence

 

All
quotations, Orders, acknowledgments and invoices issued pursuant to this Agreement
are issued for convenience of the Parties only and shall be subject to the
provisions of this Agreement and the Exhibits hereto.  When interpreting this Agreement, precedence
shall be given to the respective parts in the following descending order: (a) this
Agreement; (b) Schedules and Exhibits to this Agreement; and (c) if
Orders are used to release product, those portions of the Order that are not
pre-printed and which are accepted by EMS. The Parties acknowledge that (y) the
preprinted provisions on the reverse side of any such quotation, Order,
acknowledgment or invoice and (z) all terms other than the specific terms
set forth in Section 5(i)-(vi) shall be deemed deleted and of no
effect whatsoever.

 

28

 

28.12   Counterparts

 

This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, and all of which
together shall constitute one and the same instrument.

 

28.13  Non-Exclusivity

 

Except as may be otherwise expressly specified
otherwise in writing, this Agreement does not grant EMS the exclusive right to
sell Products to UTS.  UTS shall have the
right to use other contract manufacturers to manufacture the Products.  Nothing in this Agreement will be construed or
deemed to prevent or otherwise inhibit UTS’ ability or right to manufacture the
Products, whether at UTS’ facility or at an alternate or additional third party
facility(ies) of UTS’ choice.  Further,
nothing in this Agreement will be construed or deemed to (a) require UTS
to order any minimum number of units of the Products to be manufactured by EMS,
or (b) prevent or otherwise inhibit UTS’ ability or right to design,
develop, manufacture, have manufactured, market, use, sell, and or distribute
any follow-on Products or derivatives of the Products.

 

IN WITNESS
WHEREOF, each of the Parties has caused this Agreement to be executed as of the
date first written above by its duly authorized representatives.

 

 

	
  UTStarcom Telecom Co., Ltd

  	
   

  	
  Sanmina-SCI Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
  /s/ Peter Blackmore

  	
   

  	
  Signature:

  	
  /s/ Edmund Yuen

  
	
   

  	
   

  	
   

  
	
  (Authorized representative)

  	
   

  	
  (Authorized representative)

  
	
   

  	
   

  	
   

  
	
  Printed Name:

  	
   

  	
  Printed Name: Edmund Yuen

  
	
   

  	
   

  	
   

  
	
  Date: 1/23/2010

  	
   

  	
  Date: 12/31/2009

  
					

 

29

 

LIST
OF EXHIBITS

 

Exhibit A             Product Quotation List

 

Exhibit B             Implementation

 

Exhibit C             Quality Assurance Agreement

 

Exhibit D             Consigned Equipment List

 

Exhibit E              Definitions

 

Exhibit F              Non-Disclosure Agreement

 

30

 

Exhibit A:  Product Quotation List

 

As submitted and received
separately by the Parties.

 

31

 

Exhibit B: Implementation
Section

 

1.              Inventory/Open Purchase Order transfer to EMS

 

Purchase
of UTS-Owned Materials and Components

 

(i)                                    UTS-Owned
Components.  Upon notification of a UTS
business award, UTS shall provide EMS with a list of all UTS-owned Components
and Components required to manufacture the Products, as indicated in a BOM to
be set forth in the applicable Product Definition.  EMS shall purchase sixty (60) days of
Components from UTS at the approved
quoted BOM cost provided that UTS to provide corresponding sixty (60) days of
Product Purchase Orders. UTS warrants that all Components shall be free from
defects, shall be in working condition, and strictly conform to the
Specifications and the agreed quality and fit for the requirements of Forecast.
For any Components that do not conform with the above warranty in this Section,
or such Components become Excess Inventory as set forth Section 12 of this
Agreement, EMS shall be entitled to immediately return such Components to UTS
for full refund of EMS’ purchase price.

 

(ii)                                 On a weekly basis
after, and prior to EMS placing any purchase orders for additional Components
from suppliers on the AVL, EMS shall purchase any remaining UTS-owned
Components, at mutually agreed prices, in weekly increments, until UTS-owned
Components have been depleted.  UTS shall
notify EMS in writing of any UTS-owned Components available for purchase by EMS
and required to manufacture the Products. 
EMS shall utilize such purchased Components in the manufacture of
Products prior to utilizing Components in EMS’ inventory.

 

(iii)                              If EMS fails to
buy UTS-owned Components under Sections (i) or (ii) above, UTS shall
immediately sell to EMS such remaining UTS-owned Components for those
incorrectly purchased Components by part number that are within the current
Forecasted demand, on a part-by-part basis, at the then-current BOM price,
unless otherwise mutually agreed by the Parties in writing.  Such sales shall be excluded from the Excess
Inventory claims and the buy-back claims, respectively.

 

(iv)                             Quality
Issues.  Should EMS discover Component
quality issues during an initial, two (2) month inspection period, EMS and
UTS shall work corrective actions with any Component suppliers to resolve such
quality issues. Should corrective action require the defective Components to be
returned to UTS or the applicable supplier, UTS shall reimburse EMS the current
purchase price of such Components, plus inbound transportation costs.

 

(v)                                Payment term shall
be the same term as provided to UTS. 
Payments shall be made in RMB. 
Sales of Components shall be made pursuant to the agreed form of the
purchase order. EMS shall be entitled to deduct, withhold, or offset any amount
due to the relevant usage of Components under the list of buy-sell business
model from any payment which UTS needs to pay to EMS (“Back-to-Back Payment”).

 

32

 

(vi)                             All UTS-owned
Components sold to EMS shall be accompanied by a packing list, which shall
include UTS’ part number, manufacturer name, manufacturer part number, revision
number (if applicable), date code (if applicable) and quantity.  EMS shall review the packing list against
such Components, and identify any discrepancies between the packing list and
such Components, within ten (10) business days of EMS’ receipt.  The Parties shall work together to resolve
any such discrepancies. However, if discrepancies are subsequently discovered
that could not have been discovered by EMS within such ten (10) business
days using reasonable diligence, UTS and EMS agree to work together to
equitably resolve the issues.

 

(vii)                          EMS shall be
responsible for all inbound freight charges for UTS-owned Components shipped by
UTS or a Component supplier to EMS. Title and risk of loss for such Components
shall transfer to EMS Ex Works UTS facility Hangzhou (Incoterms 2000)

 

(viii)                       UTS shall package
all Components in accordance with accepted industry standards.  Within 10 days of receipt, EMS must perform
Inbound Quality Control: (A) to identify and resolve any discrepancies
between the pre-packing list and the materials and Components prior to shipment
and (B) to ensure compliance with packaging requirements in accordance
with this Agreement.  If discrepancies
are subsequently discovered that could not have been discovered by EMS within
such ten business (10) days using reasonable diligence, UTS and EMS agree
to work together to equitably resolve the issues.

 

(ix)                               Open Purchase
Orders from Components Suppliers.  UTS
will transfer all open purchase orders for Components to be transferred to the
EMS on award of the business.  UTS
expects the EMS to re-negotiate all open purchase orders to achieve the lower
of EMS or UTS purchase price. In case EMS has to cancel such purchase orders
due to Forecast changes, UTS shall be liable for such PO and for negotiation
with the original supplier and handle the cancellation of such purchase orders.

 

33

 

Exhibit C:  Quality Assurance Agreement

 

As agreed by the Parties in writing. 

 

34

 

1.             Exhibit D: 
Listing of Consigned Equipment

 

Refer
to actual List of Consigned Equipment according to Products to be manufactured
by EMS.

 

35

 

2.     Exhibit E: 
Definitions Used

 

·                  “Affiliate” shall mean, with respect to any Party, any other
party directly or indirectly controlling, controlled by, or under common
control with such Party.  For purposes of
this definition, “control” when used with respect to any party, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such party, whether through the ownership of at
least fifty percent (50%) of voting securities, by contract or otherwise; the
terms “controlling” and “controlled” have meanings correlative to the
foregoing. An entity will cease to be an Affiliate if such control relationship
no longer exists.

 

·                  “Allocation Situation” shall mean a production capacity
shortage or Component shortage caused by an event specified in Section 23.1
(Force Majeure) or insufficient EMS manufacturing capacity or insufficient
available Components which affects several EMS customers and which shortage
causes EMS to allocate manufacturing capacity supply among EMS customers or any
other reason that will affect the supply of any Product.

 

·                  “Approved
Manufacturing and Product Development Location” shall mean
manufacturing location(s) approved by UTS in writing from time to time for
the manufacture of Products under this Agreement.

 

·                  “AVL” shall mean a list of approved suppliers provided by UTS
to EMS.

 

·                  “Business Day” shall mean any day that EMS is open for normal
business as detailed in the EMS annual calendar or any subsequent updates.

 

·                  “Catastrophic Failure” will be deemed to have occurred if EMS
and UTS both determines that a Product does, or is likely to either (i) cause
a potential safety hazard to users of such Product or (ii) otherwise
present a risk that EMS or UTS could face liability arising out of the use of
such Product. In the event of an Epidemic or Catastrophic Failure, the Parties
shall cooperate to implement the procedure set forth in Section 17.

 

“Components” shall mean all raw materials, parts, and
components incorporated into the Products.

 

·                  “Consigned Equipment” shall mean certain software, tools and
equipment that may be consigned by UTS to EMS in connection with this
Agreement.

 

·                  “Consigned Components” shall mean certain Components that may
be consigned by UTS to EMS under this Agreement.

 

·                  “Customer” shall mean
customer of UTS who will be purchasing, distributing, selling or using the
Products.

 

·                  “Delivery”
shall
mean EMS’ delivery of the Products to UTS as stipulated in Section 8.

 

·                  “Delivery Date” means the date on which EMS is to affect
Delivery of the Products pursuant to the Purchase Order issued by UTS and
accepted by EMS pursuant to this Agreement.

 

36

 

·                  “Delivery Window” shall mean the period of time extending
from three (3) business days in advance of the Delivery Date and ending on
the Delivery Date.

 

·                  “Designated Third Party” shall mean any third party that: (i) is
solely engaged in distribution, order fulfillment or customer management
activities on behalf of UTS; and (ii) UTS notifies EMS in writing is
authorized to purchase particular Products from EMS.  UTS shall be responsible for the performance
of such third parties pursuant to the terms of this Agreement. “EMS Industrial Design” means any and all of the following,
excluding, in all cases, the UTS Industrial Design:  (a) all design files provided by EMS for
the Products and any other information disclosed by EMS to UTS that relate to
the design or manufacture of the Products; and (b) modifications,
derivatives, improvements and enhancements of any of the foregoing developed by
or for EMS.

 

·                  “EMS Tooling” means generally available fixtures and tools
which are not specially adapted or configured for the UTS Industrial Design,
but excluding the UTS Tooling.

 

·                  “Engineering
Change Order” shall mean request in
writing issued by UTS to EMS to make changes to any manufacturing source, production
process, or the controlled process parameters or sources or types or grade
classifications of materials.

 

·                  “Encumbrances” shall mean any security interest, lien, tax
lien, or other encumbrance.

 

·              “Epidemic Failure” shall mean an EMS warranty defect in the
Product based on the same root cause failure (i.e. batch related failure)
occurring in a minimum of 3% of units, or another commercially reasonable
number of units agreed by the parties depending on the type of Product, of
Product shipped within the same production lot of Products under this Agreement.

 

·                  “Intellectual Property” means any or all of the following and
all rights in, arising out of, or associated
therewith:  (i) all United States
and foreign patents and utility models and applications therefore and all
reissues, reexaminations, registrations, confirmations, renewals, extensions,
provisions, supplementary protection certificates, divisions, continuations,
and continuations-in-part thereof (“Patents”); (ii) all
trademarks, trade names, and trade dress (“Trademarks”); (iii) all
copyrights, copyright registrations, and applications therefore and other
rights corresponding thereto throughout the world; (iv) all trade secrets;
(v) all industrial designs and any registrations and applications
therefore throughout the world; and (vi) any similar, corresponding, or
equivalent rights to any of the foregoing anywhere in the world.

 

·                  “Inventory” shall mean any and all procured materials,
Components and custom Components that are listed on the bill of materials
included with the Specifications that EMS is authorized to procure directly
from UTS-owned or an AVL and incorporate into the Products..

 

·                  “Long Lead-Time Components” shall mean any Component with a
lead-time greater than one hundred twenty (120) calendar days.

 

·                  “Long Lead Time Inventory” shall mean Inventory used in the
manufacture of Products that require a longer time to procure than the time
from the date of Purchase Order to production start time.

 

37

 

·                  “Minimum Order Inventory” shall mean Inventory that is
procurable only in minimum quantities that exceed the quantities required for
UTS Purchase Orders.

 

·                  “Obsolete Inventory” shall mean those Custom Components in
inventory consistent with UTS’ Forecast, purchased at lead-times reasonably
prevailing at the time of order, and Long Lead-Time Inventory purchased with
UTS’ written approval, that do not appear on the current UTS’ BOM, or which
appear on the current UTS’ BOM but cannot be used to manufacture products for
UTS or EMS’ other customers due to engineering changes, product cancellations,
purchase order cancellation, or program cancellations by UTS.

 

·                  “Passive” and “Non-passive” Components  Passive Components are Components that do not amplify or switch
signals, such as capacitors, resistors, transformers, inductors, etc.  Non-passive Components
are Components on any UTS BOM that are not Passive Components. PCB, Backplane,
Cable assembly and Enclosure are custom built products and are not defined as Passive components in this agreement.

 

·                  “Products” shall mean all products sold, licensed or provided
by EMS to UTS under this agreement, including hardware, licensed software,
supplies, accessories and other commodities related to any of the foregoing.

 

·                  “Purchase
Order” shall mean an official document, signed by an
authorized employee of UTS (or a Customer), which is used to place Product
orders with EMS.

 

·                  “Quarter” shall mean UTS’
fiscal quarter, unless otherwise specified as “calendar quarter.

 

·                  “Specifications” shall mean the Product specifications
(including, without limitation, designs, drawings, blueprints, models, data,
techniques, know-how, etc) provided by UTS to EMS in writing, upon which the
EMS Product pricing is based.  The
Specifications may be amended from time to time by UTS upon written notice to
EMS.  Throughout the term of this
Agreement, all Specifications shall be deemed to include the requirement that
each Product complies with all relevant industry product standard
specifications, host devices, and operating systems.

 

·                  “UTS Industrial Design” means any and all of the
following:  (a) all design files
provided by UTS for the Products and any other information disclosed by UTS to
EMS, either directly or indirectly, in writing, by inspection of tangible
objects (including without limitation documents, drawings, prototypes, samples,
and tooling) that relate to the design or manufacture of the Products; (b) modifications,
derivatives, improvements, and enhancements of any of the foregoing developed
by or for UTS; and (c) the industrial design, appearance, housing,
external configuration, user interfaces, and other features of the Products
based in whole or in part on any of the foregoing and all specifications and
manufacturing documentation related thereto.

 

·                  “UTS Tooling” means all: (a) Specific Processes; and (b) fixtures,
tooling, and processes used to manufacture the Products based on all or any
part of the UTS Industrial Design, including without limitation production
software, moldings and other tools used in connection with such manufacture
and/or paid for by UTS, whether developed or provided by UTS, EMS, or 

 

38

 

otherwise; provided, however, that “UTS Tooling”
does not include generally available fixtures and tools that are not specially
adapted or configured for the UTS Industrial Design.

 

39

 

Exhibit F:  Non-Disclosure Agreement

 

[Attached
signed NDA]

 

40Exhibit (10.1)

 

OSHKOSH CORPORATION

(a Wisconsin corporation)

 

2009 Incentive Stock and Awards Plan

Restricted Stock Award

 

[Participant]:

 

[Participant Address]:

 

Oshkosh Corporation (the “Company”) and you hereby agree as follows:

 

You
have been granted an award of shares of common stock of the Company constituting
Restricted Stock under the Oshkosh Corporation 2009 Incentive Stock and Awards
Plan (the “Plan”) with the following terms and conditions:

 

Grant Date:

 

Number of Shares of Restricted Stock:

 

Vesting Schedule:

 

	
  Number
  of Shares of Restricted Stock

  	
   

  	
  Vesting
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

You
will forfeit any shares of Restricted Stock that are not vested as of the date
of your termination of employment for reasons other than death, Disability or
Retirement.  Any shares of Restricted
Stock that are not vested will become fully vested at the time your employment
terminates as a result of death, Disability or Retirement.

 

Restrictions on Transferability:  You may not sell, transfer or otherwise
alienate or hypothecate any of your shares of Restricted Stock until they are
vested.

 

Issuance of Share Certificates:  The Company
will issue in your name certificate(s) evidencing your shares of Restricted
Stock as soon as practicable following your execution of this Award.  In addition to any other legends placed on
the certificate(s), such certificate(s) will bear the following legend:

 

The shares of Stock represented by this
certificate are subject to forfeiture, and the sale or other transfer of the
shares of Stock represented by this certificate (whether voluntary or by
operation of law) is subject to certain restrictions, as set forth in a
Restricted Stock Award, dated as of                     ,
by and between Oshkosh Corporation and the registered owner hereof.  A copy of such Award may be obtained from the
Secretary of Oshkosh Corporation.

 

 

Upon the vesting of shares of Restricted Stock, you will be entitled to
a new certificate for the Shares that have vested, without the foregoing
legend, upon making a request for such certificate to the Secretary of the
Company.

 

Voting Rights and
Dividends: While the shares of Restricted Stock are subject
to forfeiture, you may exercise full voting rights and will receive all
dividends and other distributions paid with respect to the shares of Restricted
Stock, in each case so long as the applicable record date occurs before you
forfeit such shares of Restricted Stock. If, however, any such dividends or
distributions are paid in Shares, such Shares will be subject to the same risk
of forfeiture, restrictions on transferability and other terms of this Award as
are the shares of Restricted Stock with respect to which they were paid.

 

Tax Withholding:  To
the extent that the receipt of Restricted Stock, the vesting of Restricted Stock
or the occurrence of another event relating to Restricted Stock results in
income to you for federal, state or local income tax purposes, you shall
deliver to the Company at the time the Company is obligated to withhold taxes
in connection with such receipt, vesting or other event, as the case may be,
such amount as the Company requires to meet its withholding obligation under
applicable tax laws or regulations, and if you fail to do so, the Company has
the right and authority to deduct or withhold from other compensation payable
to you an amount sufficient to satisfy its withholding obligations.  You may satisfy the withholding requirement,
in whole or in part, by electing to deliver to the Company that number of shares
of Restricted Stock (that vest on the date the Company is required to withhold
taxes or have previously vested) or other shares of common stock of the Company
that you own having an aggregate Fair Market Value on the date the tax is to be
withheld equal to the minimum statutory total tax that the Company must
withhold in connection with the vesting of such shares of Restricted Stock or
other event.  Your election must be
irrevocable, in writing, and submitted to the Secretary before the applicable
vesting date or date of such other event.  The Fair Market Value of any fractional Share
not used to satisfy the withholding obligation (as determined on the date the
tax is determined) will be paid to you in cash.

 

This
Award is granted under and governed by the terms and conditions of the Plan.  Additional provisions regarding your award of
Restricted Stock and definitions of capitalized terms used and not defined in
this Award can be found in the Plan, a copy of which is attached hereto.

 

IN
WITNESS WHEREOF, the Company has caused this Award to be duly executed, and you
have executed this Award Agreement, all as of the Grant Date stated above.

 

	
   

  	
  OSHKOSH CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Accepted:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Participant Name [Typed]

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