Development and Supply Agreement between Brightstar Corp. and CSI Wireless LLC
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Brightstar Corp. and CSI Wireless LLC entered into an exclusive agreement on February 14, 2003, to jointly develop, manufacture, and supply a cost-reduced TDMA fixed wireless telephone product. CSI is responsible for product development, manufacturing, and supply, while Brightstar handles marketing, sales, distribution, and customer support. Both parties share development costs and profits equally. The agreement includes detailed provisions for product certification, testing, and exclusivity, with specific obligations for each party and conditions for resolving non-compliance.
EX-10.19 25 g89954exv10w19.txt DEVELOPMENT AND SUPPLY AGREEMENT W/CSI WIRELESS PORTIONS OF THIS DOCUMENT INDICATED BY AN [***] HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT OF SUCH INFORMATION. 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 denominator is the Total Number of Units Deemed to be In-Service and Under Warranty during that month. c. Total Number of Failed Units for the given month is calculated as follows: Total number of units returned to Brightstar for failure to perform in accordance with the specifications included in Exhibit A, except for those units where such failure is caused by customer abuse or misuse and those units which will be covered by Brightstar, based on Section 24 of this Agreement. d. Total Number of Units Deemed to be In-Service and Under Warranty during the given month is calculated as follows: Total number of units shipped by CSI to Brightstar in the aggregate. e. A program for continuous field reliability improvement shall be a part of CSI overall quality system. If Products manufactured by CSI have Field Failure Rates that exceed point seventy five percent (0.75%) in any month, CSI shall implement a corrective action plan that addresses the issues that impact the Field Failure Rate. If CSI plan does not produce improvements deemed acceptable by Brightstar within sixty (60) days of implementation of the plan, then in addition to its other remedies, Brightstar shall have the right to cancel any or all open Purchase Orders affected by the failure issue. If this failure issue affects all open Purchase Orders, then Brightstar shall have the right to terminate this Agreement in accordance with Section 30, after providing CSI with the above sixty-day (60) opportunity to cure. 24. WARRANTY CSI warrants that all Products delivered to Brightstar shall perform in the field with a Field Failure Rate of less than point seventy five percent (0.75%) per month for a period of fifteen (15) months from the date of shipment to Brightstar. a. All the field failures that don't exceed point seventy five percent (0.75%) per month, will be repaired by Brightstar. Brightstar shall be entitled to a [***]% discount on each order of Product based upon the Product Transfer Price outlined in Schedule C to cover the costs of these repairs. b. CSI shall pay to Brightstar the cost that Brightstar incurs to repair all Products that fail to conform to this warranty after inspection and agreement by both parties of the cost of repair (i.e. all Products that fail in excess of .75% Field Failure Rate). For greater clarity, CSI shall pay the cost of repairs for field failures in excess of point seven five percent (0.75%) if the Product fails to perform in accordance with the Specifications, and such failure is caused by a design defect (including die software in the Product), a manufacturing defect or a defect in materials and components supplied by CSI. CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 10 c. CSI will supply to Bright-star free of charge a volume of Product equal to [***]% of the Product purchased on a monthly basis. These units are seed stock to facilitate loans by Bright-star or its third party repair centers of "good" Product while units that are defective are under repair. These units shall be Brightstar's property, d. If at any time either during the warranty period specified in this section, Product manufactured by CSI fails to perform in-service in accordance with the warranty stated in this Section 24 because of redundant defects or failures that constitute an Epidemic Failure, CSI shall replace or repair any lot or lots of the Product in Brightstar's inventory that contain Epidemic Defects. For this purpose, Epidemic Failure is defined as a redundant defect or failure in breach of the warranty stated in this Section 24 that occurs in more than 2.5% of any given shipment lot. A shipment lot will contain on average 5,000 units of the Product. If an Epidemic Failure exists, Brightstar shall have the option of requiring CSI to sort Brightstar's inventories. Should Brightstar choose to have its inventories sorted, Brightstar will coordinate and supervise the resources required at its expense but all other costs shall be borne by CSI. In the event the Product is re-called from end-users because of an Epidemic Failure, CSI shall pay all those reasonable, direct and out-of- pocket costs incurred by Brightstar in connection with the recall, including shipping and handling. In the event of Epidemic Failure and customer's request to return Product to supplier, Brightstar will make its effort to negotiate with customer the acceptance of Product replacement. Should customer request the return of the money amount which was paid for the Product, CSI shall accept the Product returned and refund the money paid for the returned Product. e. DISCLAIMER THE FOREGOING WARRANTIES AND REMEDIES ARE THE EXCLUSIVE WARRANTIES AND REMEDIES PROVIDED BY CSI AND ARE IN LIEU OF ALL OTHER WARRANTIES, TERMS OR CONDITIONS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW. CSI MAKES NO OTHER WARRANTY, EXPRESS, OR IMPLIED, AND EXPRESSLY DISCLAIMS ALL 'IMPLIED WARRANTIES, INCLUDING MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 25. FIELD SERVICE SUPPORT a. Prior to delivery of the first shipment of production units of the Product, CSI shall provide to Brightstar the information and equipment needed for Brightstar to test, program, service, and repair the Product and accessories, including the items listed in Exhibit E. b. Continuously during the useful life of the Product, CSI shall forward to Brightstar reasonably acceptable changes, if possible, to some of the items described in Exhibit E. CSI shall ensure that, if mutually agreed, from time to time Brightstar has current, up-to-date copies of the items described in Exhibit E, as each of those items may be updated. c. If unique parts are required for Brightstar to construct additional cables or software flash boxes, or additional unique equipment is required for Brightstar to test, program, service or repair the Products, then CSI will purchase such unique parts or equipment on Brightstar's behalf in quantities specified by Brightstar, and CSI will resell such parts or equipment to Brightstar at a price equal to CSI direct, out-of-pocket cost (as documented by receipts) plus reasonable handling costs to purchase, such items. d. All of the items described in Exhibit E shall be delivered in the English language, and those that exist in electronic media shall be transmitted in such form. All software shall be CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 11 transmitted in a format that is executable by commercially available hardware, and all software shall be written with prompts, menus, and commands in English. e. CSI hereby grants to Brightstar a fully paid-up license to make, have made, use, copy, modify, distribute and disclose the technical information, equipment and software provided by CSI under this Section for use by Brightstar and, under non-disclosure terms, also by the Brightstar Authorized Service Network, in testing, programming, servicing and repairing the Products, subject to any third party approvals. CSI hereby grants to Brightstar the right to make, have made, use, copy, modify, distribute and disclose the items described above for use by Brightstar's customers for testing, programming, servicing and repairing the Products. f. CSI shall provide technical training at a time and place mutually agreed, to by the parties to Brightstar manufacturing and distribution personnel to enable them to test and program the Products and CSI shall deliver on or before such training all of the items described above. g. The technical and service training shall be provided by CSI, at the cost of Brightstar, to Brightstar and its Authorized Service Network. Brightstar shall be responsible for the cost of travel, lodging, meals and other reasonable expenses incurred by such, instructors. In case of the first technical and service training to Brightstar, the cost will be at CSI expense except the flight cost for the staff of CSI. 26. INTELLECTUAL PROPERTY a. No grant or transfer of any of Brightstar's intellectual property rights to CSI is given or intended under this Agreement, including any license implied or otherwise, and no grant or transfer of any of CSI's intellectual property rights to Brightstar is given, or intended under this Agreement. b. With respect to the industrial design of the Product the following terms and conditions shall apply: i. CSI shall obtain necessary copyright ownership of the industrial design from its designers, including a waiver of any moral rights that the designers may have. c. CSI agrees to take some necessary precautions to prevent any of Brightstar's intellectual property rights from being used for any purpose other than for the design and manufacture of the Product, by CSI for delivery to Brightstar. d. With the exception of third-party branding and TDMA license rights acquired directly by Brightstar, CSI warrants that it has obtained from third parties the necessary licenses to design, make, use, offer for sale, and sell the Product to Brightstar, and to grant have made rights to Brightstar. 27. TRADEMARKS CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 12 Brightstar will have the right to commercialize the products under a third party's brand. The use of those brands will be executed under license agreements with the respective companies who own said brands. 28. INDEMNIFICATION a. CSI warrants that to its knowledge, the Product is free from any third party and employee or contractor claims of infringement of a patent, copyright, trade secret, mask work rights or other intellectual property right in the United States or Mexico ("Intellectual Property Infringement Claims"). CSI shall indemnify and hold harmless Brightstar, its agents, distributors, and customers, from and against all Intellectual Property Infringement Claims that are brought against any of them and CSI shall pay all damages arising from such Claims, together with all costs and expenses related thereto, including, without limitation, reasonable attorneys' fees and costs. If use or sale of the Product is enjoined as a result of any such Claim, then CSI shall obtain for Brightstar, its agents, distributors and/or customers one of the following forms of relief, to be selected by Brightstar: (i) the right to sell or use the Product as is; (ii) an equivalent, but non-infringing substitute that is acceptable to Brightstar and extend this indemnity to it; or (iii) accept return of the infringing Products and refund to Brightstar the purchase price for it. The above indemnity will also apply to infringement claims in countries other than the United States or Mexico, provided that in advance of placing an order for Product that will ship to such a country: (a) Brightstar informs CSI in writing of the country, and (b) CSI is given the opportunity, at CSIs sole option, to make changes to the Product to remove any infringement or to reject orders for delivery into countries where it reasonably believes that an infringement will exist. CSI has no obligation for any claim of infringement, to the extent the claim, results from: (i) use or incorporation of any design specification, marking requirement or instruction furnished by or work performed by or on behalf of Brightstar; (ii) any portion of the Product which has been varied, altered, or modified by anyone other than CSI, its agents or contractors; (iii) use of the Product in a way not specified by CSI; or (iv) use, sale, distribution or other disposal of the Product following written notification, by CSI, that doing so may result in a claim of infringement. b. CSI shall indemnify and hold harmless Brightstar, its agents, distributors, and/or customers, from and against all loss, claim, damage or liabilities that may result from any third party claims of bodily injury or property loss or damage to the extent caused by a defect in the Product's design, manufacture or handling by CSI. c. Brightstar shall indemnify and hold harmless CSI, its agents, distributors, and/or customers, from and against all loss, claim, damage or liabilities that may result from any third party claims, loss, damage or liabilities to the extent caused by the handling of the Product by Brightstar, branding and trademark requirements through or by Brightstar, or warranty work performed by or for Brightstar. 29. LIMITATION OF LIABILITY NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, EXCEPT FOR THE OBLIGATIONS OF THE PARTIES IN SECTION 26, 27 and 28, IN NO CASE SHALL A PARTY BE LIABLE TO THE OTHER PARTY fOR ANY DAMAGES OR LOSSES SUFFERED BY THE CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 13 OTHER PARTY OR ANY OTHER PERSON FOR LOSS OF PRODUCTION, LOSS OF USE, LOSS OF BUSINESS, LOSS OF PROFIT, LOSS OF DATA OR REVENUE OR FOR ANY SPECIAL, INDIRECT, ECONOMIC, PUNITIVE, EXEMPLARY, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OR LOSSES IN ANY WAY RELATED TO PERFORMANCE OR NON-PERFORMANCE OF ANY MATTER RELATED TO THIS AGREEMENT, OR ARISING DIRECTLY OR INDIRECTLY OUT OF THE OWNERSHIP, USE OR OPERATION OF THE PRODUCT, REGARDLESS OF WHETHER OR NOT THE POSSIBILITY OF SUCH DAMAGES OR LOSSES COULD HAVE BEEN REASONABLY FORESEEN, AND EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES, WHETHER SUCH DAMAGES ARE BASED UPON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY OR ANY OTHER LEGAL THEORY. 30. INFORMATION SHARING CSI and Brightstar intend to carry out this relationship on a fully "open-book" basis. Therefore, each party will agree to make available to the other party all of its books and records as are necessary to ensure that the provisions of this Agreement are fully adhered to by the parties. Where a party desires that the audit of its books and records to determine adherence to the agreement should be carried out on a confidential basis by an independent third party auditing firm, then that party will bear the cost of engaging such a firm on behalf of the other party. 31. TERMS AND TERMINATION a. The term of this Agreement shall commence on the date indicated on the first page and shall continue for two (2) years, unless otherwise terminated as permitted herein. At the end of the term, this Agreement shall automatically renew for successive periods of one (1) year unless at least thirty (30) days prior to any scheduled renewal date one party notifies the other in writing that it will not renew this Agreement. b. This Agreement may be terminated by either party for failure by the other party to cure a material breach in any term or condition of this Agreement. Such termination shall be effective sixty (60 ) days following written notice of the breach, unless the breach is cured within such notice period, in which case the Agreement will not be terminated for such breach. c. If Brightstar provides notice of termination of this Agreement in accordance with Section 23(e), then Brightstar may cancel any and all open Purchase Orders as to Product not yet shipped without incurring any cancellation liability. Any open Purchase Orders that Brightstar does not cancel shall be completed in accordance with their original terms, unless the parties expressly agree otherwise. d. If Brightstar provides notice of termination of this Agreement because of CSI's insolvency, and in accordance with Section 31(b), then Brightstar may immediately cancel any and all open Purchase Orders as to Product not yet shipped without incurring any cancellation liability. Any open Purchase Orders that Brightstar does not cancel shall be completed in accordance with their original terms, unless the parties expressly agree otherwise. e. This agreement may also be terminated by either party as described in Section 34. 32. COMPLIANCE WITH LAWS CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 14 a. Both parties warrant that they will comply with all applicable laws, orders, rules and regulations in performing their obligations and shall indemnify the other party against any claims and shall reimburse the other party for any losses, costs or expenses it incurs as a result of any breach of this warranty. b. CSI warrants that all Products manufactured by CSI will have been produced in compliance with all applicable laws, orders, rules and regulations. CSI shall indemnify Brightstar against any claims and shall reimburse Brightstar for any losses, costs or expenses Brightstar incurs as a result of any breach of this warranty. c. CSI shall effect or secure and maintain at its own cost all necessary governmental permits, licenses, approvals and registrations in the United States and Mexico required in connection with CSI's performance of its obligations under this Agreement. d. CSI warrants that all Products manufactured by CSI will have been produced, manufactured, assembled or packaged, in whole or in part, without the use of any forced labor, prison labor, or child labor, and that such Products will not be trans-shipped for the purpose of mislabeling, evading quota or country of origin restrictions, or avoiding compliance with forced labor, prison labor or child labor laws. 33. FORCE MAJEURE Neither party shall be in breach of its obligation hereunder to the extent that its performance is delayed or prevented by causes beyond its control, including, without limitation, acts of God, acts of third parties, civil disorders, acts of any civil or military authority, judicial action, and strikes or other labor disputes. 34. CONTRACTUAL RELATIONSHIP a. Brightstar and CSI warrant to one another that they have entered into no contracts, and are subject to no obligations, which prevent, or adversely affect their performance under this Agreement. 35. INDEPENDENT CONTRACTORS It is understood and agreed that Brightstar and CSI are, and at all times during the term of this Agreement shall remain, independent contractors. At no time shall either party represent to any third party that it is the agent of the other. Brightstar and CSI further covenant that no authorization shall be given to any employee of either party to act on behalf of the other. In no event shall either party at any time have authority to make any contracts, commitments or undertake any obligations on behalf of the other. 36. NOTICES a. All notices, consents and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered by hand; (b) when sent by telecopier (with receipt confirmed), provided that a copy is promptly thereafter mailed by first class postage prepaid registered or certified mail, return receipt requested; (c) when received by the CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 15 addressee, if sent by air courier (receipt requested) or by such other means as the parties may agree from time to time; or (d) twenty (20) business days after being mailed, by first class postage prepaid registered or certified mail, return receipt requested; in each case to the appropriate addressee and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate as to itself by notice to the other party): If to Bright-star. Brightstar Corp. 2010 N.W. 84th Avenue Miami, FL. 33122 U.S.A. Attn: Jaime Narea ***@*** With a copy to: Kirkpatrick & Lockhart LLP Miami Center, Suite 2000 201 S. Biscayne Blvd. Miami, Florida 33131 Attn: Clayton E. Parker, Esq. Telephone: (305) 539-3327 Facsimile: (305) 358-7095 ***@*** If to CSI: CSI Wireless LLC 4110 9th Street SW Calgary, Alberta, Canada T2G 3C4 Attention: Colin Maclellan Telephone: 403 ###-###-#### Facsimile: 403 ###-###-#### Email: ***@*** b. All notices, demands, requests, statements or other communications to be made or given hereunder shall be in the English language. Any documents required to be delivered pursuant to this Agreement, which are not in the English language must be accompanied by a correct English language translation and in the event of any conflict between the original of the document and the English language translation, the English translation shall prevail. 37. GOVERNING LAW, JURISDICTION, AND DISPUTE RESOLUTION a. This Agreement and other Exhibits shall be governed by and construed in accordance with the laws of the State of Florida, U.S.A. Each Purchase Order placed under this CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 16 Agreement shall also be governed by and construed in accordance with the laws of the State of Florida, The Parties expressly agree that the "United Nations Convention on Contracts for the International Sale of Goods" shall not apply to this Agreement. b. Disputes arising out of or relating to the interpretation or performance of this Agreement shall first be resolved through friendly consultations. If such dispute cannot be resolved within thirty (30) days after the commencement of consultation (or any extension thereof mutually agreed to by the parties), either party may submit the dispute to mediation by a mutually acceptable mediator to be chosen by Brightstar and CSI within twenty (20) days after written notice by either Brightstar or CSI demanding mediation. Neither Brightstar nor CSI may unreasonably withhold consent to the selection of the mediator. Each party shall, bear its own costs of mediation, but Brightstar and CSI will share the costs of the mediator equally. The mediation shall take place in Miami Dade County, Florida, U.S.A. In any event, the mediation will be conducted in English. c. Any dispute, which cannot be resolved between the parties through mediation within forty-five (45) days of the date of the initial demand for any mediation by one of the parties, may then be submitted to any state or federal court of competent jurisdiction Miami Dade County, Florida, U.S.A. for resolution, which court shall have exclusive jurisdiction. The use of any mediation procedures will, not be construed under the doctrines of laches, waiver or estoppels to affect adversely the rights of either party. 38. ASSIGNMENT Neither party may assign or delegate its performance under this Agreement to any party without the other party's prior written consent. 39. SECTION HEADINGS The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 40. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired, and all provisions are declared to be separate and distinct covenants. The parties agree that if any provision is determined by any court to be invalid or unenforceable because of the duration or scope of the, then the provision shall be interpreted to extend over the maximum period of time and the maximum scope which such court at that time or which any other court at any subsequent time determines to be valid and enforceable. 41. CONFIDENTIALITY OF AGREEMENT. Each party hereto agrees not to disclose to any third party the existence of this Agreement, or to disclose to any third party its terms and conditions, except as reasonably necessary for purposes of performing its obligations hereunder or as otherwise required by law, unless the other party provides its prior written consent. 42. WAIVER AND AMENDMENTS CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 17 All amendments and other modifications of this Agreement shall be in writing and signed by each of the parties. The parties may by written instrument waive compliance with or modify any of the covenants or agreements made by the other party contained in this Agreement. The delay or failure on the part of any party to insist, in any one instance or more, upon strict performance of any of the terms or conditions of this Agreement, or to exercise any right or privilege shall not be construed as a waiver of any such terms, conditions, rights or privileges. All rights and remedies shall be cumulative. 43. PUBLICITY Except as otherwise required by applicable laws, neither parties shall issue any press release or other public statement relating to this Agreement without obtaining the prior approval of the other party concerning the content and the manner of presentation and publication. 44. ENTIRE AGREEMENT This Agreement contains the entire agreement and supersedes all prior agreements between the parties relating to the subject matter of this Agreement. [SIGNATURES ON FOLLOWING PAGE] CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives intending for this Agreement to be effective as of the date stated on the first page of this Agreement. BRIGHTSTAR CORP. CSI WIRELESS LLC By: /s/ R. Marcelo Claure By: /s/ Hamid Najafi ------------------------------ -------------------------------- Name: R. Marcelo Claure Name: Hamid Najafi Title: CEO Title: President CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 19 EXHIBIT A CSI WIRELESS PRODUCT REQUIREMENT No. Home Run [CSI WIRELESS LOGO] Date 31/Jan/2003 TITLE HOME RUN TDMA/Analog Fixed Unit Contents 1 SCOPE 2 DESCRIPTION AND APPLICATION 2.1 DESCRIPTION 2.2 APPLICATION 3 APPLICABLE DOCUMENTS 3.1 DEFINITIONS AND ACRONYMS 4 PRODUCT REQUIREMENTS 4.1 BASE UNIT SPECIFICATIONS 4.1.1 ENVIRONMENTAL 4.1.2 ELECTRICAL 4.1.3 RF 4.1.4 ACCESSORIES (TRANSCEIVER SHOULD ACCEPT THE FOLLOWING ACCESSORIES TO ADD OR ENHANCE FUNCTIONALITY) 4.1.5 Mechanical 4.1.6 VISUAL INDICATORS 4.1.7 AUDIBLE INDICATORS25 4.1.8 DIAGNOSTIC TOOLS 4.1.9 USER FEATURES 4.1.10 CELLULAR IDENTIFICATION /AUTHENTICATION 4.1.11 KEYPAD AND DIALING FEATURES 4.1.12 POINT-TO-POINT SHORT MESSAGE SERVICES (SMS) 4.1.13 INTERFACES (AUDIO, DIGITAL) 4.1.14 AIR INTERFACE 4.1.15 CARRIER REQUIREMENTS 4.1.16 APPROVALS 4.2 SOFTWARE BASIC FEATURES 4.2.1 PHONE BOOK 4.2.2 RINGER/ALERT 4.2.3 ALARM/TIMER 4.2.4 LOCK/SECURITY 4.2.5 MESSAGE 4.2.6 OTHERS 4.2.7 Engineering Service CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 20 SCOPE This document contains specific electrical, mechanical, environmental, and general manufacturing and quality requirements. DESCRIPTION AND APPLICATION DESCRIPTION. The Home Run product model is a low cost fixed residential unit. It works as fixed cellular product in the TDMA and ANALOG 800 MHz frequency band without WAP. With the inclusion of a state-of-the-art TDMA radio design (Tiger Shark 3W design), and a cost optimized telephone architecture, the Home Run product provides a significantly reduced product cost as required for the Fixed Wireless market for 2003 and beyond. The product will be designed with a cost in $105 - $110 US direct manufacturing cost. APPLICATION The Home Run unit has been designed to be used indoor only as a residential phone. APPLICABLE DOCUMENTS DEFINITIONS AND ACRONYMS ALT Accelerated Life Test AMPS Advanced Mobile Phone System BOM Bill of Material C MSG A psophometric weighted filter used to measure the SINAD ratio TDMA Time Division Multiple Access DFE Design For Environment DTMF Dual Tone Multi Frequency EIA Electronic Industries Association ESD Electrostatic Discharge ESN Electronic Serial Number PER Frame Error Rate ID Identification IMSI International Mobile Station identity IS Interim Standard LCD Liquid Crystal Display LED Light Emitting Diode WIN Mobile Identification Number MO-SMS Mobile Originated Short Message Service MT-SMS Mobile Terminated Short Message Service NAM Number Assignment Module NID Network Identification Ni-CD Nickel Cadmium OTA Over the Air Activation OTAPA Over the Air Activation Parameter Administration PET Product Environmental Template PFFR Projected Field Failure Rate PIN Personal Identification Number PRI Product Release information PST Product Support Tool QPSK Quadrature Phase Shift Keying RF Radio Frequency CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 21 RSSI Received Signal Strength Indicator RX Receiver SAR Specific Absorption Rate SID System Identification SINAD Signal-plus-noise-plus-distortion to noise-plus -distortion ratio TIA Telecommunications Industries Association TMSI Temporary Mobile Station Identity TSB Technical Service Bulletin TX Transmitter PRODUCT REQUIREMENTS BASE UNIT SPECIFICATIONS ENVIRONMENTAL
ELECTRICAL
RF
CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 22
ACCESSORIES (TRANSCEIVER SHOULD ACCEPT THE FOLLOWING ACCESSORIES TO ADO OR ENHANCE FUNCTIONALITY)
MECHANICAL
CSI Wireless-Brightstar Development and Manufacturing Agreement -Home Run Project 23 VISUAL INDICATORS
CSI Wireless-Brightstar Development and Manufacturing Agreement-Home Run Project 24 AUDIBLE INDICATORS
DIAGNOSTIC TOOLS
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 25 USER FEATURES
CSI Wireless-Brighter Development and Manufacturing Agreement-Home Run Project 26
CSI Wireless-Brighter Development and Manufacturing Agreement-Home Run Project 27
CELLULAR IDENTIFICATION / AUTHENTICATION
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 28 KEYPAD AND DIALING FEATURES
POINT-TO-POINT SHORT MESSAGE SERVICES (SMS)
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 29
INTERFACES (AUDIO, DIGITAL)
CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 30 AIR INTERFACE
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 31
CSI Wireless-Brightstar Development and Manufacturing Agreement-Home Run Project 32 CARRIER REQUIREMENTS
APPROVALS
CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 33 SOFTWARE BASK FEATURES PHONE BOOK
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 34 RINGER/ALERT
ALARM/TIMER
LOCK/SECURITY
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 35 MESSAGE
CSI Wireless--Brightstar Development and Manufacturing Agreement - Home Run Project 36 OTHERS
CSI Wireless-Brightstar Development and Manufacturing Agreement-Home Run Project 37 Engineering Service
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 38 Exhibit B PROJECT SCHEDULE (Assumes No New Plastics)
(Assume new Plastics)
CSI Wireless -- Brightstar Development and Manufacturing Agreement - Home Run Project 39 EXHIBIT C PRICING AND BUSINESS MODEL PRODUCT TRANSFER PRICE -- Product will be sold by CSI to Brightstar at a price calculated as follows: Product Product CSI Transfer == Manufacturing + Incremental Price Cost Costs Per Unit Per Unit DEFINITIONS: A. PRODUCT MANUFACTURING COST PER UNIT means the direct cost incurred by CSI to manufacture and deliver a Product to the Delivery Point. B. INCREMENTAL COSTS means the total of CSI Incremental Costs and the Brightstar Incremental Costs as defined in this Exhibit C. C. CSI INCREMENTAL COSTS means the mutually agreed costs expected to be incurred by CSI over the following six month period for the following activities: 1. Sustaining Engineering Support, 2. Manufacturing Support, and 3. Seedstock. D. CSI INCREMENTAL COSTS PER UNIT means the result obtained when the CSI Incremental Costs are divided by the mutually agreed expected volumes to be delivered by CSI to Brightstar in the following six month period. E. BRIGHTSTAR INCREMENTAL COSTS means the mutually agreed costs expected to be incurred by Brightstar over the following six month period for the following activities: 1. Licensing and Branding, 2. Warranty Support, 3. Co-op Funds (including training costs) 4. Warehousing, Logistics and Sales Agent Commissions 5. Taxes, duties and other government imposed fees. F. BRIGHTSTAR INCREMENTAL COSTS PER UNIT means the result obtained when the Brightstar Incremental Costs are divided by the mutually agreed expected volumes to be delivered by CSI to Brightstar in the following six month period. G. CSI GROSS MARGIN means [***]% of the Margin Per Unit. H. MARGIN PER UNIT means the result obtained in the following pro forma calculation for the following six month period: Selling Price per unit XXXX Less: Product Manufacturing Cost per Unit (XXX) CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 40 CSI Incremental Costs per Unit (XXX) Brightstar Incremental Costs per Unit (XXX) ---- Equals: Margin Per Unit XXX ==== I. THE SELLING PRICE PER UNIT means the end customer selling price for each customer. OTHER MATTERS A. MANUFACTURING CHARGES. For purposes of estimating the Product Manufacturing Costs, CSI will use standard costs quoted by its external manufacturer. The following manufacturing costs will be mutually reviewed and upon agreement shared equally by the patties: Positive or negative purchase price variances, Idle time charges, or Other manufacturing charges, Where such amounts are incurred, CSI will invoice Brightstar and Brightstar will pay any such invoiced amounts within thirty (30) days of receipt of the invoice, except that Brightstar will have no obligation for manufacturing charges which arise due to Product design or CSI's failure to prudently manage the external manufacturer. B. COST DEFINITIONS. For purposes of this Agreement, the categories of incremental costs are defined as follows. For greater certainty, it is understood that these cost categories represent incremental costs associated with carrying on the business activities described in this Agreement and should include no allocations for overhead, facilities and any other administrative items. CSI Incremental Costs: 1. "Sustaining Engineering Support" means the salary and benefits costs of incremental staff required by CSI to support design and performance issues relating to the Product plus any materials, services, leases or similar costs directly related to this activity. This staff will also perform small feature addition activities of typically less than 1 - 2 weeks effort. 2. "Manufacturing Support" means the salary and benefits costs of incremental staff required by CSI to support the procurement, manufacturing and quality issues relating to the Product plus any materials services, leases or similar costs directly related to this activity. 3. "Seedstock" means the direct cost to manufacture and deliver the seedstock ([***]% free units) required per Section 24(c). Brightstar Incremental Costs: 1. "Licensing and Branding" means the cost associated with the royalty fees paid to Motorola, Inc. for the use of its TDMA technology patents, the use of its brand and the management of the cost of overall business transaction and management by Narbitec, LLC. Said "Licensing and Branding" Cost is [***]% of the product sales price to Brightstar's customer, or, if Brightstar negotiates revised pricing for these items, such revised amounts. CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 41 2. "Warranty Support" means the cost associated to provide the consumer warranty service on the product. Said "Warranty cost is [***]% of the Product Transfer Price 3. "Co-op" means the cost associated in promoting the product and its brand. Said Co-Op" cost is estimated to be [***]% of the product sales price to Brightstar's customer. 4. "Warehousing, Logistics and Sales Agent Commissions" means the direct cost associated with Product warehousing, logistics and inventory management, including salaries and benefits of direct staff, freight and other direct costs. Also included are Sales Agent Commissions associated directly with the sales of the product in specific countries. 5. "Duties" means the cost associated with the payment of import duties when the product is imported in a country by Brightstar or its subsidiaries. C. PRELIMINARY ESTIMATE OF INCREMENTAL COSTS. The following table summarizes the preliminary estimate of CSI and Brightstar Incremental Costs for purposes of Section 12(c) of this Agreement. These preliminary cost estimates are based on a selling price to the end customer of $[***] and an annual volume of [***] units. CSI INCREMENTAL COSTS: 1. Engineering Support $[***] 2. Manufacturing Support [***] 3. Seedstock [***] - [***]% of CSI manufacturing and delivery costs BRIGHTSTAR INCREMENTAL COSTS: 1. Patents and Branding $[***] - [***]% of Brightstar sales price to customer 2. Warranty Support [***] - [***]% of Product Transfer Price 3. Co-op [***] 4. Warehousing, Logistics [***] and Sales Agent Commissions 5. Duties [***] CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 42 EXHIBIT D LONG LEAD PARTS (TO BE UPDATED BASED ON FINAL DESIGN) LONG LEAD TIME PART LIST
CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 43 EXHIBIT E SERVICE AND REPAIR 1. Lists of components, assembly, service tools and equipment parts, including supplier address, contact person, phone and fax number; 2. Assembly and service tool mechanical drawings indicating materials and dimensions; 3. A minimum of two completes sets of service assemblies and service tools for each instructor attending the first training class; 4. Product (including accessory) and component specifications, blueprints, drawings and samples; 5. Schematics and overlays with troubleshooting waveforms; 6. Troubleshooting flow charts and documentation detailing test mode and test commands; 7. A service and repair manual (including a theory of operation for each portion of the circuitry), and additional service training aids, for each Product (including accessories), all written in English; 8. Object code copies of the software used to tune, test, control, and program the Products; any technical documentation detailing the tuning, test, and control specifications; and any specific cables required for to cables to tune, test, control, and program the Products, to be delivered at least sixty (30) days prior to the first Product shipment, to enable Brightstar to develop automated service test programs; 9. A minimum of five sets of service cables for the Products, together with cabling diagrams to be delivered at least thirty days prior to the first Product shipment to enable Brightstar to construct additional sets; 10. A minimum of five software flash boxes/cables with schematics (including board artwork layouts, software, etc.) to be delivered at least sixty 30 days prior to the first Product shipment to enable Brightstar to construct additional boxes and conduct field acceptance testing; 11. Whatever other technical information or equipment is required for Brightstar's testing, programming, service, or repair of the Products (including accessories), or completion of the assembly of SKD Product; and 12. A minimum of 5 sets of software product support tools to control ID transfer and flexing, including cables or interface units required to perform these operations. CSI Wireless-Brightstar Development and Manufacturing Agreement - Home Run Project 44
