Fountain Manufacturing Agreement - Apple Computer Inc. and SCI Systems
FOUNTAIN MANUFACTURING AGREEMENT
between
APPLE COMPUTER, INC.
and
SCI SYSTEMS, INC.
This Fountain Manufacturing Agreement (the "Agreement") by and between Apple
Computer Inc., a California corporation, with its principal place of business
at 1 Infinite Loop, Cupertino, California 95014 ("Apple"), and SCI Systems
Colorado, Inc., a Colorado corporation having its principal place of business
at 702 Bandley Drive, Fountain, Colorado 80817 is entered into on May 31, 1996
and effective as of the Closing Date, defined below.
PURPOSE
Apple and SCI entered into a Stock Purchase Agreement on April 4, 1996 (the
"Stock Purchase Agreement") pursuant to which SCI will purchase Apple's
manufacturing facility located at 702 Bandley Drive, Fountain, Colorado
("Fountain") and certain related assets.
The parties desire that Apple engage SCI to assemble, test and package
certain Products, Service Units and Spare Parts, as defined below, on a
turnkey basis at Fountain on the terms and conditions of this Agreement.
This Agreement defines the general terms and conditions governing all
transactions between them for Products, Service Units and Spare Parts
manufactured at Fountain. Individual "Product Plans" attached as Addenda to
this Agreement, and incorporated herein by reference, define the specific terms
and conditions for each Product, Service Unit and/or Spare Part. The initial
Product Plans are attached to Exhibit A and numbered A-1 through A-11.
Additional Products and Product Plans may be added to this Agreement by addenda
to Exhibit A signed by both parties. Such addenda will be numbered
sequentially, A-12, A-13 and so on.
In consideration of the above and the mutual promises contained herein, Apple
and SCI agree as follows:
AGREEMENT
1. DEFINITIONS
Whenever capitalized in this Agreement:
"Additional Apple Inventory" has the meaning set forth in Section 7.1.
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"Americas" means all countries in North, South, and Central America and
the Caribbean.
"Apple Authorized Vendor" means: (i) Apple; (ii) third parties selected,
approved and qualified by Apple in writing; and (iii) with Apple's prior
written approval, third parties selected by SCI.
"Applicable Labor Hours" has the meaning set forth in Exhibit B,
Schedule 1.
"Apple Proprietary Components" means materials and components that are
proprietary to Apple or contain Apple proprietary technology, including
all copyrights, patent rights, trademarks, trade secrets and other
intellectual property rights embodied therein.
"Base Factory Load" or "BFL" has the meaning set forth in Exhibit B,
Schedules 1 and 2.
"Base Load Commitment" or "BLC" has the meanings set forth in Exhibit
B, Schedules 1 and 2.
"Closing" and "Closing Date" have the meanings set forth in Section
2.1, below.
"Confidential Information" means: (a) for Apple, all Apple custom and
proprietary components supplied to SCI by Apple or an Apple Authorized
Vendor, the Specifications, the Quality Requirements, the Products, any
test software, equipment or fixtures developed by or for Apple, and any
trade secrets related to any of the foregoing; (b) for SCI, the Service
Documentation, any test software, equipment or fixtures developed by or
for SCI, and any trade secrets related to any of the foregoing; (c) any
information, including but not limited to any information relating to
Apple's product plans, designs, costs, prices and names, finances,
marketing plans, business opportunities, personnel, research,
development or know-how, that is designated by the disclosing party as
confidential in writing or, if disclosed orally, reduced to writing and
designated as confidential within thirty (30) days; and (d) the terms,
conditions and existence of this Agreement; provided, however that
"Confidential Information" will not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has
been reduced to tangible form by the receiving party at the time of
disclosure and is not subject to restriction; (iii) is independently
developed by the receiving party; (iv) is lawfully obtained from a third
party who has the right to make such disclosure; or (v) is released for
publication by the disclosing party in writing.
"DPM" means Defective Units Per Million.
"Delivery" or "Deliver" means delivery of or to deliver the quantity of
Product ordered by Apple in a particular Purchase Order to the Delivery
Point.
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"Delivery Point" means FOB for PCBA Products shipped to Apple's
Sacramento facility FOB destination and for all other Products SCI's
dock, unless otherwise agreed in the Product Plan for a particular
Product, Service Unit and/or Spare Part. If FOB destination, Apple
will pay for freight and insurance in transit to such destination.
"Direct Labor Cost" means Standard Labor Hours for a Product multiplied
by the Labor Rate for such Product.
"Epidemic Failure" means Product failures at or above mutually agreed
upon rates set forth in the Product Plan for such Product resulting
from defects in material, workmanship, manufacturing process and/or
design deficiencies attributable to SCI (or its subcontractors),
including but not limited to use of components with inherent or latent
defects, or consistent misadjustments during manufacture. There are
two types of Epidemic Failures: (a) product failure(s) attributable to
a single root cause; or (b) a product failure attributable to multiple
root causes.
"Fountain" means the manufacturing facility located 702 Bandley Drive,
Fountain, Colorado 80817.
"Initial Inventory" means the parts inventory purchased by SCI pursuant
to the Stock Purchase Agreement.
"IP License" means the Intellectual Property License Agreement between
the parties granting SCI a non-exclusive license to use certain
manufacturing technology and information systems at Fountain.
"Labor Rate" for a Product means the rate SCI may charge Apple for each
Standard Labor Hour required to manufacture such Product determined as
set forth in Exhibit B, Schedule 1.
"Lead Time" means the amount of time in advance of Delivery Apple must
issue a Purchase Order, as specified in the Product Plan for a
particular Product, Service Unit or Spare Part.
"Long Lead-Time Components" means components and/or materials that SCI
must order from a supplier at least ninety (90) days before the
requested delivery date.
"Other Cost Adders" for a Product means the percentage markup,
determined as set forth in Exhibit B, Schedule 2, that SCI may add to
the Procured Material Cost for such Product to cover SCI's overhead
costs including, without limitation, freight, scrap, duty, attrition,
rework and cost of money.
"Percentage Volume Commitment" has the meaning set forth in Section
3.1.
"Preferred Carrier(s)" means the carrier(s) specified by Apple from
time to time.
"Pre-Production Deliverables" means the pre-production deliverables
specified in the Product Plans.
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"Price Schedule" means the schedule used to determine the unit price of
a Product as set forth in the Product Plan for such Product.
"Procured Materials" means the materials purchased by SCI to manufacture
the Products for Apple under this Agreement, including the Initial
Inventory.
"Procured Materials Cost" means the amount SCI may charge Apple for
Procured Materials in a Product determined in accordance with Section
10.4 (Procured Material Cost).
"Product" means a printed circuit board assembly (PCBA) or final
assembled and tested product (FATP) to be assembled and tested by SCI
under this Agreement.
"Product Plan" means the Specifications, Quality Requirements, Price
Schedule, Epidemic Failure Rate and other unique terms related to a
particular Product as set forth in an attachment or addendum to Exhibit
A.
"Product Warranty" means the warranty on workmanship and materials that
Apple may purchase for any or all Products pursuant to Section 15.3.
"Profit" for each Product means the percentage of Direct Labor Cost and
Procured Material Cost, determined in accordance with Exhibit B,
Schedule 2, that SCI may charge Apple as profit.
"Purchase Orders" means written or electronically transmitted purchase
orders for the Products issued by Apple to SCI.
"Quality Requirements" means: (i) the quality requirements for each
Product as specified in the Product Plan for such Product; and (ii) the
Supplier Quality Business Requirements reference set forth in Exhibit
E.
"Service Documentation" means and may include some or all of the
following as specified in the Product Plan, in English and in
reproducible format, for the Products and associated Service Units and
Spare Parts, including assemblies and cable harnesses as applicable:
(a) Product Specification;
(b) Schematic, block, and component layout diagrams, and drawings
with reference designators where appropriate;
(c) Complete bill of materials, with reference designators to the
schematics and vendor part numbers, of all levels within the
Product, including two samples of each part submitted;
(d) Test and inspection procedures and assembly and disassembly
instructions, trouble-shooting procedures, alignment and
calibration procedures and safety procedures; and
(e) Specifications (data sheets) for commercially available
components with sources of supply, cross-referenced to the
schematics and vendor part number.
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"Service Software" means software necessary for the testing and
inspection of the Product and/or Service Units.
"Service Units" means serviceable modules and/or field replaceable
service units of each respective Product, as separately identified in
the Product Plan for such Product. Service Units are a subset of the
Spare Parts for a particular Product.
"Spare Parts" means spare parts associated with each respective
Product, as separately identified in the Product Plan for such Product.
"Specifications" means the specifications for a Product and associated
Pre-Production Deliverables as set forth in the Product Plan for such
Product. Specifications may be amended from time to time by documented
engineering change orders in accordance with Section 8, below.
"Standard Apple Hours" has the meaning set forth in Exhibit B, Schedule
1.
"Standard Cost" of a component means the actual price paid by such party
for such component as adjusted by such party from time to time to reflect
changing prices.
"Standard Labor Hours" for a Product means the number of standard SCI
labor hours required to assemble and test such Product, determined
using the methodology set forth in Exhibit B. Standard Labor Hours
for a third party means the number of standard SCI labor hours expended
for such third party.
"Standard Third Party Hours" has the meaning set forth in Exhibit B,
Schedule 1.
"Stock Purchase Agreement' means the agreement between the parties
entitled "Stock Purchase Agreement" dated April 4, 1996.
"Term" means the term of this Agreement, including the Initial Term and
any Renewal Terms, as defined in Section 2 of this Agreement.
"Tooling" means the manufacturing tooling and inspection equipment used
in manufacture and assembly of a particular Product, Service Units
and/or Spare Parts as specified in the relevant Addendum.
"Unique Components" means components purchased by SCI on behalf of
Apple that are non-cancelable, non-returnable and unusable in
manufacturing products for SCI's other customers.
2. TERM OF AGREEMENT
2.1 Closing Date. The rights and obligations of the parties under this
Agreement are conditioned upon and subject to close of the Stock
Purchase Agreement and related agreements between Apple and SCI (the
"Closing"). The Closing will occur on May 31, 1996 or such other date
as the parties agree (the "Closing Date").
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2.2 Initial Term. This Agreement will commence on the Closing Date and
remain in effect until July 1, 1999 (the "Initial Term"), unless
earlier terminated pursuant to Section 18 (Termination) or renewed
pursuant to Section 2.3 (Renewal Terms), below.
2.3 Renewal Terms. This Agreement will renew automatically for successive
one (1) year renewal terms (the "Renewal Terms") unless one party
provides the other written notice of its intent not to renew the
Agreement at least ninety (90) days before the end of the Initial Term
or any Renewal Term thereafter. The provisions of Section 3
(Percentage Volume Commitments) will not apply in any Renewal Term.
3. PERCENTAGE VOLUME COMMITMENTS
3.1 Percentage of Apple's Volumes Committed to SCI. Apple commits to
purchase from SCI, and SCI agrees to manufacture and deliver to Apple,
in each year of the Initial Term, the following percentages of Apple's
total annual volumes of Apple-labeled personal computer systems and of
main logic boards for such systems, excluding OEM and ODM boards or
systems, that are manufactured for sale in the Americas during such
year ("Percentage Volume Commitment"):
Year 1 Year 2 Year 3
(7/1/96-6/30/97) (7/1/97-6/30/98) (7/1/98-6/30/99)
Main Logic
Boards 60% 50% 40%
Computer
Systems 40% 40% 30%
3.2 Conditions. Apple's Percentage Volume Commitment is conditioned upon
and subject to:
(i) SCI offering and delivering Products with comparable quality,
and with competitive pricing, Lead Time and flexibility terms,
when compared with other suppliers located in the United States
who provide a comparable range of contract manufacturing and
engineering services similar to those SCI provides in
connection with Products;
(ii) SCI allocating adequate capacity at Fountain or with Apple's
prior written approval, at other SCI Systems, Inc. facilities
to deliver such volumes to Apple; and
(iii) SCI's performance of its obligations under this Agreement.
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To the extent SCI fails to do so, Apple may, without prejudice to any
other rights or remedies available to it, apply volumes manufactured
elsewhere, by Apple or any third party, to its satisfaction of the
Percentage Volume Commitment.
3.3 Volumes Manufactured at Another SCI Facility. Apple will have the
option to move volumes above SCI's Base Factory Load (as defined in
Exhibit B, Schedules 1 and 2) to any other SCI facility to achieve more
competitive pricing, better service, better quality or for any other
reason. All such volumes will be credited against Apple's Percentage
Volume Commitment.
3.4 Failure to Meet Percentage Volume Commitment. If Apple does not meet
its Percentage Volume Commitment in Year 1, Year 2 or Year 3 of the
Initial Term for any reason other than SCI's breach of this Agreement,
failure to allocate adequate capacity to Apple, or failure to offer
competitive product on competitive terms and conditions, as required
above, Apple may remedy its obligations under this Agreement in one of
two ways; either by:
(i) adding the shortfall (the number of units Apple was committed
to purchase less the number it actually purchased from SCI
during that year) to Apple's commitment for the following year
(except a shortfall in year 3); or
(ii) paying SCI the profit that SCI would have enjoyed had Apple
purchased the shortfall. The profit will be calculated by
multiplying:
- the shortfall (the number of units Apple was committed
to purchase less the number it actually purchased from
SCI during that year);
- the average unit cost (excluding profit) of product in
the category in which there was a shortfall (i.e.
boards or systems); and
- the percentage profit that would have applied to the
shortfall per the Pricing Formula set forth in Exhibit
A.
Apple's failure to do so within three (3) months after the end of the
year in which the shortfall occurred will constitute a breach of the
Agreement.
4. PRODUCT PLANS
4.1 Generally. Apple and SCI will establish a Product Plan, in the format
and containing the information set forth in Exhibit A, for each Product
to be manufactured under this Agreement. On or before June 21, 1996,
Apple will provide and the parties will execute Product Plans for the
initial Products that SCI will manufacture and attach such Product Plans
as addenda A1-A11 to Exhibit A. The parties may add new Products to
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this Agreement after the Closing Date by adding Product Plans for such
Products, executed by both parties and in the format and containing the
information set forth in Exhibit A, as addenda to Exhibit A. SCI will
have no obligation to perform the pre-production or manufacturing
services under a Product Plan until Apple has issued a Purchase Order
or Letter of Authorization for such services.
4.2 Pricing for New Products. SCI will provide Apple a price quote for
each new Product proposed by Apple. Such price quotes will be
consistent with the pricing formula and Standard Labor Hour methodology
set forth in Exhibit B and will include the following information:
(a) NRE and Tooling costs, if any;
(b) Direct Labor Cost; and
(c) Actual cost of Procured Material (i.e. the actual price quoted
by the vendor for each component, including any related rebates
or discounts or leveraged volumes) by line item;
(d) Other Cost Adders;
(e) Packaging costs;
(f) Product Warranty cost, if any; and
(g) SCI's profit.
The agreed upon price and projected annual volumes for each new Product
will be set forth in the Product Plan.
4.3 Other Documents in Product Plan. Unless otherwise agreed, Apple will
be solely responsible for the identification of Products, Service Units
and Spare Parts, Apple part numbers, Specifications, Quality
Requirements, and Unique Components included in each new Product Plan.
The parties will be jointly responsible for the identification of
Pre-Production Services, the Pre-Production Delivery and Payment
Schedule, Lead Time, Service Related Terms, Manufacturing Technology,
Equipment, Labor, Materials and Facilities, Test Equipment and
Fixtures, Tooling and other Product Specific Terms and Conditions.
5. PRE-PRODUCTION SERVICES
5.1 Scope of Work. SCI's pre-production services will be specified in the
Product Plan for each Product, and may include, without limitation,
development of assembly and test processes; development of test
programs and/or fixtures; and production of prototype and/or validation
units. SCI will perform such services and deliver any Pre-Production
Deliverables to Apple in accordance with the Pre-Production Delivery
and Payment Schedule and Purchase Order(s). Unless otherwise agreed in
the Product Plan or in the IP License, SCI will provide all test and
manufacturing technology, equipment, labor, materials and facilities
necessary to perform the scope of work under this Agreement.
5.2 Test Engineering. Unless otherwise agreed in the Product Plan or in
the IP License, SCI will provide and maintain all test systems,
testers, tools and fixtures required to perform the scope of work under
this Agreement. Apple will provide SCI test vectors and other
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information Apple deems necessary to develop test programs and fixtures
for the Products, Service Units and/or Spare Parts. SCI will name a
test engineer, or more than one if Apple deems necessary and as
mutually agreed, who will interface with Apple's test engineering group
as needed to timely develop and/or support, as specified in the
relevant Product Plan, Test Programs and Test Fixtures for use in
manufacturing such Product for Apple. Upon Apple's request, SCI will
locate such test engineer(s) at Apple's engineering facilities. Test
engineers on Apple's premises will be subject to the provisions of
Section 22.3 (Personnel), below.
5.3 Progress Reports. At Apple's request, SCI will provide Apple with
regular written progress reports, such reports to include the
following:
(a) status of progress toward next scheduled milestone;
(b) short description of problems, if any, in meeting such
milestone;
(c) recovery method proposed in order to meet the next milestone,
if needed;
(d) any changes in the estimated Price of the Product;
(e) any other information related to the pre-production services
reasonably requested by Apple.
5.4 Pre-Production Review. Apple may conduct periodic reviews to ensure
its satisfaction with SCI's pre-production services under each Product
Plan. Upon reasonable notice, SCI will allow Apple, during SCI's
normal business hours, to visit its facility to discuss and inspect the
status of pre-production. Apple personnel on SCI's premises will be
subject to the provisions of Section 22.3 (Personnel), below.
5.5 Acceptance of Pre-Production Deliverables.
(a) Apple, with such assistance from SCI, as specified in the
Product Plan, will examine and test each Pre-Production
Deliverable to determine whether it conforms to the
Specifications for such Deliverable set forth in the Product
Plan within ten (10) working days after delivery to Apple.
Apple will either: (i) accept the Pre-Production Deliverable
and so inform SCI in writing; or (ii) reject the Pre-Production
Deliverable and provide SCI with a written detailed statement
of errors. Notwithstanding the Pre-Production Schedule, Apple
will not be obligated to pay for any Pre-Production Deliverable
for which Apple has submitted to SCI a detailed statement of
errors until such time as SCI has corrected such errors to
Apple's reasonable satisfaction.
(b) If Apple provides SCI a statement of errors: (i) SCI will, at
its earliest convenience, correct all errors set forth in the
statement of errors and redeliver the Pre-Production
Deliverable to Apple within ten (10) working days after receipt
of the statement of errors; or (ii) the parties will, within
ten (10) working days after SCI's receipt of the statement of
errors, negotiate in good faith the time permitted for such
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correction. Apple will, within ten (10) working days after any
redelivery of a Pre-Production Deliverable, accept or reject
the redelivery in accordance with Subsection 5.5(a) above.
This process will be repeated until Apple either accepts the
Pre-Production Deliverable or terminates this Agreement in
accordance with Section 18 (Termination), below.
(c) If Apple fails to give a statement of errors within such ten
(10) working day period, SCI may notify Apple that Apple must
provide such a statement within ten (10) working days after
Apple's receipt of SCI's notice. The Pre-Production
Deliverables must be particularly described in any such
notification. If Apple does not accept the Pre-Production
Deliverable or provide SCI a statement of errors within such
ten (10) day period, Apple will be deemed to have accepted the
Pre-Production Deliverable.
5.6 Notice of Qualification. After completing its Pre-Production Review
and accepting all Pre-Production Deliverables with respect to a
Product, Apple will give SCI a written notice of qualification,
attaching to the notice any modifications to the Specifications or any
additions thereto, as agreed between Apple and SCI. Such modifications
and/or additions will be made part of the final Specification for such
Product. SCI will not implement any change to the final Specification
without Apple's prior written consent. Upon receipt of Apple's notice
of qualification, SCI will be authorized to begin producing such
Product for sale to Apple pursuant to the terms of this Agreement.
6. MANUFACTURING SERVICES
SCI will accept Purchase Orders for Products, Service Units and/or Spare Parts
issued in accordance with Section 11 (Forecasts, Orders & Adjustments),
purchase materials for, assemble, test and package such Products, Service Units
and/or Spare Parts on a turnkey basis in accordance with Apple's Specifications
and Quality Requirements, and Deliver them to Apple in accordance with the
terms of this Agreement. SCI will use only ISO 9002 manufacturing sites to
perform services under this Agreement and will not subcontract assembly,
testing or packaging services, or provide such services at any location other
than Fountain, without Apple's prior written approval. Unless otherwise agreed
in the Product Plan or in the IP License, SCI will provide all manufacturing
technology, equipment, labor, materials and facilities necessary to perform the
scope of work.
7. MATERIALS MANAGEMENT
7.1 Initial Inventory of Materials and Components.
(a) Generally. As part of the Stock Purchase Agreement, SCI will
purchase from Apple, at Apple's Standard Cost, certain
materials and components for consumption in Products forecasted
for the first six months of the Initial Term (the "Initial
Inventory"). Provided space is available at Fountain, any
additional inventory owned by Apple and on-hand at Fountain on
the Closing Date ("Additional Apple Inventory") will be kept
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in a separate cage at Fountain without charge to Apple, or at
Apple's option at an offsite location, and purchased by SCI as
required on a just-in-time basis until such inventory is either
consumed in Products or redeployed by Apple.
(b) Use of Initial Inventory and Additional Apple Inventory. SCI
will use the Initial Inventory and any Additional Apple
Inventory before any materials or components purchased by SCI
from any other source. SCI will provide Apple regular
transactional reports showing its use of the SCI Purchased
Inventory and Additional Apple Inventory. Apple will invoice
SCI for Additional Apple Inventory used by SCI.
(c) Warranty. Apple warrants that the Initial Inventory and
Additional Apple Inventory purchased by SCI will meet the
requirements of Apple's specifications for such materials
and/or components for a period of twelve (12) months after
SCI's purchase thereof. Apple will replace, or at Apple's
option, refund the purchase price, of any Initial Inventory or
Additional Apple Inventory purchased by SCI and found by SCI to
be defective by SCI, provided that: (i) SCI gives Apple prompt
written notice of such defect and returns the defective unit(s)
to Apple using Apple's RMA procedure; and (ii) Apple will not
replace or refund the purchase price of any Initial Inventory
or Additional Apple Inventory that has been abused, damaged,
altered or misused by someone other than Apple or that is
defective as a result of external causes not caused by Apple.
(d) Apple's Obligation to Repurchase.
Six (6) months after the Closing Date, Apple will repurchase,
at the original purchase price without markup or carrying
charges, any Initial Inventory that SCI has not already
consumed in components or finished goods and that it will not
consume in forecasted purchases during the next six (6) months
of the Initial Term.
Twelve (12) months after the Closing Date, Apple will
repurchase, at the original purchase price without markup or
carrying charges, any remaining Initial Inventory not consumed
in components or finished goods. The parties will mutually
agree upon a disposition plan for any Additional Apple
Inventory remaining at the end of such twelve (12) month
period, provided that Apple may, in its sole discretion,
redeploy the material for any other purpose.
7.2 Open Vendor Purchase Orders. On the Closing Date, Apple will assign to
SCI and SCI will assume any open purchase orders that Apple has issued
to vendors for materials and components matching the Bill of Materials
for Products and quantities on Apple's Initial Purchase Order,
including purchase orders for Long Lead-Time Components, taking into
consideration the quantity of such materials included in the Initial
Inventory and Additional Apple Inventory.
7.3 Procurement of Materials. To the extent the Initial Inventory, the
Additional Apple Inventory do not contain sufficient quantities of
materials and components to fulfill Apple's Purchase Orders, SCI will
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purchase such materials and components directly from vendors authorized
by Apple as set forth in Section 7.4, below. The terms and conditions
of SCI's purchase of such materials and components will be determined
by agreement between SCI and the Apple Authorized Vendors. Apple will
not be a party to these purchase transactions and SCI will be solely
responsible for all payments for Procured Materials. To the extent
provided in Apple's agreements with its Apple Authorized Vendors, SCI
will receive the benefit of any third party provisions therein which
are intended to apply to it and SCI will comply with such provisions.
Apple agrees to provide SCI with advance notice in writing of such
provisions.
SCI will purchase Procured Materials using standard purchasing
practices including, but not limited to, Economic Order Quantities,
ABC Order Policies and long lead time component management.
SCI will manage its inventory of Procured Materials in a manner:
(i) consistent with standard industry inventory management
practices, including but not be limited to the use of Economic
Order Quantities, ABC buy policies, and long lead-time
component management; and
(ii) that will ensure that SCI can fill Apple Purchase Orders on a
turnkey basis according to the agreed upon Lead Times and
flexibility terms and obtain competitive prices for such
materials and components.
7.4 Apple Authorized Vendors. SCI will procure materials only from Apple
Authorized Vendors. Apple will provide SCI with an Approved Vendor
List/Preferred Vendor List for each phase of Product manufacture. All
suppliers of Procured Materials will be considered tier two suppliers
to Apple. SCI will not change vendors without Apple's advance written
approval. Apple's specification of vendors will not release SCI from
any of its obligations for meeting the standards of workmanship or any
other obligations it has under this Agreement.
7.5 Long Lead-Time Components. Apple and SCI will identify any Long Lead-
Time Components in writing in the Product Plan or at any time during
the production of a Product. SCI will not purchase Long Lead-Time
Components except as expressly approved by Apple in a letter of
authorization which will be as binding as a Purchase Order for such
Long Lead-Time Components.
7.6 Use of Proprietary Components. SCI agrees to use Proprietary
Components for the sole purpose of producing the Products, Service
Units and Spare Parts for Apple and not for any other purpose. SCI
agrees not to engage in, nor will it authorize others to engage in,
the reverse engineering, disassembly or the decompilation of any
Proprietary Components.
7.7 Reports. Upon request, SCI agrees to provide Apple written reports on
Procured Materials, current inventory and scheduling in the format
specified by Apple. SCI will also authorize its suppliers to provide
Apple information regarding the Procured Materials.
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7.8. Packaging And Printed Materials. All packaging, product graphics,
instructional materials and other Apple-specified related print matter
will be created, developed and produced in accordance with Apple's
requirements as outlined in the Product Plan.
7.9 Operations Manager. Each company will name a person to be a single
point of contact to handle operational matters related to the day to
day administration of this Agreement. The current operational
contacts for each party are shown in Exhibit F.
8. DESIGN, MATERIAL AND PROCESS CHANGES
8.1 At SCI's Request. SCI will not change any Product, including any
component, material or process used in manufacturing such Product,
without obtaining Apple's prior written consent utilizing the process
set forth in the Apple Vendor Request for Action Information Guide
(P/N 080-0504-A). SCI's request will include any cost, schedule or
other impact of such change. If Apple requests, SCI will also provide
sample units of the modified Product for Apple's evaluation. Apple
will approve or disapprove SCI's request within thirty (30) days after
receipt.
8.2 At Apple's Request. Should Apple desire modifications in the design of
a Product, Apple will submit a written Engineering Change Order ("ECO")
to SCI. Within one (1) week after SCI's receipt of the ECO, SCI will
advise Apple of any cost, schedule or other impact of such change, and
will not implement any such change unless and until Apple has approved
such impact writing.
8.3 Emergency Changes. If Apple submits an emergency ECO clearly
identified as such, SCI will implement such ECO as soon as possible;
provided that SCI has advised Apple of and Apple has approved in
writing any cost or other impact of such change.
8.4 Impact on Open Purchase Orders. Unless Apple specifies otherwise in
its written approval of changes pursuant to this Section, such changes
will not impact any units already scheduled for Delivery as of the date
of Apple's approval.
9. QUALITY AND INSPECTION
9.1 Quality Requirements. SCI will manufacture the Products in accordance
with the Quality Requirements, including the Product-specific quality
requirements set forth in the Product Plan and the Supplier Quality
Requirements set forth in Exhibit C. SCI will provide Apple regular
reports and analysis of its yields, DPM and PPM. SCI will also provide
Apple, for Apple's review and approval, its corrective action
procedures, defect containment plan, recall risks, repair capabilities
and costs, business risk insurance, and known liabilities.
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9.2 Incoming Inspection. Apple may inspect Product Delivered under this
Agreement for deficiencies in workmanship or material either at the
Delivery Point and/or at its destination. Apple may return defective
or non-conforming Products to SCI at SCI's cost (using SCI's selected
carrier) within thirty (30) days after Delivery in accordance with the
agreed RMA procedure set forth in the Product Plan.
9.3 Ship to Stock/Ship to Distribution. This Agreement and the Pricing
Schedules are based on the assumption that SCI can produce the Products
at quality levels suitable for shipment directly to Apple's
distribution system. SCI's inability to achieve certification status
as defined in Exhibit E, will create a significant increase in costs to
Apple. SCI will develop a plan to meet such requirements and
understands that failure to achieve certification status within a
reasonable time frame may result in disqualification as an approved
Apple supplier.
9.4 On-Site Inspections. SCI acknowledges that it is essential for Apple
to have periodic access to SCI's premises for the purpose of conducting
inspections and/or audits under this Agreement, including, without
limitation, audits of SCI's compliance with the Quality Requirements
and with export and environmental laws. Upon reasonable notice, SCI
will allow Apple, during SCI's normal business hours, to visit its
facility to discuss and inspect its manufacturing processes, test the
Products, review SCI's records, etc. Such inspections/audits and any
testing done by Apple during them, will not relieve SCI of liability
for Products later found to be defective or for SCI's failure to meet
its obligations under this Agreement.
9.5 Agency Approvals. Unless the parties agree otherwise in the Product
Plan, Apple will be responsible for obtaining agency and regulatory
approvals; provided, however, that SCI will provide Apple all
information and assistance reasonably requested by Apple for the
purpose of obtaining such approvals. If recertification is required
due to changes to a Product requested by SCI, SCI may be required
obtain and bear the cost of such recertification.
10. PRICING
10.1 The Pricing Formula. The unit price of each Product manufactured at
Fountain will be determined using the pricing formula set forth in
Exhibit B. SCI will provide Apple a price quote for each new Product
proposed by Apple as set forth in Section 4.2, above. The unit price
agreed upon by the parties will be set forth in the Pricing Schedule
for such Product; provided, however, that such prices may vary in
accordance with Section 10.2, below.
10.2 Labor Rates and Other Cost Adders. The Labor Rate and Other Cost Adder
components of the pricing formula are variable depending on the actual
load at Fountain in each quarter of the Term, as follows:
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The Labor Rate (for the Initial Products and any new Products) will be
determined as set forth in Schedule 1 to Exhibit B based on the total
number of "Applicable Labor Hours" during the quarter. "Applicable
Labor Hours" is defined in Schedule 1 to Exhibit B.
The Other Cost Adders (for the Initial Products and any new Products)
will be determined as set forth in Schedule 2 to Exhibit B depending on
the total number of "Applicable Units" manufactured by SCI during the
quarter. "Applicable Units" is defined in Schedule 2 to Exhibit B.
For purposes of pricing in Years 2 and 3 of the Initial Term of this
Agreement, SCI will be responsible for a portion of the factory load if
Apple's load falls below a hypothetical "Base Factory Load" defined in
Schedules 1 and 2 to Exhibit B. This Base Factory Load is for pricing
purposes only and does not represent a purchase commitment of any kind.
Both the Labor Rates and Other Cost Adders for a given calendar quarter
will be determined prospectively based on Apple's forecasts for upcoming
quarter. At the end of the quarter, the Labor Rate and Other Cost Adders
will be adjusted retrospectively to reflect the actual number of units
manufactured by SCI and Standard Labor Hours expended by SCI during that
quarter. Within ten (10) business days after the end of each calendar
quarter, SCI will:
(a) provide Apple written verification of the actual volumes
manufactured by SCI during the quarter, including: the number
of units manufactured for Apple under the Agreement; the number
of units manufactured at Fountain for Mac OS Licensees; the
Apple Standard Hours (as defined in Schedule 1 to Exhibit B);
and the Third Party Standard Hours (as defined in Schedule 1 to
Exhibit B); and
(b) identify to Apple any overpayment or any underpayment resulting
from a difference between Apple's forecasts and actual volumes
during the quarter which shall be paid to either party, as
appropriate, within thirty (30) days.
10.3 Standard Labor Hours. When determining the number of hours required to
assemble and test each new Product, SCI will use a methodology
consistent with that used in quoting the Initial Product prices. This
methodology is set forth in Exhibit B.
10.4 Procured Material Cost. The Procured Material Cost for Initial
Products will be based on the cost of materials purchased from Apple
(Initial Inventory or Additional Apple Inventory) on a dollar for
dollar basis. Thereafter, SCI will adjust the Procured Material Cost
to the lowest prices available from its vendors according to the
following schedule:
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For Category A items: immediately (will be credited retroactively at
end of month)
For Category B items: monthly
For Category C items: quarterly
Where:
Category A = hard drives, CD-ROM drives, RAM, flat panel displays,
MPUs and other strategic components added to Category
A by agreement of the parties;
Category B = system sub-assemblies and ASICs;
Category C = all other components and materials.
Upon repricing, a net adjustment will be made, by invoice to the
appropriate party, to revalue on-hand inventory. Where, despite SCI's
efforts, a supplier refuses to revalue on-order inventory effective
immediately, the net adjustment will include those on-order units as well.
Upon request, SCI will provide Apple the actual cost of specified
materials used in its Products. With advance notice to SCI, Apple may
renegotiate the price of any component or material, and/or delivery or
other terms, with suppliers at any time. SCI will pass through to
Apple, according to the above schedule, any cost reductions, including
any rebates, discounts or other value received by SCI in connection
with any component purchased for use in Apple's products or by
leveraging Apple's volumes. Failure to do so will constitute a
material breach and grounds for immediate termination, except for de
minimus or accidental errors which are promptly remedied with interest
(not to exceed 1% per month on all amounts not remedied within 15
days).
10.5 Tooling and NRE Costs. SCI will quote tooling, NRE, and other one time
costs separately, and will not incur any such cost without Apple's
prior written approval. Apple will pay only those tooling costs and
NRE actually incurred by SCI, without markup, and will have the option
to amortize its payments over a reasonable period of time or number of
units to be agreed by the parties. SCI will substantiate all such
costs, which will not exceed the initial agreed estimate unless due to
changes requested by Apple.
10.6 Product Cost Reviews.
(a) Apple and SCI will agree upon cost reduction goals with stair
step costs reductions to be implemented over an agreed upon
period of time. These goals will be set forth in the Product
Plan.
(b) SCI will meet with Apple every three (3) months during the Term
to review the existing Product cost and establish a plan to
pursue all reasonable cost reduction opportunities.
10.7 Most Favored Customer Pricing. SCI hereby warrants that at no time
will the prices charged Apple for any Product under this Agreement
exceed the prices offered other customers on similar terms and
conditions.
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10.8 Taxes. The prices set forth in the Price Schedules are exclusive of
state or local sales, use, excise or similar taxes, which, if
applicable, will be paid by Apple.
10.9 Reports. SCI will provide Apple monthly reports within ten (10)
business days after the end of each month, and quarterly reports within
ten (10) business days after the end of each of calendar quarter
showing: (i) the number of Standard Labor Hours actually expended at
Fountain for third parties during such month or quarter; and (ii) the
number of Mac OS Systems and boards for Mac OS Systems manufactured at
Fountain for third parties during such month or quarter.
10.10 Royalties. Unless stated otherwise in a Product Plan, SCI will have no
obligation to collect and pay separate royalties to any third party
(except those royalties contained within a vendor's product price).
11. FORECASTS, ORDERS & ADJUSTMENTS
11.1 Forecasts. Apple will provide SCI, every calendar month during the
Term, a forecast covering the period of six (6) calendar months
beginning with the month in which such forecast is provided. Such
forecast will specify the number of units of the Products which Apple
anticipates purchasing during such six (6) month period. Such
forecasts will be non-binding and will not be regarded as a commitment
to purchase by either party.
11.2 Purchase Orders. Apple will order Products by issuing monthly Purchase
Orders to SCI on a rolling four month basis, in writing or by
electronic means, in accordance with the applicable Lead Time(s). To
be effective, all Purchase Orders must reference this Agreement and
contain the following terms, summary of initial P.O. attached as
Exhibit _________.
(a) description of the Products to be purchased, including Apple's
part number;
(b) quantity to be purchased;
(c) delivery instructions, including routing, delivery schedule and
destination; and
(d) confirmation of price.
SCI will accept Apple Purchase Orders within five (5) working days
after it receives them. Failure to deliver an acknowledgment to Apple
within such five (5) day period will be deemed acceptance. Only terms
(a) - (d), above, and the terms of this Agreement will apply to orders
for Products, even if Apple's Purchase Order and/or SCI's
acknowledgment form contains other terms and conditions. In the case
of conflict between this Agreement and any Purchase Order, the terms of
this Agreement will prevail. Any remedies at law or equity not
specifically disclaimed or modified by this Agreement remain available
to both parties.
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11.3 Authorized Purchasing Locations. SCI agrees to accept and act upon
only those Purchase Orders received from the following authorized
purchasing locations:
Apple Computer, Inc. Apple Computer Limited
One Infinite Loop Holly Hill Industrial Estate
Cupertino, CA 95014 Cork City, Ireland
Apple Computer Limited Apple Computer B.V.
7 Ang Mo Kio Street 64 P.O. Box 600
Singapore 569086 7300 AP, Apeldoorn,
The Netherlands
Apple Computer, Inc. Apple Computer, Inc.
2911 Laguna Blvd. 20400 Stevens Creek Blvd.
Elk Grove, CA 95832 Cupertino, CA 95014
Apple Computer, Inc..
900 E. Hamilton Avenue
Campbell, CA 95008
The above list of authorized purchasing locations may revised by Apple
from time to time by written notice to SCI.
11.4 Order Adjustments.
Apple may increase, decrease or reschedule the number of units under a
particular purchase order as follows:
For PCBA Orders:
Adjustments Made Permissible Adjustment*
Within 30 Days* up to 25%
31 to 45 Days up to 50%
46 to 60 Days up to 75%
60+ Days up to 100%+
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For FATP Orders:
Adjustments Made Permissible Adjustment**
Within 7 Days*: negotiated
8 to 14 Days up to 25%
15 to 21 Days up to 50%
22+ Days up to 100%+
* "Days" means the number of calendar days between Apple's order
adjustment and the scheduled Delivery date.
** "Adjustment" means the percentage of units ordered for Delivery
on such Delivery Date that Apple may add to the order, delete
from the order or reschedule for later delivery.
Contingent on availability of materials and labor, SCI will supply
increased units on the originally scheduled Delivery date.
If Apple reschedules the Delivery date under a particular Purchase
Order more than sixty (60) days after the original Delivery date, Apple
will pay SCI an inventory carrying charge equal to 1% of the actual
cost of affected inventory held by SCI on the last day of each month
thereafter, provided that SCI will use every effort to mitigate such
carrying charges to Apple by, without limitation, canceling or delaying
orders, returning components and utilizing components in other products
currently produced by SCI at any of its sites.
Apple will be responsible for:
(i) any overtime charges required to meet Apple's needs where Apple
requires greater flexibility than is permitted above; and
(ii) any vendor premiums required to meet Apple's flexibility needs,
provided that such premiums are incurred due to circumstances
beyond SCI's control; provided that SCI will use every effort
to minimize such charges or premiums and will advise Apple of
any such charges or premiums in advance so that Apple may
choose whether to incur the additional cost in order to achieve
the desired flexibility.
11.5 Configuration Changes. Subject to availability of materials, Apple may
change the configuration of quantities under a particular Purchase Order
at any time without penalty; provided that SCI may adjust the cost of
such quantities pursuant to the terms of Section 10, above.
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11.6 Cancellation of Purchase Orders. Apple may cancel any Purchase
Order(s), in whole or in part, on thirty (30) days notice to SCI,
provided that Apple will reimburse SCI for costs actually and
reasonably incurred by SCI, including the actual cost of materials and
components for the ordered quantity and material adders therefore (as
set forth in Exhibit B "Other Cost Adders"), as the result of such
cancellation, but not profit or opportunity cost. Both parties will
undertake reasonable measures to mitigate the costs of termination.
11.7 Lead Time Reduction Program. SCI and Apple will meet periodically to
discuss options to effect reductions in Lead Times to allow improved
flexibility in ordering and delivery. The agenda for each meeting will
include identification of such options, schedules for determination of
associated cost and schedules for implementation.
12. DELIVERY, TITLE, CARRIER & RISK OF LOSS
12.1 Delivery. SCI will Deliver the total number of units ordered in a
particular Purchase Order to the Delivery Point on or before the date
specified in such Purchase Order, subject to the provisions of Section
11.4 above.
12.2 Carrier; Risk of Loss. SCI will use Apple's Preferred Carrier(s) for
Delivery, provided that if Apple does not designate a preferred
carrier, SCI may select a common carrier at its discretion. All
shipments will be FOB point of shipment, with title and risk of loss or
damage passing to Apple upon Delivery to the Delivery Point.
12.3 Failure to Meet Delivery Date.
In addition, and without prejudice to any other rights or remedies
available to Apple under law or otherwise:
(a) If a Delivery is or will be late by one or more days, provided
late delivery was not caused by Apple, SCI will pay the
incremental cost associated with air freighting the order to
Apple.
(b) If SCI fails to Deliver all or part of any order within five
(5) days after the Delivery date specified in the Purchase
Order, Apple may, without prejudice to any other rights or
remedies available to Apple under law or otherwise, terminate
the late portion of the Purchase Order without cancellation
charges. The canceled units will be credited against Apple's
Percentage Volume Commitment. With respect to the portion of
a Purchase Order not terminated, if any, the unit price will
not change and SCI will otherwise continue performance under
this Agreement.
(c) If SCI fails to deliver all or part of an order within thirty
(30) days after the Delivery date specified in the Purchase
Order, Apple may, without prejudice to any other rights or
remedies available to Apple under law or otherwise, terminate
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the Purchase Order without cancellation charges and purchase
substitute products from another source; provided that, prior
to such cancellation, Apple will provide SCI the opportunity to
manufacture and deliver the Product within thirty (30) days
from any other SCI facility or to subcontract the effort to
another source approved by Apple for delivery within such
thirty (30) day period. SCI will reimburse Apple for the
difference between the price of the products and the price paid
by Apple for substituted products. Any such substitute
products will be credited against Apple's Percentage Volume
Commitments. With respect to the portion of a Purchase Order
not terminated, if any, the unit price will not change and SCI
will otherwise continue performance under this Agreement.
13. PAYMENTS
Apple will pay SCI for quantities of Product Delivered to Apple net thirty (30)
days from the date of SCI's invoice, provided that the date of the invoice will
be no earlier than the Delivery date for such quantities. Apple's payment of
SCI's invoice will not constitute final acceptance of the Product and is
subject to adjustments for errors, shortages and defects. Unless otherwise
agreed by the parties, payment will be made by telegraphic transfer to a bank
account designated by SCI. Neither party will have the right of offset of set
off. At its option, five (5) working days after written notice to Apple, SCI
may impose a late payment fee of up to one percent (1%) per month on all
amounts past due by more than fifteen (15) days. Both parties agree to work
diligently to resolve any discrepancies involving invoices.
14. SERVICE UNITS, SPARE PARTS & SERVICE DOCUMENTATION
14.1 Purchase of Spare Parts and Service Units. Apple or its designee may
purchase Service Units and Spare Parts during the period beginning at
the Product's initial production and ending seven (7) years after SCI's
last shipment of such Product to Apple (even if after expiration of the
Agreement). Such purchases will be governed by the applicable terms
and conditions of this Agreement. Lead Times for Service Units and
Spare Parts during production will be no greater than the then
prevailing Lead Time for the Product. In an emergency, SCI will,
contingent on availability of labor and components, Deliver Service
Units and Spare Parts for Products in production within three (3) days;
provided that SCI will advise Apple of any cost, schedule or other
impact of such short lead time in advance of Delivery and will not
Deliver such Service Units or Spare Parts unless Apple approves such
impact in writing. Apple acknowledges that after production, Lead
Times for such Service Units and Spare Parts may increase, though they
will at all times during such period be reasonable given the
availability of materials and labor.
14.2 Allocation of Components. If SCI does not have sufficient inventory of
Procured Materials to satisfy Apple's Purchase Orders for Service Units
and Spare Parts and open Purchase Order for Products, Apple may divert
components allocated for production of Products and Service Units to
Spare Parts production. The extent such diversion of components
causes additional actual labor cost to SCI and/or scheduled delivery
delays, such impacts will be equitably negotiated between the parties.
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14.3 Tear-Down of Completed Product. If after a reasonable attempt to re-
allocate components pursuant to Section 14.2 above, Apple is required
to tear down completed Product or Service Units to obtain Spare Parts
to repair units in the field, SCI will accept return of the incomplete
Products or Service Units, freight collect, to SCI's designated repair
facilities, promptly repair the units and return the units to Apple
freight prepaid. Apple will be obligated to pay SCI the reasonable
costs incurred by SCI in making the repairs, including SCI's freight
cost and profit as set forth in Exhibit B.
14.4 Packaging. Unless otherwise agreed by the parties, Service Units will
be packaged with electronic static discharge protection and will be
individually packaged in accordance with Apple's Packaging
Specification (P/N 062-0087) attached as a part of Exhibit A. Unless
otherwise agreed by the parties, all other Spare Parts will be packaged
in bulk form with Apple's Spare Part description, part number, and
quantity identification on the outside of a bulk container approved by
Apple. SCI will provide one packing slip for each shipment of Service
Units and Spare Parts on Purchase Orders submitted by Apple. This
packing slip will be located on the outside of each shipping box and
will list: (a) Apple's and SCI's part number and the quantity for each
Service Unit and Spare Part shipped; and (b) the Purchase Order number.
The Purchase Order number should also appear on the shipping label for
each separate carton shipped, and all packages of individual Service
Units and Spare Parts in a carton should be clearly indicated and
marked with Apple's part number.
14.5 Service Documentation and Tools. SCI will provide Apple reasonably
complete and accurate Service Documentation as specified in the Product
Plan to assist Apple or an approved third party in the preparation of
materials for servicing, repairing and inspecting the Products. SCI
will also provide Apple any Service Software or other tools or fixtures
specified by the parties in the Product Plan, provided that Apple may
be required to pay for materials and components used in such tools or
fixtures at prices set forth in such in such Product Plan.
15. WARRANTIES
15.1 Pass Through Warranties: SCI will purchase and pass through to Apple
material and workmanship warranties on Procured Materials specified by
Apple in the Product Plan, including without limitation product
liability warranties, so that Apple may, at its option, take warranty
claims directly to the vendors of such Procured Materials, rather than
make such claims through SCI. If such action by Apple will impact SCI's
cost or delivery schedule, such cost or schedule will be equitably
adjusted. SCI will also establish a process permitting Apple to
purchase components and materials and procure out-of-warranty repairs
directly from such vendors. Such vendors will keep SCI apprised of
Apple's returns and business requirements. Apple's direct relationship
with any such vendor will not release SCI from any of its obligations
under this Agreement.
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15.2 Epidemic Failure Warranty. If a Product demonstrates an Epidemic
Failure within three (3) years of the date of manufacture, SCI will
promptly repair the affected Product or Service Unit, replace it with
a functionally equivalent product or service unit, or credit Apple an
amount equal to the purchase price. SCI will also (i) pay freight in
and out; and (ii) reimburse Apple for reasonable direct costs
associated with the Epidemic Failure, including without limitation
labor costs associated with diagnostics, removal of Service Units and
repair or replacement by Apple or Apple's service provider.
The Formula for determining when an Epidemic Failure is set forth in
the Product Plan for each Product attached to Exhibit A.
Apple will notify SCI whenever an Epidemic Failure is identified or
suspected and work with SCI to develop a recovery plan, which may
include a preventative action plan if appropriate under the
circumstances. The recovery plan actually implemented by Apple is in
Apple's sole discretion; provided, however that (i) Apple and SCI will
work together to minimize costs associated with Apple's recovery plan
as much as possible without compromising Apple's ability to
aggressively respond to its customer's needs; and (ii) SCI will
reimburse Apple only for reasonable direct costs incurred by Apple in
implementing that portion of the recovery plan associated with the
Epidemic Failure. SCI shall not be responsible for Epidemic Failures
caused by Apple's specifications, instructions, drawings, or designs.
15.3 Optional Product Warranty.
In addition to the Epidemic Failure warranty provided under Section
15.1, above, Apple will have the option to purchase a fifteen (15)
month warranty of materials and workmanship (a "Product Warranty") for
any or all Products under this Agreement at a price not to exceed one-
half of one percent (.5%) of the unit price of the warranted Product.
Apple may exercise its option to purchase a Product Warranty for a
particular Product by giving notice to SCI at any time before such
Product is shipped to Apple. The agreed price of the Product Warranty
will be set forth in the Product Plan for such Product.
SCI represents and warrants to Apple that each Product for which Apple
purchases a Product Warranty (a "Warranted Product") will be free from
defects in workmanship and materials for fifteen (15) months from the
date SCI shipped such Product to Apple. The Product Warranty will not
apply to any Warranted Product that has been abused, damaged, altered
or misused by someone other than SCI or that is defective as a result
of causes external to the Product and not caused by SCI or caused by
Apple supplied materials. A Warranted Product will be considered to
be free from defects in workmanship if it was manufactured in
accordance with SCI's manufacturing workmanship standards and conforms
to the Specifications and Quality Requirements for such Warranted
Product.
15.4 Repair Under Product Warranty. If SCI breaches the Product Warranty,
Apple may return the defective subassembly/field replaceable unit to
SCI for prompt repair or for replacement with a functionally equivalent
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subassembly or field replacement unit, at SCI's option. SCI will
issue a return authorization to Apple within two (2) days after receipt
of Apple's warranty claim. Apple will return such Product, freight
prepaid, to the factory or service center designated by SCI in its
return authorization. SCI will promptly repair or replace such units
at SCI's expense and deliver the repaired or replaced units to Apple
FOB destination, freight prepaid by SCI. Repaired or replaced Product
will carry the same Product Warranty for the balance of the original
warranty period. If SCI is unable to repair or replace a unit within
forty five (45) days of receipt, SCI will refund to Apple the purchase
price for that unit unless Apple has approved a repair or replacement
after such forty five (45) day period. SCI may sell any units repaired
after such forty five (45) day period to Apple to fulfill Apple's
P.O.'s for Service Units or Spare Parts.
15.5 Tracking Product and Epidemic Failure Warranties. SCI will (i) develop
and maintain a system for tracking the date each unit of each Product
was manufactured and shipped to Apple so that the parties may identify
Product covered by the Product Warranty and the Epidemic Failure
Warranty; and (ii) make such information available to Apple upon
Apple's request. SCI's tracking system will be subject to Apple's
approval and will be maintained at least one-hundred and twenty (120)
days after termination or expiration of this Agreement.
15.6 Regulatory Compliance. SCI will comply with all applicable laws and
regulations in performing its services under this Agreement.
15.7 Notice of Non Compliance. If SCI discovers or suspects that any Apple
Product fails to comply with any applicable consumer product or
electrical safety rule or contains a defect that could create a
substantial product or electrical hazard, SCI will notify Apple
immediately and supply Apple with information concerning the nature and
extent of the defect involved and the nature and severity of injuries
or potential injuries related to the particular Product. SCI will
notify Apple immediately of any claim made or proceeding commenced a
gainst it arising out of its activities under this Agreement.
15.8 Limitation of Warranty.
(a) All claims for breach of Product Warranty or Epidemic Failure
Warranty must be received by SCI no later than thirty (30)
days after the expiration of the warranty period;
(b) THE WARRANTIES IN THIS SECTION ARE THE ONLY WARRANTIES GIVEN
BY SCI. SCI MAKES, AND APPLE RECEIVES, NO OTHER WARRANTY
EITHER EXPRESS OR IMPLIED. ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE ARE EXPRESSLY
DISCLAIMED AND EXCLUDED.
(c) UNLESS EXPRESSLY AGREED TO BY SCI IN WRITING, SCI MAKES NO
WARRANTY THAT A PRODUCT WILL (I) MEET ANY SPECIFICATION NOT
MAKE KNOWN TO SCI, OR (II) RECEIVE THE APPROVAL OF OR BE
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CERTIFIED BY UNDERWRITERS LABORATORY, ANY FEDERAL, STATE,
LOCAL OR FOREIGN GOVERNMENT AGENCY (INCLUDING WITHOUT
LIMITATION THE FEDERAL COMMUNICATIONS COMMISSION) OR ANY
OTHER PERSON OR ENTITY. COMPANY ASSUMES NO RESPONSIBILITY
FOR OBTAINING SUCH APPROVALS OR CERTIFICATIONS, OR FOR
MEETING ANY SPECIFICATIONS BEYOND THOSE INCLUDED IN APPLE'S
SPECIFICATIONS.
15.9 No Waiver. Apple's approval or acceptance of any Products which do not
meet the Specifications will not relieve SCI of its warranty
obligations under this Section 15.
15.10 Apple warrants the accuracy and completeness of the drawings,
specifications and documentation provided to SCI for the manufacture of
components and products.
16. INDEMNIFICATION
16.1 Indemnity by SCI. SCI will, at SCI's expense, indemnify, hold harmless
and, at Apple's request, defend Apple any of its subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, from and against any and all loss, cost, liability or
expense (including costs and reasonable fees of attorneys and other
professionals) arising out of or in connection with a third party claim
that: (i) a Product caused injury or damage to a person or property; or
(ii) that a Product, material or component provided or procured by SCI,
or SCI's manufacturing process infringes any patent, copyright, trade
mark right, trade secret, mask work right or other proprietary right of
any third party; provided, however, that SCI will have no liability
under this Section 16.1 to the extent such infringement is attributable
to the incorporation of designs or materials provided by Apple into the
Product.
16.2 Indemnity by Apple. Apple will, at Apple's expense, indemnify, hold
harmless and, at SCI's request, defend SCI any of its subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, from and against any and all loss, cost, liability or
expense (including costs and reasonable fees of attorneys and other
professionals) arising out of or in connection with a third party claim
that a Product infringes any patent, copyright, trade mark right, trade
secret, mask work right or other proprietary right of any third party
to the extent that such claim is attributable to SCI's incorporation
of designs or materials provided by Apple into the Product.
16.3 Legal Compliance. Each party will defend, indemnify, and hold the
other party harmless from any loss, cost, or expense directly
resulting from the first party's violation of any law, rule, regulation
or ordinance of the United States, any state, or any other governmental
agency in the performance of this Agreement.
16.4 Conditions. A party's obligation to indemnify the other under this
Section 16 is conditioned upon and subject to: (a) the indemnified
party giving the indemnifying party reasonably prompt notice in writing
of any such suit and permits the indemnifying party through counsel of
its choice, to answer the charge of infringement and defend such claim
or suit; (b) the indemnified party provides the indemnifying party
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information, assistance and authority, at the indemnifying party's
expense, to enable such party to defend the suit; and (c) the
indemnifying party will not be responsible for any settlement made
by indemnified party without its prior written consent. The
indemnifying party agrees not to disclose or publicize the terms of
any settlement of a suit against the indemnified party without first
obtaining the such party's written permission.
17. CONFIDENTIALITY
Each party will protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that
each such party uses to protect its own like information, but at a
minimum, with a reasonable degree of care. Neither party will use the
other's Confidential Information for purposes other than those
necessary to perform this Agreement and only employees of the receiving
party who have a need to know such Confidential Information will have
access thereto. Neither party will disclose to third parties the
other's Confidential Information without the prior written consent of
the other party.
18. TERMINATION
18.1 Termination for Cause.
(a) Either party may terminate this Agreement effective immediately
upon written notice to the other (i) for a material breach by
such other party not cured within thirty (30) days after written
notice of such breach; or (ii) if the other party admits in
writing its insolvency or inability to pay its debts or perform
its obligations as they mature or makes an assignment for the
benefit of creditors, or a receiver or similar officer is
appointed to take charge of all or a portion of the parties
assets.
(b) Apple may terminate this Agreement effective immediately upon
written notice to SCI if SCI materially breaches its obligation
of confidentiality under Section 17.
18.2 Termination Without Cause. After the Initial Term, but not during such
Term, either party may terminate this Agreement without cause by giving
the other ninety (90) days advance written notice.
18.3 Effect of Termination For Cause. Upon termination of this Agreement:
(i) SCI will, to the extent and at times specified by Apple, stop
all work on outstanding Purchase Orders, incur no further
direct costs, and protect all property in which Apple has or
may acquire an interest. Apple will have the option to request
that SCI complete work in progress pursuant to any Purchase
Orders open on the date of termination;
(ii) Apple will compensate SCI for all Product delivered and accepted
by Apple; and
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(iii) SCI will deliver to Apple and Apple will purchase from SCI, at
SCI's Standard Cost, any usable Unique Components in SCI's
inventory of the date of termination that were purchased to
fulfill firm Purchase Orders or pursuant to a Letter of
Authorization from Apple.
(iv) Each party will return to the other, freight collect, all
materials that contain the other's Confidential Information,
or if the other party gives written instructions to do so,
destroy all such materials and provide the other a written
certificate of destruction within thirty (30) days after such
destruction;
Notwithstanding any termination of this Agreement, the obligations of
the parties under Sections 1, 3.4, will remain in effect.
18.4 Inventory Indemnification.
18.4.1 Upon expiration of this Agreement or termination of this
Agreement for cause by SCI or for convenience by Apple after
the Initial Term, Apple will be responsible for:
(i) all work-in-process at receipt of the notice of
termination or intent not to renew; and
(ii) all procured materials purchased to fill a Purchase
Order or authorized by Apple in a letter of
Authorization to be purchased by Customer which are on
hand or on order at receipt of the notice of
termination or intent not to renew. Items (i) and (ii)
are referred to as the "Termination Inventory".
18.4.2 SCI will make every reasonable effort to use the Termination
Inventory on other current customer programs, will cancel all
outstanding material orders with vendors, and will attempt to
return piece parts to vendors with Apple's prior approval.
Apple will be responsible for costs, charges and fees actually
incurred by SCI to cancel or return any portion of the
Termination Inventory to vendors and, upon mutual agreement,
the cost to modify the procured material for other programs.
18.4.3 With thirty (30) days from termination or cancellation, SCI
will invoice, and Apple will purchase, the Termination
Inventory remaining after vendor cancellations and returns and
after other program use, as follows: (i) for Procured Material
Inventory and authorized long lead time components, at SCI's
standard cost, plus a reasonable handling charge; (ii) for WIP,
at a reasonable pro rata percentage of the finished Product
purchase price; and (iii) for finished Product, at the purchase
price in effect at termination or cancellation. With Apple's
prior approval, Apple will be responsible for any substantiated
negative price differential between the price SCI paid for the
Procured Material and authorized long lead time components and
the price at which SCI was able to return and/or utilize the
items on other programs. SCI will credit Customer for any
positive price differentials.
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18.5 Limited License to Manufacture and Distribute. See Section 7 of the IP
License.
19. LIMITATION OF LIABILITY
EXCEPT PURSUANT TO SECTION 16 (INDEMNIFICATION), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON CONTRACT,
TORT OR ANY OTHER LEGAL THEORY, INCLUDING WITHOUT LIMITATION LOST
PROFITS AND OPPORTUNITY DAMAGE TO ASSOCIATED EQUIPMENT, COST OF
CAPITAL, FACILITIES, SERVICE, OR REPLACEMENT POWER, DOWNTIME COSTS, OR
CLAIMS OF EITHER PARTY'S CUSTOMERS FOR SUCH DAMAGES, WHETHER OR NOT
EITHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
20. PROPERTY FURNISHED BY APPLE
Apple will retain title to and beneficial ownership of any tools, dies, molds,
jigs, patterns, hobs, computer equipment, electrodes, punches, artwork,
screens, tapes, templates, machinery, test equipment, fixtures, gauges, Apple
Proprietary Technology, Specifications, drawings or other documents or data
furnished, paid for or charged to Apple. While in SCI's possession, SCI will
hold such property in trust for Apple and maintain and preserve such property
for Apple's benefit for a period of seven (7) years following termination of
this Agreement. SCI will clearly mark all of Apple's property its possession
"Property of Apple Computer, Inc." (or substantially similar marking) and will
not use such property for any purpose other than to perform the services under
this Agreement without Apple's prior consent. SCI will keep an up to date
inventory of all Apple property in its possession and provide a copy to Apple
upon Apple's request. Apple may, on forty-eight (48) hours prior notice,
require that SCI return some or all of such property and, if it does so, SCI
will immediately deliver all such property to Apple or, in Apple's discretion,
permit Apple to take possession of such property wherever it is situated. If
Apple requires that SCI return of any Apple-owned property that is required to
manufacture and deliver a Product, SCI will be relieved of its obligation to
supply such Product to Apple.
21. EXPORT/IMPORT COMPLIANCE
21.1 Export Controlled Commodities, Technical Data and Software. This
Agreement is subject to all laws, regulations, orders or other
limitations on the export and re-export of commodities, technical data
and software. The parties hereby agrees that they will not export,
re-export, resell or transfer any export controlled commodity,
technical data or software (i) in violation of such limitations imposed
by the United States or any other appropriate national government
authority, or (ii) to any country for which an export license or other
governmental approval is required at the time of export, without first
obtaining all necessary licenses or other approvals. SCI will make
records of all export transactions available to Apple upon Apple's
written request in order to permit Apple to confirm SCI's compliance
with its obligations under this Section.
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21.2 Exporter of Record. Unless the parties agree otherwise in the Product
Plan for particular Product(s), Apple will be the Exporter of Record
for all such Products manufactured at Fountain and Delivered to Apple
or its designee outside of the United States. The Exporter of Record
will be responsible for obtaining necessary export licenses and other
government approvals required for export, and for preparing export
documentation such as commercial invoices, shipper's export
declarations, and international waybills. Each party agrees to comply
fully with the export control laws of the United States and with the
U.S. Export Administration Regulations and the U.S. Arms Export Control
Act when acting as the Exporter of Record.
21.3 Certificates of Delivery. Upon Apple's request and at SCI's expense,
SCI will provide Apple: (i) Certificates of Delivery to Apple for
Products imported into the United States by SCI and Delivered to Apple
in the United States as imported goods; and (ii) Certificates of
Manufacture and Delivery for Products imported and then further
manufactured by SCI and Delivered to Apple in the United States as
imported goods. Each Certificate will describe the imported
merchandise and reference both Apple's and SCI's Part Numbers. Apple
will use the Certificates only for the purpose of obtaining duty
drawbacks.
21.4 Country of Origin Marking. SCI certifies that articles manufactured
by SCI, or repacked by SCI, will conform with the U.S. Customs Marking
requirements as stated 19 U.S.C. 1304 and 19 CFR Part 134.
21.5 NAFTA. SCI agrees to review, upon Apple's request, North American Free
Trade Agreement (NAFTA) eligibility of products or material shipped
directly from SCI to NAFTA qualifying country (eg: U.S., Canada or
Mexico). Apple agrees to cooperate in providing information reasonably
required by SCI to evaluate NAFTA eligibility of Products. When
products are shipped directly from SCI's facility to a qualifying NAFTA
country, SCI will generate the supporting NAFTA certificate of origin
for the importer in such qualifying country. In addition, SCI agrees
maintain documentation in support of all NAFTA certificates issued.
When goods are shipped to an Apple facility in the U.S., SCI agrees to
supply Apple, upon Apple's request, with a statement of NAFTA
qualification and maintain documentation in support of such statement.
22. GENERAL TERMS
22.1 Force Majeure. Neither party will be deemed in default of this
Agreement to the extent that performance of its obligations or attempts
to cure any breach are delayed or prevented by reason of any act of
God, fire, natural disaster, accident, act of government, or an act
that is beyond the reasonable control of either party, provided that
such party gives the other party written notice thereof promptly and,
in any event, within fifteen (15) days of discovery thereof and uses
its best efforts to continue to so perform or cure. In the event of
such a Force Majeure, the time for performance or cure will be extended
for a period equal to the duration of the Force Majeure, but in no
event more than thirty (30) days.
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22.2 Relationship of the Parties. Each of the parties will at all times
during the Term act as, and will represent itself to be, an independent
contractor. Neither party will have any right or authority to assume
or create any obligations or to make any representations or warranties
on behalf of the other party whether express, implied, by appearance or
otherwise to bind the other party in any respect whatsoever.
22.3 Personnel: SCI's employees, consultants, contractors and agents will
observe the working hours, working rules and holiday schedule of Apple
while working on Apple's premises. Apple employee, et, consultants,
contractors and agents will observe the working hours, working rules
and holiday schedule of SCI while working on SCI's premises.
22.4 Assignment. The rights and liabilities of the parties hereto will bind
and inure to the benefit of their respective successors, executors and
administrators, as the case may be; provided that, neither party may
assign or delegate its obligations specified under this Agreement
either in whole or in part, without the prior written consent of the
other, which will not be unreasonably withheld. Any attempted
assignment in violation of the provisions of this Section will be void.
22.5 Insurance. Before beginning the scope of work under this Agreement,
SCI will deliver to Apple's Corporate Procurement Department, (1
Infinite Loop, M/S: 36PO, Cupertino, CA 95014-2084) a Certificate of
Insurance which shows the coverage specified below, and which provides
a thirty (30) day notice period for cancellation or reduction in
coverage or limits, and will maintain such insurance throughout the
Term:
(a) Comprehensive General Liability, including Products/Completed
Operations and Advertising Injury Liability, with limits not
less than $1,000,000 combined single limit per occurrence;
(b) Umbrella Liability, including Products/Completed Operations
with limits not less than $5,000,000 combined single limit per
occurrence;
(c) Automobile Liability with limits not less than $500,000 single
limit of liability per occurrence bodily injury and property
damage combined;
(d) Workers Compensation and Employers Liability in compliance with
all statutory regulations in the state where the work is being
done.
(e) Property Insurance covering (i) any Apple property in its
possession or control, including but not limited to any
equipment, software, tooling or materials, against all loss and
damage (at replacement value); and (ii) any Apple product
manufactured only by SCI against "all risk" including business
interruption and extra expense; limit dependent on size of
exposure to loss; contingency plan needs to be addressed.
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22.6 Trademark Usage. SCI will not, without Apple's prior written consent,
use any Apple trademarks, service marks, trade names, logos or other
commercial or product designations, for any purpose, including, but not
limited to, use in connection with any SCI products, promotions,
advertisements or Exhibitions.
22.7 Publicity. Unless otherwise agreed by the parties in writing, no press
releases, conferences, interviews or other public announcements, in
whatever form, will be made or given by either party in relation to
this Agreement.
22.8 No Third-Party Beneficiaries. This Agreement is for the sole benefit
of Apple and SCI and their permitted assigns and nothing herein
expressed or implied will give or be construed to give to any person,
other than Apple and SCI and such assigns, any legal or equitable
rights hereunder.
22.9 Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement or portion thereof to be
unenforceable, that provision of this Agreement will be enforced to the
maximum extent permissible to effect the intent of the parties and the
remainder of this Agreement will continue in full force and effect.
22.10 No Waiver. All rights and remedies conferred under this Agreement or
by any other instrument or law will be cumulative and may be exercised
singularly or concurrently. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future
enforcement of that or any other provision.
22.11 Notices. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given
when: (i) delivered personally; (ii) when sent by confirmed telex or
facsimile; (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one
(l) day after deposit with a commercial overnight carrier, with written
verification of receipt. All communications will be sent to addresses
set forth below or such other address as may be designated by a given
party by giving written notice to the other party pursuant to this
Section.
Apple: SCI:
Sr. Vice President, President, Chief Operating Officer
Worldwide Operations SCI Systems, Inc.
Apple Computer, Inc. 2101 W. Clinton Avenue
1 Infinite Loop Huntsville, AL 35807
Mail Stop 75-6KC
Cupertino, California 95014 With a copy to:
SCIVP, Plant Manager
With a copy to General Counsel, Plant 22
at the same address, MS 75-8A
22.12 Governing Law. This Agreement will be governed by and construed
according to the laws of the State of California as applied to
agreements entered into and to be performed entirely within California
between California residents, except for that body of law relating to
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conflict of laws. Any litigation or other dispute resolution between
the parties relating to this Agreement will take place in the Northern
District of California. The parties consent to the personal
jurisdiction of and venue in the state and federal courts within that
District.
22.13 Interpretation. This Agreement has been negotiated by the parties and
their respective counsel. This Agreement will be fairly interpreted
according to its terms and without any strict construction in favor of
or against either party. The headings and captions are included for
reference purposes only and do not affect the interpretation of the
provisions hereof.
22.14 Equitable Relief. Because SCI will have access to and become
acquainted with Confidential Information of Apple, the unauthorized
use or disclosure of which would cause irreparable harm and significant
injury which would be difficult to ascertain and which would not be
compensable by damages alone, both parties agree that, in addition
to any other remedy available to Apple at law or in equity, the
confidentiality provisions of this Agreement will be enforceable under
the provisions of the California Uniform Trade Secrets Act, California
Civil Code Section 3426, as amended.
22.15 Guarantee of Performance. SCI Systems, Inc. and Apple Computer, Inc.
hereby absolutely and unconditionally guarantee the performance of
their respective subsidiaries and affiliates under the terms of this
Agreement, including without limitation the payment of all moneys due
in a timely manner. Apple's and SCI Systems, Inc.'s overseas
subsidiaries and affiliates shall either reference this Agreement on
the face of the Purchase Orders or shall provide written acknowledgment
that any Purchase Orders issued by the overseas subsidiary or affiliate
shall be governed by this Agreement.
22.16 Complete Agreement. This Agreement, including all Exhibits, all
Addenda thereto and Specifications and Quality Requirements
identified therein, and all Purchase Orders issued hereunder,
constitutes the entire Agreement between the parties in connection
with the subject matter hereof, and terminates and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral
or written, between the parties. No amendment to or modification of
this Agreement will be binding unless in writing and signed by a duly
authorized representative of both parties.
APPLE COMPUTER, INC. SCI SYSTEMS, INC.
BY: /s/ G. Fred Forsyth BY: /s/ David F. Jenkins
NAME: G. Fred Forsyth NAME: David F. Jenkins
TITLE: Senior Vice President TITLE: Senior Vice President