EXHIBIT 10.20
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
SUPPLY AGREEMENT
BETWEEN
MANUFACTURERS' SERVICES SALT LAKE CITY OPERATIONS, INC.
AND
3COM CORPORATION
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS..................................................................................................1
2. PRECEDENCE OF DOCUMENTS......................................................................................5
3. TERM OF AGREEMENT............................................................................................5
4. PURCHASE COMMITMENT..........................................................................................5
5. PRICING......................................................................................................6
6. SUPPLY CHAIN OPERATIONS......................................................................................8
7. MATERIALS MANAGEMENT........................................................................................14
8. PURCHASES BY 3COM'S AUTHORIZED AGENTS.......................................................................19
9. PACK-OUT, PACKING, MARKING, AND SHIPPING INSTRUCTIONS.......................................................20
10. QUALITY STANDARDS AND CERTIFICATION.........................................................................20
11. INSPECTION, TESTING, AND ACCEPTANCE.........................................................................22
12. RETURN OF PRODUCT...........................................................................................23
13. SUPPORT.....................................................................................................24
14. WARRANTY....................................................................................................25
15. CHANGES.....................................................................................................27
16. PROTOTYPING AND ENGINEERING SERVICES........................................................................28
17. INTELLECTUAL PROPERTY RIGHTS................................................................................29
18. TERMINATION FOR CAUSE.......................................................................................30
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
19. TERMINATION FOR CONVENIENCE.................................................................................31
20. LIMITATION OF LIABILITY.....................................................................................31
21. FORCE MAJEURE...............................................................................................31
22. NONASSIGNABILITY............................................................................................32
23. NOTICES.....................................................................................................32
24. COMPLIANCE WITH LAWS........................................................................................33
25. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY...................................................................34
26. GRATUITIES..................................................................................................35
27. INSURANCE AND STATUTORY OBLIGATIONS.........................................................................35
28. INSURANCE COVERAGE..........................................................................................35
29. CONFIDENTIAL INFORMATION....................................................................................36
30. PUBLIC ANNOUNCEMENTS........................................................................................37
31. COUNTRY OF ORIGIN...........................................................................................38
32. PROPERTY FURNISHED BY 3COM..................................................................................38
33. GENERAL.....................................................................................................38
-iii-
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (hereinafter referred to as "the Agreement"),
dated and effective this 30th day of September 2000, ("Effective Date"), and
the exhibits attached hereto between
Manufacturers' Services Salt Lake City Operations, Inc., a company
organized and existing under the laws of Delaware and having its principal
place of business at 0000 Xxxx Xxxxxx Xxxxx Xxxxx, Xxxx Xxxx Xxxx, Xxxx 00000
("MSSLO") on the one hand and
3Com Corporation, a company organized and existing under the laws of
Delaware and having its principal place of business at 0000 Xxxxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000 ("3Com") on the other hand. "MSSLO and 3Com"
are hereinafter also collectively referred to as "Parties" and individually
as a "Party".
WHEREAS, MSSLO agrees to manufacture and sell to 3Com the Products
(as hereinafter defined) and 3Com agrees to purchase from MSSLO such
Products, subject to the terms and conditions of this Agreement.
1. DEFINITIONS
A. "Affiliate" shall mean, with respect to any Party, any other
party directly or indirectly controlling, controlled by, or under common
control with such Party. For purposes of this definition, "control" when used
with respect to any party, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such party, whether through the ownership of voting securities, by contract
or otherwise; the terms "controlling" and "controlled" have meanings
correlative to the foregoing. 3Com's Affiliates are identified in Exhibit E,
which may be changed by written notice from 3Com to MSSLO from time to time.
B. "AVL" shall mean approved vendor listing.
C. "Blanket Purchase Order" shall mean 3Com's Blanket Purchase Order
for a Build to Order Product. Blanket Purchase Orders shall reference this
Agreement and include the mutually agreed Price (as defined in Section 6),
but do not bind 3Com or MSSLO as to total quantities purchased, delivery
dates, or the total dollar commitment of such Blanket Purchase Order.
D. "Blanket Purchase Order Delivery Line Item" ("BPO Delivery Line
Item") shall mean 3Com's purchase order document which is issued with
reference to 3Com's Blanket Purchase Order. BPO Delivery Line Items are
deducted from the balance quantity to be delivered under a Blanket Purchase
Order and are governed by the price and delivery terms of the Blanket
Purchase Order.
1
E. "BOM" shall mean 3Com's Xxxx of Materials.
F. "Build to Forecast" or "BTF" shall mean a procurement method
whereby Purchase Orders are typically created to match 3Com's forecasted
requirements. Products that are procured in this manner are called "BTF
Products".
G. "Build to Order" or "BTO" shall mean a procurement method whereby
BPO Delivery Line Items are typically released to fulfill 3Com's clean
shippable backlog or projected demand. Products are shipped against a Blanket
Purchase Order Delivery Line Item. Products that are procured in this manner
are called "BTO Products".
H. 3Com's "Authorized Agent" shall mean any of 3Com's Affiliates, or
any third party suppliers, subcontractors or contract manufacturers who
desire to purchase Products or Materials and whose credit worthiness is
reasonably acceptable to MSSLO, who purchase on a letter of credit basis, or
whose payment obligations are guaranteed by 3Com. 3Com's initial Authorized
Agents are identified in Exhibit E, which may be changed from time to time by
written agreement between 3Com and MSSLO.
I. "3Com Controlled Materials" shall mean those Materials that are
not MSSLO Controlled Materials.
J. "Chicago Facility" shall mean that property that is the subject
of that certain Lease Agreement of even date herewith by and between 3Com and
MSSLO.
K. "Consigned Materials" shall mean Materials located at the
Facility which are owned by 3Com.
L. "Days" shall mean calendar days unless otherwise specified.
M. "Defective Product" shall mean any Product that does not conform
to the Specifications in accordance with Section 10(C).
N. "Epidemic Defects" shall mean a product field failure or defect
(i) for which MSSLO is responsible pursuant to the warranty in
Section 14
(ii) which occurs at a rate equal to or greater than either (1)
one half percent (.50%) on all high volume Products (more than 10,000
manufactured per quarter) or (2) two percent (2%) for all other Products,
(iii) during any two (2) consecutive months of shipments
(iv) that occurs with the same or related products, and
2
(v) with the same cause as consistently measured or tested.
O. "Excess Materials" shall mean Unique Materials on hand and
ordered consistent with 3Com's forecast at agreed-upon leadtimes (or
otherwise approved for purchase by 3Com as Excess Leadtime Materials (as
defined in Section 7A)), and for which the forecasted use is in excess of
sixty (60) days resulting from 3Com's cancellations, reschedules or other
delays or changes caused by 3Com.
P. "Facility" shall mean the Chicago Facility or any MSSLO
manufacturing location that has been mutually audited and approved by the
Parties as qualified for the manufacture of Products.
Q. "Finished Goods Inventory" or "FGI" shall mean Products ready for
shipment maintained at the Facilities.
R. "Finished Goods Stockroom" shall mean the section of MSSLO's
facility designated as the area where the Product is delivered to 3Com.
S. "Industry Allocated" shall mean Materials having unstable market
conditions, unpredictable pricing, or unpredictable supply availability.
T. "Materials" shall mean component line items on the BOM, which are
collectively assembled to produce the Product.
U. "Manufacturing Lead Time" shall mean the total aggregate lead
time of that component of the Product having the longest lead time, plus the
time necessary for receiving and inspecting all components for such Product,
manufacturing the Product, and systems integration, test and distribution,
all as mutually agreed upon by MSSLO and 3Com.
V. "MRP" shall mean Materials requirements planning.
W. "MSL" shall mean Manufacturers' Services Limited, a company
organized and existing under the laws of Delaware and having its principal
place of business at 000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxxxxx 00000.
X. "MSSLO Controlled Materials" shall mean all Materials listed on
Exhibit D, as amended from time to time by mutual agreement.
Y. "New Products" shall mean any Products not released for
production at the Chicago Facility as of the Effective Date.
Z. "NRE" shall mean non-recurring engineering expenses.
AA. "Obsolete Materials" shall mean Unique Materials on hand and
ordered consistent with 3Com's forecast at agreed-upon leadtimes (or
otherwise approved for purchase by 3Com as Excess Leadtime Materials) which
can no longer be used for their designated Product and/or for which there is
no forecast for the following twelve (12) months.
3
BB. "Performance Standards and Metrics" shall mean those performance
standards and metrics set forth in Exhibit F, as may be modified from time to
time by mutual written agreement of the Parties.
CC. "PPV" shall mean purchase price variance.
DD. "Product(s)" shall mean the product(s) identified by 3Com's part
number or assembly identification name as more fully described in 3Com's
Specifications.
EE. "Purchase Order" shall mean 3Com's written purchase order form
or other format mutually agreed upon by the Parties and any documents
incorporated therein by reference, used to order Products under BTF.
FF. "Quarter" or "quarter" shall mean 3Com's fiscal quarter, unless
otherwise specified as "calendar quarter."
GG. "RIP" shall mean Revenue Interlock Process whereby MSSLO gives
3Com information regarding MSSLO's worldwide (by Asia-Pacific region,
Europe/Middle East & Africa region, or Americas region) ability to ship
current backlog orders and forecasted orders for the balance of the quarter,
and MSSLO reports to 3Com with regard to on-time delivery to 3Com or 3Com's
customers.
HH. "RMA" shall mean return material authorization.
II. "Services" shall mean the services rendered by MSSLO at 3Com's
request under this Agreement, the Distribution Agreement or the RMA
Agreement, excluding NRE.
JJ. "Specifications" shall mean 3Com's specifications as shown on
Exhibit B, attached, which also hereby by reference include IPC-610B Class 2
workmanship standards as modified from time to time and the then currently
accepted commercial manufacturing practices.
KK. "Supply Response" shall mean monthly process whereby MSSLO gives
3Com a commitment of MSSLO's ability to meet demand in each 3Com region by
SKU by week for the current and next quarter. Any potential shortfalls are
identified and corrective action documented.
LL. "Unique Materials" shall mean (i) custom (i.e. specifically
designed for the Products) Materials, (ii) Industry Allocated industry
standard Materials or (iii) noncancellable and nonreturnable industry
standard Materials, provided that 3Com authorizes, in writing, ordering of
such Materials on a noncancellable and nonreturnable basis.
MM. "Value Add" shall mean the price charged for Products to 3Com,
excluding cost of Materials used in the assembly of Products and excluding
the cost of New Product engineering support and services, any charge for
prototype/pilot work, any services performed under the RMA or Distribution
Agreements and NRE.
NN. "WIP" shall mean work in progress.
4
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
2. PRECEDENCE OF DOCUMENTS
The precedence of documents between 3Com and MSSLO shall be:
A. This Agreement, as it may be amended in writing by mutual agreement.
B. A Purchase Order or Blanket Purchase Order.
C. A BPO Delivery Line Item
D. 3Com's non-binding forecast.
3. TERM OF AGREEMENT
This Agreement shall become effective on the Closing Date. This
Agreement shall expire twenty-four (24) months after the Closing Date
("Initial Term"), unless this Agreement is terminated earlier pursuant to
Section 18 or 19 or extended pursuant to a written agreement between the
parties beyond the Initial Term for a period of one (1) year. Minimum
capacity, purchase and related obligations pursuant to Section 4 and the
pricing provisions of Section 5 shall terminate upon expiration of the
Initial Term. The Initial Term, along with any extension, is referenced
herein as the "Term" of this Agreement.
4. PURCHASE COMMITMENT
3Com agrees to purchase Products **** of **** during the **** and
**** during the **** exclusive of any Products purchased by 3Com from MSSLO
not pursuant to this Agreement. ****. During the **** of the **** to be ****
otherwise. During the Initial Term and any extensions of this Agreement,
MSSLO will accept Purchase Orders and BPO Delivery Line Items consistent with
the terms and conditions of this Agreement. Notwithstanding the foregoing, if
MSSLO fails to meet the Performance Standards and Metrics set forth in
Exhibit F on a monthly basis in all material respects, or otherwise fails to
materially comply with its obligations hereunder, or MSSLO fails to make the
Minimum Commitment available to 3Com in accordance with 3Com's orders in any
Quarter due to a Materials shortage or otherwise (not directly caused by
3Com), or MSSLO is unable to ship or provide Products as a result of
manufacturing quality issues, 3Com will be under no obligation to reach the
Minimum Commitment in any Quarter in which any such noncompliance exists, but
will otherwise be obligated to reach the Minimum Commitment in subsequent
Quarters if such noncompliance is cured within the Initial Term.
If MSSLO fails to meet the Performance Standards and Metrics set
forth in Exhibit F for one or more Product Lines (as defined below) on a
monthly basis for two (2) consecutive months or on a monthly basis for any
two (2) months over a three (3) month period, then 3Com shall have the right
to reduce the Minimum Commitment for the duration of the Initial Term by an
amount equal to the Value Add attributable to such Product Lines immediately
prior to the first failure to meet the Performance Standards and Metrics
resulting in such reduction in the Minimum Commitment to the extent that 3Com
does not order such Product Lines. As used herein, the term "Product Line"
shall mean all inclusive stock keeping units that make up a set of similar
Products. The Parties
5
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
acknowledge that, as of the Effective Date, there are five (5) Product Lines
manufactured at the Chicago Facility: cable modem, DSL, Carrier products
(excluding Carrier cabinet integration), NBX and video cameras.
Additionally, for any New Products which are proposed for
manufacturing at the Facility, the parties agree that for such New Products,
3Com will work with MSSLO in a cooperative manner to allow MSSLO to develop
in a timely manner a manufacturing plan for the New Products. MSSLO agrees
that, as to New Products, proper product qualification as mutually agreed to
by the Parties will be achieved. Additionally, delays in New Product
qualification that are directly or primarily caused by MSSLO or MSSLO agents
or otherwise reasonably under MSSLO's control will result in a reduction from
3Com's Minimum Commitments at a rate of Product lost Value Add multiplied by
weekly scheduled volume for each week of delay.
Failure by MSSLO to provide sufficient capacity to meet 3Com's
Minimum Commitment for reasons that are within MSSLO's reasonable control
shall result in, upon written notice to MSSLO, an equivalent decrease in the
Minimum Commitment; provided, however, if MSSLO fails to provide sufficient
capacity in any two Quarters during the Initial Term, then 3Com may either
terminate this Agreement or receive the applicable equivalent decrease in the
then current Minimum Commitment. If 3Com does not exercise such right, any
subsequent failures by MSSLO to provide sufficient capacity during the
Initial Term will also allow 3Com the right to either terminate this
Agreement or to receive the applicable equivalent decrease in the then
current Minimum Commitment. 3Com acknowledges that if MSSLO notifies 3Com
that remaining and projected demand is approaching the maximum capacity
remaining in the Quarter and 3Com chooses not to release BPO Delivery Line
Items to fulfill projected demand, any resulting failure by MSSLO to provide
sufficient capacity is not within MSSLO's reasonable control.
A. OVERAGE IN PURCHASE. Any overage in purchase of Products of no
more than **** percent (****%) that occurs during any Quarter will be
credited towards the subsequent Quarter and any deficit in purchase of
Products of no more than **** percent (****%) in any Quarter may be made up
in the next Quarter to the extent there is not a deficit in such subsequent
Quarter. 3Com shall pay MSSLO any deficit not so made up.
For any Quarter in which there is a deficit of more than ****
percent (****%), 3Com shall pay MSSLO the amount by which the deficit exceeds
**** percent (****%) (a "Deficit Payment").
For any Quarter immediately following a Quarter (i) for which a
Deficit Payment was made and (ii) in which 3Com exceeds its Minimum
Commitment, MSSLO will credit 3Com with such overage to the extent it is less
than or equal to **** percent (****%) of the prior Quarter's Minimum Commitment.
5. PRICING
A. GENERAL.The initial prices for certain Products sold pursuant to
this Agreement are set out in Exhibit A-3 to this Agreement (hereinafter
referred to as "Prices"). All Prices shall be in US Dollars.
6
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
MSSLO agrees to price each Product manufactured within a Product
family or similar Product family similarly using the model set forth in
Exhibit A-2. MSSLO agrees to price all current Product volumes
manufactured (with the exception of end-of-life Products or as otherwise
mutually agreed) using the prescribed methodology as set forth in this
Agreement. The model shall be set so that when New Products are introduced
the price is easily calculable. The New Products will be priced using the
pricing model that has been developed at the Chicago Facility. Unit
manufacturing through-put times relating to New Products will be generated by
MSSLO in the same fashion that they have been historically generated by the
Chicago Facility. Product mix changes shall not impact the pricing mechanism,
and the Parties agree that there is no Product mix requirement during the
Term of the Agreement. The pricing for the Products set forth in Exhibit A-3
will be the price ceiling.
The baseline value added spending pool that will be used to
calculate initial value added pricing in Q201 and value added pricing in
remaining Quarters of the Initial Term is set forth in Exhibit A-1.
For all potential new business after the Effective Date, at 3Com's
request, MSSLO will submit responses to request for quotes to 3Com in the
format set forth in Exhibit A-2. The formula for pricing will consist of the
following: direct Materials cost and total labor costs (including overhead)
and profits. The following details certain of the aforementioned items.
B. **** Prices set forth in Exhibit A-3 will **** described in this
paragraph. At the beginning **** for the **** of this Agreement **** for the
**** and **** on **** and **** to be ****, which **** are set forth in
Exhibit A. The amount **** shall be set forth on Exhibit A.
If ****, this **** will apply to the ****. Any **** and/or **** that
**** of the Product will be **** in the price **** will **** in the **** of
the ****.
C. DIRECT MATERIALS COST. Direct Materials cost for the Products
will be based on a 3Com controlled AVL. MSSLO will price each Product's BOM
using 3Com's controlled pricing for 3Com Controlled Materials and MSSLO's
pricing (at actual purchase price) for MSSLO Controlled Materials. The BOM
will be openly shared and jointly managed by both Parties to minimize total
cost. Any MSSLO initiated changes to the AVL, which are approved by 3Com,
that result in a cost reduction for 3Com in excess of the quarterly cost
reduction set forth below will flow to MSSLO alone during the first three (3)
months in which MSSLO receives the cost reduction. After the first three (3)
months, the full cost savings will flow to 3Com. Both Parties will work
together to establish strong supplier relationships and manage the
communications and relationships as applicable as set forth in Section 7A
(Commodity Management).
Both Parties will aggressively manage their respectively controlled
commodities as set forth in Exhibit D (Commodity Control Listing) to drive
continuous cost reductions. MSSLO will notify 3Com as soon as possible of any
new prices. Unless 3Com reasonably accepts the change, any price increase
will not become effective. Notwithstanding the above, any adjustments in the
purchased price variance (PPV) for 3Com Controlled Materials will be made at
the end of the Quarter in which the variances occurred. Both Parties will
work together with suppliers to avoid price increases.
D. LABOR COSTS. Labor cost will include all elements of production
assembly, test, inspection and associated manufacturing overhead (without
profit) using the agreed upon rates set forth in Exhibit A-2 applied to each
Product's assembly cost. Both Parties agree that production cost
7
shall include all costs of manufacturing Products as well as costs associated
with pack-out of finished goods, manuals, accessories, shrink-wrap around
pack-out, and outer carton.
MSSLO will share, subject to any relevant non-disclosure agreements and
required supervision, the exact customer model used in the generation of final
estimates as a vehicle for discussing opportunities for minimizing cost through
design modifications and other means. Final pricing will be based on a formal
MSSLO quotation accepted by 3Com.
E. PREDICTED PRICING MODEL. On or before February 1, 2001, MSSLO
shall provide 3Com with a predictive pricing proposal for incremental revenue
beyond the Minimum Commitment.
6. SUPPLY CHAIN OPERATIONS
A. ROLLING FORECAST. 3Com will provide MSSLO with at least a twelve
(12) month rolling non-binding forecast, updated monthly. MSSLO will procure
Materials at lead time, unless otherwise approved by 3Com to support 3Com's
forecasts and flexibility requirements. 3Com will be liable for, and 3Com's
liability with respect to the procurement of Materials will be limited to,
Excess and Obsolete Materials as set forth in Section 7D and Section 7E of
this Agreement. Except as otherwise agreed in writing, MSSLO will be
responsible for managing the disposition and liability of all Materials that
are not Unique Materials at no expense or liability to 3Com. 3Com may
additionally specify in writing to MSSLO a maximum amount of Unique Materials
and 3Com Controlled Materials. If 3Com elects to specify such maximum amount
MSSLO will purchase only to that amount and will notify 3Com of the impact to
3Com's forecast and Purchase Orders and Blanket Purchase Orders.
B. PRODUCTION CAPACITY.
(i) All manufacturing hereunder will be conducted at the Chicago
Facility unless otherwise mutually agreed. MSSLO shall make available the
necessary capacity at the Chicago Facility, provided such capacity is in MSSLO's
reasonable control, to meet 3Com's production requirements as provided by 3Com
according to Section 4 (Purchase Commitment) and Section 6A (Rolling Forecast).
(ii) MSSLO agrees to review forecasts provided by 3Com and advise 3Com
if MSSLO anticipates that it will be unable to achieve the forecasts. 3Com's
volume forecasts will be provided to MSSLO according to this Section 6. MSSLO
agrees to provide 3Com with either (1) confirmation of feasibility of the
forecast received, or (2) notice of specific feasibility issues with the
forecast received within a maximum of five (5) business days of receiving the
forecast.
(iii) If 3Com's rolling forecast exceeds MSSLO's available maximum
capacity at the Facility for 3Com, MSSLO shall advise 3Com of the limitations in
the capacity by site and provide a response in writing as described in Section 4
(Purchase Commitment) and Section 6A (Rolling Forecast).
8
(iv) 3Com agrees not to unreasonably withhold approval of additional
production facilities in the event that MSSLO is unable to provide capacity to
meet 3Com's Minimum Commitment at the Facilities. 3Com may otherwise withhold
approval of the manufacture of Products at any other of MSSLO's locations or
Facilities in its sole discretion.
C. PURCHASE ORDERS, FLEXIBILITY, RESCHEDULES, CANCELLATIONS. 3Com
will use two methods of order placement. For BTF Products, 3Com will provide
standard Purchase Orders. For BTO Products, 3Com will provide Blanket Purchase
Orders and will provide BPO Delivery Line Items for actual delivery of Product.
Such Purchase Orders and BPO Delivery Line Items shall be 3Com's only commitment
to purchase Products (subject to Section 4 above), and MSSLO's only
authorization to ship Products to 3Com or its customers. MSSLO and 3Com agree to
cooperate to define and develop program plans including statements of work,
schedules, and implementation dates for an enhanced BTO process not later than
four (4) months after the Effective Date. MSSLO and 3Com jointly agree to
implement enhanced BTO improvements focusing on overall supply chain time and
cost. The target objectives include delivery of a more responsive supply chain
to 3Com's customers through an enhanced build-to-order and direct ship model
resulting in a reduction in FGI without increasing supply chain cost.
The current Products and their current corresponding purchase order
type are set forth below*:
Purchase Order Type Product Lines Affected
-------------------------------------------- -----------------------------------------
Build-to-Forecast NBX, video camera
Build-to-Order cable modem, DSL, Carrier products
(excluding Carrier cabinet integration)
*Upon mutual written agreement with commercially reasonable notice to
MSSLO, 3Com may add Products or modify Products and the related type of purchase
orders.
(a) BUILD-TO-FORECAST. For BTF Products, 3Com will provide a minimum of
one (1) month continuous Purchase Order coverage. Purchase Orders may be
submitted in the form of hard copy, by facsimile, or by electronic means if
there is an appropriate agreement in place between 3Com and MSSLO. Purchase
Orders will specify part numbers, quantity (which shall not be less than the
economic minimum order size, as reasonably determined by MSSLO), prices, Product
revisions, mutually agreed upon delivery dates, and delivery locations all of
which shall be consistent with the terms hereof. Any terms or conditions
contained in the Purchase Order or in MSSLO's acknowledgement or other document
which are inconsistent with or in conflict with the terms and conditions
contained in this Agreement or which increase or impose additional obligations,
liabilities, or risks upon the other Party are hereby expressly rejected and
shall have no effect. Purchase Orders will be for one part number per purchase
order and indicate: (1)
9
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
agreed-upon purchase price; (2) method for shipping, receiving and billing of
a BTF Product; and (3) payment terms as defined in this Agreement.
(b) BUILD-TO-ORDER. For BTO Products, 3Com will provide a minimum of
three (3) months continuous, Blanket Purchase Order coverage. Blanket Purchase
Orders and BPO Delivery Line Items may be submitted in the form of hard copy, by
facsimile, or by electronic means if there is an appropriate agreement in place
between 3Com and MSSLO. Blanket Purchase Orders will specify part numbers, total
quantity, prices, Product revisions, end delivery date, and delivery locations
all of which shall be consistent with the terms hereof. BPO Delivery Line Items
will specify part numbers, quantity, prices, Product revisions, required
delivery dates, and delivery locations all of which shall be consistent with the
terms hereof. Any terms or conditions contained in the Blanket Purchase Order or
in MSSLO's acknowledgement or other document which are inconsistent with or in
conflict with the terms and conditions contained in this Agreement or which
increase or impose additional obligations, liabilities, or risks upon the other
Party are hereby expressly rejected and shall have no effect. Blanket Purchase
Orders will be for one part number per Blanket Purchase Order and indicate: (1)
agreed-upon purchase Price; (2) method for shipping, receiving and billing of
Product; and (3) payment terms, all as defined in this Agreement.
As 3Com provides MSSLO with continuing access to backlog information,
MSSLO will monitor 3Com's backlog for BTO SKUs on a daily basis and schedule
production to meet MSSLO's replenishment leadtime commitments. MSSLO will inform
3Com of its daily SKU shipment plan to support 3Com backlog. MSSLO will notify
3Com if the remaining and projected demand is approaching the maximum capacity
remaining in the Quarter. Upon such notice, 3Com may release BPO Delivery Line
Items to fulfill projected demand. 3Com will release BPO Delivery Line Items for
BTO Products at least weekly to cover production activity confirmed by 3Com. BPO
Delivery Line Items will be governed by the terms of the Blanket Purchase Order.
Furthermore, the quantity of Products to be provided by the Blanket Purchase
Order will be reduced by the quantity of Products indicated on the BPO Delivery
Line Item.
(c) Flexibility
(i) REPLENISHMENT LEAD TIMES. When 3Com issues a Purchase Order or BPO
Delivery Line Item, MSSLO must schedule within two (2) Days of MSSLO's receipt
of the Purchase Order or BPO Delivery Line Item the delivery of Products. MSSLO
agrees to meet the following turnaround times for 3Com's orders, from receipt of
3Com's Purchase Order or BPO Delivery Line Item to shipment to 3Com's customer
or 3Com as required by the Purchase Order or BPO Delivery Line Item *:
PRODUCT LINE RLT (IN DAYS)
--------------------------------------- -------------
DSL / Cable Modems / Carrier products **** days
(excluding Carrier cabinet integration)
NBX / Video Camera **** days
10
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
*Upon mutual written agreement and with commercially reasonable notice to MSSLO,
3Com may (i) add Products or modify Products and (ii) add or modify the number
of Days.
In the event MSSLO believes MSSLO can not meet these agreed upon RLTs,
MSSLO agrees to notify 3Com and take immediate action to change the RLT to
reflect MSSLO's actual turnaround time. MSSLO agrees to take immediate
corrective action intended to restore the RLT turnaround time to the agreed upon
RLTs, provided that, if a supplier of a 3Com Controlled Material is affecting
such RLT, then 3Com in collaboration with MSSLO will take corrective action.
Requirements in excess of remaining capacity may result in extended RLTs. 3Com
acknowledges that RLT extensions may result if MSSLO notifies 3Com that
remaining and projected demand is approaching the maximum capacity remaining in
the Quarter and 3Com chooses not to release BPO Delivery Line Items to fulfill
projected demand.
3Com and MSSLO agree to, on a monthly basis, reconcile their respective
data records that relate to open Purchase Order, Blanket Purchase Order, or BPO
Delivery Line Item quantity and the quantity of Product ordered, shipped and
delivered pursuant to 3Com's Purchase Orders, Blanket Purchase Orders, or BPO
Delivery Line Items during the previous one-month period.
If MSSLO does not have enough capacity to meet 3Com's orders beyond the
Minimum Commitment, MSSLO will use commercially reasonable efforts to allocate
capacity at the Facilities pro-rata based on value add among 3Com and other
existing customers, to meet 3Com's requested increases in capacity beyond the
Minimum Commitment. If any premium, expediting, or other increased charges over
quoted costs are required in order to meet 3Com's increased requirements, they
must be approved in advance and in writing by 3Com. 3Com agrees to pay for all
such pre-approved costs that represent out-of-pocket costs incurred by MSSLO. In
addition, MSSLO commits at no additional cost to 3Com to comply with the
flexibility terms for Materials and capacity availability as defined below on a
non-cumulative basis provided that MSSLO is not obligated to procure additional
capital equipment to meet this obligation:
MATERIALS AND CAPACITY AVAILABILITY % UPSIDE ON THE
REMAINDER OF UNITS
COMMITTED BY MSSLO FOR
NOTICE PERIOD BEFORE END OF 3COM'S FISCAL QUARTER 3COM'S FISCAL QUARTER
------------------------------------------------- ----------------------
120 days **** %
90 days **** %
60 days **** %
30 days **** %
11
Notwithstanding the foregoing, MSSLO shall not be required to provide
the above-listed upside to the extent that suppliers of 3Com Controlled
Materials fail to provide flexibility in such materials sufficient to satisfy
the above upsides. During the first year of the Initial Term, MSSLO shall not be
required to provide any capacity beyond that provided by the twelve existing
lines at the Chicago Facility.
(ii) OUTWARD RESCHEDULES. 3Com may conduct unlimited outward
reschedules. Any resulting impact on inventory shall be controlled including,
without limitation, as described in Section 7D (Excess Materials), 7E (Obsolete
Materials), Section 6D (Delivery) and Section 6E (Title Transfer).
(iii) INWARD RESCHEDULES. 3Com may conduct unlimited inward reschedules
pursuant to the guidelines outlined in the table in Section 6C.2 above. MSSLO
will use commercially reasonable efforts to achieve requests above these
guidelines and will respond within seven (7) Days with an analysis of possible
consequences.
(iv) CANCELLATIONS. 3Com may cancel Purchase Orders at any time. Upon
receipt of such cancellation, MSSLO shall provide to 3Com the cost to finish
production (labor, materials or changeover), the cost of Unique Materials, and
the cost of WIP. 3Com shall determine within a maximum of five (5) business
days, at its discretion, to scrap production, purchase Unique Materials and/or
WIP, or finish production. A separate Purchase Order shall be issued reflecting
3Com's decision. In addition, 3Com may cancel Blanket Purchase Orders at any
time.
(v) CHANGES. For BTF Products, changes to Purchase Orders and/or
forecasts will be consolidated in a timely manner by 3Com which will make
commercially reasonable efforts to limit its requests to one request per week.
(vi) PURCHASE ORDERS. Purchase Orders or BPO Delivery Line Items shall
not be considered as accepted until confirmed in writing, by facsimile or
electronically by an authorized representative of MSSLO. MSSLO shall make
commercially reasonable efforts to confirm Purchase Orders or BPO Delivery Line
Items (except by written mutual arrangement) within two (2) business days after
receipt. Notwithstanding the foregoing, if MSSLO fails to accept or reject
within five (5) business days, MSSLO will be deemed to have accepted that
Purchase Order or BPO Delivery Line Item. No additional or different provisions
proposed by either Party shall apply unless expressly agreed to in writing by
both Parties.
(vii) DELIVERY DATES. MSSLO will meet the delivery dates specified by
3Com if such dates are consistent with the lead times as set forth in Section
6(C)(c) above.
D. DELIVERY
(i) BTO PRODUCTS: All BTO Products will ship to 3Com's Finished Goods
Stockroom and MSSLO will invoice 3Com upon such shipment. Additionally, MSSLO
will ship the Product to 3Com or 3Com's customers in accordance with the terms
of the Distribution Agreement.
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(ii) BTF PRODUCTS: MSSLO will deliver BTF Products to the 3Com
Finished Goods Stockroom and will make an inventory transaction placing the
Products into 3Com's inventory no more than three (3) Days before and zero
(0) Days after the agreed Purchase Order delivery due date. Additionally,
MSSLO will ship the Product to 3Com or 3Com's customers in accordance with
the terms of the Distribution Agreement.
(iii) DELIVERIES: If any deliveries are delayed by causes beyond
MSSLO's reasonable control, MSSLO will promptly notify 3Com and may make partial
deliveries if possible. If MSSLO continues to be unable to meet the agreed
delivery date due to supply constraints, it will provide 3Com a report of such
supply constraints and proposed actions to minimize the impact of these
constraints. If delivery is more than zero (0) Days late due to causes within
MSSLO's reasonable control, MSSLO will pay the incremental cost of expedited
shipment. Delivery terms are Ex-Works (as defined in the International Chamber
of Commerce "Incoterms 2000" edition) from the Facility.
(iv) PRODUCTS: MSSLO shall segregate and clearly designate the
Products as belonging to 3Com. Further, MSSLO shall segregate and secure
Consigned Materials in a physically isolated, locked and designated caged
area in the Facility. MSSLO shall maintain insurance coverage as required
under Section 27 (Insurance Coverage) of this Agreement to cover risk of loss
to the Products until delivery to the common carrier.
E. TITLE TRANSFER. For BTO and BTF Products, title will pass on the
date on which such Products are placed into the 3Com Finished Goods Stockroom.
F. RIP AND SUPPLY RESPONSE PROCESSES/INFORMATION FLOWS. MSSLO shall
provide weekly supply information comparable to 3Com's existing RIP. Upon
receiving the data elements ("Inputs") below from 3Com, MSSLO shall provide the
information ("Outputs") outlined below within three (3) Days:
INPUTS From 3Com: OUTPUTS From MSSLO:
------ -------
Backlog by SKU (Stock Keeping Units) Supply Information (Forecasted to Ship - next week,
next month, next quarter)
Shipment Targets (Unit Targets) Availability Statement for Quarter (Units)
Forecast Changes SMT Build Schedule
New Product introduction Supply constraints
E&O Issues
Current Backlog Status
13
MSSLO will make available the program manager and such other personnel as
necessary from time to time , including a master scheduler, planner,
manufacturing manager, and buyer, for the RIP and Supply Response meetings,
which may take place on a regular basis via conference call and may include
sales, marketing, order administration, and supply chain personnel from 3Com.
The MSSLO personnel shall be prepared to address worldwide Product availability,
both to backlog and forecast, for Products that MSSLO manufactures.
3Com will provide anticipated customer hold releases and quarter end ramp up to
aid MSSLO's capacity planning process, particularly during periods of capacity
constraints, such as at Quarter end.
G. PAYMENT.
(i) Payment shall be made by 3Com net thirty (30) days from the
receipt of invoice or the date of delivery of Product, whichever is later.
All payments shall be made without any discount whatsoever. MSSLO shall
submit the invoices to the address indicated by 3Com. Payment of any such
invoice shall not constitute acceptance of any Products.
(ii) Unless otherwise specified in Exhibit A or agreed to in writing by
MSSLO and 3Com, payment shall be in U.S. Dollars by wire transfer.
7. MATERIALS MANAGEMENT
A. COMMODITY MANAGEMENT.
(i) SUPPLIER RELATIONSHIPS. 3Com and MSSLO will share preferred vendor
lists, and 3Com will consider MSSLO preferred vendors for inclusion into 3Com's
AVLs as appropriate. 3Com will include MSSLO input prior to providing
performance feedback to key suppliers through the Supplier Performance
Evaluation (SPE) process, based on the principles of TQRDC ("Technology,
Quality, Responsiveness, Delivery, Cost"). 3Com will promote to suppliers the
importance of providing strong support to MSSLO in the daily planning and
management of Materials. 3Com shall use commercially reasonable efforts to cause
suppliers of 3Com Controlled Materials that have in-house stores programs on the
date hereof to continue such programs. 3Com will work with MSSLO in
communicating with suppliers of 3Com Controlled Materials to attempt to ensure
that suppliers provide the same payment terms to MSSLO as are provided to 3Com
on the date hereof. Both Parties will encourage joint operations reviews with
key suppliers and represent issues on a unified basis where appropriate. During
periods of allocation, both Parties will participate as required in managing
availability to support 3Com's requirements. Provided that MSSLO has received
all the forecast information and information outlined in Section 7(A)(vi), MSSLO
will communicate 3Com requirements in a manner that will provide a minimum of
nine (9) months of forecasted demand visibility to suppliers. Any need to order
Materials beyond leadtime will be agreed to by both Parties.
(ii) DECISIONS REGARDING SUPPLIERS. 3Com may, at its sole discretion,
decide on the use of specific suppliers and the percentage of spending allocated
to certain suppliers for a given 3Com Controlled Material. 3Com shall use
commercially reasonable efforts to select
14
suppliers that provide 3Com Controlled Materials in a manner that enables
MSSLO to meet its flexibility commitments to 3Com. For 3Com Controlled
Materials, MSSLO will provide summary information regarding spending by
supplier and commodities as reasonably requested.
(iii) CONFIDENTIALITY OF SUPPLIER RELATIONSHIPS. 3Com and MSSLO will
each respect the confidentiality requirements of the other Party with respect to
each Party's supplier and customer relationships. The Parties agree that
maintaining confidentiality of proprietary pricing agreements is of the utmost
importance. Each Party will comply with its confidentiality obligations under
this Agreement. In addition to the confidentiality provisions set forth in
Section 29, a separate non-disclosure agreement may be used as appropriate.
(iv) SUPPLIER CHANGE NOTICES. MSSLO shall promptly forward any and all
3Com approved component supplier change notification requests relevant to 3Com
Products to the designated 3Com component engineer or (if not designated) to
3Com commodity management.
(v) COMMODITY CONTROL LISTING. 3Com will provide MSSLO on a Quarterly
basis a commodity control listing. Both Parties will discuss which Materials are
appropriate for MSSLO's control. Transfer of control of any Material will be by
mutual agreement; provided, however, should a performance issue for a MSSLO
Controlled Material impact 3Com's production plan, 3Com reserves the right to
immediately return the impacted commodity to 3Com's control.
(vi) ROLES AND RESPONSIBILITIES FOR 3COM CONTROLLED MATERIALS. 3Com's
commodity control list will include without limitation: part-numbers,
proprietary 3Com supplier pricing, business split (allocation), to be integrated
into the MSSLO BOM cost roll-up for the upcoming Quarter's pricing.
3COM WILL BE RESPONSIBLE FOR THE FOLLOWING:
-------------------------------------------
Supplier selection and AVL maintenance
Allocation of business split per the AVL
Allocation of supply constrained Materials
Ensuring Materials flexibility to meet the requirements of
Section 6(C)(c)
Providing component lead times for all new parts or suppliers
added to the AVL
Global price negotiations of 3Com Controlled Materials
Authorization of investment buys / PPV in supply constrained
markets with the associated inventory liability and safety
stock levels and Excess Leadtime Materials Purchases
Timely response to requests for supply deviations
3COM AND MSSLO WILL BE JOINTLY RESPONSIBLE FOR THE FOLLOWING:
-------------------------------------------------------------
Supplier performance evaluation
Supplier Production Quality (as referred to below)
Total cost of acquisition
MSSLO WILL BE RESPONSIBLE FOR THE FOLLOWING:
--------------------------------------------
Day to day purchasing activities
15
Placing purchase orders with suppliers within component lead time
Canceling or rescheduling such purchase orders to minimize 3Com's
and MSSLO's liability
Reviewing MRP item master data to ensure proper component lead
times are maintained and safety stock levels (if appropriate)
are established Reviewing all component lead times greater than
twelve (12) weeks
Recommending to 3Com procurement decisions for strategic
components based upon availability risk
Management of supply availability risk
Initial escalation should be worked by MSSLO purchasing
management
Provide 3-4 weeks notice to 3Com of supply availability risk if
known
Provide timely communication of inventory / PPV risk to 3Com
Provide timely request for supply deviations (temporary
deviations)
Suggesting alternate AVL sources for 3Com to consider
Loading proprietary 3Com controlled pricing into the BOMs each
Quarter
Provide weekly component shortage lists that could affect build
plans for the subsequent ten day period
Provide MRP report for "what-if" scenario planning
ESCALATION PROCESS FOR 3COM CONTROLLED MATERIALS. Both Parties
acknowledge that the overarching goal is to ensure that all
issues (technical and business) will be resolved in a timely
manner so as to minimize impact to MSSLO production and the flow
of Products to 3Com. In the event that issues arise with the
supply base the escalation process for each type of issue will be
as follows:
QUALITY ISSUES - Routine supplier quality issues are to be
managed by MSSLO. In the event that supplier quality problems
persist or in any way threaten the supply of Products in such a
fashion as to place 3Com deliveries at risk, MSSLO shall inform
3Com immediately. 3Com quality engineering and 3Com commodity
management group will work in good faith with MSSLO personnel to
develop a containment plan and a closed loop corrective action
plan that restores a robust "quality" supply line.
DELIVERY / RESPONSIVENESS ISSUES - MSSLO is responsible for
working all supplier delivery and responsiveness issues to ensure
a steady flow of components to support 3Com production. In the
event that supply becomes a risk, MSSLO purchasing management
shall escalate issues up the component supplier management chain.
If the issue is unresolved, MSSLO shall alert 3Com commodity
management and use reasonable commercial efforts to provide 3Com
with a three to four week visibility of risk prior to a line-down
situation. 3Com commodity management will work with MSSLO and the
supplier to help restore the supply to desired levels.
PRICING - MSSLO will advise 3Com commodity management group of
any pricing issue that deviates from the 3Com Controlled
Materials proprietary pricing list.
16
3Com commodity management will resolve the issue and provide
confirmed instructions to both MSSLO and the supplier.
ENGAGEMENT - The engagement of 3Com commodity management group
shall be facilitated through 3Com's contract manufacturing
representative.
(vii) LONG LEADTIME AND EXCESS LEADTIME MATERIALS. On a monthly basis
MSSLO will provide 3Com with a list of all Materials with leadtimes exceeding
twelve (12) weeks for review and mutual approval. Upon 3Com's approval, MSSLO
will update the MRP with the mutually agreed current leadtimes.
(viii) LONG LEADTIME PURCHASE AUTHORIZATION FORM. Any Unique Materials
or 3Com Controlled Materials that are agreed to be purchased beyond mutually
agreed leadtimes ("Excess Leadtime Materials") requires completion of the "Long
Leadtime Purchase Authorization Form" by MSSLO and approval by 3Com as set forth
in Exhibit G.
(ix) NEW PRODUCT INTRODUCTION SUPPORT. Purchase of parts to
support New Product introduction will be the responsibility of MSSLO. All
parts will be purchased in accordance with AVL and BOM information and to
forecast provided by 3Com contract manufacturing management. This may involve
initial unforecasted risk purchase which will be authorized by 3Com and 3Com
will bear the liability associated with these purchases.
B. MATERIAL ALLOCATIONS. Both Parties acknowledge that from time to
time there will be industry allocations and shortages of components and that
both Parties will work together and use commercially reasonable efforts to
mitigate the impact on production. In such event, MSSLO shall use
commercially reasonable efforts to ensure all Materials are purchased within
lead-time and shall provide 3Com commodity management forecasted consumption
information when requested to enable 3Com and MSSLO to resolve any allocation
issues. 3Com shall, at its discretion, make final decisions regarding the use
of allocated 3Com Controlled Materials. 3Com shall keep MSSLO apprised of the
status of any 3Com processes relating to such decisions and shall notify
MSSLO promptly of any such decision that may affect delivery of 3Com
Controlled Materials to MSSLO. 3Com will not be liable to MSSLO for any
premium purchase charges for allocated Materials, unless approved in writing
by 3Com within a reasonable period of time. With respect to MSSLO Controlled
Materials that are subject to worldwide allocation or subject to highly
unusual price increases in a given Quarter, then in the following Quarter,
the parties shall meet and determine if such MSSLO Controlled Material shall
become a 3Com Controlled Material or remain a MSSLO Controlled Material.
C. QUARTERLY MATERIAL RE-VALUATION. At the beginning of each
Quarter, 3Com will implement the buy-down (or buy-up) process as set forth
below ("Buy-Down Process"), to revalue MSSLO's inventory for 3Com Controlled
Materials and FGI (cost of 3Com Controlled Materials only), unless otherwise
mutually agreed in writing. The cost of completed assemblies for the upcoming
Quarter will be directly affected by this change in Material costs. The
inventory Buy Down Process for Materials is as follows:
17
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
- 3Com provides MSSLO with 3Com part numbers that are changing in
price.
- MSSLO validates the prices with the various Material suppliers as
required.
- MSSLO uses the new Material costs provided for determining top
level assembly prices for the new Quarter.
- MSSLO provides 3Com with the following information for each
inventory Buy Down Material:
1. part number
2. description
3. supplier
4. quantity on hand and / or in transit
5. current price value
6. new price
7. where used and quantity per BOM
- MSSLO will identify which Materials exceed four (4) weeks of
current run rate of inventory, where current run rate is equal to
the Material's aggregate projected demand for the Quarter divided
by thirteen (13) weeks. Materials with inventory levels of four
(4) weeks or less of the current run rate will not require
supporting justification but are subject to random 3Com audits.
Materials with inventory levels greater than four (4) weeks of
the current run rate will require documented justification, such
as forecast reductions, outward reschedules of Purchase Orders or
BPO Delivery Line Items, or other change initiated by 3Com.
- 3Com will review the information provided, corroborate documented
justification, and will subsequently either process a Purchase
Order for the dollar value of the inventory Buy Down money due
that has been adequately justified, or is equal to four (4) weeks
or less than four (4) weeks of requirements, or was previously
approved by 3Com for Excess Leadtime Material purchase or safety
stock, or will notify MSSLO of that portion of the inventory Buy
Down claim that has not been adequately justified or which was
not corroborated. In the event that prices for Materials
increase, MSSLO agrees to "buy-up" the inventory valuation
pursuant to the Buy Down Process set forth above.
D. EXCESS MATERIALS. With respect to any Excess Materials on hand,
MSSLO will notify 3Com of the amount and the cost of such Excess Materials in
a consolidated report on the first week of a Quarter. 3Com shall either (i)
pay carrying costs for Excess Materials at a rate **** percent (****%) per
month as it ages greater than sixty (60) Days or (ii) buy Excess Materials at
MSSLO's cost (purchase price paid by MSSLO) plus a Materials acquisition
charge equal to **** percent (****%) of MSSLO's purchase price; provided,
however, that after one hundred and twenty (120) days, 3Com must buy such
Materials in accordance with clause (ii) of this sentence. Upon 3Com's
instructions, MSSLO will use reasonable commercial efforts to sell Excess
Materials at market prices. The proceeds from such
18
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
sales will be credited to 3Com or MSSLO, as applicable. In no event will 3Com
have any liability for any Materials that are not Unique Materials unless
otherwise agreed to in writing. MSSLO may, with 3Com's prior written
approval, sell Excess Materials at less than market price. If any Excess
Material is sold for less than MSSLO's book value, 3Com shall pay MSSLO the
amount by which such sale price is less than MSSLO's purchase price plus a
Materials acquisition charge equal to **** percent (****%) of MSSLO's
purchase price. MSSLO will document and use commercially reasonable efforts
to mitigate any Excess Materials through including but not limited to
returning, endeavoring to find other MSSLO customers willing to use such
Materials, proper rescheduling and cancellation efforts with its suppliers.
MSSLO agrees to repurchase from 3Com any Excess Materials so purchased,
subject to such Excess Material meeting current quality specifications, at
the current standard price **** percent (****%) prior to placing new purchase
orders within leadtime for forecasted demand.
E. OBSOLETE MATERIALS. On at least a monthly basis, MSSLO will send
3Com a report which states the Materials that are determined to be Obsolete
Materials. 3Com will purchase Obsolete Materials at cost (purchase price paid
by MSSLO) plus a Materials acquisition charge equal to **** percent (****%)
of MSSLO's purchase price for such Obsolete Materials. 3Com will provide
MSSLO a Purchase Order within fourteen (14) Days of report of obsolescence.
Upon 3Com's instructions, MSSLO will use reasonable commercial efforts to
sell Obsolete Materials at market prices. The proceeds from such sales will
be credited to 3Com. In no event will 3Com have any liability for any
Materials that are not Unique Materials unless otherwise agreed to in
writing. MSSLO will document and use commercially reasonable efforts to
mitigate any Obsolete Materials through returning, proper rescheduling and
cancellation efforts with its suppliers. MSSLO agrees to repurchase from 3Com
any Obsolete Materials so purchased, subject to such Obsolete Material
meeting current quality specifications, at the current standard price ****
percent (****%) prior to placing new purchase orders within leadtime for
forecasted demand.
F. MATERIALS TRANSFER. MSSLO agrees to buy, from time to time,
3Com's on-hand Materials that are in excess of 3Com's own production
requirements and that are needed as determined by MSSLO's MRP process for
MSSLO's production within the next ninety (90) days of forecasted demand.
MSSLO also agrees to sell (i) Materials in excess of MSSLO's production
requirements to 3Com, or (ii) any 3Com Controlled Materials, whether or not
in excess of MSSLO's production requirements, to any of 3Com's Authorized
Agents, or to anyone else designated by 3Com whose credit worthiness is
reasonably acceptable to MSSLO or who purchases on a letter of credit basis.
Payment terms will be mutually agreed on a case-by-case basis. Prices shall
be at 3Com's or MSSLO's, as the case may be, actual purchase price.
G. PURCHASE OF SPARE MATERIALS. 3Com shall have the right to
purchase spare Materials for the Products at a cost equal to MSSLO's actual
purchase price **** percent (****%) **** **** in order to perform internal
maintenance, support, and repair and for lab stock and testing purposes. Such
purchases shall be governed by the applicable terms and conditions set forth
in this Agreement.
8. PURCHASES BY 3COM'S AUTHORIZED AGENTS
MSSLO agrees that all of 3Com's Authorized Agents, wherever located,
shall be entitled to make purchases under this Agreement, and all such purchases
shall apply to the purchase commit-
19
ments in Section 4, subject to their credit worthiness being reasonably
acceptable to MSSLO, unless they purchase on a letter of credit basis or
their payments are guaranteed by 3Com. Any payment timing and credit
limitations placed on 3Com's Authorized Agents, other than those presented in
this Agreement, will be agreed upon in writing by both Parties. MSSLO agrees
to notify 3Com of any credit limitations applicable to 3Com's Authorized
Agents.
9. PACK-OUT AND PACKING INSTRUCTIONS
All Product shall be finished, packed-out, shrink-wrapped around
pack-out and placed in outer cartons in a commercially reasonable manner with
the intent to secure the lowest transportation rates and meet carrier's
requirements and those set forth in 3Com's Pack-Out and Packaging Specifications
which are attached hereto as Exhibit C. MSSLO also agrees to perform all
pack-out, storage and distribution services in accordance with the Distribution
Agreement.
10. QUALITY STANDARDS AND CERTIFICATION
A. MANAGEMENT REVIEW PROCESS. The Parties intend to maintain active
and open communications at both the program level and at the strategic level,
and agree to engage in periodic reviews of all applicable activities
encompassing the relationship. Executive representatives from both Parties
will meet no less than quarterly to review all major elements of this
Agreement and to jointly agree upon updated Performance Standards and Metrics
for this Agreement. Initially, the Parties intend to rotate these meetings
between MSSLO's locations and 3Com's locations. Special attention will be
paid to 3Com programs specific to the host site, although the Parties will
also follow a standard agenda covering the total business. This agenda will
include reviewing 3Com future Product roadmaps and schedules, organizational
updates, future manufacturing and process improvements by MSSLO's business
reviews, and Performance Standards and Metrics reflecting activities during
the period since the last review.
B. PERFORMANCE STANDARDS AND METRICS. Performance Standards and
Metrics as set forth in Exhibit F will include, but are not limited to, the
following: (i) total 3Com-MSSLO business level; (ii) MSSLO product quality
and yields; (iii) MSSLO on-time delivery performance; (iv) 3Com forecast
accuracy; (v) MSSLO inventory summary; (vi) 3Com EC activity; (vii) supply
chain cycle time characterization; (viii) MSSLO prototype on-time delivery
and quality performance; and (ix) MSSLO future/projected
manufacturing/process and cost improvements. MSSLO agrees to maintain quality
standards, measurement practices, performance measurements, quality reports,
and inspection processes as they exist at the Chicago Facility as of the
Effective Date subject to any changes as may be mutually agreed. In addition,
MSSLO will work with 3Com to develop mutually-agreeable closed-loop quality
and corrective action processes on a going forward basis. MSSLO shall
maintain the quality plan in effect at the Chicago Facility as of the
Effective Date. The Parties shall cooperate to develop a mutually acceptable
continuous improvement quality plan incorporating such existing plan at a
minimum on a going forward basis no later than February 28, 2001. Upon
request of either Party, the Parties will cooperate to document such plan in
writing. The Parties shall engage in quarterly reviews and weekly conference
calls to track performance and update such plan. 3Com reserves the right to
request the capture, organization, and reporting of any commercially
reasonable performance measurements, and MSSLO agrees to cooperate with 3Com
20
in developing a plan to fulfill such requests. After the Effective Date,
MSSLO will provide a contact to provide quality information on a regular
basis.
C. CONFORMITY TO SPECIFICATIONS. MSSLO agrees that all Products will
conform in all material respects to the Specifications for the part number
stated on the BOM or 3Com's Purchase Order or Blanket Purchase Order, the
Specifications for the manufacture and pack-out of the Products, and to the
workmanship specifications of IPC-610B Class 2 as modified from time to time,
which are set forth in Exhibits B and C, and to the then currently accepted
commercial manufacturing practices. For the avoidance of doubt, as used in
this Section 10(C) "material" includes without limitation any non-conformity
that may cause a customer to return a Product.
D. QUALIFICATION SAMPLES. MSSLO will supply qualification samples to
3Com upon request. 3Com shall provide written notification to MSSLO of the
results of qualification testing of each Product. If the sample is approved
by 3Com, then 3Com will be deemed to have accepted the BOM for the
qualification samples and the processes performed by MSSLO will be deemed to
meet the appropriate Specifications.
E. ISO 9002 CERTIFICATION. The Chicago Facility will conform to the
requirements of ISO 9002 at all times in manufacturing the Products
hereunder. MSSLO agrees that it currently is or will, within twelve (12)
months of the Effective Date of this Agreement become certified under ISO
9002, and during the term of this Agreement will remain ISO 9002 certified.
If at any time hereafter certification under ISO 9002 is no longer generally
appropriate, MSSLO will ensure that it is certified under another comparable
or higher standard which is reasonably acceptable to 3Com.
F. BABT340 AND UL CERTIFICATION. MSSLO will maintain the existing
BABT340 certification for the Chicago Facility and MSSLO shall provide all
necessary assistance to 3Com to maintain product-specific BABT andUL
certification.
G. QUALITY AND CERTIFICATION AUDIT RESULTS. MSSLO will share the
results of all quality and certification audits of the Chicago Facility and
other Facilities as they relate to Products with 3Com within ten (10) business
days of the receipt of the results of such audits.
H. NEW CERTIFICATION REQUIREMENTS. MSSLO and 3Com will cooperate to
conform to new certification requirements that are or will become requirements
for 3Com's telecommunications business, such as TL9000 and others. Additional
resources required will be identified by MSSLO, and reviewed with 3Com prior to
MSSLO committing to new requirements. 3Com will not be responsible for the
maintenance and cost of facility-specific process or quality system
certification such as ISO 9002. 3Com will be responsible for the maintenance and
costs of obtaining product-specific certifications. MSSLO will be responsible
for adhering to the manufacturing requirements contained within the
certification.
I. FINAL "OUT-OF-BOX TESTING". MSSLO agrees that it will perform final
"out-of-box" testing of a sample of the Products to verify that the Products
conform to the Specifications in all material respects prior to delivery to 3Com
or its customers. If any Products in the sample deviate from the Specifications,
MSSLO shall rework all Defective Products in the lot being
21
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
sampled to render them compliant with the Specifications in all material
respects. Test methods and test procedures shall be as currently in place at
the Chicago Facility or as otherwise agreed to by both Parties.
J. CORRECTIVE ACTION. 3Com will use a corrective action request process
to notify MSSLO of Defective Products or degradation of established quality
trends. The Corrective Action Request ("CAR") will be acknowledged by MSSLO
within **** business days. A written response to the CAR (or a request for ****
business day extension) will be delivered to 3Com within **** business days
after receipt of the CAR from 3Com. CAR responses should include (a) root cause
or methodology to arrive at root cause, (b) containment plan, (c) corrective
action implementation date, and (d) any follow-on preventative action plans. If
corrective action implementation is not demonstrated within **** business days
to 3Com's reasonable satisfaction, 3Com may escalate the CAR to the site manager
at the Chicago Facility. If two CARs within a **** month period relate to the
same Product or a substantially similar defect, 3Com will escalate the CAR to
the site manager at the Chicago Facility.
K. RETURN OF DEFECTIVE PRODUCTS. If 3Com returns Defective Products
to MSSLO, MSSLO agrees to implement on a prompt basis appropriate actions as
necessary to minimize the possibility that additional Defective Products will
be delivered to 3Com or to 3Com's customers, and further agrees as soon as
reasonably possible to implement appropriate corrective actions as necessary
to prevent reoccurrence of the defect. Upon 3Com's request, MSSLO further
agrees to conduct a detailed failure analysis and shall use commercially
reasonable efforts to report the failure analysis data to 3Com within ****
Days of receipt of the Defective Product at MSSLO's location. MSSLO agrees to
preserve and maintain all data associated with Product failure analysis and
corrective actions and to make that data available to 3Com upon request at no
charge provided that MSSLO shall not be obligated to preserve and maintain
such data beyond the period required by its ISO 9002 certification, BABT
certification, or the warranty period for the Products, whichever is greater.
If it is determined that failure is not due to workmanship or MSSLO
Controlled Materials, then failure analysis will stop and 3Com will be
notified, and MSSLO shall not be responsible for any such failure. MSSLO
agrees to participate in 3Com's closed-loop corrective action process.
L. MATERIAL CHANGES TO MANUFACTURING PROCESS. MSSLO agrees to advise
3Com in writing of any material changes to manufacturing processes and any
changes to Materials, sources of supply, or process chemistries, test
procedures, quality reporting or other major processes, and to ensure that
any such changes do not compromise specifications, quality, or reliability of
Products ordered pursuant to this Agreement. In the case of changes to
Materials or sources of supply, such notice shall be provided no less than
the Materials' leadtime plus **** Days prior to the effectiveness of such
change. MSSLO may not make any such changes without prior written approval
from 3Com. In the event a MSSLO-proposed change fails 3Com's qualification,
MSSLO is obligated to provide the existing qualified Product until the
proposed change can be qualified.
11. INSPECTION, TESTING, AND ACCEPTANCE
22
A. INSPECTION AND ACCEPTANCE CRITERIA. Products purchased pursuant
to this Agreement shall be subject to inspection, testing, and acceptance by
3Com. Products shall be deemed accepted upon shipment to 3Com or its
customers. All Products built by MSSLO for 3Com will have a specific set of
Product testing procedures and acceptance criteria as currently in place at
the Facility or as otherwise mutually agreed by both Parties. Upon request of
either Party, the Parties will cooperate to document such procedures and
criteria in writing. Should Products not conform to the Specifications or
MSSLO's processes be found to be non-conforming, MSSLO will withhold shipping
Product until such non-conformance is resolved to 3Com's reasonable
satisfaction or unless otherwise agreed to by 3Com. 3Com will not be
responsible for Products that fail to meet the mutually agreed upon
acceptance criteria. Acceptance criteria include, but is not limited to, (i)
manufacturing process conformance to IPC-A-610B Class 2 Workmanship Standards
as modified from time to time, (ii) conformance to 3Com Product test
specifications and (iii) any other mutually agreed upon and documented
criteria.
B. MSSLO TESTING. MSSLO is responsible for testing of Products and
Materials. During the course of testing products, if MSSLO believes they have
identified any possible design flaws in the Products or Materials, they will
notify 3Com immediately.
C. INSPECTION OF FACILITIES. Upon two (2) business days' notice, 3Com
shall have the right to perform vendor qualifications and/or on-site
inspections at MSSLO's manufacturing facilities during MSSLO's normal
business hours. If an inspection or test is made on MSSLO's premises, MSSLO
shall provide 3Com's inspectors with reasonable facilities and assistance at
no additional charge. In the event that any on-site inspection of the
Products indicates that the Products do not conform to the requirements of
this Agreement, MSSLO shall not ship such Products to 3Com until such
nonconformity has been corrected to 3Com's reasonable satisfaction and 3Com
has approved shipment of such Products in writing or unless otherwise agreed
to by 3Com. This does not preclude, prevent or limit 3Com's right to perform
acceptance testing at 3Com's facilities.
D. INADVERTENT PRODUCTION OF NONCONFORMING GOODS. If MSSLO believes
it has inadvertently built and/or shipped any nonconforming Product, MSSLO
will notify 3Com as soon as possible, stating the potential problem,
suspected quantities produced, shipping information, and any other relevant
information. MSSLO will render, at its expense, all commercially reasonable
assistance possible to remedy the problem.
12. RETURN OF PRODUCT
A. NON-CONFORMING MATERIALS REPORT. In the event 3Com detects
non-conforming Products prior to acceptance, a Non-Conforming Materials Report
(NCMR) and/or a Corrective Action Request (CAR) shall be provided to MSSLO and
MSSLO shall submit an initial response to such CAR within forty-eight (48) hours
after receipt. MSSLO must provide a Return Materials Authorization (RMA) within
**** hours after receipt of request for an RMA from 3Com.
B. REJECTION OF DEFECTIVE PRODUCTS. 3Com may reject and return any
Defective Product, provided such defect is due to workmanship or MSSLO
Controlled Materials to MSSLO at MSSLO's expense. MSSLO agrees to reimburse 3Com
for all reasonable and actual freight and
23
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
handling costs associated with return of any Defective Product. MSSLO will
return conforming Products freight prepaid as per the following schedule to
3Com or issue appropriate credit no later than thirty (30) Days, or as
mutually agreed by both Parties, from the date MSSLO receives the Defective
Product:
RMA Quantity Days
------------ ----
0-100 ****
101-1000 ****
1001-Over ****
Any Product returned to MSSLO, which, after inspection and testing by MSSLO,
is found to be free of defects caused by workmanship or MSSLO Controlled
Materials, shall be subject to a "No Defect Found Charge" as mutually agreed.
However, MSSLO will waive any NDF Charges on Products returned for repair, if
returned Products result in an NDF rate not exceeding **** percent (****%) of
the monthly unit volume. For an NDF rate greater than **** percent (****%)
but not more **** percent (****%) the Parties will mutually agree upon
allocation of the NDF Charge.
C. REPLACEMENT OF RETURNED PRODUCTS. If pending the analysis of
returned Products by MSSLO 3Com is in urgent need of Product, 3Com may issue
a Purchase Order or BPO Delivery Line Item to replace the Products to which
the CAR pertains. MSSLO will expedite such Purchase Order or BPO Delivery
Line Item at 3Com's request and, if requested by 3Com, will ship the order by
premium transport as specified by 3Com. All costs of expedited handling of
such Purchase Order or BPO Delivery Line Item and any premium transport
specified by 3Com shall be borne by 3Com, unless there is a defect that is
the fault of MSSLO, in which case it will be borne by MSSLO.
13. SUPPORT
3Com may request reasonable on-site support from MSSLO, which MSSLO
shall provide, to solve problems with rejected shipment batches of Product as
well as to validate 3Com's inspection methodology. All costs will be borne by
the Party incurring them.
14. WARRANTY
A. WARRANTY. Subject to Section 14E below, MSSLO makes the following
warranties to 3Com:
(i) The Product will conform in all material respects to the
Specifications and the Materials will conform in all material respects to the
supplier's specifications for such Materials for a period of fifteen (15) months
from the date of delivery to 3Com;
24
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
(ii) The Products will be free from defects in MSSLO's workmanship and
in Materials and meet the mutually-agreed testing criteria for a period of ****
months from the date of delivery to 3Com;
(iii) All Products and Materials delivered under this Agreement shall
comply with the environmental warranties set forth in Exhibit H;
(iv) All Products and Materials delivered under this Agreement shall be
free and clear of any liens or encumbrances, and at the time of delivery MSSLO
shall have all rights necessary to transfer title to such Products and Materials
to 3Com;
(v) The Materials are Year 2000 ready such that they are capable of
correctly processing, providing, receiving and displaying date data, as well as
capable of exchanging accurate date data with all Products with which the
Materials are used within and between the twentieth and twenty-first centuries;
and
(vi) The Products and all Materials provided to 3Com under this
Agreement (other than those purchased from 3Com) are new products and do not
contain anything used, refurbished or reconditioned.
B. REPAIR OR REPLACEMENT. In the event that any Product fails to comply
with the warranties set forth in Section 14A above, MSSLO shall, at its expense,
correct any such defect by repairing or replacing such Defective Product in
MSSLO's discretion subject to 3Com's reasonable approval. MSSLO agrees to
reimburse 3Com for all reasonable and actual freight and handling costs
associated with return of any Defective Product. 3Com shall return to MSSLO such
Defective Products and Materials to MSSLO's designated facility pursuant to the
RMA procedure set forth in Section 12 above. The repaired or replaced item will
be shipped to 3Com no later than ten (10) business days from receipt of the
Defective Product at MSSLO's facility subject to Materials availability. If
repair or replacement is not possible due to unavailability of needed Materials
within the time required by 3Com, at 3Com's option MSSLO will issue a refund in
the form of a credit to 3Com in an amount equal to the purchase Price of the
Defective Products that MSSLO is unable to repair or replace. Replacement and/or
repaired Products shall be warranted for the remainder of the warranty period or
ninety (90) Days, whichever is longer. If product upgrade is required, MSSLO
will provide a written quote for any additional cost required to make such
repair, prior to making such repair.
C. EPIDEMIC DEFECTS. In addition to Section 14A above, MSSLO agrees to
repair or replace, at no charge to 3Com, any Epidemic Defects found to exist in
any of the Products at any time prior to **** months after the date of delivery
to 3Com of the affected Products. In the case of any Epidemic Defects, MSSLO and
3Com shall jointly agree regarding which of the following options to pursue, at
MSSLO's expense; (i) sort, screen, repair and/or replace 3Com's Product stock
and Products in the field, (ii) conduct a thorough investigation into the root
cause of the Epidemic Defect and with 3Com's concurrence, implement corrective
actions, (iii) reimburse 3Com for the costs, if any, of 3Com service calls to
3Com's customer locations, and/or (iv) accept the return of
25
any and all affected Product(s) for a full refund if the Parties mutually
agree that no such corrective action is sufficient.
D. INDEMNIFICATION. If MSSLO discovers a material breach of any of the
representations and warranties in Section 14A, MSSLO shall promptly notify 3Com
of such breach in writing. In addition to repairing or replacing such Products
or Materials pursuant to Section 14B above, MSSLO shall defend, indemnify and
hold harmless 3Com and its officers, directors, employees, agents,
representatives, successors and assigns from any third-party claims,
liabilities, losses, demands or judgments arising from the breach of any of
MSSLO's representations and warranties set forth in Section 14A(iii) or (iv).
E. WARRANTY EXCLUSIONS.
3Com will have no claim against MSSLO under the Product warranties set
forth in Section 14A, and MSSLO shall have no liability under Section 14A to the
extent that such claims are made for a Product defect:
(a) resulting from defective 3Com Controlled Materials;
(b) resulting from specific instructions provided by 3Com in
writing or electronically, covering design or test data, Specifications,
quality requirements, diagnostics, manufacturing processes or other processes
or Product descriptions; or
(c) that is caused by 3Com or anyone other than MSSLO or its
agents through misuse, excessive shock, accident, fire, or improper
maintenance procedures, improper storage, or modification by 3Com or anyone
other than MSSLO.
Notwithstanding Section 14A above, MSSLO's sole liability under this
Section 14 with respect to Materials shall be to use reasonable commercial
efforts to obtain such warranties for Materials from its suppliers of Materials.
All warranties obtained by MSSLO on the Materials shall, if possible, be
assigned to 3Com at no additional cost. To the extent such warranties are not
assignable to 3Com at no additional cost to MSSLO, MSSLO shall at 3Com's written
request use reasonable commercial efforts to enforce such warranty against the
supplier, and MSSLO shall provide the benefits of such enforcement to 3Com
(subject to reimbursement of attorney's fees as provided below). In the event
that after using reasonable commercial efforts, MSSLO's initial efforts to
enforce such warranty against the Materials vendor are unsuccessful, 3Com will
reimburse MSSLO for the reasonable costs of pre-approved (by 3Com) outside legal
counsel to enforce such warranties. If MSSLO is successful in such enforcement,
MSSLO will repair the affected Products with the non-defective, replacement
Materials, if applicable, at no cost to 3Com to the extent that such labor costs
are included in the warranty. To the extent that labor costs are not included in
such warranty, upon request from 3Com, MSSLO will repair the affected Products
with the non-defective replacement Materials at MSSLO's standard costs.
F. WARRANTY DISCLAIMER. THE FOREGOING EXPRESS WARRANTIES AND
REMEDIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS
26
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
ALL OF WHICH ARE HEREBY DISCLAIMED.
15. CHANGES
A. ENGINEERING CHANGE ORDERS. The Parties recognize that from time
to time MSSLO will request or will be requested by 3Com to implement
Engineering Change Orders (hereinafter referred to as "ECOs"). The following
outlines the proper procedure for such:
(i) MSSLO REQUESTED CHANGES. MSSLO is to notify 3Com in writing
of proposed ECOs no less than lead time of the Materials plus **** Days and
will, if so requested, provide 3Com with samples. The notification shall
include the proposed Product changes, anticipated price changes and
implementation date. Notification shall also include the appropriate
documentation to support 3Com's investigation of the impact of this proposal.
3Com will review the feasibility of the implementation of the proposed ECO.
If lead-time or new costs are required for the ECO, lead time and new Prices
will be reviewed. 3Com is to advise MSSLO of its decision with respect to the
proposed ECO within **** business days after receipt of MSSLO's written
notification, 3Com will not be liable for any Excess or Obsolete Materials
arising as a direct result of such MSSLO ECO.
(ii) 3COM REQUESTED CHANGES. 3Com agrees to notify MSSLO in
writing of all proposed ECOs. This notification will include the appropriate
documentation to support MSSLO's investigation of the impact of this
proposal. MSSLO is to report to 3Com within **** business days of 3Com's
request the feasibility of the implementation of the ECO and if reasonably
feasible, the estimated charges that would be incurred for obsolete
work-in-process Materials, raw Materials, and on-order Materials. 3Com will
review the labor and Materials costs and impact for the implementation of the
ECO. If new Materials are required for the ECO, lead-time and new Product
Price will be reviewed and mutually agreed upon.
(iii) AGREED ECO. 3Com is to notify MSSLO in writing within ten
(10) business days after receipt of MSSLO's cost report of its decision as to
the proposed ECO, associated costs, and the implementation dates. MSSLO will
execute an agreed ECO per a mutually agreed upon phase-in plan, and will use
reasonable commercial efforts to meet 3Com's requested dates.
(iv) "EMERGENCY" ECO. 3Com requested changes labeled
"Emergency" shall be handled on an expedited basis. Upon receipt of an
"Emergency" ECO, delivered either in hard copy, via facsimile, or via e-mail,
MSSLO agrees to approve and enter the requested change into MSSLO's ERP
system and to confirm that the ECO has been implemented at the Facility
within twenty-four (24) hours, provided that there are no reasons why the ECO
cannot be implemented.
(v) NEW PRODUCT RELEASES. 3Com will notify MSSLO of New Product
releases using the New Product release process, as described in Exhibit K.
27
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
(vi) TEMPORARY CHANGE AUTHORIZATIONS. Temporary change
authorizations ("TCAs") will be implemented according to the ECO process
described in Exhibit J. TCAs can be applied to individual sales orders and
shall not be effective for more than **** Days.
B. 3COM APPROVAL. No ECO's shall be made by MSSLO without 3Com's
prior written approval, which may be withheld in 3Com's sole discretion.
16. PROTOTYPING AND ENGINEERING SERVICES
A. PROTOTYPE BUILD. In order to quickly and accurately turn
prototype build requirements into testable boards or subassemblies, MSSLO
shall, with 3Com's cooperation, endeavor to develop processes in transferring
design and engineering change documentation and files accurately, and
communicate requirements for build schedules as they become available. MSSLO
shall build prototypes with delivery times and to quality levels relative to
workmanship commensurate with those delivery times and quality levels
relative to workmanship being achieved at the Chicago Facility on the
Effective Date. In addition to pursuing rapid assembly time, MSSLO shall, in
rendering any such prototype build services, (1) use MSSLO's design services
effectively, (2) use processes that are a fair representation of production
equipment when possible, (3) provide design for manufacturing ability
feedback in advance as well as after prototype builds are complete, and (4)
maintain adequate capabilities to quickly repair Products. Both MSSLO and
3Com shall, if necessary, assign project managers to coordinate efforts to
meet objectives. MSSLO, with 3Com's cooperation, shall use reasonable
commercial efforts to improve prototype delivery times and to quality levels
relative to workmanship from those existing at the Chicago Facility as of the
Effective Date.
In the event 3Com desires to engage MSSLO to render the above
prototype build services, or any other engineering services, the Parties
shall execute a Prototype/Engineering Services Statement of Work and Rate
Schedule as set forth in ("Prototype/Engineering Services Statement of Work")
which shall include a description of the services to be rendered, any
milestones or delivery dates, or any other relevant terms.
B. OTHER ENGINEERING SERVICES. The Parties acknowledge that 3Com may
desire to engage MSSLO for other engineering services relating to the
Products. If MSSLO agrees to such engagement, the Parties shall execute a
Statement of Work and Rate Schedule in the form attached hereto as Exhibit I
or as otherwise mutually agreed and which shall include a description of the
services to be rendered and any milestones or delivery dates or other terms
relevant to such engagement.
C. PERFORMANCE STANDARDS AND METRICS FOR SERVICES. Specific
performance standards and metrics for MSSLO for a specific service may be set
forth in the corresponding Exhibit I or as otherwise mutually agreed. Where
none is set forth, MSSLO shall use reasonable efforts to provide services in
accordance with the policies, procedures and practices in effect before the
date hereof and shall exercise the same care and skill as it exercises in
performing similar services for itself.
28
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
D. PAYMENT TERMS. Prices for services shall be set forth in the
applicable Exhibit I. MSSLO shall invoice 3Com on a monthly basis for all
charges for services rendered pursuant to this Section 16. Such invoices
shall be accompanied by reasonable documentation or other reasonable
explanation supporting such charges. 3Com shall pay MSSLO for all services
provided hereunder within thirty (30) Days after receipt of an invoice
therefor. 3Com shall purchase or pay **** of services rendered pursuant to
this Section 16 in each three (3) month period following the Effective Date
during the first year of the Initial Term. MSSLO shall provide 3Com with a
credit against charges for services rendered pursuant to this Section 16 of
**** for each three (3) month period following the Effective Date during the
second year of the Initial Term.
17. INTELLECTUAL PROPERTY RIGHTS
A. 3COM OWNERSHIP. Except as set forth in Section 17B below, 3Com
shall exclusively own all right, title and interest in all results and
proceeds of the services rendered by MSSLO hereunder (the "Services"),
including without limitation, in any work of authorship, mask work, idea,
design, concept, technique, invention or discovery, whether or not patentable
or registerable ("Assigned Inventions"), and MSSLO hereby irrevocably
transfers and assigns to 3Com all right, title and interest, including
without limitation all IP Rights, in the Assigned Inventions. As used herein,
"IP Rights" shall mean all copyrights, maskwork rights, patents and other
intellectual property or proprietary rights. In addition, the Parties
expressly agree to consider as works made for hire those works ordered or
commissioned by 3Com which qualify as such in accordance with the copyright
laws. For all of the Assigned Inventions, MSSLO agrees to provide
documentation satisfactory to 3Com to assure the conveyance of the Assigned
Inventions to 3Com. The Assigned Inventions shall be kept in confidence by
MSSLO and shall be used only in performing this Agreement and may not be used
for other purposes except upon such terms as may be agreed upon between the
Parties in writing. MSSLO also agrees to acquire from its employees, agents
and contractors, rights and covenants as to assure that 3Com shall receive
the rights provided for in this Section 17A.
B. MSSLO OWNERSHIP. MSSLO shall exclusively own all IP Rights in all
know-how, technology, processes, procedures, ideas and concepts developed by
MSSLO or its employees, agents, affiliates or contractors in the course of
manufacturing the Products, any modifications, enhancements, improvements to
the manufacturing processes for the Products, and any other idea, design,
concept, technique, invention or discovery related to the manufacture of the
Products during the Term of this Agreement ("Manufacturing Standards"). For
the avoidance of doubt, (i) 3Com shall retain all IP Rights to all
manufacturing processes, know-how and other information and materials
provided by 3Com to MSSLO after the Effective Date of this Agreement to
manufacture the Products or perform the Services ("3Com IP"), and (ii) MSSLO
shall retain all IP Rights to all manufacturing processes, know-how, and
other information owned by MSSLO or developed by MSSLO other than in
connection with the performance of this Agreement.
C. LICENSE GRANTS. In consideration of MSSLO's obligations under
this Agreement, 3Com hereby grants MSSLO a non-exclusive, non-transferable,
royalty-free fully-paid license for the Term of this Agreement to use the
3Com IP, but solely for the purpose of manufacturing and
29
servicing the Products for 3Com and any of 3Com's Authorized Agents who
purchase under this Agreement, unless otherwise notified in writing by 3Com.
MSSLO hereby grants to 3Com a nonexclusive, royalty-free, fully-paid license
to use the Manufacturing Standards in connection with the manufacture of
Products by or for 3Com and to make, have made and distribute the Products
manufactured using the Manufacturing Standards. Upon request from 3Com, MSSLO
shall provide 3Com with such documents reasonably necessary for 3Com to
document and duplicate the Manufacturing Standards for the Products.
D. 3COM TRADEMARKS. 3Com authorizes MSSLO to affix and apply the
3Com Trademarks to the Products as directed by 3Com for the sole purpose of
manufacturing the Products pursuant to this Agreement. MSSLO shall not use
3Com Trademarks for any other purpose and only in such manner as to preserve
all rights of 3Com. MSSLO acquires no right to 3Com Trademarks by its use and
all uses by MSSLO of the 3Com Trademarks will inure to 3Com's sole benefit.
As used herein, "3Com Trademarks" means those trademarks, trade names,
service marks, slogans, designs, distinctive advertising, labels, logos, and
other trade-identifying symbols as are or have been developed and used by
3Com or any of its subsidiaries or affiliate companies and which 3Com owns or
has the right to use.
E. INTELLECTUAL PROPERTY LICENSE AGREEMENT. Nothing herein shall be
deemed to modify the ownership, license or other terms of the Intellectual
Property License Agreement of even date herewith between 3Com and MSL or the
Asset Purchase Agreement dated as of September 26, 2000, between 3Com, on the
one hand, and MSL and MSSLO, on the other hand (the "Asset Purchase
Agreement").
18. TERMINATION FOR CAUSE
A. This Agreement, any Purchase Order, Blanket Purchase Order, or
BPO Delivery Line Item may be terminated immediately for cause by either
Party upon notice to the other Party for the following:
(i) the other Party makes a general assignment for the benefit
of creditors, or a receiver or similar officer is appointed to take charge of
any of the other Party's assets;
(ii) the other Party enters into any composition with creditors
or is subject to an order made or resolution passed for it to be wound up or
for the appointment of a judicial manager;
(iii) the other Party ceases to carry on its business or
operations;
(iv) a bankruptcy or similar petition is filed by or against the
other Party, and in the case of an involuntary petition, the proceeding is
not dismissed within sixty (60) Days; or
(v) the other Party fails to perform any material obligation
under this Agreement, and such failure is not cured within thirty (30) Days
written notice thereof.
30
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
B. 3Com and MSSLO hereby acknowledge and agree that, to permit MSSLO
to supply Products hereunder, 3Com has leased to MSSLO the Chicago Facility
pursuant to a Lease of even date herewith (the "Lease"). The Parties further
acknowledge and agree that **** under the lease **** for the **** under the
lease **** the lease ****. To the extent **** of the lease.
19. TERMINATION FOR CONVENIENCE
Either Party may terminate this Agreement, any Purchase Order,
Blanket Purchase Order, or BPO Delivery Line Item after expiration of the
Initial Term without cause by giving at least six (6) months written notice
to the other Party. Upon expiration or termination of this Agreement for any
reason, MSSLO will take commercially reasonable steps to reduce its liability
to vendors. MSSLO and 3Com may propose specific actions to be taken in this
regard, and if they are unable to reach agreement after a reasonable time,
3Com will pay MSSLO an amount equal to the liability for cancelled orders as
set forth in Exhibit D. If the Parties agree to have MSSLO seek to re-stock
or re-market any Unique Materials, 3Com will compensate MSSLO for its
reasonable costs, which shall include but not be limited to, cancellation or
restocking charges, costs of preparation and packaging of assemblies or
Materials for shipment to 3Com or any third party authorized by 3Com, and
costs of terminating any open Purchase Orders, Blanket Purchase Orders, BPO
Delivery Line Item or contracts which had been authorized by 3Com. 3Com will
have no liability with respect to the payment for Materials that are not
Unique Materials.
20. LIMITATION OF LIABILITY
EXCEPT WITH RESPECT TO DAMAGES TO THIRD PARTIES UNDER
INDEMNIFICATION OBLIGATIONS OR WITH RESPECT TO BREACH OF CONFIDENTIALITY
OBLIGATIONS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER UNDER ANY CONTRACT,
STRICT LIABILITY, NEGLIGENCE OR OTHER THEORY FOR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION LOST PROFITS IN CONNECTION
WITH THE SUBJECT MATTER OF THIS AGREEMENT OR ANY PURCHASE ORDER, BLANKET
PURCHASE ORDER OR BPO DELIVERY LINE ITEM IRRESPECTIVE OF WHETHER SUCH PARTY
HAD ADVANCE NOTICE OR KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES.
NOTWITHSTANDING THE FOREGOING, THIS SECTION SHALL NOT LIMIT EITHER PARTY'S
LIABILITY FOR INJURY TO A PERSON OR RELIEVE 3COM'S LIABILITY TO PAY MSSLO
WHEN DUE THE PRICE FOR PRODUCTS DELIVERED.
21. FORCE MAJEURE
Neither Party shall be liable hereunder by reason of any failure or
delay in the performance of its obligations hereunder (except for the payment
of money) on account of strikes, shortages, riots, insurrection, fires,
flood, storm, explosions, earthquakes, telecommunications outages, acts of
God, war, governmental action, or any other cause which is beyond the
reasonable control of such Party and could not have been avoided by the
exercise of reasonable prudence. In the event of the occurrence of any force
majeure event, the affected Party shall notify the other Party immediately in
writing of its invocation of this Section 21, and each Party's obligations
hereunder (except for the
31
payment of money) to the other shall be suspended for the duration of such
force majeure event; provided, however, that the affected Party shall be
obligated to use its commercially reasonable efforts to restore performance
hereunder as soon as reasonably practicable, and provided, further, that if
such event continues for more than thirty (30) Days in the aggregate in any
six (6) month period, the non-affected Party shall have the right to
terminate this Agreement at any time upon written notice to the other Party.
MSSLO's performance under this Agreement in meeting delivery commitments
shall be excused until such time as MSSLO commences building and delivering
Products or initial SAP implementation is accepted by MSSLO, such acceptance
not to be unreasonably withheld, provided that, for the avoidance of doubt,
such excuse does not constitute a force majeure event.
22. NONASSIGNABILITY
Neither Party may, directly or indirectly, in whole or in part,
whether by operation of law or otherwise, assign or transfer this Agreement,
or any rights or obligations hereunder, without the other Party's prior
written consent, and any attempted assignment, transfer or delegation without
such prior written consent shall be voidable at the sole option of such other
Party. Notwithstanding the foregoing, each Party (or its permitted successive
assignees or transferees hereunder) may assign or transfer this Agreement as
a whole without consent to an entity that succeeds to all or substantially
all of the business or assets of such Party. Without limiting the foregoing,
this Agreement will be binding upon and inure to the benefit of the Parties
and their permitted successors and assigns.
Notwithstanding the foregoing, MSSLO shall have the right upon
written notice to 3Com to assign this Agreement to a wholly-owned (direct or
indirect) subsidiary of MSSLO's ultimate parent, such arrangement not to
affect the guarantee by Manufacturers' Services Limited of this Agreement.
Nothing herein shall prohibit MSSLO from granting in favor of its
lenders a security interest in any accounts receivable or other amounts due
to MSSLO from 3Com.
23. NOTICES
All notices, reports, requests, acceptances, and other
communications required or permitted under this Agreement shall be in writing
and shall reference this Agreement. They will be deemed delivered:
(i) When delivered in person, or
(ii) When sent by confirmed telex or acknowledged facsimile or
acknowledged e-mail except that the communications referred to in Sections
14E, 18, 19, 21, 22, or 25 may not be sent by e-mail, or
(iii) One Day after having been sent by commercial overnight
courier with written verification of receipt or,
(iv) Five Days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or upon actual receipt
thereof, whichever occurs first. An
32
acknowledged e-mail communication or fax shall be deemed to be a
communication in writing. All communication will be sent to the receiving
Party as follows or to such address that the receiving Party may designate
pursuant to this Section.
If to MSSLO: Manufacturers' Services Salt Lake City Operations, Inc.
0000 Xxxx Xxxxxx Xxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Vice President
with a copy to: Manufacturers' Services Limited
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
and to: Manufacturers' Services Limited
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Rod Michael, VP of Corporate Accounts,
xxx.xxxxxxx@xxx.xxx
If to 3Com: 0XXX XXXXXXXXXXX
0Xxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxx, Senior Director,
Worldwide Contract Manufacturing
Xxxxx_Xxx@0Xxx.xxx
with a copy to: 0XXX XXXXXXXXXXX
0Xxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx, Vice President,
Supply Chain Operations
Xxxx_Xxxxxxxx@0Xxx.xxx
with a copy to: 3COM CORPORATION
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Fax No. (000) 000-0000
24. COMPLIANCE WITH LAWS
MSSLO agrees that its performance under this Agreement shall comply
with all applicable laws including without limitation laws governing its
relationship with its employees, agents or subcontractors. 3Com agrees that
its performance under this Agreement shall comply with all
33
applicable laws including without limitation laws governing its relationship
with its employees, agents or subcontractors.
25. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY
A. INDEMNITY BY MSSLO. MSSLO will, at its expense, defend, indemnify
and hold 3Com, its Affiliates, officers and directors harmless from any
costs, expenses (including reasonable attorney's fees), losses, damages,
court judgments or awards or liabilities (collectively, "Damages") incurred
as a result of any claim that any Service or Product provided by MSSLO to
3Com pursuant to this Agreement infringes or is alleged to infringe any
patent, copyright, trade secret, trademark, mask work right or other
proprietary right(s) of a third party, but solely to the extent such
infringement or alleged infringement arises out of or relates to an MSSLO
Responsibility; provided that MSSLO is promptly notified by 3Com, rendered
reasonable assistance by 3Com (at MSSLO's expense) and permitted to control
the defense or settlement of such claim. As used herein, "MSSLO
Responsibility" means any aspect of the manufacture of the Products or
performance of the Services that is not specifically required in writing by
3Com in its specified designs, Materials, processes or other instructions and
with respect to which there is a non-infringing alternative available to
implement such requirements, or any deviations from such requirements by
MSSLO or its agents. For the avoidance of doubt, a MSSLO Responsibility
occurs with respect to any discretionary action by MSSLO in the manner of
implementing 3Com's requirements if a non-infringing alternative exists.
Without limiting the foregoing, such indemnification shall not apply to
infringing combinations to the extent arising from the combination of the
Product with other items in which the combination was not performed by MSSLO
or its agents or from claims for infringement to the extent arising from
changes to the Products not made by MSSLO or its agents.
B. INDEMNITY BY 3COM. 3Com will, at its expense, defend, indemnify
and hold MSSLO and its Affiliates, officers and directors harmless from
Damages incurred as a result of any claim that any Product or Service
provided by MSSLO to 3Com hereunder infringes or is alleged to infringe any
patent, copyright, trade secret, trademark, mask work right or other
proprietary right(s) of a third party, except to the extent that such
infringement or alleged infringement arises out of or relates to a MSSLO
Responsibility, and except to the extent MSSLO has indemnification coverage
from the applicable supplier with respect to any 3Com-Specified Materials
Infringement Claim; provided that 3Com is promptly notified by MSSLO,
rendered reasonable assistance by MSSLO (at 3Com's expense) and permitted to
control the defense or settlement of such claim. Such indemnification shall
not apply to infringing combinations arising from the combination of 3Com's
requirements with other items that are not 3Com's requirements.
C. 3COM-SPECIFIED MATERIALS INFRINGEMENT CLAIM. MSSLO will use
reasonable commercial efforts to obtain indemnification protection covering
MSSLO (and 3Com if possible) from its suppliers of 3Com-Specified Materials
for any claim that the 3Com-Specified Materials provided by suppliers
infringes or is alleged to infringe any patent, copyright, trade secret,
trademark, mask work, or other proprietary right(s) of a third party (a
"3Com-Specified Materials Infringement Claim"), and MSSLO will use reasonable
commercial efforts to pass through to 3Com any indemnification protection
that is so obtained. As used herein, "3Com-Specified Materials"
34
means any Materials that are specifically required in writing by 3Com and
with respect to which there is no non-infringing alternative available to
implement such requirement. Where MSSLO has obtained indemnification
protection from a supplier of 3Com-Specified Materials and is unable to pass
through such indemnification protection to 3Com and a 3Com-Specified
Materials Infringement Claim is made against 3Com, MSSLO agrees that it will
indemnify 3Com for 3Com's Damages incurred as a result of such 3Com-Specified
Materials Infringement Claim, but such indemnification by MSSLO shall be
provided only to the extent MSSLO is able to obtain indemnification from such
supplier using reasonable commercial efforts and after application of such
indemnification amount against Damages incurred by MSSLO in connection with
such 3Com-Specified Materials Infringement Claim. All reasonable costs of
outside counsel pre-approved by 3Com to enforce such indemnification
protection from such supplier of Materials, to the extent incurred in respect
of MSSLO's indemnification of 3Com under this Section 25C, shall be
reimbursed by 3Com.
D. ADDITIONAL OBLIGATIONS. Should the use of any Product by 3Com or
its customers be enjoined because of a MSSLO Responsibility, MSSLO shall (or
in the event MSSLO wishes to minimize its potential liability hereunder
arising from an infringement claim based on a MSSLO Responsibility, MSSLO
may) either (i) substitute a fully equivalent non-infringing unit of the
Product for each affected unit of the Product sold to 3Com; (ii) modify the
infringing Product so that it no longer infringes but remains functionally
equivalent; (iii) obtain for 3Com, at MSSLO's expense, the right to continue
to make, use and sell the Product; or if none of the foregoing is feasible
(iv) refund to 3Com the purchase price paid therefor and accept return of the
infringing Products.
26. GRATUITIES
Each Party represents and warrants that it has not offered or given
and will not offer or give any employee, agent, or representative of the
other Party any gratuity with a view toward securing any business from the
other Party or influencing such person with respect to the business between
the Parties.
27. INSURANCE AND STATUTORY OBLIGATIONS
If either Party's work under this Agreement requires access to any
of the other Party's premises or the premises of the other Party's buyers,
suppliers, or locations where the other Party conducts business, or with
material or equipment furnished by the other Party, both Parties shall take
all necessary precautions to prevent the occurrence of any injury to persons
or property during the progress of such work and, except to the extent that
such injury is due to the other Party's negligence or willful misconduct,
each Party shall indemnify the other Party against all loss which may result
in any way from any negligence or willful misconduct of the Party, its
employees, servants, agents, or subcontractors, and each Party shall maintain
such insurance as shall protect the other Party from such risks and from any
statutory liabilities arising therefrom and shall provide evidence of such
insurance to the other Party upon request.
28. INSURANCE COVERAGE
35
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
A. MSSLO INSURANCE. MSSLO will provide evidence of product liability
insurance in a form reasonably acceptable to 3Com in the amounts of ****
million per occurrence and **** million aggregate per year, will maintain in
effect such insurance for a period of two (2) years after termination of such
Agreement, and will provide 3Com with a certificate of insurance.
B. 3COM INSURANCE. 3Com will provide evidence of product liability
insurance in a form reasonably acceptable to MSSLO in the amounts of ****
million per occurrence and **** million aggregate per year, and will maintain
in effect such insurance for a period of two (2) years after termination of
such Agreement and will provide MSSLO with a certificate of insurance.
29. CONFIDENTIAL INFORMATION
A. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential
Information" means any information: (i) disclosed by one Party (the
"Disclosing Party") to the other (the "Receiving Party"), which, if in
written, graphic, machine-readable or other tangible form is marked as
"Confidential" or "Proprietary," or which, if disclosed orally or by
demonstration, is identified at the time of initial disclosure as
confidential and is summarized in writing and similarly marked and delivered
to the Receiving Party within thirty (30) Days of initial disclosure; (ii)
which at the time it is disclosed is or should reasonably be known by the
Receiving Party to be proprietary or confidential information of the
Disclosing Party, such as 3Com pricing for materials, prices for products
sold to 3Com customers and 3Com's actual as well as average sales price for
any products or (iii) which is otherwise deemed to be "Confidential
Information" by the terms of this Agreement. Notwithstanding the foregoing,
3Com's Confidential Information shall include without limitation all
Specifications of the Product. As used in this Section 29A, the terms
"Receiving Party" and "Disclosing Party" may be understood to include, as
appropriate under the circumstances, 3Com or its subsidiaries, as applicable,
and MSSLO or the MSSLO Affiliates.
B. CONFIDENTIAL INFORMATION EXCLUSIONS. Confidential Information
will exclude information that the Receiving Party can demonstrate is: (i) now
or hereafter, through no unauthorized act or failure to act on Receiving
Party's part, in the public domain; (ii) known to the Receiving Party from a
source other than the Disclosing Party (including former employees of the
Disclosing Party) without an obligation of confidentiality at the time
Receiving Party receives the same from the Disclosing Party, as evidenced by
written records; (iii) hereafter furnished to the Receiving Party by a third
party as a matter of right and without restriction on disclosure; (iv)
furnished to others by the Disclosing Party without restriction on
disclosure; or (v) independently developed by the Receiving Party without use
of the Disclosing Party's Confidential Information. Nothing in this Agreement
shall prevent the Receiving Party from disclosing Confidential Information to
the extent the Receiving Party is legally compelled to do so by any
governmental investigative or judicial agency pursuant to proceedings over
which such agency has jurisdiction; provided, however, that prior to any such
disclosure, the Receiving Party shall (a) assert the confidential nature of
the Confidential Information to the agency; (b) immediately notify the
Disclosing Party in writing of the agency's order or request to disclose; and
(c) cooperate fully with the Disclosing Party in protecting against any such
disclosure and/or obtaining a protective order narrowing the scope of the
compelled disclosure and protecting its confidentiality.
36
C. CONFIDENTIALITY OBLIGATION. The Receiving Party shall treat as
confidential all of the Disclosing Party's Confidential Information and shall
not use such Confidential Information except as expressly permitted under
this Agreement. Without limiting the foregoing, the Receiving Party shall use
the same degree of care and means that it utilizes to protect its own
information of a similar nature, but in any event not less than reasonable
care and means, to prevent the unauthorized use or the disclosure of such
Confidential Information to third parties. The Confidential Information may
be disclosed only to employees or contractors of the Receiving Party with a
"need to know" who are instructed and agree not to disclose the Confidential
Information and not to use the Confidential Information for any purpose,
except as set forth herein; provided, however, in the case of 3Com, the term
"employees or contractors of a Receiving Party" shall include employees and
contractors of 3Com and its Authorized Agents (but with respect to Authorized
Agents who are not Affiliates disclosure shall be limited to the extent
necessary to enable such Authorized Agents to purchase under this Agreement).
The Receiving Party shall have appropriate written agreements with any such
employees or contractors sufficient to comply with the provisions of this
Agreement. A Receiving Party may not alter, decompile, disassemble, reverse
engineer, or otherwise modify any Confidential Information received hereunder
and the mingling of the Confidential Information with information of the
Receiving Party shall not affect the confidential nature or ownership of the
same as stated hereunder.
D. CONFIDENTIALITY OF AGREEMENT. Each Party agrees that the terms
and conditions, but not the existence, of this Agreement will be treated as
the other Party's Confidential Information and that no reference to the terms
and conditions of this Agreement or to activities pertaining thereto may be
made in any form of press release or public statement without first
consulting with the other Party; provided, however, that each Party may
disclose the terms and conditions of this Agreement: (i) as may be required
by law; (ii) to legal counsel of the Parties; (iii) in connection with the
requirements of an initial public offering or securities filing; (iv) in
confidence, to accountants, banks, and financing sources and their advisors;
(v) in confidence, in connection with the enforcement of this Agreement or
rights under this Agreement; or (vii) in confidence, in connection with a
merger or acquisition or proposed merger or acquisition, or the like.
E. NO CONFIDENTIAL INFORMATION OF OTHER PARTIES. Each Party
represents and warrants to the other that it has not used and shall not use
in the course of its performance hereunder, and shall not disclose to the
other, any confidential information of any third party, unless it is
expressly authorized in writing by such third party to do so.
F. REQUIRED DISCLOSURE. In the event the Receiving Party is required
to disclose the Disclosing Party's Confidential Information pursuant to the
order or requirement of a court, administrative agency, or other governmental
body, the Receiving Party shall provide prompt notice thereof to the
Disclosing Party and shall use its reasonable efforts to obtain a protective
order or otherwise prevent public disclosure of such information.
30. PUBLIC ANNOUNCEMENTS
The parties agree to consult with each other before issuing any press
release or making any public statement with respect to this Agreement or the
transactions contemplated hereby prior to the
37
Closing Date and, except as may be required by applicable law will not issue
any such press release or make any such public statement prior to such
consultation. The parties agree that the initial press releases to be issued
by the parties with respect to the transactions contemplated by this
Agreement shall be in a form reasonably acceptable to the other party.
31. COUNTRY OF ORIGIN
For each Product purchased under this Agreement, MSSLO shall furnish
3Com with country of origin (manufacture), by quantity and part number (3Com's
and MSSLO's).
32. PROPERTY FURNISHED BY 3COM
Any tools, drawings, specifications, or other Materials furnished by
3Com for use by MSSLO in its performance under this Agreement or any Purchase
Order or Blanket Purchase Order issued hereunder shall be identified and shall
remain the property of 3Com and shall be used by MSSLO only in its performance
hereunder and MSSLO shall, at 3Com's expense, take such action as 3Com may
reasonably request to give full legal effect to 3Com's rights therein. Such
property shall be returned to 3Com at 3Com's cost, upon request, to destination
specified by 3Com in good condition, except for normal wear and tear. 3Com shall
maintain, or pay to maintain, any 3Com-owned property in use by MSSLO.
33. GENERAL
A. SURVIVAL. Any obligations and duties which, by their nature, extend
beyond the expiration or earlier termination of this Agreement, including
Sections 1, 12, 14, 17, 18, 19, 20, 23, 25, 28, 29, 32 and 33 (collectively, the
"Surviving Obligations") shall survive any such expiration or termination and
remain in effect. Termination shall not relieve any Party from its liability for
breach.
B. SEVERABILITY AND WAIVER. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, such provision
shall be enforced to the fullest extent permitted by applicable law and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. Any waiver of any kind by a Party of a
breach of this Agreement must be in writing, shall be effective only to the
extent set forth in such writing and shall not operate or be construed as a
waiver of any subsequent breach. Any delay or omission in exercising any right,
power or remedy pursuant to a breach or default by a Party shall not impair any
right, power or remedy which either Party may have with respect to a future
breach or default.
C. EXPORT OF INFORMATION. To the extent the laws of the United
States are applicable, MSSLO hereby gives assurance to 3Com that it shall not
export, re-export or otherwise disclose, directly or indirectly, technical
data, including but not limited to, software in both source code and object
code form, received from 3Com or the direct product of such technical data to
any person or destination when such export, re-export or disclosure is
prohibited by the laws of the United States or regulations of a Department of
the United States.
38
D. ENTIRE AGREEMENT. The entire agreement between the Parties is
incorporated in this Agreement and Exhibits, and it supersedes all prior
discussions and agreements, both oral and written, between the Parties relating
to the subject matter hereof.
For the avoidance of doubt, the Parties specifically acknowledge that
the Asset Purchase Agreement dated as of November 19, 1999, between 3Com and
Manufacturers' Services Salt Lake City Operations, Inc. and the agreements
referred to therein do not relate to the subject matter hereof. This Agreement
can be modified only by a written amendment duly signed by persons authorized to
sign agreements on behalf of both Parties, and shall not be supplemented or
modified by any course of dealing or trade usage. Variance from or addition to
the terms and conditions of this Agreement in any Purchase Order, Blanket
Purchase Order, BPO Delivery Line Item, or other written notification from MSSLO
will be of no effect. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
E. EXHIBITS. Exhibits specified in this Agreement shall be attached
hereto and by this reference are made a part hereof. The following is a list
of exhibits so incorporated:
Exhibit A: Products and Pricing
Exhibit B: Specifications and IPC 610B Class 2
Exhibit C: 3Com's Pack-Out and Packaging Specifications
Exhibit D: Listing of MSSLO Controlled Materials
Exhibit E: 3Com's Affiliates and Authorized Agents
Exhibit F: Performance Standards and Metrics
Exhibit G: Long Leadtime Authorization Form
Exhibit H: Environmental Warranties
Exhibit I: Statement of Work
Exhibit J: ECO Process
Exhibit K: New Product Release Process
F. GOVERNING LAW. The construction, validity, and performance of this
Agreement and any Purchase Order, Blanket Purchase Order, or BPO Delivery Line
Item issued under it shall be governed by the laws of the State of New York. The
United Nations Convention on Contracts for the International Sale of Goods is
hereby expressly excluded from application to this Agreement.
G. CONSENT TO JURISDICTION. Each of the Parties agrees that all
actions, suits or proceedings arising out of or based upon this Agreement or
the subject matter hereof shall be brought and maintained exclusively in the
state or federal courts located in the State of New York. Each of the parties
by execution hereof (i) hereby irrevocably submits to the jurisdiction of the
state and federal courts located in the Borough of Manhattan, City of New
York, State of New York for the purpose of any action, suit or proceeding
arising out of or based upon this Agreement or the subject matter hereof and
(ii) hereby waives to the extent not prohibited by applicable law, and agrees
not to assert, by way of motion, as a defense or otherwise, in any such
action, suit or proceeding, any claim that it is not subject personally to
the jurisdiction of the above-named court,
39
that it is immune from extraterritorial injunctive relief, that his or its
property is exempt or immune from attachment or execution, that any such
action, suit or proceeding may not be brought or maintained in the
above-named court should be dismissed on the grounds of forum non conveniens,
should be transferred to any court other than the above-named court, should
be stayed by virtue of the pendency of any other action, suit or proceeding
in any court other than the above-named court, or that this Agreement or the
subject matter hereof may not be enforced in or by the above-named court.
Each of the parties hereto hereby consents to service of process in any such
suit, action or proceeding in any manner permitted by the laws of the State
of New York, agrees that service of process by registered or certified mail,
return receipt requested, at the address specified in or pursuant to Section
23 hereof is reasonably calculated to give actual notice and waives and
agrees not to assert by way of motion, as a defense or otherwise, in any such
action, suit or proceeding any claim that service of process made in
accordance with Section 23 hereof does not constitute good and sufficient
service of process. The provisions of this Section 33G shall not restrict the
ability of any party to enforce in any court any judgment obtained in the
state or federal courts located in the State of New York. The Parties hereby
irrevocably waive all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the subject matter hereof.
H. BUSINESS REVIEWS. 3Com and MSSLO agree to conduct joint quarterly
business reviews with Senior Management of both Parties for the purpose of
reviewing the ongoing operational performance of 3Com and MSSLO as it relates to
this Agreement, discuss anticipated business conditions, corrective and
preventive action plans as necessary and appropriate respective strategic
business decisions.
40
IN WITNESS, the authorized representatives of the Parties have executed
this Agreement.
For 3Com: For MSSLO:
/s/ Xxxxx Xxxxxxx /s/ Xxxx X. XxxXxxxx
---------------------------- --------------------------------
Signature Signature
Name: Xxxxx Xxxxxxx Name: Xxxx X. XxxXxxxx
----------------------- ---------------------------
Title: Senior Vice President Title: Treasurer
---------------------- ---------------------------
Manufacturing Operations
---------------------------- --------------------------------
Date September 30, 2000 Date
---------------------- ---------------------------
MSL hereby joins this Agreement for the purposes set forth in this
paragraph. MSL hereby guarantees to 3Com the performance by MSSLO of the
obligations of MSSLO under this Agreement, and, in the event of default by MSSLO
of any such obligations, MSL agrees to perform all such obligations as if MSL
were MSSLO under this Agreement (subject to any limitations which would apply if
MSL were MSSLO under this Agreement), and to indemnify and hold harmless 3Com
from any loss, costs or damages arising out of any failure of MSSLO to perform
any such obligations (subject to any limitations which would apply if MSL were
MSSLO under this Agreement).
MSL hereby expressly waives (a) diligence, presentment, demand for
payment, acceptance or protest under this Agreement; (b) discharge due to the
disability of MSSLO with respect to its obligations under this Agreement; (c)
any requirement that 3Com exhaust any right, power or remedy or proceed against
MSSLO or any other person that may be liable for any obligations of MSSLO
hereunder and (d) notice of acceptance of its obligations under this Agreement
and notice of non-performance by MSSLO. MSL specifically agrees that it shall
not be necessary or required, and MSL shall not be entitled to require, that
3Com (i) file suit or proceed to assert any claim for personal judgement against
MSSLO in respect of any obligations hereunder; (ii) make any effort at
collection, enforcement or recovery of all or any part of any obligations
hereunder from MSSLO; or (iii) exercise or assert any other right or remedy to
which 3Com is or may be entitled in connection with any such obligations
hereunder. Following the Effective Date, MSSLO and 3Com may amend or modify this
Agreement, or settle or comprise any claim hereunder or thereunder, without
consent of or notice to MSL. MSL assumes all responsibility for keeping apprised
of the financial condition of MSSLO and its performance under this Agreement. To
the extent any of the following are deemed applicable, MSL expressly waives, to
the extent permitted by law, the benefit of California Civil Code Sections 2809,
2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 1432. MSL further agrees to
be bound by Section 33G in connection with disputes arising under this
Agreement. MSL hereby represents and warrants to 3Com that it has all requisite
power and authority to join this
42
Agreement for the limited purposes stated in this paragraph and perform its
obligations pursuant to this Agreement. MSL's obligations hereunder shall
survive any termination of this Agreement with respect to the Surviving
Obligations and any liability of MSSLO arising out of the terminated
Agreement.
For MSL:
/s/ Xxxxx X. Xxxxx
-------------------------------
Signature
Name: Xxxxx X. Xxxxx
-------------------------
Title: Chairman and CEO
-------------------------
-------------------------------
Date
43
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
EXHIBIT A
PRODUCTS AND PRICING
EXHIBIT A-1
A B C D E ****
****
A-1
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
EXHIBIT A-2
PRICING ALGORITHM
Total Unit Pricing by MSSLO to 3Com will be determined in the following
fashion:
****
A-2
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
EXHIBIT A-3
**** PRICING TO 3COM
SKU # A B C D E ****
-----------------------------------------------------------------------------------------------------------------
**** **** **** **** ****
A-3
Confidential Materials omitted and filed with the Securities and Exchange
Commission. Asterisks denote omissions.
EXHIBIT A-4
****
A-4
EXHIBIT B
SPECIFICATION AND IPC610B CLASS 2
Specifications shall be the existing specifications for the Products in
use at the Chicago Facility, or as otherwise mutually agreed. Upon request from
either Party, the Parties will mutually agree on additional documentation of
such Specification.
B-1
EXHIBIT C
3COM'S PACK-OUT AND PACKAGING SPECIFICATIONS
Specifications shall be the existing specifications for the Products in
use at the Chicago Facility, or as otherwise mutually agreed. Upon request from
either Party, the Parties will mutually agree on additional documentation of
such Specification.
C-1
EXHIBIT D
LISTING OF MSSLO CONTROLLED MATERIALS
[NONE.]
D-1
EXHIBIT E
3COM'S AFFILIATES AND AUTHORIZED AGENTS
AFFILIATES: 3Com Technologies
AUTHORIZED AGENTS: Manufacturer's Services Ltd.
Flextronics International
Century Electronics Manufacturing Inc.
Welwyn Systems
Xxxx Technology
Solectron Corporation
Jabil Circuits
WKK Technology, Ltd.
E-1
EXHIBIT F
PERFORMANCE STANDARDS AND METRICS
PERFORMANCE STANDARDS AND METRICS ADDRESSED IN THE CONTINUOUS
IMPROVEMENT QUALITY PLAN REFERRED TO IN SECTION 10(B)
Performance Standards and Metrics for period from the Effective Date
until February 28, 2001 shall be the existing performance standards and
metrics for the Products in use at the Chicago Facility.
Performance Standards and Metrics for the remainder of the Term
shall be mutually agreed upon by the Parties on or prior to February 28, 2001
and shall include such existing performance standards and metrics at a
minimum. The Performance Standards and Metrics for the remainder of the Term
shall be developed to phase-in the performance expectations of 3Com.
Upon request from either Party, the Parties will mutually agree on
additional documentation of the Performance Standards and Metrics.
OTHER PERFORMANCE STANDARDS AND METRICS
Performance Standards and Metrics for ninety (90) days following the
Effective Date shall be the existing performance standards and metrics for
the Products in use at the Chicago Facility, or as otherwise mutually agreed.
Performance Standards and Metrics for remainder of the Term shall be
mutually agreed by the Parties prior to the expiration of such ninety (90)
day period and shall include such existing performance standards and metrics
at a minimum, The Performance Standards and Metrics for remainder of the Term
shall be developed to phase-in the performance expectations of 3Com.
Upon request from either Party, the Parties will mutually agree on
additional documentation of such Performance Standards and Metrics.
F-1
EXHIBIT G
LONG LEADTIME AUTHORIZATION FORM
The following is a sample of the long leadtime authorization form to
be completed by MSSLO and submitted to 3Com for approval in accordance with
Section 7A. The parties may amend this form upon mutual agreement.
In accordance with Section 7A of the Supply Agreement dated as of
September 30, 2000, between MSSLO and 3Com, MSSLO requests authorization from
3Com to order Materials beyond the quoted leadtime plus **** day period based
on unique circumstances for the following devices.
Affected 3Com division:
3Com Part Number:
Description of material:
Affected assemblies:
Name of supplier(s) of material:
Reason/justification for requested authorization: New order leadtime
period requested: Duration of this long leadtime authorization:
MSSLO
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Date:
---------------------------------------
Approved:
---------------------------------------------
3Com
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Date:
---------------------------------------
G-1
EXHIBIT H
ENVIRONMENTAL WARRANTIES
To the extent the Products manufactured at the Chicago Facility are
compliant with the following as of the Effective Date and with respect to any
changes made by MSSLO after the Effective Date, MSSLO represents and warrants
to 3Com that upon and after the Effective Date of this Agreement:
(i) MSSLO will not provide any Product to 3Com which has come into
physical contact with: (i) a Class I substance, as defined in Article 611 of
the Federal Clean Air Act (the "Act"), during any portion of the
manufacturing process; or (ii) a Class II substance, as defined in the Act
and Title 40, Code of Federal Regulations, Article 82 (the "Code"), during
any portion of the manufacturing process, where there has been a
determination by the U.S. Environmental Protection Agency that there is a
substitute product or manufacturing process for such product which does not
rely on the use of such Class II substance, that reduces overall risk to
human health and the environment, and that is currently or potentially
available, in accordance with the Code.
(ii) 3Com shall not be subjected to any warning or labeling
requirements regarding a Class I substance or a Class II substance pursuant
to the Act or any regulation promulgated under the Act, as a result of any
Product provided by MSSLO to 3Com under this Agreement. MSSLO shall comply
with applicable environmental regulations involving recyclable packaging to
the extent such packaging is not specified by 3Com.
(iii) The Products will not contain or be manufactured using ozone
depleting substances including without limitation chlorofluorocarbons,
halons, methylchloroforms and carbon tetrachlorides.
In the event that the Chicago Facility is not compliant with any of
the foregoing as of the Effective Date, the Parties will work to develop and
implement a plan to achieve compliance on a going-forward basis.
H-1
EXHIBIT I
STATEMENT OF WORK
PROTOTYPING/ENGINEERING SERVICES STATEMENT OF WORK
The Prototype/Engineering Services Statement of Work provided by 3Com shall
include as a minimum:
Requestor and contact information
Part Number
Quantity
Drawings and BOMs or Access Location of BOMs, Program Files, CAD & Gerber Data
# placements top side
# placements bottom side
# unique part numbers
BOM Revision
Deviations to BOM
Unique Materials / Consigned Materials
Material Packaging: i.e. tape & reel, matrix tray, tube, bulk/loose, etc......
PWB Revision
Panelization
Requested Build Date
Requested Turn Around Time
Test Requirements (If any, 3Com to supply "Golden Hardware" for ICT
test development if required.)
Special Instructions
MSSLO will need to provide feedback on:
Engineering NRE/Process Development
Documentation and Bom Structuring costs as requested and agreed to in
prototype request
Assembly flow and control plan including any assumptions
Setup charges
Standby charges/Expedite Fees/Weekend charges
DFM, DFT, and DFA Feedback as requested and agreed to in prototype request
Pricing on Common Materials
Lead-time and Delivery Date Commitments
Pricing on cost of conversion
Tooling Lead-time and costs
Test Strategy
Test Development and Fixture Costs
Test Development Lead-time
The above will be summarized in a prototype quote along with terms and
conditions for completing the work.
I-1
EXHIBIT J
ECO PROCESS
The Parties agree to follow the ECO Process currently in use in the
Chicago Facility unless otherwise mutually agreed upon in writing.
J-2
EXHIBIT K
NEW PRODUCT RELEASE PROCESS
The Parties agree to follow the New Product release process currently
in place in the Chicago Facility, unless otherwise agreed upon in writing.
K-1
