EXHIBIT 10.2
FLEXTRONICS INTERNATIONAL USA, INC.
DESIGN/ENGINEERING SERVICES AGREEMENT
THIS ENGINEERING SERVICES AGREEMENT ("AGREEMENT") is made as of January 11,
2002 (the "EFFECTIVE DATE"), between TeraForce Technology Corporation, having
its place of business at 1240 East Campbell Road, Richardson, TX 75081
("CLIENT") and Flextronics Design S.D., Inc., having its place of business at
4520 Executive Drive, San Diego, CA 92121-3018 ("FLEXTRONICS").
Pursuant to an Asset Purchase Agreement by and among Flextronics, Client
and DNA Enterprises, Inc. ("DNA"), a wholly-owned subsidiary of Client,
Flextronics has purchased the design business of DNA ("ASSET PURCHASE
AGREEMENT"). As a condition to the Asset Purchase Agreement, Flextronics
withheld $1,000,000 from the Final Acquisition Consideration (defined in the
Asset Purchase Agreement) to be applied as a retainer pursuant to this Agreement
(the "PREPAYMENT").
Client has requirements for certain engineering design services.
Flextronics has developed processes and practices for providing design and
engineering services for many different electronic applications, and at Client's
request desires to provide said services in accordance with Client's
specifications. The parties agree as follows:
1. SCOPE, SERVICES, LICENSE.
1.1. Scope. This Agreement sets forth the terms and conditions for the
design services to be provided by Flextronics. Such services will be
performed by Flextornics' engineering personnel at the direction of Client.
Flextronics shall provide Client engineering personnel qualified to provide
the services required by Client and will use it commercially reasonable
efforts to provide specific personnel requested by Client.
1.2. Services. Flextronics agrees to use reasonable commercial efforts
to perform the services ("SERVICES") pursuant to written specifications
described in purchase orders or changes thereto issued by Client and
accepted by Flextronics.
1.3. License. Client grants Flextronics a non-exclusive license during
the term of this Agreement to use all of Client's patents, trade secrets
and other intellectual property required to perform Flextronics'
obligations under this Agreement.
2. RETAINED SERVICES CONTRACT; PAYMENT FOR SERVICES AND EXPENSES.
2.1. Retained Services Agreement. TeraForce will be required to
purchase, and Flextronics will be required to provide 2,500 hours per month
of design services during the
first three months following the Effective Date, 1,000 hours per month of
design services during months 4 through 6 following the Effective Date, 500
hours per month of design services during months 7 and 8 following the
Effective Date and 265 hours per month of design services during the month
9 following the Effective Date (the "MINIMUM HOURS"). The hourly rate
attributed to these Minimum Hours will be $85 per hour up to a total of
$1,000,000 in minimum fees during the first year of the Agreement (the
"MINIMUM AMOUNT"). Any services provided in excess of the Minimum Hours
shall be provided at Flextronics' normal rates, or such other rates on
which Flextronics and Client agree.
2.2. Adjustment of Minimum Hours. Flextronics shall have the right,
but not the obligation, to reduce the Minimum Hours in the event such hours
can be billed to a third party at a rate greater than $85 per hour. In the
event Flextronics wishes to exercise its rights pursuant to this section,
it must provide Client with reasonable notice that such hours will not be
provided and the time period effecting such reduction. Any reduction in the
Minimum Hours pursuant to this section will result in a corresponding
decrease in the Minimum Amount.
2.3. Invoices. Flextronics shall invoice TeraForce for the Minimum
Hours (according to Section 2.1 above, whether or not TeraForce used the
Flextronics design services during the period) and for any Services
performed in excess of the Minimum Hours, on a monthly basis. In each such
invoice, Flextronics shall credit the relevant portion of the prepayment.
Client shall pay the amount of such invoices submitted by Flextronics (less
any credit for the Prepayment). In the event that Client fails or refuses,
for any reason, to make any payment due Flextronics pursuant to this
Agreement, and in the event such payment remains delinquent for a period of
fifteen (15) days from and after the due date thereof, Flextronics may stop
all Services under this Agreement and retain all work in process until all
outstanding invoices are paid in full. With respect to work performed over
and above the Minimum Hours, to the extent that Flextronics project
personnel cannot be reassigned to other billable work during such stoppage
and/or in the event restart cost are incurred, additional fees may be due
and payable before the Services can resume.
2.4. Expenses. Client shall reimburse Flextronics at cost for all
reasonable expenses incurred by Flextronics in the performance of Services.
2.5. Payment. Client agrees to pay all invoices in U.S. Dollars within
thirty (30) days of the date of the invoice. Client agrees to pay one and
one-half percent (1.5%) monthly interest on all late payments. Furthermore,
if Client is late with payments, or Flextronics has reasonable cause to
believe Client may not be able to pay, Flextronics may require prepayment
or delay shipments or suspend Services until assurances of payment
satisfactory to Flextronics are received.
3. MATERIALS RELATED TO SERVICES.
Client will provide all machinery, equipment, tooling, components, boards,
materials and supplies necessary to perform the Services ("MATERIALS").
Flextronics will have no responsibility to provide any Materials.
4. CONFIDENTIAL INFORMATION. During the term of this Agreement and for three
(3) years thereafter each party will not, disclose without the permission
of the other party any of the other party's information which is
conspicuously marked to indicate its confidential or proprietary nature or
which the other party has otherwise instructed in writing to maintain as
confidential. This paragraph shall not apply to any information which is
publicly available or which is available from a third party without similar
restrictions on disclosure. Upon written request of a party, the other
shall return all such confidential information of the requesting party and
shall destroy all copies thereof. In the event the parties have executed an
agreement related to confidential information prior to this agreement the
terms and conditions of that agreement shall govern confidential
information.
5. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be construed to
constitute a partnership, joint venture, agency, or employment relationship
between Client and Flextronics or Flextronics' employees or contractors. It
is understood that Flextronics shall at all times remain an independent
contractor and that Client shall in no event be liable for the debts,
liabilities, or other obligations of Flextronics.
6. NEW DEVELOPMENTS. Except for Flextronics' existing intellectual property
including, without limitation, Flextronics' design tools, methodologies,
software, algorithms, or other means that may be used to design production
means or the processes by which products are manufactured, assembled, or
tested (including, but not limited to any intellectual property acquired by
Flextronics from Client pursuant to the Asset Purchase Agreement of even
date herewith), Flextronics agrees that all designs, plans, reports,
specifications, drawings, schematics, prototypes, models, inventions,
copyrights, and all other information and items made or conceived by
Flextronics or by its employees, contract personnel, or agents during the
course of this Agreement and exclusively related to the Services shall be
and are assigned to Client as its sole and exclusive property. Upon
Client's request Flextronics agrees to assist Client, at Client's expense,
to obtain patents for any such inventions, including the disclosure of all
pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, and assignments, and all other
instruments and papers which Client shall deem necessary to apply for and
to assign or convey to Client, its successors and assigns or nominees, the
sole and exclusive right, title and interest in such inventions,
copyrights, applications and patents. Flextronics agrees to obtain or has
obtained written assurances from its employees and contract personnel of
their agreement to substantially the same terms as contained herein with
regard to confidential information and such new developments.
7. CLIENT REPRESENTATIVE. Dr. Eugene Helms shall represent Client during the
performance of this Agreement with respect to the Services and deliverables
defined herein, and has authority to execute modifications or additions to
this Agreement as defined in the paragraph herein titled "Additional
Services".
8. LIABILITY AND INDEMNIFICATION. Client and Flextronics hereby acknowledge
and agree that: (a) the Services to be performed hereunder by Flextronics
may be incorporated into a product, process or service to be developed by
Client, (b) Client is responsible for final review, testing, and approval
of all features of the Product and the results of the Services, and (c)
Client has provided Flextronics with data, information and/or
Specifications regarding the Services which have been used by and relied
upon by Flextronics without independent verification or investigation.
Accordingly, Client shall defend, indemnify, and hold Flextronics, its
affiliated companies, officers, directors, employees, and agents
("INDEMNIFIED PARTIES") harmless from any obligations, costs, claims,
judgments, losses, expenses and liabilities (including reasonable attorneys
fees) incurred in connection with any such claim or alleged claim suffered
or incurred by any of the Indemnified Parties as a result of any third
party claim or threatened claim which arises in connection with the
Services, Flextronics' performance under this Agreement, process or service
of Client, including but not limited to any claim that any results from the
Services infringe any third party's copyright, patent, trademark, or other
intellectual property rights. This section shall survive termination or
expiration of this Agreement.
9. DISCLAIMER OF WARRANTY AND LIMITATION OF REMEDIES. Client understands and
agrees that (a) nothing contained in this Agreement shall be construed as a
warranty, either expressed or implied (including without limitation, any
warranty of merchantability or fitness for a particular purpose), as to the
Services performed hereunder, (b) Flextronics shall not be liable for any
loss or damage caused by delay in furnishing Services or any other
performance under or pursuant to this Agreement, (c) the sole and exclusive
remedy for Flextronics' liability of any kind (including liability and
negligence) with respect to the Services covered by this Agreement and all
other performance by Flextronics under or pursuant to this Agreement shall
be limited to Client's right to recover an equitable amount not to exceed
such charges as were paid to Flextronics hereunder, and (d) in no event
will Flextronics be liable for any loss of use, loss of profit,
interruption of business, any indirect, special, incidental, punitive, or
consequential damages of any kind (including lost profits) regardless of
the form of action, whether in contract, tort (including negligence),
strict liability or otherwise, even if Flextronics has been advised or
should have been aware of the possibility of such damages. This section
shall survive the termination or expiration of this Agreement.
10. ENFORCEMENT OF AGREEMENT. If the scope of any of the provisions of this
Agreement is too broad in any respect whatsoever to permit enforcement to
its full extent, then such provisions shall be enforced to the maximum
extent permitted by law, and the parties hereto consent and agree that such
scope may be judicially modified accordingly and that the whole of such
provisions of this Agreement shall not thereby fail, but that the scope of
such provisions shall be curtailed only to the extent necessary to conform
to law.
11. ADDITIONAL SERVICES. Client and Flextronics agree:
11.1. Basis for Pricing; Additional Fees. The fees quoted herein,
whether on a "time and materials" basis or a "fixed price" basis,
are contingent upon the accuracy and
completeness of the Specifications and key assumptions, and the
performance of Client's responsibilities, as described in this
Agreement. Additional fees will be due if Flextronics is required
to perform Additional Services or incur additional out-of-pocket
costs due to (a) changes in scope or Specifications, (b) invalid
assumptions, (c) failure of Client or a subcontractor of Client's
to perform its responsibilities under this Agreement, or (d)
extension of any milestone completion schedule due to causes
outside of Flextronics' control. If Flextronics identifies a
requirement for Additional Services, it will notify Client as
soon as practical, and will receive Client's written approval
before continuing.
11.2. Additional Fees Due to Delays. Additional fees at Flextronics'
standard hourly billing rates for any time in excess of the
Minimum Hours, plus any out-of-pocket costs incurred by
Flextronics, will be due if Flextronics must stop Services due to
delays caused by Client or a subcontractor of Client's failure to
perform its responsibilities, to the extent that Flextronics
project personnel cannot be reassigned to other billable work.
12. NOTICES. Notices to the parties should be addressed as follows:
If to Flextronics:
Flextronics Design S.D., Inc.
4520 Executive Drive
San Diego, CA 92121-3018
Phone: (858) 550-1441
Fax: (858) 550-1442
with copies to:
Flextronics International USA Inc.
2090 Fortune Drive
San Jose, CA 95131
Attention: Robert R.B. Dykes
President, Systems Group and
Chief Financial Officer
Phone: (408) 576-7000
Fax: (408) 526-9215
Flextronics International Ltd.
2 Changi Road
Singapore 408723
Attn: Chairman
Phone: (65) 844-3366
Fax: (65) 842-1103
If to Client:
TeraForce Technology Corporation
1240 East Campbell Road
Richardson, TX 75081
Attention: Robert P. Capps
Executive Vice President
and Chief Financial Officer
13. ASSIGNMENT. Neither this Agreement, nor any duties or obligations under
this Agreement may be assigned by either party without the prior written
consent of the other party. Except for this prohibition on assignment, this
Agreement shall be binding upon and inure to the benefit of the heirs,
successors, and assigns of the parties hereto.
14. TERM AND TERMINATION. The term of this Agreement shall be for the greater
of (a) one year or (b) until the Services have been completed unless
otherwise terminated or canceled as provided herein. In the event of
cancellation prior to completion of the Services, Client shall pay
Flextronics the greater of (a) the Minimum Amount or (b) all outstanding
invoices, including all work in progress and out-of-pocket costs incurred
up to the date of cancellation plus reasonable shut-down costs. Flextronics
agrees to deliver all results of Services paid for up to the time of
cancellation. In the event that Flextronics cannot deliver under this
Agreement due to causes beyond its control, Client will compensate
Flextronics for the greater of (a) the Minimum Amount or (b all outstanding
invoices, including all work in progress and out-of-pocket costs incurred
up to the date of cancellation plus reasonable shut-down costs. In the
event that Client cannot perform under this Agreement through causes beyond
its control, Flextronics will be responsible for the return of payments
made prior to the date of stoppage that are in excess of the greater of (a)
the Minimum Amount or (b) work performed and out-of-pocket costs incurred.
No such termination or cancellation shall affect the obligations of the
parties under the sections herein titled "Confidential Information" and
"New Developments".
15. DISPUTE RESOLUTION. Before invoking the binding dispute mechanism set forth
in this Agreement, the parties shall first participate in mediation of any
dispute arising under this Agreement. If such mediation is not concluded
within forty-five (45) days from the date of the notice of breach by one of
the parties, then any controversy or claim relating to this Agreement
(whether contract, tort, or both), or the breach of this Agreement, other
than claims for a temporary restraining order, order to show cause or other
extraordinary, equitable relief for which monetary damages are inadequate,
shall be arbitrated by and in accordance with the then existing commercial
arbitration rules of the American Arbitration Association. Judgment on the
award rendered by such arbitrator(s) may be entered in any court having
jurisdiction. If such arbitration is not convened within seventy-five (75)
days from the date of the notice of breach by one of the parties, then
either party may file a lawsuit to resolve the dispute. Any dispute that
arises under or relates to this Agreement shall be resolved in Santa Clara
County, California, or if necessary, in the state and federal courts
located in Santa
Clara. This Agreement, and any dispute arising from the relationship
between the parties to this Agreement, shall be governed by California law,
excluding its choice of law principles. The parties consent to the
exclusive jurisdiction of the State and Federal courts in Santa Clara
County, California. In any litigation, arbitration, or other proceeding by
which one party either seeks to enforce its rights under this Agreement
(whether in contract, tort, or both) or seeks a declaration of any rights
or obligations under this Agreement, the prevailing party shall be awarded
reasonable attorney fees, together with any costs and expenses, to resolve
the dispute and to enforce the final judgment.
16. SALES TAX. Should all or any portion of the Services performed by
Flextronics under this Agreement be deemed, at any time, by the California
State Board of Equalization to be taxable as a result of any determination,
audit, regulation, or statute; Flextronics shall invoice Client for such
taxes and Client shall promptly pay all such invoices submitted by
Flextronics.
17. COMPLETE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto with respect to the matters covered herein. No other
agreements (other than a precedent agreement related to confidential
information), represented by or on behalf of the parties hereto or by their
employees, contract personnel, or agents, or contained in any sales
materials or brochures, shall be deemed to bind the parties hereto with
respect to the subject matter hereof. Client acknowledges that it is
entering into this Agreement solely on the basis of the representations
contained herein.
18. IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date indicated below.
FLEXTRONICS DESIGN S.D., INC.:
By: /s/ Ronald R. Snyder
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Title: Executive Vice President
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TERAFORCE TECHNOLOGY CORPORATION
By: /s/ Robert P. Capps
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Title: Executive Vice President
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