Flextronics Manufacturing Services Agreement
This Flextronics Manufacturing Services Agreement ("Agreement") is entered into this 3rd day of November 2008 ("Effective Date") by and between ClearOne Communications having its place of business at
5225 Wiley Post Way suite 500 Salt Lake City Utah 84116 ("Customer") and Flextronics Industrial, Ltd., having its place of business at Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius, ("Flextronics").
Customer desires to engage Flextronics to perform manufacturing services as further set forth in this Agreement. The parties agree as follows:
Flextronics and Customer agree that capitalized terms shall have the meanings set forth in this Agreement and Exhibit 1 attached hereto and incorporated herein by reference.
2. MANUFACTURING SERVICES
2.1. Work . Customer hereby engages Flextronics to perform the work (hereinafter " Work
"). " Work " shall mean to procure Materials and to manufacture, assemble, and test products (hereinafter " Product(s) ") pursuant to detailed written
Specifications. Flextronics agrees not to move or transfer manufacturing from one location to another location without Customer's prior written consent, not to be unreasonably withheld. All changes to manufacturing processes are required to be reviewed
and approved by Customer prior to implementation by Flextronics, which will be obligated to provide Customer with a clear definition of the proposed manufacturing process change. The " Specifications
" for each Product or revision thereof, shall include but are not limited to bill of materials, designs, schematics, assembly drawings, process documentation, test specifications, current revision number, and Approved Vendor List. The Specifications as
provided by Customer and included in Flextronics's production document management system and maintained in accordance with the terms of this Agreement are incorporated herein by reference as Exhibit 2.1. This Agreement does not include any new product
introduction (NPI) or product prototype services related to the Products. In the event that Customer requires any such services, the parties will enter into a separate agreement. In case of any conflict between the Specifications and this Agreement, this
Agreement shall prevail.
2.2. Engineering Changes . Customer may request that Flextronics incorporate engineering changes into the Product
by providing Flextronics with a description of the proposed engineering change sufficient to permit Flextronics to evaluate its feasibility and cost. Flextronics agrees only to accept and shall only be responsible for acting upon information or directions
pertaining to any level of change to form, fit or function of product, product specification, inspection, material or product disposition, or testing provided by Customer's authorized employees. Customer's authorized employees shall be designated in writing
by Customer and provided to Flextronics in the ordinary course of business. Flextronics will proceed with engineering changes when the parties have agreed upon the changes to the Specifications, delivery schedule and Product pricing and the Customer has
issued a purchase order for the implementation costs.
2.3. Tooling; Non-Recurring Expenses; Software . Customer shall pay for or obtain and consign to Flextronics any
Product-specific tooling, equipment or software and other reasonably necessary non-recurring expenses, to be set forth in Flextronics's quotation. All software that Customer provides to Flextronics or any test software that Customer engages Flextronics
to develop is and shall remain the property of Customer.
2.4. Cost Reduction Projects . Flextronics agrees to seek ways to reduce the cost of manufacturing Products by methods such
as elimination of Materials, redefinition of Specifications, and re-design of assembly or test methods. Upon implementation of such ways that have been initiated by Flextronics and approved by Customer, Flextronics will receive 50% of the demonstrated
cost reduction for six months. Customer will receive 100% of the demonstrated cost reduction upon implementation of such ways initiated by Customer.
3. FORECASTS; ORDERS; FEES; PAYMENT
3.1. Forecast . Customer shall provide Flextronics, on a monthly basis, a rolling twelve (12) month forecast indicating Customer's
monthly Product requirements. The first ninety (90) days of the forecast will constitute Customer's written purchase order for all Work to be completed within the first ninety (90) day period. Such purchase orders will be issued in accordance with Section
3.2. Purchase Orders; Precedence . Customer may use its standard purchase order form for any notice provided for
hereunder; provided that all purchase orders must reference this Agreement and the applicable Specifications. The parties agree that the terms and conditions contained in this Agreement shall prevail over any terms and conditions of any such purchase
order, acknowledgment form or other instrument.
3.3. Purchase Order Acceptance . Purchase orders shall normally be deemed accepted by Flextronics, provided however
that Flextronics may reject any purchase order: (a) that is an amended order in accordance with Section 5.2 below because the purchase order is outside of the Flexibility Table; (b) if the fees reflected in the purchase order are inconsistent with the
parties' agreement with respect to the fees; (c) if the purchase order represents a significant deviation from the forecast for the same period, unless such deviation is within the parameters of the Flexibility Table; or (d) if a purchase order would
extend Flextronics's liability beyond Customer's approved credit line. Flextronics shall notify Customer of rejection of any purchase order within five (5) business e1ays of receipt of such purchase order.
3.4. Fees; Changes; Taxes .
(a) The fees will be agreed by the parties and will be indicated on the purchase orders issued by Customer and accepted by Flextronics. The initial fees shall be as set forth on the Fee List attached
hereto and incorporated herein as Exhibit 3.4 (the " Fee List "). If a Fee List is not attached or completed, then the initial fees shall be as set forth in a quote and purchase orders issued by Customer
and accepted by Flextronics in accordance with the terms of this Agreement.
(b) Customer is responsible for additional fees and costs due to: (a) changes to the Specifications; (b) failure of Customer or its subcontractor to timely provide sufficient quantities or a reasonable
quality level of Customer Controlled Materials where applicable to sustain the production schedule; and (c) any pre-approved expediting charges reasonably necessary because of a change in Customer's requirements.
(c) The fees may be reviewed periodically by the parties. Any changes and timing of changes shall be agreed by the parties, such agreement not to be unreasonably withheld or delayed. By way of example
only, the fees may be increased if the market price of fuels, Materials, equipment, labor and other production costs, increase beyond normal variations in pricing or currency exchange rates as demonstrated by Flextronics.
(d) All fees are exclusive of federal, state and local excise, sales, use, VAT, and similar transfer taxes, and any duties, and Customer shall be responsible for all such items. This subsection (d)
does not apply to taxes on Flextronics's net income.
(e) The Fees List will be based on the exchange rate(s) for converting the purchase price for Inventory denominated in the Parts Purchase Currency(ies) into the Functional Currency. The fees will
be adjusted, on a monthly basis based on changes in the Exchange Rate(s) as reported on the last business day of each month, for the following month to the extent that such Exchange Rates change more than +/- .75% from the prior month (the "Currency Window").
"Exchange Rate(s)" is defined as the closing currency exchange rate(s) as reported on Reuters' page FIX on the last business day of the current month prior to the following month. "Functional Currency" means the currency in which all payments are to be
made pursuant to Section 3.5 below. "Parts Purchase Currency(ies)" means U.S. Dollars, Japanese Yen and/or Euros to the extent such currencies are different from the Functional Currency and are used to purchase Inventory needed for the performance of
the Work forecasted to be completed during the applicable month.
3.5. Payment. Customer agrees to pay all invoices in U.S. Dollars within thirty (30) days of the date of the invoice.
3.6. Late Payment. Customer agrees to pay one and one-half percent (1.5%) monthly interest on all late payments. Furthermore,
if Customer is late with payments, or Flextronics has reasonable cause to believe Customer may not be able to pay, Flextronics may (a) stop all Work under this Agreement until assurances of payment satisfactory to Flextronics are received or payment is
received; (b) demand prepayment for purchase orders; (c) delay shipments; and (d) to the extent that Flextronics's personnel cannot be reassigned to other billable work during such stoppage and/or in the event restart cost are incurred, invoice Customer
for additional fees before the Work can resume. Customer agrees to provide all necessary financial information required by Flextronics from time to time in order to make a proper assessment of the creditworthiness of Customer.
3.7. Letter of Credit or Escrow Account. Upon Flextronics's request at any time during the term of this Agreement, Customer
agrees to obtain and maintain a stand-by letter of credit or escrow account on behalf of Flextronics to minimize the financial risk to Flextronics for its performance of the Work under this Agreement. The stand-by letter of credit or escrow account shall
be for a minimum period of time of six (6) months and shall be for a total amount that is equal to the total value of the risks associated with Inventory, Special Inventory, and the accounts receivable from Customer. The calculation shall be based upon
the forecast provided by Customer pursuant to Section 3.1. The draw down procedures under the stand-by letter of credit or the escrow account shall be determined solely by Flextronics. Flextronics will, in good faith, review Customer's creditworthiness
periodically and may provide more favorable terms once it feels it is prudent to do so.
4. MATERIALS PROCUREMENT; CUSTOMER RESPONSIIBILITY FOR MATERIALS
4.1. Authorization to Procure Materials. Inventory and Special Inventory . Customer's accepted purchase orders and forecast
will constitute authorization for Flextronics to procure, without Customer's prior approval, (a) Inventory to manufacture the Products covered by such purchase orders based on the Lead Time and (b) certain Special Inventory based on Customer's purchase
orders and forecast as follows: Long Lead-Time Materials as required based on the Lead Time when such purchase orders are placed and Minimum Order Inventory as required by the supplier. Flextronics will only purchase Economic Order Inventory with the
prior approval of Customer.
4.2. Customer Controlled Materials . Customer may direct Flextronics to purchase Customer Controlled Materials in accordance
with the Customer Controlled Materials Terms. Customer acknowledges that the Customer Controlled Materials Terms will directly impact Flextronics's ability to perform under this Agreement and to provide Customer with the flexibility Customer is requiring
pursuant to the terms of this Agreement. In the event that Flextronics reasonably believes that Customer Controlled Materials Terms will create an additional cost that is not covered by this Agreement, then Flextronics will notify Customer and the parties
will agree to either (a) compensate Flextronics for such additional costs, (b) amend this Agreement to conform to the Customer Controlled Materials Terms or (c) amend the Customer Controlled Materials Terms to conform to this Agreement, in each case at
no additional charge to Flextronics. Customer agrees to provide copies to Flextronics of all Customer Controlled Materials Terms upon the execution of this Agreement and promptly upon execution of any new agreements with suppliers. Customer agrees not
to make any modifications or additions to the Customer Controlled Materials Terms or enter into new Customer Controlled Materials Terms with suppliers that will negatively impact Flextronics's procurement activities.
4.3. Preferred Supplier . Customer shall provide to Flextronics and maintain an Approved Vendor List. Flextronics
shall purchase from vendors on a current AVL the Materials required to manufacture the Product. Customer shall give Flextronics every opportunity to be included on AVL's for Materials that Flextronics can supply, and if Flextronics is competitive with
other suppliers with respect to reasonable and unbiased criteria for acceptance established by Customer, Flextronics shall be included on such AVL's. If Flextronics is on an AVL and its prices and quality are competitive with other vendors, Customer will
raise no objection to Flextronics sourcing Materials from itself. For purposes of this Section 4.3 only, the term "Flextronics" includes any companies affiliated with Flextronics.
4.4. Customer Responsibility for Inventory and Special Inventory . Customer is responsible under the conditions provided in
this Agreement for all Materials, Inventory and Special Inventory purchased by Flextronics under this Section 4.
4.5. Materials Warranties . Flextronics shall endeavor to obtain and pass through to Customer the following warranties
with regard to the Materials (other than the Production Materials): (i) conformance of the Materials with the vendor's specifications and/or with the Specifications; (ii) that the Materials will be free from defects in workmanship; (iii) that the Materials
will comply with Environmental Regulations; and (iv) that the Materials will not infringe the intellectual property rights of third parties.
5. SHIPMENTS, SCHEDULE CHANGE, CANCELLATION, STORAGE
5.1. Shipments . All Products delivered pursuant to the terms of this Agreement shall be suitably packed for shipment in accordance
with the Specifications and marked for shipment to Customer's destination specified in the applicable purchase order. Shipments will be made EXW (Ex works, Incoterms 2000) Flextronics's facility (unless otherwise expressly agreed by the parties, in writing,
and designated in a top level assembly quote), at which time risk of loss and title will pass to Customer. All freight, insurance and other shipping expenses, as well as any special packing expenses not included in the original quotation for the Products,
will be paid by Customer. In the event Customer designates a freight carrier to be utilized by Flextronics, Customer agrees to designate only freight carriers that are currently in compliance with all applicable laws relating to anti-terrorism security
measures and to adhere to the C-TPAT (Customs-Trade Partnership Against Terrorism) security recommendations and guidelines as outlined by the United States Bureau of Customs and Border Protection and to prohibit the freight carriage to be sub-contracted
to any carrier that is not in compliance with the C-TPAT guidelines. Any deviations from the requirements specified on the purchase order, relevant drawings and specifications must be documented by Flextronics and submitted to Customer for acceptance
consideration prior to shipment.
5.2. Quantity Increases and Shipment Schedule Changes .
(a) For any accepted purchase order, Customer 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
(the "Flexibility Table"):
Maximum Allowable Variance From Accepted Purchase Order Quantities/Shipment Dates
# of days before
on Purchase Order
Any decrease in quantity is considered a cancellation, unless the decreased quantity is rescheduled for delivery at a later date in accordance with the Flexibility Table. Quantity cancellations are governed
by the terms of Section 5.3 below. Any purchase order quantities increased or rescheduled pursuant to this Section 5.2 (a) may not be subsequently increased or rescheduled.
(b) All reschedules to push out delivery dates outside of the table in subsection (a) require Flextronics's prior written approval, which, in its sole discretion, mayor may not be granted. If Customer
does not request prior approval from Flextronics for such reschedules, or if Customer and Flextronics do not agree in writing to specific terms with respect to any approved reschedule, then Customer will pay Flextronics the Monthly Charges for any such
reschedule, calculated as of the first day after such reschedule for any Inventory and/or Special Inventory that was procured by Flextronics to support the original delivery schedule that is not used to manufacture Product pursuant to an accepted purchase
order within thirty (30) days of such reschedule. In addition, if Flextronics notifies Customer that such Inventory and/or Special Inventory has remained in Flextronics's possession for more than ninety (90) days since such reschedule, then Customer agrees
to immediately purchase any affected Inventory and/or Special Inventory upon receipt of the notice by paying the Affected Inventory Costs. In addition, any finished Products that have already been manufactured to support the original delivery schedule
will be treated as cancelled as provided in Sections 5.3 and 5.4 below.
(c) Flextronics will use reasonable commercial efforts to meet any quantity increases, which are subject to Materials and capacity availability. All reschedules or quantity increases outside of the
table in subsection (a) require FIextronics's approval, which, in its sole discretion, mayor may not be granted. If Flextronics agrees to accept a reschedule to pull in a delivery date or an increase in quantities in excess of the flexibility table in
subsection (a) and if there are extra costs to meet such reschedule or increase, Flextronics will inform Customer for its acceptance and approval in advance.
(d) Any delays in the normal production or interruption in the workflow process caused by Customer's changes to the Specifications or failure to provide sufficient quantities or a reasonable quality
level of Customer Controlled Materials where applicable to sustain the production schedule, will be considered a reschedule of any affected purchase orders for purposes of this Section 5.2 for the period of such delay. In addition, Customer shall be responsible
for costs related to adjusting foreign currency hedging contracts due to changes in cash flows resulting from such delays.
(e) For purposes of calculating the amount of Inventory and Special Inventory subject to subsection (b), the " Lead Time " shall be calculated
as the Lead Time at the time of procurement of the Inventory and Special Inventory.
5.3. Cancellation of Orders and Customer Responsibility for Inventory .
(a) Customer may not cancel all or any portion of Product quantity of an accepted purchase order without Flextronics's prior written approval, which, in its sole discretion, mayor may not be granted.
If Customer does not request prior approval, or if Customer and Flextronics do not agree in writing to specific terms with respect to any approved cancellation, then Customer will pay Flextronics Monthly Charges for any such cancellation, calculated as
of the first day after such cancellation for any Product or Inventory or Special Inventory procured by Flextronics to support the original delivery schedule. In addition, if Flextronics notifies Customer that such Product, Inventory and/or Special Inventory
has remained in Flextronics's possession for more than thirty (30) days since such cancellation, then Customer agrees to immediately purchase from Flextronics such Product, Inventory and/or Special Inventory by paying the Affected Inventory Costs. In
addition, Flextronics shall calculate the cost or gain of unwinding any currency hedging contracts entered into by Flextronics to support the cancelled purchase order(s). Should the unwinding result in a loss to Flextronics, Customer agrees to cover such
loss amount for Flextronics immediately upon receipt of an invoice for such amount. Should the unwinding result in a gain to Flextronics, a credit note will be immediately issued to Customer.
(b) If the forecast for any period is less than the previous forecast supplied over the same period, that amount will be considered canceled and Customer will be responsible for any Special Inventory
purchased or ordered by Flextronics to support the forecast.
(c) Products that have been ordered by Customer and that have not been picked up in accordance with the agreed upon shipment dates shall be considered cancelled and Customer will be responsible for
such Products in the same manner as set forth above in Section 5.3(a).
(d) For purposes of calculating the amount of Inventory and Special Inventory subject to subsection (a), the "Lead Time" shall be calculated as the Lead Time at the time of (1) procurement of the
Inventory and Special Inventory; (ii) cancellation of the purchase order or (iii) termination of this Agreement, whichever is longer.
5.4. Mitigation of Inventory and Special Inventory . Prior to invoicing Customer for the amounts due pursuant to Sections 5.2
or 5.3, Flextronics will use reasonable commercial efforts for a period of thirty (30) days, to return unused Inventory and Special Inventory and to cancel pending orders for such inventory, and to otherwise mitigate the amounts payable by Customer. Customer
shall pay amounts due under this Section 5 within ten (10) days of receipt of an invoice. Flextronics will ship the Inventory and Special Inventory paid for by Customer under this Section 5.4 to Customer promptly upon said payment by Customer. In the
event Customer does not pay within ten (10) days, Flextronics will be entitled to dispose of such Inventory and Special Inventory in a commercially reasonable manner and credit to Customer any monies received from third parties. Flextronics shall then
submit an invoice for the balance amount due and Customer agrees to pay said amount within ten (10) days of its receipt of the invoice.
5.5. No Waiver . For the avoidance of doubt, Flextronics's failure to invoice Customer for any of the charges set forth in
this Section 5 does not constitute a waiver of Flextronics's right to charge Customer for the same event or other similar events in the future.
6. PRODUCT ACCEPTANCE AND EXPRESS LIMITED WARRANTY
6.1. Product Acceptance . The Products delivered by Flextronics will be inspected and tested as required by Customer within
(15) days of receipt at the "ship to" location on the applicable purchase order. If Products do not comply with the express limited warranty set forth in Section 6.2 below, Customer has the right to reject such Products during said period. Products not
rejected during said period will be deemed accepted. Customer may return defective Products, freight collect, after obtaining a return material authorization number from Flext