Product Supply Agreement
Full Question:
Answer:
A product supply agreement is an agreement entered into by a supplier and a buyer for supply and purchase of products. The agreement lays down the terms upon which the parties mutually agree to supply and purchase products from each other. A product supply agreement helps both buyer and seller to understand their respective obligations and responsibilities under the agreement. The supplier is to supply products and the buyer is to purchase these products for its business purposes according to the agreed terms of the product supply agreement. The agreement also states the consequences the parties will have to face in the event of breach. A product supply agreement should be reviewed by both the parties to ensure that their needs and requirements are clearly written in the agreement. Once the agreement is signed, its terms will bind both the parties.
Following is a portion of a sample product supply agreement.
MANUFACTURERS' SERVICES SALT LAKE CITY OPERATIONS, INC.
and
PALM COMPUTING, INC.
- --------------------
[*] = information redacted pursuant to a confidential treatment request throughout this exhibit
TABLE CONTENTS | Page |
---|---|
1. DEFINITIONS..................................................... | 1 |
2. PRECEDENCE OF DOCUMENTS......................................... | 3 |
3. PURCHASE AND SUPPLY COMMITMENT.................................. | 3 |
4. PURCHASE ORDERS, FLEXIBILITY, RESCHEDULES, CANCELLATIONS........ | 4 |
5. ROLLING FORECAST................................................ | 6 |
6. PURCHASES BY BUYER'S AUTHORIZED AGENTS.......................... | 6 |
7. EXCESS MATERIALS................................................ | 7 |
8. OBSOLETE MATERIALS.............................................. | 7 |
9. TERM OF AGREEMENT............................................... | 7 |
10.PRODUCTION CAPACITY............................................. | 7 |
11.FLEXIBILITY CAPABILITY.......................................... | 8 |
12.MATERIALS TRANSFER.............................................. | 8 |
13.PRICING......................................................... | 8 |
14.DELIVERY........................................................ | 9 |
15.PACK-OUT, PACKING, MARKING, AND SHIPPING INSTRUCTIONS........... | 9 |
16.QUALITY STANDARDS AND CERTIFICATION............................. | 9 |
17.INSPECTION, TESTING, AND ACCEPTANCE............................. | 11 |
18.RETURN OF PRODUCT............................................... | 12 |
19.SUPPORT......................................................... | 13 |
20.WARRANTY........................................................ | 13 |
21.PAYMENT......................................................... | 15 |
22.CHANGES......................................................... | 15 |
23.PROTOTYPING AND ENGINEERING SERVICES............................ | 16 |
24.INTELLECTUAL PROPERTY RIGHTS.................................... | 17 |
25.TERMINATION FOR CAUSE........................................... | 18 |
26.TERMINATION FOR CONVENIENCE..................................... | 18 |
27.LIMITATION OF LIABILITY......................................... | 19 |
28.FORCE MAJEURE................................................... | 19 |
29.NONASSIGNABILITY................................................ | 20 |
30.NOTICES......................................................... | 20 |
31.COMPLIANCE WITH LAWS............................................ | 21 |
32.PATENT, COPYRIGHT AND TRADEMARK INDEMNITY....................... | 21 |
33.CAPACITY PLANNING............................................... | 23 |
34.GRATUITIES...................................................... | 23 |
35.INSURANCE AND STATUTORY OBLIGATIONS............................. | 23 |
36.INSURANCE COVERAGE.............................................. | 23 |
37.CONFIDENTIAL INFORMATION........................................ | 24 |
38.PUBLIC ANNOUNCEMENTS............................................ | 25 |
39.COUNTRY OF ORIGIN............................................... | 26 |
40.PROPERTY FURNISHED BY BUYER..................................... | 26 |
41.GENERAL......................................................... | 26 |
EXHIBITS:
Exhibit A - Products and Pricing
Exhibit B - Specifications
Exhibit C - Buyers' Pack-Out and Packaging Specifications
Exhibit D - Flexibility Parameters
Exhibit E - Buyer's Affiliates and Authorizing Agents
Exhibit F - Performance Standards
Exhibit G - Build Request Process Flow
Exhibit H - Long Leadtime Authorization Form
Exhibit I - Environmental Warranties
Exhibit J - Statement of Work
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (hereinafter referred to as "the Agreement"), dated and effective this 27th day of November 1999, ("Effective Date"), and the schedules 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 5742 West Harold Gatty Drive, Salt Lake City, Utah 84116 ("Seller") on the one hand and
Palm Computing, Inc., a company organized and existing under the laws of California and having its principal place of business at 5400 Bayfront Plaza, Santa Clara, California 95052 ("Buyer") on the other hand
"Seller and Buyer" are hereinafter also collectively referred to as "Parties" and individually as a "Party".
WHEREAS, Seller agrees to manufacture and sell to Buyer the Products (as hereinafter defined) and Buyer agrees to purchase from Seller such Products, subject to the terms and conditions of this Agreement.
1. DEFINITIONS
- "Affiliate": 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. Buyer's Affiliates are identified in Exhibit E, which may be changed by written notice from Buyer to Seller from time to time.
- "BOM": Buyer's Bill of Materials.
- Buyer's "Authorized Agent": any of Buyer'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 Seller, who purchase on a letter of credit basis, or whose payment obligations are guaranteed by Buyer. Buyer's Authorized Agents are
identified in Exhibit E, which may be changed from time to time by written agreement between Buyer and Seller. - "Days": calendar days unless otherwise specified.
- "Excess Materials": Unique Materials on hand and ordered consistent with Buyer's forecast at agreed-upon leadtimes and for which the forecasted use is in excess of thirteen (13) weeks resulting from Buyer's cancellations, reschedules or other delays or changes caused by Buyer.
- "Finished Goods Stockroom": the section of Seller's facility designated as the area where the Product is delivered to Buyer.
- "Materials": component line items on the BOM, which are collectively assembled to produce the Product.
- "Manufacturing Lead Time": 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 the Seller and Buyer.
- "MRP": Materials requirements planning.
- "NRE": non-recurring engineering expenses.
- "Obsolete Materials": Unique Materials on hand and ordered consistent with Buyer's forecast at agreed-upon leadtimes which can no longer be used for their designated Product and/or for which there is no forecast for the following [*].
- "Performance Standards": those performance standards set forth in Exhibit F, as may be modified from time to time by mutual written agreement of the Parties.
- "Product(s)": the product(s) identified by Buyer's part number or assembly identification name as more fully described in Buyer's Specifications.
- "Pull" means a replenishment driven process triggered by customer consumption whereby Product is manufactured and delivered by Seller based upon Buyer's replenishment demand, which is generated by actual use, disposition or consumption of Product by Buyer; the overall objective being to minimize Seller and Buyer's inventories while enabling greater flexibility and faster response in fulfilling Buyer's variable replenishment demand.
- "Build Request" is a document Buyer provides to Seller on an as-needed basis and serves as a replenishment request. The Build Request indicates, among other things, the part number(s), quantity(s), delivery date(s), and destination(s) of the Product(s) being requested.
- "Pull Product" shall mean Products, which may be purchased by Buyer under a Pull Purchase Order pursuant to this Agreement, and for which Seller and Buyer have jointly agreed are to be designated as pull Products.
- "Blanket Purchase Order" is Buyer's blanket Purchase Order for a Product. Blanket Purchase Orders shall reference this Agreement and include the mutually agreed Price (as defined in Section 13A), but do not bind Buyer or Seller as to total quantities purchased, delivery dates, or the total dollar commitment of such Blanket Purchase Order.
- "Purchase Order": Buyer's written purchase order form or other format mutually agreed upon by the Parties and any documents incorporated therein by reference.
- "RMA": return material authorization.
- "Specifications": Buyer'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.
- "Unique Materials": Custom (i.e. specifically designed for the
Products) Materials or noncancellable and nonreturnable industry standard
Materials (i.e., that are not available from multiple suppliers or from a single supplier with multiple customers).
2. PRECEDENCE OF DOCUMENTS
The precedence of documents between Buyer and Seller shall be:
- This Agreement, as it may be amended in writing by mutual agreement
- A Purchase Order
- Buyer's non-binding forecast.
3. PURCHASE AND SUPPLY COMMITMENT
- Buyer agrees that it and its Authorized Agents shall purchase, and
Seller agrees to supply, a minimum commitment of 450,000 units of Palm Viewer Products per quarter during the Initial Term of this Agreement. Notwithstanding the foregoing, if Seller fails to meet the Performance Standards set forth in Exhibit F in all material respects, or otherwise fails to comply with material obligations hereunder, or Seller fails to make the minimum commitment available to Buyer in accordance with Buyer's orders in any quarter due to a Materials shortage or
otherwise (not directly caused by Buyer), Buyer will be under no obligation to reach this minimum in any quarter of such material noncompliance but will be under this obligation in subsequent periods if such noncompliance is cured within the Initial Term. Notwithstanding the foregoing, any failure of Seller to make minimum commitments available to Buyer in accordance with Buyer's orders in any quarter shall only relieve Buyer of its obligation to reach its minimum commitment to the extent of such shortfall provided that Seller makes the remainder of such commitment available in such quarter in accordance with Buyer's orders. - Any overage in purchase of Products of no more than 20% that occurs during any quarter will be credited towards the subsequent quarterly period and any deficit in purchase of Products of no more than 20% in any quarter may be made up in the next quarter to the extent there is not a deficit in such subsequent quarter. This minimum purchase commitment takes precedence over the Flexibility Parameters of Exhibit D. Failure to meet the commitment is subject to a ninety (90) day notice and cure period