Wherify Wireless, Inc. International Supply and Distribution Agreement

 

                             Wherify Wireless, Inc.

                 International Supply and Distribution Agreement

 

 

      This International Supply and Distribution Agreement ("Agreement") is

entered into this 12th day of August, 2005 ("Effective Date") by and between

American Network Computadores, a Brazilian company, having its registered office

at Rua Euclides Pacheco, 777 - Tatuape - Sao Paulo - SP, ("Company") and Wherify

Wireless, Inc., a California corporation, having its place of business at 2000

Bridge Parkway, Suite 201, Redwood Shores, California 94065 ("Wherify").

 

      Whereas, Wherify designs, manufactures and sells GPS enabled communication

devices for use with wireless telephone networks ("Products" as more fully

defined herein);

 

      Whereas, Wherify desires to provide for the promotion, marketing,

distribution and sale of the Products in various territories throughout the

world;

 

      Whereas, Company desires to engage in the promotion, marketing,

distribution and sale of the Products in the Territory (as defined below) and

represents that it has the expertise and other qualifications necessary to do so

within the Territory; and

 

      Whereas, Wherify desires to appoint Company to undertake such activities

and Company desires to accept such appointment and to undertake such activities,

in each case in the Territory and in accordance with the terms and conditions of

this Agreement.

 

      Now, therefore, in consideration of the mutual covenants, undertakings and

consideration, the receipt and sufficiency of which is hereby acknowledged by

the parties, the parties agree as follows.

 

      1. DEFINITIONS

 

      Except as defined elsewhere in this Agreement, all initially capitalized

terms shall have the meanings set forth in Exhibit 1 attached hereto.

 

      2. APPOINTMENT; AUTHORITY AND OBLIGATIONS OF COMPANY

 

            2.1 Appointment. Subject to the terms and conditions of this

Agreement, Wherify hereby appoints Company as Wherify's non-exclusive,

authorized distributor in the Territory to promote, market, distribute and sell

the Products in the Territory, and Company accepts such appointment. Products

distributed under this Agreement shall be distributed only by the Company

directly to end users or by Sub-Distributors appointed in accordance with

Section 2.4 below directly to end users.

 

            2.2 Territory. For the purposes of this Agreement "Territory" shall

mean Brazil. Company shall aggressively market and promote the Products to

realize the maximum sales potential for the Products in the Territory. Company

shall not promote, market, distribute, sell or otherwise dispose of, directly or

indirectly, any of the Products outside the Territory or establish a repair or

maintenance facility outside the Territory without the prior written consent of

Wherify. Additionally, the Company shall not sell or otherwise distribute any

Product to any third party, including affiliates, if any Products sold to such

third party have been marketed, resold, or otherwise distributed outside the

Territory, whether through a repair or maintenance facility or otherwise.

 

 

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            2.3 Conflict of Interest. Company warrants to Wherify that the

Company does not currently represent, market, promote, or distribute any

Substantially Similar Products. During the Term, the Company shall notify

Wherify in writing at least 60 days in advance of Company doing so. Upon receipt

of such notice, or if Wherify otherwise becomes aware that Company is

representing, marketing, promoting, or distributing a Substantially Similar

Product, unless Wherify has provided its prior written consent for the

marketing, promotion and distribution of the Substantially Similar Product,

Wherify may, in its sole discretion and without any liability, terminate this

Agreement. Any Substantially Similar Products marketed, promoted or distributed

by a Sub-Distributor shall be considered under this Agreement to be

Substantially Similar Products marketed, promoted and distributed by the

Company; accordingly, the Company shall obtain Wherify's consent in accordance

with this Section 2.3 before appointing such a Sub-Distributor. If a

Sub-Distributor markets, promotes or distributes without the Company's knowledge

a Substantially Similar Product to which Wherify has not consented, Wherify

agrees that it will not terminate this Agreement as a result thereof if the

Company notifies Wherify in writing of such circumstance as soon as the Company

becomes aware of it and either: (i) the Sub-Distributor ceases all marketing,

promotion and distribution of Products and disclaims any and all rights with

respect to the Products, including any right to market, promote and distribute

the Products, within 30 days after the earlier of Wherify or the Company

becoming aware of the marketing, promotion or distribution of the Substantially

Similar Product by the Sub-Distributor; or (ii) Wherify consents in writing to

continued distribution through the Sub-Distributor.

 

            2.4 Sub-Distributors. During the Term, Company may, only with the

prior written consent of Wherify, appoint one or more Sub-Distributors to

promote, market, distribute and sell the Products directly to end-user customers

in the Territory. Each Sub-Distributor approved by Wherify shall have entered

into a written agreement with Company which contains terms and conditions which

are no less protective of Wherify, and its Products and intellectual property,

than the terms and conditions in and required by this Agreement. Without

limiting the foregoing, if a Sub-Distributor is used, the Company shall require

the Sub-Distributor to perform the Company's responsibilities under this

Agreement for the benefit of Wherify in the same manner as is required of the

Company, including without limitation under Sections 2.2, 2.3, 2.5, 8, 9, 10 and

11. Company shall be responsible to Wherify under this Agreement for the actions

and inactions of each Sub-Distributor, however, as if performed by the Company,

including any failures to meet the indemnification obligations under Section

6.2, and shall be directly liable to Wherify for any breaches of this Agreement

resulting from any Sub-Distributor's acts or omissions. Company shall notify

Wherify in writing of each proposed Sub-Distributor, which notice shall include

the proposed Sub-Distributor's name, address and corporate overview and shall

identify all Substantially Similar Products marketed, promoted or distributed by

the Sub-Distributor, if any. Upon receipt of such notice Wherify shall use

reasonable efforts to respond to each such notice within 15 days of receipt

thereof, provided that Wherify's failure to respond shall be deemed Wherify's

rejection of such proposed Sub-Distributor.

 

 

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            2.5 Additional Obligations of Vendor.

 

                  (a) Localization. Company shall, at its own cost, be

responsible for all localization of the Documentation and Packaging, including

without limitation by (i) arranging for a complete and accurate translation of

such Packaging and Documentation in the local language(s) of the Territory

through a reputable translation company that is reasonably acceptable to

Wherify; (ii) ensuring that the Documentation and Packaging conform to all legal

and regulatory requirements, including without limitation by displaying any

notices or other terms and conditions, required in the Territory; and (iii)

taking such other actions as may be necessary or desirable for the localization

of the Packaging and Documentation. In addition, the Company shall provide

reasonable assistance upon request from Wherify with respect to the localization

of the Products. Without limiting the foregoing, the Packaging and Documentation

shall contain all intellectual property notices requested by Wherify and shall

otherwise be consistent with Wherify's reasonable requests. Company shall

deliver the proposed localized Documentation and Packaging to Wherify in

electronic format within 30 days after Wherify's initial request. Upon Wherify's

receipt thereof, Wherify shall have a period of 30 days to notify Company in

writing of its acceptance or rejection of the localized Documentation and

Packaging. In the event of a rejection, Wherify will specify in its notice of

rejection in reasonable detail Wherify's issues and concerns and any other

changes that Wherify wishes to suggest. Upon receipt thereof, Company shall have

a period of 10 days to revise and resubmit the localized Packaging and

Documentation to Wherify for review. The preceding process will be repeated

until Wherify accepts the localized Packaging and Documentation. In the event of

such acceptance by Wherify, Wherify will instruct its relevant third party

manufacturer to use such materials for the final packaging and shipping of the

Products to Company hereunder. During the Term, Wherify may deliver any

modifications to the Packaging or Documentation to Company for localization and

Wherify's acceptance in accordance with the process above. In connection with

the foregoing, Wherify hereby grants Company, under Wherify's copyright rights

embodied in the Packaging and Documentation provided by Wherify, a

non-exclusive, non-sublicensable, non-transferable (except as set forth in

Section 12.6) right and license to create the localized Packaging and

Documentation in accordance with this Section 2.5(a) and to use, copy and

distribute (which distribution may be done indirectly through Sub-Distributors)

such localized Documentation and Packaging in the exercise and performance of

Company's rights and obligations under Sections 2.1 and 2.2, in the promotion,

marketing, distribution and sale of the Products. Company hereby assigns and

shall assign to Wherify all right, title and interest in and to all copyright

and other intellectual property rights, and all goodwill associated therewith,

embodied in the localized Packaging and Documentation, provided that any "moral"

or similar artistic rights embodied within such localizations that the Company

is by law prohibited from assigning to Wherify are specifically excluded from

such assignment obligation. Company hereby irrevocably agrees that it will not

directly or indirectly assert or enforce such non-assignable rights in any

manner, whether before or after termination or expiration of this Agreement,

including against Wherify, or any third party who is provided a copy of any

localized Documentation or Packaging. Additionally, the Company shall ensure

that all authors of the localized Documentation and Packaging have agreed in

writing to provisions that ensure that the foregoing assignment of rights to

Wherify is effective and that prohibit such authors from enforcing or asserting

such non-assignable rights in any manner, whether before or after termination of

such agreements or this Agreement. Company shall make Wherify a third party

beneficiary of, with the power to enforce, such agreements with authors. No

Documentation or Packaging, or derivative of any Documentation or Packaging,

shall be reproduced, distributed, transmitted, publicly displayed, publicly

performed, or used, and no derivative (including translations) shall be created,

except in accordance with this Section 2.5(a).

 

 

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                  (b) Sales Force. The Company shall maintain, as necessary in

connection with its obligations hereunder, a sales force that is reasonably

trained and informed regarding the operation, functionality, and features of the

Products and of any associated services.

 

                  (c) Inventory. The Company shall purchase and maintain an

inventory of Products in quantity sufficient to efficiently and promptly meet

the needs of the market in the Territory.

 

                  (d) Customer Support.

 

                        (i) The Company agrees to cooperate fully with Wherify

in connection with customer support in the Territory, as reasonably requested by

Wherify, including without limitation in connection with warranty and other

services and providing Wherify with information concerning warranty returns and

other customer issues. Without the need for request by Wherify, the Company

shall inform Wherify promptly of all significant issues that arise with respect

to any Product or associated services. The Company shall be solely responsible

for all representations and warranties made with respect to any Product, or

associated services, that are beyond the representations and warranties

authorized by Wherify in writing.

 

                        (ii) The Company, and not Wherify, shall provide "Tier

1" support to end users in language(s) appropriate for the Territory. Such

support shall include: receipt of and response to calls, inquiries, and other

communications concerning Products; problem and question intake; activation and

use assistance; explaining operation and use of the Products to customers;

initial problem identification; reproducing hardware and software errors prior

to return of Product to Wherify; referring problems to Wherify for analysis

where appropriate or requested by Wherify; distributing corrections, bug fixes,

patches, updates, and upgrades; making updated and upgraded Documentation

available to end user customers; distributing repaired and replacement Products;

obtaining Products from customers in the event of a recall; otherwise

interfacing and dealing with customers; and taking any other actions reasonably

requested by Wherify that are appropriate to resolve end user or Product issues

and problems, or to enable Wherify to do so. The Company shall not repair, or

attempt to repair, any Product. Rather, all repairs shall be performed solely by

Wherify or Wherify's authorized service center.

 

                        (iii) No Product shall be returned to Wherify, other

than Product returned by the Company directly to Wherify in accordance with the

return procedures in this Agreement. The Company will provide to Wherify, with

each problem that it reports to Wherify, the customer's name and contact

information, a description of the problem in reasonable detail, and, as

requested by Wherify, any other information reasonably concerning the customer,

the problem or concern.

 

                   (e) Costs and Expenses. Except as otherwise expressly provided

herein, the Company shall solely bear all costs and expenses of performing its

obligations hereunder. Wherify shall not be liable for any costs or expenses

incurred without its prior written agreement to bear the applicable costs or

expenses.

 

 

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                  (f) Records; Reporting; Audit. The Company shall keep Wherify

informed, as reasonably requested by Wherify, concerning the efforts and

activities of the Company in marketing, promoting and selling Products in the

Territory. Without limiting the foregoing, the Company shall maintain records of

warranty returns and other issues with the Products, and any associated

services, of which the Company is aware and provide Wherify with a copy of such

records upon request. The Company shall maintain a record of the parties to

which all Products have been shipped by Company. Wherify shall have the right,

at its own expense, to inspect and audit (or direct an independent certified

public accounting firm to inspect and audit) such books and records of the

Company; provided, however, that: (i) Wherify shall provide the Company with

reasonable notice prior to such audit; (ii) any such inspection and audit shall

be conducted during regular business hours in such a manner as not to interfere

with normal business activities; and (iii) in no event shall audits be made more

frequently than once every six months. The right to audit will extend for one

year following the termination of this Agreement. The Company and its personnel

will cooperate in good faith in connection with any audit pursuant to this

paragraph.

 

            2.6 Product Changes. Wherify reserves the right from time to time in

its sole discretion, without incurring any liability to the Company with respect

to any previously placed or accepted purchase order, to discontinue or to limit

its production of any Product; to allocate, terminate or limit deliveries of any

Product in time of shortage; to alter the design and construction of any

Product; to add new and additional products to the Products; and upon reasonable

notice to the Company, to change its sales and distribution policies, not

inconsistent with the terms of this Agreement.

 

             2.7 Reservation of Rights. Company's rights under this Agreement are

limited to the authorization to resell Products that have been purchased by the

Company directly from Wherify. The Company shall not make or have made any

Product. No title or ownership of any intellectual property rights is

transferred to the Company. ALL RIGHTS NOT EXPRESSLY GRANTED HEREUNDER ARE

RESERVED TO WHERIFY. Nothing shall prohibit Wherify from marketing, promoting,

selling, and distributing any products, components, and services in the

Territory and nothing shall prevent Wherify from authorizing others to perform

such activities.

 

      3. FORECASTS; ORDERS; PRICE; PAYMENT

 

            3.1 Terms and Conditions. All purchases of Products by Company from

Wherify shall be subject to the terms and conditions of this Agreement only.

Company's purchase orders submitted from time to time by Company under this

Agreement shall be governed exclusively by the terms and conditions of this

Agreement and no pre-printed or other terms appearing in any such purchase order

or other document issued by Company shall in any way, amend, modify or

supplement this Agreement. All additional and different terms in any such

purchase order or other document are hereby expressly rejected and excluded and

shall have no effect, notwithstanding anything to the contrary in such

additional and/or different terms and conditions and notwithstanding the

acceptance of any purchase order by Wherify. Purchase orders shall be issued

only by the Company and not any Sub-Distributor.

 

 

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            3.2 Purchase of Products and Software. The sale of each Product to

Company hereunder and the transfer of title for each purchased Product to

Company shall not be considered a sale of or transfer of title to any software,

firmware or other microcode (collectively "Software") included with or embedded

in the hardware comprising such Product, but instead shall be deemed to be only

a license for Company to distribute such Software to customers as part of the

Product, as such Software has been installed by Wherify on the Product. Wherify

and its suppliers shall retain exclusive title to the Software. Company and its

Sub-Distributors shall distribute Software only as installed by Wherify on

Products purchased from Wherify and only in accordance with this Agreement, and

the respective end user customers of Company and its Sub-Distributors may use

the Software only as so installed on the Products in the ordinary course of the

end user customer's use of such Products for their intended use in accordance

with the terms of use governing such Software as included in the Documentation,

other materials supplied with the Products, including the end user terms that

the customer executes in connection with any location or other services

purchased with the Products. Nothing in this Agreement shall be construed, by

implication, estoppel or otherwise, as granting any right to any source code of

the Software, and except to the extent such restrictions are prohibited by

applicable law or are authorized by Wherify as described in this Section 3.2

above, no Software, or any derivative of any Software, and no trade secrets

embodied therein, shall be reproduced, distributed, transmitted, publicly

displayed, publicly performed, altered, disassembled, de-compiled, interrogated,

translated, or used, and no derivative (including translations) shall be

created.

 

            3.3 Forecast. Commencing on the Effective Date hereof and during the

Term, Company will provide Wherify, on a calendar weekly basis, with a rolling,

26 calendar week written forecast (the "Forecast") stating projected quantities

of, and requested delivery dates for, any Products, taking into account the

applicable Lead Time for each Product. The Products requested for delivery in

the first 12 weeks of each such Forecast shall be deemed Company's firm and

binding commitment to purchase the quantity of Products for such period, and no

Forecast changes shall be made with respect to any calendar week that is in the

first 12 weeks of any Forecast. Commencing on the Effective Date and every four

calendar weeks thereafter, Company shall accompany each Forecast with a written

purchase order requesting delivery in each calendar week of the first four weeks

of the then relevant Forecast of the quantities of Products, which shall in no

event be less than the quantities set forth for such calendar week when it was

the twelfth week of a Forecast. The period in each Forecast beyond the first 12

weeks shall be used by Wherify and its third party manufacturer to plan for

materials and capacity.

 

            3.4 Purchase Order Acceptance. Purchase orders will normally be

accepted by Wherify, provided however that Wherify may reject any purchase

order: (a) that is an amended order in accordance with Section 4.2 below because

the purchase order is outside of the "flexibility table" in Section 4.2; or (b)

if the purchase order represents a significant deviation from the Forecast for

the same calendar week when the calendar week was the twelfth week of a Forecast

provided in accordance with Section 3.3, unless such deviation is within the

parameters of the "flexibility table" in Section 4.2. Wherify shall notify

Company of rejection of any purchase order within five business days of receipt

of such purchase order.

 

 

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            3.5 Purchase Price; Changes; Taxes.

 

                  (a) The initial purchase price for the Products ("Prices") are

set forth in Appendix B attached hereto. Wherify may revise the Price for any

Product upon 90 days written notice to the Company.

 

                  (b) The Prices do not include any foreign, federal, state or

local sales, use or other taxes, VAT, and similar transfer taxes, any duties, or

similar charges, however designated, levied, or based upon the sale, licensing,

delivery, transfer, importation, exportation, or use of the Products. Company

shall pay, or reimburse Wherify for, all such taxes and charges imposed on

Company or Wherify, provided, however, that Company shall not be liable for any

taxes based on Wherify's net income. When Wherify has the legal obligation to

collect such taxes and charges, the appropriate amount shall be added to

Company's invoice and paid by Company to Wherify unless Company provides Wherify

with a valid tax exemption certificate authorized by the appropriate taxing

authority. Company shall promptly notify Wherify of any amendment or revocation

of such certificate and will indemnify and hold Wherify harmless from and

against any and all taxes and other monies resulting from the failure to hold a

certificate recognized as valid by the appropriate tax authority or from the

failure to pay such taxes, duties, or charges.

 

            3.6 Payment. All payments made hereunder shall be in U.S. Dollars,

and unless otherwise specified herein, shall be paid by Company by wire transfer

to an account designated by Wherify no later 30 days after the date of the

invoice. If Company makes a late payment, Company agrees to pay 1.5% monthly

interest on all payments after the due date, or the maximum rate permitted under

applicable law, whichever is less. Furthermore, if Company is late with

payments, or Wherify has reasonable cause to believe Company may not be able to

pay when due, or in Wherify's reasonable opinion, the financial condition of

Company, or other grounds for insecurity, warrant such action, Wherify may, in

addition to any other rights and remedies available under applicable law or this

Agreement, (a) suspend performance under this Agreement until assurances of

payment satisfactory to Wherify is received or payment is received; (b) demand

prepayment for purchase orders; (c) delay shipments of Products or (d) act

against Company's Letter of Credit (as defined below). Company agrees to provide

all financial information reasonably required by Wherify from time to time in

order to make a proper assessment of the creditworthiness of Company.

 

            3.7 Letter of Credit. At least 120 days prior to the first date of

shipment of Products hereunder, Company shall have opened an irrevocable and

confirmed revolving letter of credit through a prime bank acceptable to Wherify,

in favor of Wherify ("Letter of Credit"). Such Letter of Credit shall be

maintained by Company in an amount that is no less than the total aggregate

amount of the purchase prices, taxes, and other associated charges for Products

set forth in the first 12 weeks of the most recent Forecast made in accordance

with this Agreement. The Letter of Credit set forth above shall provide that

payment shall be made, on terms acceptable to Wherify, upon presentation of the

following documents at least 40 days after the date of the applicable invoice

issued by Wherify: the bills of lading made out to the order of Company or

Wherify, a commercial invoice duly issued by Wherify, and a packing list issued

by Wherify for the Products against which Wherify seeks payment. The Letter of

Credit shall authorize presentation of such documents by Wherify, and payment to

Wherify, for at least 120 days after the date of the bill of lading with respect

to the Products.

 

 

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            3.8 Security Interest. To the extent enforceable under applicable

law, until full receipt of payment of the Price and all other charges payable in

connection with each shipment of each Product by Wherify to Company, Wherify

hereby retains title to such Product and Company hereby grants to Wherify a

purchase money security interest in such Product and the proceeds therefrom.

Company agrees to promptly execute all documents reasonably requested by Wherify

to evidence, record, perfect, maintain and protect such security interest and

retention of title. Company hereby irrevocably designates and appoints Wherify

and its duly authorized officers and agents as Company's attorneys-in-fact, for

the sole purpose of executing and filing such documents and to do all other

lawfully permitted acts for such purpose if Company fails to take such action

within a reasonable period. Such appointment shall be a power coupled with an

interest and shall be irrevocable.

 

      4. SHIPMENTS, SCHEDULE CHANGE, MINIMUM VOLUMES

 

            4.1 Shipments. All Products delivered pursuant to the terms of this

Agreement shall be suitably packed for shipment in accordance with Wherify's

standard packaging and marked for shipment to Company's destination specified in

the applicable purchase order. Shipments will be made EXW (Ex works, Incoterms

2000) Wherify's third party manufacturer's facility. Company shall be

responsible for designating a carrier. Upon making the Product available to the

designated carrier, risk of loss with respect to the Products shall pass to

Company. Company shall pay all freight, insurance, export, and other shipping

expenses, as well as any special expenses for packing provided to the carrier,

directly to its designated carrier or the applicable government or regulatory

authority, as applicable. In the event Company fails to designate a carrier with

respect to any shipment pursuant to an accepted purchase order, Wherify shall

deliver the relevant Products to its designated carrier of choice. All freight,

insurance, export and other shipping expenses, duties, and the like paid

Wherify, as well as any special packing expenses not included in the Price for

the Products, will be invoiced to and paid for by Company.

 

            4.2 Quantity Increases and Shipment Schedule Changes.

 

                  (a) For any accepted purchase order, Company may (i) increase

the quantity of Products or (ii) reschedule the quantity of Products and their

shipment date as provided in the "flexibility table" below:

 

             Maximum Allowable Variance From Accepted Purchase Order

                           Quantities/Shipment Dates

 

        # of days before       Allowable        Maximum          Maximum

         Shipment Date         Quantity       Reschedule      Reschedule

       on purchase order      Increases        Quantity         Period

             0-14                 0%              0%                0

             15-30                0%              0%               0

             31-60                0%              0%               0

             61-90               20%             10%              30

            91-120               30%              25%              60

            121-180              100%            100%             N/A

 

 

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      Decreases in quantity are permitted at the Company's discretion, with

respect to purchase orders that are more than 120 days from the shipment date.

Any increases or reschedules with respect to such purchase orders within 120

days of the delivery date requested in the order will be subject to the purchase

requirements set forth in the "flexibility table" subsection (a) above. Subject

to the terms above, Company shall be entitled to increase and/or reschedule

Products in each order only one time.

 

                  (b) Wherify will use reasonable commercial efforts to meet any

quantity increases, subject to availability of such Products. All reschedules or

quantity increases or decreases outside of the table in subsection (a) above

require Wherify's prior written consent ("Excess Orders"). To the extent Wherify

accepts any Excess Orders, Company shall, in addition to the amounts payable for

the Products, be invoiced for and shall pay any extra costs incurred by Wherify

in meeting such Excess Orders, in addition to the amounts invoiced in accordance

with Section 3.5.

 

            4.3 Minimum Volume Commitments. Company agrees to purchase the

following minimum volume of Products during the calendar years set forth below.

For purposes of this Section 4.3, the time of purchase shall be considered to be

the time at which Wherify receives payment.

 

                  Month 1-12:       100,000 Product units

                  2006:             000,000 Product units (TBD)

                  2007:             000,000 Product units (TBD)

 

      If Company does not purchase the minimum volumes set forth above, it shall

be deemed a material breach of this Agreement. Because the Products have been

priced using a manufacturing cost that assumes a minimum volume of Product

production, if Company fails to meet the annual projected volume of Product, any

materials discounts that are lost, and any additional amounts paid by Wherify,

as a result will be invoiced to the Company. Nothing in this Section 4.3 is

intended to limit Wherify's remedies.

 

            4.4 Cancellation of Orders and Company Responsibility for Inventory.

 

                  (a) Other than as expressly set forth herein, Company may not

cancel all or any portion of an accepted purchase order, or any purchase order

that Company is required to place under Section 3.3, without Wherify's prior

written approval. Absent such approval, Company shall be invoiced for and pay to

Wherify the amount for any such order of Products in accordance with the terms

and conditions of this Agreement. In the event Wherify accepts any cancellation

of Products, Company shall be invoiced and pay a reasonable monthly carrying

charge for any Inventory or Special Inventory procured to support the original

delivery schedule, which carrying charge shall accrue on the first day of

Wherify's acceptance of the relevant purchase order cancellation. In addition,

if Wherify notifies Company that such Inventory and/or Special Inventory has

remained in storage for more than 60 days from such cancellation, then Company

agrees to purchase from such Inventory and/or Special Inventory by paying the

Affected Inventory Costs within 30 days of Wherify's invoice therefor. In

addition, Wherify will calculate the cost or gain of unwinding any currency

hedging contracts entered into by Wherify or its third party manufacturer to

support the cancelled purchase order(s). Should the unwinding result in a loss,

Company shall promptly pay, but in no event more than five business days after

receipt of Wherify's invoice therefor, the amount of any such loss to Wherify or

its third party manufacturer. Should the unwinding result in a gain to Wherify

or its third party manufacturer, such gain shall be creditable by Company

against amounts otherwise owed to Wherify under this Agreement.

 

 

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                  (b) Except for variations that are permitted pursuant to

4.2(a), any change to the amount of Products in any subsequently delivered

Forecast for any of the first 12 weeks covered by a previous Forecast shall be

deemed a cancellation of such Products and Company will be responsible for any

Special Inventory purchased or ordered by Wherify's suppliers to support the

previously forecasted amount of Products.

 

                  (c) For purposes of calculating the amount of Inventory and

Special Inventory, the "Lead Time" shall be calculated as the Lead Time at the

time of (i) procurement of the Inventory and Special Inventory; or (ii)

cancellation of the purchase order, whichever is longer.

 

            4.5 Inspection and Acceptance. Prior to delivery of the Products,

Wherify will perform its standard test procedures or programs that are

applicable to the Products. If Company desires to inspect the Products during

the final test procedures performed by Wherify in relation to any shipment,

Company shall request such inspection in writing and shall be responsible for

any charges that may be associated with such inspections. Notwithstanding the

inspection by Company during the final test procedures, Company reserves the

right to inspect the Products after the arrival thereof at Company's facility.

If any of the Products delivered fail to comply with the limited warranty in

Section 8.1, or the shipment is not in material conformity with the

corresponding order (other than with respect to the delivery date, but including

with respect to any deficiencies in the number of Product received), or any

charges are not correct, the Company shall give Wherify written notice thereof

within five business days of receipt of such Products by Company, specifying the

shipment, the purchase order