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TURNKEY DESIGN AND MANUFACTURING AGREEMENT

Design Contract

TURNKEY DESIGN AND MANUFACTURING AGREEMENT

 

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This Design Contract involves

XPLORE TECHNOLOGIES CORP | WISTRON CORPORATION

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Title: TURNKEY DESIGN AND MANUFACTURING AGREEMENT
Governing Law: Texas     Date: 11/14/2006

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Exhibit 10.1

 

TURNKEY DESIGN AND MANUFACTURING AGREEMENT

 

THIS TURNKEY DESIGN AND MANUFACTURING AGREEMENT (“ Agreement ”), effective this 1 day of July 2003 (the “Effective Dat e ”), is made and entered into by and between XPLORE TECHNOLOGIES CORPORATION of AMERICA and its subsidiaries and affiliates (“ XPLORE ”), a Delaware corporation having its principal place of business at 14000 Summit Drive, Suite 900, Austin, Texas 78728 U.S.A. and WISTRON CORPORATION (“ WISTRON ”), and its subsidiaries and affiliates, a Taiwan corporation having its principal place of business at 21F, 88, Sec. 1, Hsin Tai Wu Rd., Hsichih, Taipei Hsien 221, Taiwan, R.O.C.

 

W I T N E S E T H :

 

WHEREAS , XPLORE is proceeding to develop ruggedized mobile PC computer tablet(s) for its next generation of Products (as defined herein); and

 

AND WHEREAS WISTRON desires to provide to XPLORE design, manufacturing and support services in respect of the Products and sell to XPLORE the Products;

 

NOW, THEREFORE , intending to be legally bound hereby, XPLORE and WISTRON agree as follows.

 

1.                                       DEFINITIONS

 

Defined terms used in this Agreement shall have the meaning set forth below:

 

1.1                                Class Failure ” shall mean the occurrence of (i) a Material Defect, experienced in test or in the field, in greater than two and one-half percent (2.5%) monthly of all Products purchased by XPLORE hereunder over a rolling ninety (90) day period, or (ii) a defect in the Products causing a safety hazard which threatens life, equipment or property.

 

1.2                                Dead on Arrival ” shall mean any Products that are discovered to contain a Material Defect or non-conformance to Product Specification within thirty (30) calendar days from the WISTRON invoice date.

 

1.3                                Deliverable(s) ” shall mean the design and/or work product, including Material, resulting from performance of the Design Services as set forth on the Statement of Work in Exhibit A.

 

1.4                                Design Process ” shall mean any Material created by WISTRON in executing to this Agreement that relates to the implementation of the Design Services or any Deliverable.

 

1.5                                Design Services ” shall mean the product design, development and redesign services in respect of the Products, including but not limited to those services facilitating fabrication, tooling, fixtures, documentation, assembly, soldering production and delivery.

 



 

1.6                                Data Package ” shall mean all Documentation and/or Materials either created or designed by either or both Parties under this Agreement, which are fisted under Exhibit H.

 

1.7                                Documentation ” shall mean user manuals, training materials, product descriptions, drawings and specifications, technical manuals, supporting materials, import/export control documents and other information relating to any Product, is shipped by WISTRON.

 

1.8                                End-of-Life of XPLORE Product ” shall mean any XPLORE Product the production of which is discontinued by XPLORE, as the Parties mutually agree as defined in Section 4.17.

 

1.9                                End-User ” shall mean any party that purchases Products from XPLORE, directly or indirectly through Resellers and Distributors, for such party’s own internal use and not for redistribution.

 

1.10                         Equipment ” shall mean tooling, tools, samples, consigned materials or components, molds, and dyes required to produce Product.

 

1.11                         Hardware ” shall mean components and subassemblies that go into the Products.

 

1.12                         Intellectual Property Rights ” shall mean all forms of intellectual property rights and protections that may be obtained in respect of the Products, and Documentation and includes, without limitation:

 

(i)                                      All right, title and interest in and to all Letters Patent and all filed, pending or potential applications for Letters Patent, including any reissue, reexamination, division, continuation or continuation-in-part applications throughout the world now or hereafter filed;

 

(ii)                                   All right, title and interest in and to all trade secrets, and all trade secret rights and equivalent rights arising under common law, state law, federal law and laws of foreign countries;

 

(iii)                                All right, title and interest in and to all mask works, copyrights, other literary property or authors’ rights, whether or not protected by copyright or as a mask work, under common law, state law, federal law and laws of foreign countries; and

 

(iv)                               AII right, title and interest in and to all proprietary indicia, trademarks, trade names, symbols, logos and/or brand names under common law, state law, federal law and laws of foreign countries.

 

1.13                         Lead Time ” shall mean the time period between the acceptance by WISTRON of a Purchase Order and the ship date of the Products ordered under such Purchase Order.

 

1.14                         Manufacturing Services ” shall mean pre-production manufacturing engineering, and prototype and first article manufacturing, and finished product volume manufacturing of any Product.

 

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1.15                         Marks ” shall mean all proprietary indicia, trademarks, trade names, logos and/or brand names either party may adopt from time to time to identify themselves, the Products or any related parties or materials. XPLORE will notify WISTRON in writing of all proprietary Marks as indicated above.

 

1.16                         Material ” shall mean: (a) any net list, schematic, diagram, circuitry, technology, invention, idea, discovery, improvement, design, concept, technique, algorithm, formula, method, process, configuration, mechanism, model, system, network, data, plan, library, work of authorship, file, media, record, report, copy, pictorial work, graphic work, audiovisual work, hardware, firmware, computer interface (including for example but not limited to programming interfaces), computer language, computer protocol, computer software program or application (irrespective of whether source code or object code), flow chart, blueprint, drawing. graph, information, material, research or development, irrespective of whether patentable, or (b) any portion, copy or extract of such Material, irrespective of whether in tangible or intangible form, and irrespective of such Material’s media.

 

1.17                         Material Defect ” shall mean any malfunction, error or other defect in a Product(s) that constitutes a nonconformity with the Specifications and where such nonconformity causes such Product(s) to fail to meet form, fit and/or function requirements for such Product(s) under conditions of normal use.

 

1.18                         Normal and Customary Actions ” shall mean all actions associated with design technique or implementation and should be assumed as part of WISTRON effort and agreed upon fee schedule, including without limitation value engineering part reduction, fastening schemes or alternate material selection.

 

1.19                         Object Code ” shall mean machine-readable program code that is expressed in a form that is not generally suitable for modification by humans without reverse engineering.

 

1.20                         Parties ” shall mean XPLORE and WISTRON.

 

1.21                         Party ” shall mean either XPLORE or WISTRON.

 

1.22                         Plant Shutdowns ” shall mean those incidents where WISTRON’s manufacturing plant or WISTRON’s subcontractor’s plants has published down-time or holiday schedules resulting in plant closures. WISTRON will notify XPLORE via Email or FAX of holiday or plant shut downs at least forty-five (45) days before they are planned to occur. The plant shutdowns are not to occur more than two times per year, each period not to exceed 10 calendar days.

 

1.23                         Product Requirements Document ” or “ PRD ” shall mean the technical requirements provided by XPLORE for the Deliverables, as set forth in Exhibit C.

 

1.24                         Products ” shall mean products jointly developed by XPLORE and WISTRON under this Agreement, as further described in the PRO. As mutually agreed, XPLORE may add Products to Exhibit C during the term of this agreement.

 

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1.25                         Purchase Order ” shall mean a written or electronic purchase order that is delivered to WISTRON in accordance with Section 4.5.

 

1.26                         Purchase Price ” shall mean the amount to be paid by XPLORE for the Products as determined in accordance with Exhibit E.

 

1.27                         Reseller ” or “ Distributor ” shall mean any party that purchases Products from XPLORE either directly or indirectly for such parties’ own use or for resale to the End-User.

 

1.28                         Safety Standard Change ” shall mean changes made to the Products required to conform the Products to all applicable governmental and regulatory agency requirements.

 

1.29                         Software ” shall mean each software program in Object Code form included as part of the Products.

 

1.30                         Source Code ” shall mean program code expressed in a form suitable for modification by humans.

 

1.31                         Specifications ” shall mean the specifications applicable to the Products as set forth in the PRD.

 

1.32                         Statement of Work ” or “ SOW ” - shall mean a documented description of the work and services to be performed by WISTRON as set forth in Exhibit A.

 

1.33                         Term ” shall mean the period beginning on the Effective Date and terminating on the date this Agreement is terminated under the conditions specified in Section 12.

 

2.                                       PURPOSE OF THIS AGREEMENT

 

This Agreement sets forth the terms and conditions for the design, development, pre-production manufacturing engineering, prototype, first article manufacturing, and finished product volume manufacturing and services related to Products.

 

3.                                       SERVICES AND PAYMENTS FOR SERVICES

 

3.1                                Design Services

 

As set forth in Exhibit D, XPLORE shall reimburse WISTRON as defined within the milestone schedule in the SOW, WISTRON guarantees that the Product meets specifications and the criteria set forth in the PRD.

 

A complete Data Package as specified in Exhibit H must he delivered in its specified format to XPLORE at production release.

 

3.1.1                      Failure to Deliver XPLORE Specifications or Change in Scope After PRD Locked

 

In the event XPLORE fails to deliver the Specifications for the Product in accordance with the PRD in Exhibit C, or makes changes to the Specifications after the PRD is

 

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locked as defined by the milestone schedule in the SOW, WISTRON may negotiate with XPLORE a new delivery schedule and associated costs for delivery of the Design Services.

 

The Parties agree that Normal and Customary Actions apply.

 

3.1.2                      Acceptance of Design Deliverables

 

Unless otherwise agreed upon by the parties, within thirty (30) days from the receipt by XPLORE or WISTRON of any Deliverable pursuant to Exhibit A or Exhibit C, XPLORE and WISTRON shall provide written notice to each other of any failure of any Deliverable which deviates from the Specifications. WISTRON and XPLORE shall review the deviations and WISTRON will use commercially reasonable efforts to correct any nonconformity with the Specifications and provide the other Party with a revised deliverable within thirty (30) days. If after a subsequent 30 days, the WISTRON deliverable does not conform to specifications, then the Parties will mutually discuss and agree on a discount plan for the associated milestone payment as specified in Exhibit D.

 

Notwithstanding the above provisions, if WISTRON does not achieve Acceptance of Design Deliverables as specified above, then a material breach would have occurred due to WISTRON’S non-performance and the provisions of Section 12.4 apply.

 

3.2                                Design Services” and “Manufacturing Services” Payments

 

Payment for Design Services and Manufacturing Services will be made as set forth in Exhibit D. The Parties agree that the NRE and tooling payment schedules represent “ not to exceed ” prices. Purchase orders for the agreed upon Design Services and Manufacturing Services shall be made by XPLORE to WISTRON in US Dollars. WISTRON will invoice XPLORE for the Design Services and Manufacturing Services milestones in Exhibit D. The payments will be made via wire transfer to WISTRON specified bank account within five (5) business days after XPLORE acceptance of the milestone and receipt of invoice(s).

 

XPLORE has the right to review all tooling costs, evaluate and approve all tooling vendors, and review and approve all tooling materials used as it relates to the Product. WISTRON agrees to provide “ open book pricing ” to XPLORE for all tooling elements as referenced in Exhibit D for the Products, including all cost savings. Likewise, tooling costs greater than items referenced in the tooling schedule in Exhibit D will require approval in writing from XPLORE before WISTRON produces said tool. All tooling associated with the production of Products either at WISTRON or its subcontractor(s) will be the property of XPLORE’s.

 

4.                                       TERMS OF PURCHASE OF PRODUCTION PRODUCTS BY XPLORE

 

4.1                                Terms and Conditions

 

All purchases of Products by XPLORE from WISTRON during the Term shall be subject to the terms and conditions of this Agreement unless agreed to in writing by both Parties.

 

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4.2                                Purchase Price

 

Throughout the Term, the Purchase Price for any Product and Accessories purchased hereunder shall be as set forth in Exhibit E attached hereto. For the first twelve (12) months following Product release to volume production, the Purchase Price will remain fixed for each product configuration but will be further reduced by volume pricing incentives as specified in Exhibit E to establish the actual Purchase Price for the next month of production. Production volumes are based on the total number of Product units shipped not by specific product configurations. Beginning with the second year and subsequent years of volume production for the Product. The Purchase Price automatically includes applicable cost reduction defined in Section 7.9 plus the application of the volume incentives as specified in Exhibit E.

 

The parties agree to review the volume incentive schedule at mutually agreeable intervals, but at a minimum once per year, for the application to the Purchase Price. It is further understood between the Parties that the formulation of volume incentive discounts is an equitable combination of actual cost reduction plus economic benefits of volume production quantities for the establishment of an updated volume incentive schedule.

 

4.2.1                      Cost Reduction

 

WISTRON shall make available to XPLORE a cost table listing which includes its major components and assemblies for each Product so that XPLORE can assist in cost reduction efforts defined in Section 7.9 for the Products. In addition, WISTRON will share and help implement its detailed action plans for product cost reduction efforts.

 

4.3                                Payment

 

Full payment of the Purchase Price for each Product or Accessories (including any freight, taxes or other applicable costs initially paid by WISTRON but to be borne by XPLORE) shall be made by XPLORE to WISTRON in United States dollars, net thirty (30) calendar days from XPLORE’s receipt of an invoice from WISTRON which follows shipment. WISTRON will not invoice XPLORE unless shipment occurs pursuant to Section 4.8. XPLORE agrees to pay one percent (1.0%) monthly interest on all late payments as per Exhibit D. XPLORE will issue an irrevocable standby letter of credit or Assignment of Receivable (AoR) in an amount equivalent to its product requirement for the initial 60 days of production. In the event that XPLORE fails to pay within the agreed 30 days other than amounts in dispute or subject to credits, WISTRON shall have the right to draw on the letter of credit or AoR to effect payment of its account. As XPLORE’s production requirement increases, additional letters of credit shall be issued to maintain an amount equivalent to the production requirement for the next 60 days. After six (6) months following production release, WISTRON and XPLORE will review payment terms with the objective of removing the requirement for letter of credit. The irrevocable standby letter of credit will terminate after six (6) months following production release provided that XPLORE is current on its payments.

 

4.3.1                      Payment for Unique or Long-Lead Inventory

 

XPLORE will put in place a Letter of Credit in the amount of $200,000 to cover unique inventory for six (6) months to he set up thirty days prior to mass production and to last for six (6) months into production. WISTRON shall have the right to draw on the letter of

 

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credit to effect payment in the event said unique material is deemed obsolete. After six (6) months following production release, WISTRON and XPLORE will review payment terms with the objective of removing the requirement for letter of credit.

 

4.4                                Taxes

 

XPLORE’s Purchase Price does not include any foreign, federal, state or local sales, use or other similar taxes, however designated, levied against the sale, licensing, delivery or use of the Products. XPLORE shall pay, or reimburse WISTRON for, all such taxes imposed on XPLORE or WISTRON; provided, however, that XPLORE shall not be liable for any taxes based on WISTRON’s net income or capital. When WISTRON has the legal obligation to collect such taxes, the appropriate amount shall he added to XPLORE’s invoice and paid by XPLORE unless XPLORE provides WISTRON with a valid tax exemption certificate authorized by the appropriate taxing authority. XPLORE shall promptly notify WISTRON of any amendment or revocation of such certificate.

 

4.5                                Purchase Order Procedure

 

All orders for Products submitted by XPLORE shall be initiated by a Purchase Order sent to WISTRON and requesting a delivery date. These purchase orders shall include, at a minimum, a) the WISTRON part number; b) a description of the product; c) the product quantity; d) the Product price; e) the requested delivery date of the Product (“ Scheduled Delivery Date ”); f) logistics shipping preference; g) a reference to the Agreement and h) any other instructions or requirements reasonably requested by XPLORE. If a purchase order submitted by XPLORE (i) conforms to the requirements of this Agreement, (ii) contains a Product order for the price or prices specified in Exhibit E, (iii) does not purport to make a change to any of the terms of this Agreement, and (iv) has a commercially reasonable delivery date for the quantities specified, then WISTRON shall acknowledge and accept the purchase order using reasonable best efforts within two (2) business days but in any case not to exceed five (5) business days of receipt. If XPLORE is not notified of WISTRON’s acceptance or proper rejection within two (2) business days of receipt of the Purchase Order by WISTRON, the Purchase Order shall be deemed accepted by WISTRON. Nothing contained in any Purchase Order shall in any way modify this Agreement or add any additional terms or conditions thereto, except as otherwise agreed in writing by the Parties. Notwithstanding the foregoing, in the event Products are greater than thirty (30) days late from the accepted delivery dates on accepted Purchase Orders by WISTRON, then XPLORE will receive a 2% discount on the Product for every week that the Product is late up to 8 weeks for a maximum discount of 16% on the next Product delivery of an equivalent quantity of Products. After 8 weeks, XPLORE has the right to declare Non-Performance as specified in Section 12.4 and subsequently may cancel the Purchase Order and the associated liabilities with no penalty.

 

4.6                                Forecast

 

XPLORE shall, on a monthly basis, provide WISTRON with a six (6) month rolling projection of orders by XPLORE of the Products (“ Forecast ”). The initial Forecast shall be delivered to WISTRON within sixty (60) calendar days prior to initial production. Notwithstanding any other provision contained herein, the parties acknowledge and agree that

 

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the Forecast can in no way he construed as a commitment on XPLORE’s part to purchase any Products. XPLORE shall also have the right to increase or decrease Forecast quantity by the quantities listed in the chart set forth in Section 4.10 of this Agreement.

 

4.7                                Lead Time .

 

To facilitate WISTRON’s production scheduling, XPLORE shall submit Purchase Orders to WISTRON consistent with a Lead Time of forty five (45) calendar days for volumes within the Forecast. In the event that the volume of Products ordered by XPLORE during any calendar quarter exceeds the volume projected by XPLORE in the Forecast, WISTRON shall ship such excess volume of Products consistent with a Lead Time of forty five (45) calendar days; provided, however, WISTRON shall use reasonable best efforts to reduce the Lead Time for such excess volume to twenty (20) calendar days. WISTRON shall use reasonable best efforts to reduce all Lead Times during the Term, including, without limitation, implementing such demand-pull or direct ship programs as reasonably requested by XPLORE. The Parties shall meet at mutually agreeable intervals during the Term to review, in good faith, the Lead Times, including, without limitation, reviewing material management procedures with WISTRON’s suppliers, including demand-pull or direct ship programs. For long lead list of parts, the Parties will mutually review these parts and determine which parts get ordered as a risk purchase. XPLORE will give written authorization to WISTRON and approve the purchase and specified quantity of these long lead parts. Long lead materials not consumed within 6 months will be purchased by XPLORE provided that these parts could not be consumed by other products manufactured by WISTRON.

 

4.8                                Shipping

 

All Purchase Prices are FCA WISTRON’s manufacturing plant in Taiwan. All Products delivered pursuant to the terms of this Agreement shall be packed pursuant to the packaging requirements set forth in the SOW, marked for shipment to an address designated by XPLORE, and delivered to a carrier designated by XPLORE, or if no carrier is designated by XPLORE to a carrier chosen by WISTRON, F.O.B., WISTRON’s manufacturing plant. XPLORE requires a shipment acknowledgment via FAX or Email attachment which contains the Purchase Order number, the quantity and type of product shipped, including serial numbers, the customer address and contact information, and shipment carrier with tracking numbers. Upon delivery to the carrier, risk of loss with respect to the Products (and title to the Hardware included in such Products) shall pass to XPLORE. All freight, insurance and other shipping expenses shall be paid by XPLORE. Items shipped after their scheduled shipment date plus 2 business days will be shipped by WISTRON on an expedited basis (primarily air freight) with the surcharge for such expedited delivery being at WISTRON’s sole expense. Provided that XPLORE places orders for Products for delivery within the applicable Lead Times as per Section 4.7, WISTRON shall, in the aggregate during each calendar quarter, deliver at least ninety-five percent (95%) of the Products so ordered by the XPLORE specified delivery date. In the event WISTRON fails for two consecutive calendar year quarters to deliver by the XPLORE specified delivery date at least ninety-five percent (95%) of Product ordered, for any reason other than a Force Majeure Event, then in addition to all other rights and remedies that XPLORE may have at law or in equity, WISTRON shall (i) immediately allow XPLORE to audit WISTRON’s order fulfillment process and discuss the reasons for such failure, (ii) evaluate and consider any

 

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recommendations proposed by XPLORE to alleviate such problems, and (iii) at XPLORE’s request, use reasonable best efforts to facilitate communication between XPLORE and any WISTRON supplier(s) that is/are causing such failure. If the aforementioned provisions do not remedy the situation, XPLORE has the right to invoke the Non-performance provisions as stated in Section 12.4 of this Agreement. XPLORE will notify WISTRON of the Non-performance in writing.

 

4.8.1                      Dock to Customer Shipments

 

XPLORE requires WISTRON to implement a dock-to-customer shipping model as defined in the SOW.

 

4.8.2                      Palletized Volume Shipments:

 

XPLORE requires WISTRON to implement palletized volume shipments for delivery to a consolidation center or to specific customers who have purchased a large quantity of XPLORE Products as defined in the SOW.

 

4.8.3                      Shipment of Field Replacement Units

 

WISTRON agrees to provide XPLORE with pricing for Product subassemblies as set forth in Exhibit G. XPLORE requires WISTRON to accept purchase orders to ship components, boards, and/or sub-assemblies to a XPLORE designated consolidation center. XPLORE shall have a small inventory of spare parts and components for internal XPLORE field and demo repairs.

 

4.9                                Cancellation

 

XPLORE may, in its sole discretion, cancel all or any part of any Purchase Order by providing written notice without incurring any cancellation charges according to the chart set forth below in Section 4.10 of this Agreement. If XPLORE does not have the right to cancel a purchase order without incurring any cancellation charge, XPLORE may still cancel such order but shall pay WISTRON a cancellation charge equal to WISTRON’s all incurred costs for raw materials, work in process, handling and reworking costs incurred by WISTRON on the Products under the cancelled Purchase Order, provided that there will be no cancellation charge for any materials that within ninety (90) days of the cancellation are subsequently used to fulfill a XPLORE purchase order or that are capable of being used in other products sold by WISTRON. In no event shall such costs exceed the Purchase Price for such cancelled Products. In the event that XPLORE cancels all or any part of a Purchase Order for which it is obligated to pay a cancellation charge, WISTRON shall use reasonable best efforts to mitigate the costs associated with such cancellation. If XPLORE pays a cancellation charge it shall own all materials subject to such charge, and the price for any future Product that includes such materials shall be reduced by the amount of the cancellation charge but shall add any incurred reworking costs.

 

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4.10                         Rescheduling

 

XPLORE shall have the right, by providing written notice to WISTRON prior to the scheduled shipment date, to reschedule or change the shipment date only once per Purchase Order without penalty, per the chart set forth below in this Section 4.10:

 

Lead
Time

 

Allowable
Quantity
Increase

 

Percent
Cancelable

 

Percent
Reschedule

 

Maximum
Reschedule
Date

0-45 days

 

25% over unit volume

 

0%

 

25%

 

30 days

46-60 days

 

60% over unit volume

 

25%

 

40%

 

60 days

61-90 days

 

80% over unit volume

 

50%

 

50%

 

90 days

over 90 days

 

100% over unit volume

 

100%

 

100%

 

indefinite

 

WISTRON will use its reasonable best efforts, including long lead time material management, to produce any increased quantities in Product requested by XPLORE as set forth above.

 

4.11                         Audit, Inspection and Acceptance

 

XPLORE has the right to approve any change, production startup, sub-contractor, tooling acceptance process or procedural acceptance relating to the Products. For the case where it is not practical for Xplore to have access to a WISTRON sub–contractor, then WISTRON will act on XPLORE’s behalf and report written results required by XPLORE.

 

4.11.1               Audit & Inspection (Exhibit F, Sec. 7)

 

XPLORE may, in its sole discretion, perform, or cause its agents or representatives to perform, audits and inspections of WISTRON’s, or its vendors, design, test, and manufacturing processes during normal business hours and by giving two (2) business days advance notice for any reason reasonably related to this Agreement, including, without limitation, to confirm compliance with the quality procedures and requirements set forth in Exhibit F. WISTRON shall provide assistance to XPLORE in conducting such inspections as may be reasonably requested by XPLORE.

 

4.11.2               First Article Acceptance Testing (Exhibit F, Sec. 9)

 

XPLORE may conduct first article acceptance testing on any Product (i) that XPLORE has not previously accepted via first article testing, (ii) in which WISTRON has introduced a modification or enhancement not previously tested by XPLORE under a first article inspection, or (iii) in the event any Product is manufactured at a site other than WISTRON’s location. WISTRON shall provide assistance to XPLORE in conducting such first article acceptance testing as may reasonably be requested by XPLORE. Within fifteen (15) calendar

 

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days of XPLORE’s receipt of a first article Product, XPLORE will provide WISTRON with a written notice of acceptance of such Product or a written statement detailing the Specifications, which such Product has failed to meet. If such Product fails to conform to the Specifications or applicable first article testing and acceptance criteria, XPLORE shall notify WISTRON in writing of such failure, detailing the nature of the failure, and the Parties will immediately discuss means to resolve such failure; WISTRON shall then deliver to XPLORE, pursuant to an agreed-upon schedule, a Product that meets the applicable Specifications or applicable first article testing and acceptance criteria. Upon re-delivery, XPLORE shall have an additional five (5) business day period to first article acceptance test the Product and provide either written acceptance of the Product or a written statement detailing the Specifications or applicable first article testing and acceptance criteria such Product failed to meet. If after two (2) such cycles, XPLORE again reasonably rejects such Product, XPLORE may elect to continue the process of modification and first article acceptance testing or determine an alternate action plan without incurring any further liability hereunder, provided that XPLORE shall remain liable to pay (or be entitled to a refund if the Advance Payment has not been consumed) with regard to any Purchase Orders that were filled with conforming Products. Notwithstanding the above provisions, if WISTRON does not achieve Acceptance of First Articles as specified above, then a material breach would have occurred due to WISTRON’s Non-Performance and the provisions of Section 12.4 apply.

 

4.11.3               Product Acceptance

 

WISTRON shall develop, qualify, test and release to production the Products set forth on Section 1.23 of this Agreement according to the timetable set forth in the SOW. The Parties acknowledge and agree that XPLORE shall have no obligation to pay for any Product until such Product has been accepted by XPLORE in accordance with this Section. Product Acceptance shall mean that the Product shall meet all design requirements per the PRD and all regulatory and certification testing on the Product has been completed and test reports have been filed by WISTRON. The Data Package shall transfer to XPLORE in full as per Exhibit H.

 

4.12                         Failure Analysis. (Exhibit F, Sec. 6)

 

WISTRON shall, at WISTRON’s sole expense, conduct a failure analysis on all defective Products to determine the cause of failure in accordance with Exhibit E.

 

4.13                         Dead on Arrival

 

In the event that any Product is found to be Dead-on-Arrival (DOA), WISTRON shall ship, at WISTRON’s sole expense, a replacement Product to XPLORE in Austin, Texas within forty eight (48) hours of receipt of notice by XPLORE in accordance with Exhibit G, and XPLORE shall return the original product to WISTRON at WISTRON’s expense. All Product not rejected by XPLORE within thirty (30) days of invoice shall be deemed accepted. XPLORE’s acceptance of any Product is without prejudice to or waiver of any of its rights and remedies under the Agreement. If the Product(s) turned over by XPLORE to WISTRON as DOA but no defect is found in the Product by WISTRON, then under the conditions set forth in

 

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Exhibit G hereto, XPLORE shall reimburse WISTRON for such shipment costs and pay the No Fault Found (NFF) fee for testing and handling at the fixed price specified in Exhibit G.

 

4.14                         Field Performance

 

Products received from WISTRON shall not exceed a 1% failure rate for the complete WISTRON assembled unit within thirty (30) days of delivery to End-User. WISTRON shall establish a mutually agreed to Quality Improvement Plan so as to meet the intent of Exhibit F within 30 days.

 

4.15                         Quality Control

 

4.15.1               Sampling Procedures

 

The Product and all associated assemblies and subassemblies shall be subject to sampling in accordance with Sampling Procedures and Tables for Inspection by Attributes (ANSI/ASQC Z1.4-1993). XPLORE reserves the right to define the acceptable quality level (AQL) used for sampling at any time. It is an objective to achieve an AQL of 2.

 

4.15.2               Lot Rejection

 

XPLORE reserves the right of lot rejection in the event of failure to meet the AQL specified by XPLORE. In the event of lot rejection, WISTRON shall be responsible for all shipping and repair/replacement costs. Lot inspections shall be performed at the discretion of XPLORE without prior notification.

 

4.16                         Safety Stock

 

WISTRON shall provide XPLORE with inventory of finished Products in the amount equal to two percent (2%) of the preceding quarter’s average monthly film orders, at the WISTRON’s premises and at WISTRON’s expense (the “ Safety Stock ”). XPLORE shall use this inventory as necessary to replace Products that arrive at a customer Dead on Arrival or that are not accepted.

 

4.17                         Product Discontinuance

 

WISTRON may provide XPLORE with at least nine (9) months prior written notice of any intention to discontinue production of any Product if minimum volume requirements are not achieved for two (2) consecutive quarters, then within 30 calendar days, WISTRON will notify XPLORE in writing. During such nine month period, WISTRON will work with XPLORE to transition manufacturing to an al


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