Common use of Quality and Acceptance Clause in Contracts

Quality and Acceptance. CloudMinds will implement with Manufacturer a quality monitoring process that is based on and conforms to the ANSI/ASQ Z1.4 2008 standard for sampling finished goods. RED’s customers shall have the right to review Manufacturer’s quality monitoring process. Prior to each shipment of Products to RED’s customers, Manufacturer shall undertake and complete its quality monitoring process and shall determine whether the Product to be shipped achieves an Acceptable Quality Level (“AQL”) of 4.0 (still being negotiated). This process will be successfully completed before each shipment is made. Performance of the Product is to be measured against IS-98D and customers’ specifications, customers’ Device Requirements and Testing Documents as provided by RED to CloudMinds. Other than the AQL requirement above, CloudMinds and RED will collaborate, including cost sharing, to meet any new requirements that may arise from RED customer’s documentation noted above. For each shipment, Manufacturer shall include a sticker on the pallet attesting to the successful completion of such quality monitoring process and the fact that all Product tested achieved an AQL of 4.0. CloudMinds will ensure that the Products meet quality acceptance requirements and functional tests as required in the applicable Development Manufacturing Program. Only Products that are certified as having met the aforementioned performance requirements shall be shipped to RED. CloudMinds must maintain an inspection procedure and quality assurance program for the Products to ensure compliance with the requirements under this Agreement. CloudMinds failure to comply with quality requirements will be a material breach of this Agreement. RED reserves the right to inspect and test the Products (either directly or through a third party appointed by RED), at the factory where they are produced or other suitable location mutually agreed by the Parties prior to the shipping. CloudMinds will manufacture Products to be fully in conformance with the Specifications and RED’s quality acceptance requirements as identified in each Development and/or Manufacturing Program or other documentation as provided by RED. CloudMinds will use key components and materials that are qualified and approved by RED on manufacturing of Products and such key components and materials shall be in a list provided by RED. CloudMinds must maintain an inspection procedure and quality assurance program for the Products to ensure compliance with the requirements under this Agreement. CloudMinds failure to comply with quality requirements will be a material breach of this Agreement. CloudMinds will permit RED to enter its premises, at reasonable times, for the purpose of inspecting and testing units of the Product and to check the materials and method of manufacture, assembly, labeling, testing and packaging in order to ensure that the same conform to the Specifications and the requirements of this Agreement. CloudMinds, without additional charge, will provide reasonable assistance to RED to facilitate these inspections. If CloudMinds experiences problems with its suppliers which result in delays or inability to deliver Products to RED or result in epidemic failures as described below, then CloudMinds will notify and work with RED to remedy these problems. CloudMinds is responsible for any defect or other failure in the Products to meet the Specifications and requirements of this Agreement. RED may inspect Products delivered to it at any time. RED will use its best efforts to cooperate with CloudMinds in mitigating any quality issues that result from any defects caused by RED vendors. Epidemic Failure. CloudMinds warrants that the Product, exclusive of consumable materials and RED Consigned Components and Materials, shall meet a failure rate of two percent (2%) or less for a single failure mode, and four percent (4%) or less in the aggregate within the first 6 months after the Mass Production Volume Sales; after the foregoing first 6 months hereof, shall meet a failure rate of one percent (1%) or less for a single failure mode, and two percent (2%) or less in the aggregate. If RED finds that the Product does not conform to this quality requirement, or a RED customer requires these Products to be recalled, or the Product for four (4) consecutive months has been proven to exhibit the substantially same major functional, mechanical, or appearance defect, RED will notify CloudMinds. CloudMinds will then determine the cause of the non-conformance and work with RED to develop a mutually agreed corrective action plan and will implement that plan to correct the defect. In event of the non-conformance caused by CloudMinds, CloudMinds will provide RED with regular progress reports of the corrective action until the defect is corrected. RED may return affected Products that CloudMinds shipped in the past fifteen (15) months for rework and re-inspection. CloudMinds will perform all necessary rework or replacement of the defective Products at CloudMinds’ expense, including reasonable expenses caused by RED customer fees or penalties and all Product transportation costs to receive from and deliver to RED, provided that RED shall provide its written agreements with such customers evidencing the penalty fees or other RED costs in advance for CloudMinds’ prior acknowledgement. In event that the Epidemic Failure is caused by Workmanship or Materials provided by the Manufacturer, Suppliers or Subcontracts, such Manufacturer, Suppliers or Subcontracts shall be liable for such Epidemic Failure and take necessary corrective actions at their cost. CloudMinds shall assign and pass-through Manufacturer/Suppliers’ warranty to RED and provide necessary assistance and support to implement the corrective action plan agreed by parties. CloudMinds shall provide to RED statistical process control data on critical processes and yield and failure analysis reports detailing the cause of the failure. CloudMinds shall provide these reports to RED in a format and frequency mutually agreed upon by CloudMinds and RED. CloudMinds must comply with all laws, rules and regulations applicable to its performance of this Agreement, including those relating to hazardous materials, toxic substances. The Products must comply with RoHS and WEEE directives from regulatory organizations.