Development And Supply Agreement W/CSI Wireless

EXHIBIT 10.19


DEVELOPMENT AND SUPPLY AGREEMENT BETWEEN
BRIGHTSTAR CORP. AND CSI WIRELESS LLC


This Development and Supply Agreement (the "Agreement"), dated as of February 14, 2003, is between Brightstar Corp., a corporation incorporated and existing under the laws of Delaware, U.S.A., with its principal place of business located at 2010 N.W. 84th Avenue, Miami, Florida 33122, U.S.A. ("Brightstar") and CSI Wireless LLC, a corporation incorporated and existing under the laws of Delaware, U.S.A, with its principal place of business located at 1909 Milmont Dr., Milpitas, California, U.S.A 95035 ("CSI").


The following definitions apply with respect to this Agreement:


"Accelerated Life Test" is defined in Section 7.


"Delivery Point" is defined in Section 17(a).


"Epidemic Failure" is defined in Section 24(d).


"Field Failure Rate" is defined in Section 23(b).


"Gross Margin", "Gross Margin per Unit" and "CSI Gross Margin" are
defined in Exhibit C.


"Incremental Costs", "CSI Incremental Costs" and "Brightstar
Incremental Costs" are defined in Exhibit C.


"Intellectual Property Infringement Claims" is defined in
Section 28(a).


"Manufacturing Line Certification" is defined in Section 8.


"Product" is defined in Section 1(a).


"Product Certification" is defined in Section 6.


"Product Transfer Price" is defined in Exhibit C.


"Purchase Orders" is defined in Section 9.


"Purchase Order Cancellation Amount" is defined in Section 15(c).


"Specification" is defined in Exhibit A.


"Total Number of Failed Units" is defined in Section 23(c).


"Total Number of Units Deemed to be In-Service and Under Warranty" is
defined in Section 23(d).


CSI-Brightstar Development and Supply Agreement


The parties agree as follows:


1. RELATIONSHIP AND EXCLUSIVITY


a. This Agreement establishes the terms and conditions pursuant to which CSI and Brightstar will work together exclusively to establish a leadership position in the TDMA Fixed Wireless Telephone market. The parties will do this by working together to initially develop a significantly cost reduced TDMA model of fixed wireless communications device, hereinafter called "Product", and will also work on enhancements and variants of this Product to maintain a leadership position in the market. At the highest level, the general roles of the parties will be as follows: CSI will be responsible to develop, manufacture and supply the Product to Brightstar and Brightstar will be responsible to market, brand, sell, distribute and provide warranty and customer support for the Product to its customers. The intent and spirit of this Agreement is that the profit earned on this activity will he shared equally by CSI and Brightstar.


b. During the term of this Agreement, neither party, including affiliates and subsidiaries, shall develop or manufacture any TDMA Fixed Wireless products other than the Product, absent the prior written consent of the other party, except that CSI will have the right to sell the Product to another customer if Brightstar is in material non-compliance with the provisions of this Agreement, and the non-compliance is not cured within thirty (30) days of formal written notice detailing with specificity Brightstar's non-compliance.


2. DESIGN AND DEVELOPMENT OF PRODUCT


CSI shall design, develop, manufacture, and test the Product in accordance with the Product specifications set forth in Exhibit A. The development and Product approval process will be managed following the schedule described on Exhibit B (the "Schedule").


3. THE SPECIFICATIONS FOR THE PRODUCT


The specifications for the Product are included in Exhibit A.


4. PRODUCT DEVELOPMENT COSTS


In order to develop and launch the Product, Brightstar will cover 50% of the agreed NRE and tooling costs related to development of the Product. CSI will cover the other 50%. Brightstar will pay the 50% of the NRE Product development and tooling costs, totaling $[***], as follows:


1st Payment - $[***] to be paid to CSI upon execution of this Agreement.


2nd Payment -$[***] to be paid to CSI after obtaining the Product
approvals described in Sections 6, 7 and 8, and after the first commercial
shipment of the Product.


3rd Payment - $[***] of NRE cost to be amortized over the first [***]
units shipped to Brightstar and paid to CSI on a per unit basis of $[***].
(To be discussed)


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


2


5. PRODUCTION SAMPLES


In accordance with the timing outlined in the Schedule, CSI shall develop and deliver eight (8) production samples of the Product to Brightstar for Brightstar's review and for Brightstar to use for engineering evaluation and product field functional testing.


6. PRODUCT CERTIFICATION - MOTOROLA AND CARRIER TESTING


CSI acknowledges it is aware of the Motorola, Inc. ("Motorola") and the general Carrier, requirements for product certification of fixed wireless devices ("Product Certification"). CSI will complete the following steps with that understanding:


a. By the date specified in the Schedule, CSI shall deliver 30 production samples of the Product to Brightstar for Product Certification, Brightstar and/or a third party appointed by Brightstar may conduct these tests. CSI will provide product and technical personnel support during the Product Certification process.


b. The production samples must pass the Product Certification acceptance criteria, Brightstar and/or Motorola will approve the production samples, upon the samples passing the Product Certification acceptance criteria, as determined by Brightstar and/or Motorola in its reasonable discretion.


c. If software or hardware changes to the production samples are required to pass the Product Certification acceptance criteria, CSI shall produce the software or hardware at its expense, and the production samples shall be re-tested. This process shall continue until the production samples pass the Product Certification.


d. Brightstar is entitled to purchase at the agreed Product Transfer Price additional pre-production samples for field tests, operator approvals, regional type approvals and marketing samples.


7. PRODUCT RELIABILITY TEST - MOTOROLA ACCELERATED LIFE TEST.


CSI acknowledges it is aware of the Motorola Accelerated Life Test process ("Accelerated Life Test") and the requirements to pass this test process. If Motorola materially changes the current Accelerated Life Test requirements, Brightstar and CSI agree to share the increased costs equally.


By the date specified in the Schedule, CSI shall deliver 40 production samples of the Product to Brightstar or Motorola, as requested by Brightstar, for the Accelerated Life Test. CSI will provide product and technical personnel support during the Accelerated Life Test process. Brightstar will approve the production samples, upon the samples passing the Accelerated Life Test, as determined by Brightstar and/or Motorola in its reasonable discretion. If software or hardware changes to the production samples are required to pass the acceptance criteria specified for the Accelerated Life Test, CSI shall produce the software and/or hardware at its expense, and the production samples shall be re-tested. This process shall continue until the production samples pass the Accelerated Life Test criteria.


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


3


8. MANUFACTURING LINE CERTIFICATION.


CSI acknowledges it is aware of the Motorola, manufacturing line certification process and the requirements to pass this certification ("Manufacturing Line Certification"). If Motorola materially changes the current Manufacturing Line Certification requirements, Brightstar and CSI mutually agree to share the increased costs equally.


Brightstar and Motorola or a third party appointed by Brightstar will make an assessment to the Product manufacturing line and will certify the product line. Brightstar or Motorola or the appointed third party will issue a written certificate to CSI stating that the Product has been approved for production (the "Approval Certificate") after all required items have been successfully completed.


9. PURCHASE OF PRODUCTION UNITS; PRODUCT CONFIGURATION


a. Brightstar will order Product by issuing Purchases Order to CSI in a format that is mutually agreed.


b. Brightstar is responsible for managing Product demand under the business structure defined by this Agreement. While Brightstar makes no contractual commitment to purchase minimum volumes of Product under this Agreement, it is understood by both parties that this business arrangement should target a leading market share in Latin America which is expected to result in an annual volume in excess of [***] units. This volume figure will be used as the basis for the costs referenced in this Agreement.


c. Brightstar's commitments to purchase specific quantities of the Product shall be set forth on the front of written Brightstar purchase order forms (the "Purchase Orders").


d. Brightstar will purchase the Product from CSI as a final assembled unit or as the parties may otherwise jointly agree from time to time.


e. Each unit of the Product shall be delivered with all of the authentication/ identification features required to operate on commercial systems (e.g. IMEI numbers, ESNs, etc.). To prepare the authentication and identification, Brightstar shall provide to CSI any carrier specific information required to configure or program the Product.


10. MATERIALS AND COMPONENTS


a. CSI shall procure and pay for all materials and components necessary to manufacture the Product in all configurations.


b. Upon written agreement from both parties, changes may be made regarding the manufacturing and assembly plans for the product.


c. The toolings that are developed for the commercial launch of the Product will be owned jointly by CSI and Brightstar. If future changes are required to the toolings, or new toolings are required to be prepared, CSI and Brightstar will share the cost equally such that the new toolings will continue to be jointly owned by CSI and Brightstar.


11. SPARE PARTS AND REPLACEMENT UNITS INVENTORY


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


4


For a period of 18 months from the delivery of the last shipment of Product ordered by Brightstar under this Agreement, CSI shall ensure the availability of spare parts for the Product in quantities the parties mutually agree are sufficient to support both in-warranty and out-of-warranty repair of the Product. At the end of this period, Brightstar may make a final purchase of spare parts inventory or replacement units to provide support for the Product beyond the initial 18 months period.


12. PRODUCT TRANSFER PRICE AND SHARING OF PROFITS


CSI and Brightstar will share the profit earned on the business activities described in this Agreement. The sharing of profit will be administered through the payment of the Product Transfer Price and the CSI Gross Margin as follows:


a. It is the intention of both parties to this Agreement that the Product Transfer Price between CSI and Brightstar will be calculated so as to reimburse CSI for the agreed costs incurred to manufacture and deliver the Product to Brightstar. The CSI Gross Margin will be calculated to share the margin earned on Product sales on an equal (50/50) basis between the parties after consideration of direct Product cost and Incremental Costs.


b. Definitions for the Product Transfer Price, CSI Gross Margin, Incremental Costs and a standard margin sharing calculation are included in Exhibit C.


c. The preliminary estimate of CSI Incremental Costs and Brightstar Incremental Costs are summarized in Exhibit C, Prior to the first commercial shipment of Product, CSI and Brightstar will review the preliminary estimate and agree on the CSI Incremental Costs and Brightstar Incremental costs that should be used for the initial commercials shipments under this Agreement until these are re-set in accordance with Section 12(d). The preliminary estimate of CSI Incremental Costs and Brightstar Incremental Costs included in Exhibit C should be the same or close to the costs to be used for the initial commercial shipment.


d. During the months of May and November each year, the Finance groups in each party will summarize actual costs incurred in each of the allowable incremental cost categories described in Exhibit C and will provide this summary to the other parties' Finance group. These calculations will be reviewed and confirmed by the parties. If actual costs incurred by a party differ from the amount of costs paid to that part during the reconciliation period such that either party owes the other more than $5,000, then a payment will be made by the owing party for the total difference between actual and estimated costs. In addition, if both parties agree, acting reasonably, that an adjustment of any component of the Incremental Costs is required, the estimate of the Incremental Costs will be re-set for purposes of the calculating the Product Transfer Price and CSI Gross Margin going forward. These changes will be documented in writing and signed by both parties prior to implementing the change.


e. Brightstar shall provide to CSI with copies of all purchase orders received from customers for purchases of the Product on a quarterly basis.


f. Subject to the shipping terms and obligations of the parties contained in this Agreement. Brightstar will be responsible for all international, federal, state, provincial or local sales, use, value-added, excise, or withholding taxes, or any other taxes or duties of any nature


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


5


whatsoever assessed upon or due with respect to the supply of Product under this Agreement, except for items of tax based in whole or in part on a party's business income.


g. CSI and Brightstar agree to provide access to all relevant documentation and evidence relevant to the costs incurred in the program and necessary to validate claims made by either party under Sections 12, 20, 23, 24 and Exhibit C of this Agreement.


13. PAYMENT


a. Payment of the Product Transfer Price will be sent by wire transfer to CSI within 30 days of Product shipment to Brightstar (as defined in the shipping terms section, 17(a)). Payment of the CSI Gross Margin will be sent by wire transfer to CSI within three (3) working days of receipt of payment by end customer to Brightstar. Any other amounts owing under this Agreement will be paid by wire transfer, or by check if agreed by the parties, within thirty (30) days of the invoice date or the date of other written notice.


b. Pricing for Product is defined in Exhibit C.


c. The payment terms noted above in 13(a) and 13(b) represent the current agreement between the parties. Both parties understand that the final business arrangements with the final contract manufacturer for the Product have not been completed, and as a result changes to these terms could be presented by a contract manufacturer that would provide business advantage to both Brightstar and CSI. Both parties agree that changes to these payment terms will be considered, and that changes may be made upon written agreement of both parties which shall not be unreasonably withheld.


d. As part of the intent to eliminate the need for letters of credit it may be necessary to review and agree to other methods for providing payment assurance to the final contract manufacturer for the Product. Brightstar agrees to work with CSI to review various alternatives to providing payment assurance to the contract manufacturer. Should any material costs result from providing payment assurance to the contract manufacturer, these costs will be shared equally by the parties.


14. PURCHASE ORDERS, ACCEPTANCE FORECASTS


a. Prior to the 15th day and the last day of each month, Brightstar shall deliver firm and binding written Purchase Orders to CSI such that CSI has Purchase Orders covering the aggregate quantity of Product requested to be delivered in the three month period following that day, Prior to the last day of each month, Brightstar will also deliver a Forecast detailing the quantity of Product expected to be delivered in the fourth and fifth months following that month.


b. Each Purchase Order will identify the Product being ordered, the required delivery date(s), delivery address, and such other information as the parties agree.


c. CSI shall acknowledge its receipt of Purchase Orders in writing within three (3) working days of receipt. CSI shall accept Purchase Orders by confirming its acceptance in writing, CSI may reject a Purchase Order if Brightstar has requested ship dates that are outside the lead time


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


6


agreed to by the parties and CSI is unable to comply with the required delivery schedule. Purchase Orders accepted by CSI are non-cancelable, subject to Section 15.


d. If CSI is unable to comply with Brightstar's required delivery schedule, CSI shall inform Brightstar, in writing, within three (3) working days and shall arrange a mutually suitable alternative delivery schedule, and Brightstar shall reissue the Purchase Order with the revised delivery date. If CSI fails to confirm a Purchase Order within three (3) working days, CSI shall be deemed to have accepted the Purchase Order. All pre-printed terms included in Brightstar's Purchase Orders and CSI's acknowledgments, invoices, or other similar communication shall be null and void.


e. The Forecast and Purchase Order terms noted above in 13(a) and 13(b) represent the current understanding. Both Parties understand that the final business arrangements with the final contract manufacturer for the Product have not been completed, and as a result changes to these terms could be presented by a contract manufacturer that would provide business advantage to both Brightstar and CSI. Both parties agree that changes to these forecasting and Purchase Order terms will be considered, and changes may be made upon written agreement of both parties which shall not be unreasonably withheld.


15. CANCELLATION OF ORDERS


a. Unless CSI is in material breach of this Agreement, Brightstar may not cancel a delivery of Product that is covered by a firm Purchase Order without incurring a Purchase Order Cancellation Amount, as that term is defined below. However, Brightstar may delay delivery of Product to later in the month of the originally scheduled delivery or later, if agreed to by CSI, without incurring a Purchase Order Cancellation Amount.


b. In the event Brightstar does cancel a portion of a Purchase Order for reasons other than CSI's material breach of this Agreement, then Brightstar's notice of cancellation shall be in writing and Brightstar's sole liability and CSI's sole remedy with respect to such cancellation shall be a payment by Brightstar to CSI of a Purchase Order Cancellation Amount, calculated pursuant to the formula set out in subsection (c) below.


c. The "Purchase Order Cancellation Amount" shall be equal to the sum of:


(i) The number of units of Product being cancelled that are in a
finished goods state on the date of the cancellation notice,
multiplied by the Product Transfer Price of those units,


(ii) All costs paid or payable by CSI in purchasing materials
for the number of units of Product being cancelled that cannot
be used to manufacture Product for Brightstar under other
Purchase Orders and/or cannot be returned by CSI for credit in
the period that is 30 (thirty) days following the receipt of
the notice of cancellation,


(iii) any cancellation charges incurred by CSI in order to
mitigate the amount of the Purchase Order Cancellation Amount.


d. In no event shall a Purchase Order Cancellation Amount exceed the purchase price allocable to the portion of the Purchase Order that is being cancelled, CSI shall provide Brightstar


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


7


with access to the CSI facility and to relevant inventory and other records so that Brightstar can independently verify any Purchase Order Cancellation Amount.


e. Brightstar may request acceleration of the required delivery dates or increase the order quantity for a particular Purchase Order and CSI agrees to use commercially reasonable efforts to complete the revised order.


16. PACKAGING


a. Brightstar shall provide CSI with Brightstar's packaging requirements for the Products. CSI shall submit to Brightstar for its approval samples of the packaging containers that CSI proposes to use to ship the portions of the Products to Brightstar that will comply with Brightstar's packaging requirements.


b. Unless otherwise provided on a Purchase Order, CSI shall be solely responsible for procuring and paying for the cost of all packaging materials. CSI shall properly package the Products to ensure that they will not be damaged or deteriorate in transit and CSI shall be responsible for all loss that is caused due to its failure to use approved packaging for the Products.


17. SHIPPING


a. Shipping and delivery shall be C.I.P. (Carriage and Insurance Paid) to a point in Mexico to be mutually agreed by the parties ("Delivery Point"), in accordance with INCOTERMS (1990).


b. If CSI is unable to ship all Products in time to arrive by the delivery date stated in the applicable Purchase Order, CSI shall ship the quantity available, if any, and give Brightstar prompt telephone or faxed notice of the delay and/or partial shipment.


c. If CSI fails to deliver a quantity of Product within 30 clays after the delivery date stated in the applicable Purchase Order, and CSI causes the failure, then Brightstar may cancel its order for the quantity of Product that is late without liability by giving CSI written notice of cancellation.


d. If in order to comply with any agreed upon delivery date, it becomes necessary for CSI to ship Product by a more expensive method than originally contemplated in the Purchase Order, CSI shall be responsible for the increased transportation costs, unless the necessity for such rerouting or expedited handling has been caused by Brightstar.


e. CSI shall obtain Brightstar's written approval prior to making any shipments of Product before the delivery date stated in the applicable Purchase Order, unless such early shipment is within three (3) days prior to the scheduled delivery date or the date listed (if any) in the applicable Purchase Order as the grace period for early delivery.


18. EXPORT/IMPORT


CSI shall comply with all applicable export and import laws, regulations and orders impacting the Product prior to delivery at the Delivery Point. Subject to prior notification of sales outside of


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


8


Mexico, CSI will take all commercially reasonable steps to assist Brightstar in complying with all applicable export laws, regulations and orders relating to such sales.


19. LABELS & MARKINGS


a. Brightstar shall be responsible for informing CSI of the applicable legal requirements with respect to labeling and marking Products intended for resale to consumers. CSI agrees to include on the Products patent numbers, registration or identification numbers and country of origin labels and markings as are required by the applicable laws of the country where the Product is intended to be sold to end-users. Whenever Brightstar has in its possession information that is required to be printed on Product labels (e.g., FCC identification number) Brightstar shall provide such information to CSI.


b. CSI shall include on each unit of Product a label in whatever format (e.g. bar-coding, etc.) Brightstar may from time to time require that reveals manufacturing data that Brightstar may from time to time require, including but not limited to the date, time and place of manufacture, the authentication/identification, number for the unit, and a marking that indicates what version of CSI hardware and software was used in the unit.


20. TITLE AND RISK OF LOSS


Title and risk of loss and damage shall pass to Brightstar at the Delivery Point in accordance with Section 17(a); however, all loss and damage discovered after transfer of title caused by faulty packaging or handling by CSI shall be CSI's responsibility.


21. QUALITY CONTROL, INSPECTION AND OUT-OF-BOX TESTING


CSI is fully aware of the Quality Control, Inspection and Out-of-Box testing requirements of Motorola. CSI agrees to follow the quality and control inspections it understands are required, and to support out-of-box testing as it has done on previous programs with Brightstar.


22. INSURANCE


a. From the date of the first commercial shipment of Product under this Agreement, CSI and Brightstar shall each maintain in full force and effect the following forms of insurance with the following minimum liability limits:


(i) public liability and property damage liability insurance under
a comprehensive or commercial general liability form on an "occurrence"
basis with limits of no less than USD$ 10,000,000 combined single limit
per occurrence and in the aggregate for an annual term. Such insurance
shall be provided by an insurer acceptable to Brightstar and shall not
be subject to any excess provision, deductible and/or self-insured
retention more than USD$ 10,000 per occurrence.


b. Each party shall provide the other with appropriate certificates or other evidence of such insurance coverage as requested by that party. Such coverage shall provide for thirty (30) days minimum cancellation notice to the other party. Each party agrees, however, that the procurement and maintenance of the above insurance coverage shall not limit or affect any liability which that party may have by virtue of this Agreement or otherwise.


CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project


9


23. RELIABILITY AND FAILURE RATES


a. All Products manufactured by CSI shall have a Field Failure Rate which in any given month shall not exceed point seventy five percent (.75%).


b. The Field Failure Rate for any given month is a fraction: the numerator is the Total Number of Failed Units for that month, and the denomin ...