Manufacturing Agreement - Handspring Inc. and Flextronics (Malaysia) SDN.BHD
FLEXTRONICS INTERNATIONAL MANUFACTURING CONTRACT
REV. 6 - 7/1/99
This Manufacturing Agreement ("Agreement") is entered into this 29th day of
June, 1999 by and between Handspring, Inc. having its place of business 299
California Avenue, Ste. 300, Palo Alto, CA 95306 USA ("Handspring") and
Flextronics (Malaysia)SDN.BHD having its place of business Lot Plo 37, Dirizab,
Jalan Kawasan Perindustrian Senai, 81400 Senai J.B. Malaysia ("Flextronics").
Handspring has created a market for Handspring handheld computer products
(hereinafter "Products") and is solely responsible for the sales and marketing
of the Products. Flextronics has developed processes and practices for
manufacturing products for many different electronic applications and at
Handspring's request desires to manufacture Handspring's Products in accordance
with Handspring's specifications. Handspring acknowledges that Flextronics'
expertise is manufacturing and that Flextronics' responsibility related to the
Handspring's Products is limited to this extent. The parties agree as follows:
1.0 WORK, LICENSE
Flextronics agrees to use reasonable commercial efforts to perform the work
(hereinafter "Work") pursuant to purchase orders or changes thereto issued by or
for Handspring and accepted by Flextronics. Work shall mean to procure
components, materials, equipment and other supplies, and to manufacture,
assemble, test and deliver Products pursuant to detailed written specifications,
workmanship standards and quality requirements for each such Product (ref;
Addendum B) which are provided by Handspring and accepted by Flextronics. For
each Product or revision thereof, written specifications shall include, but are
not limited to, bills of materials, schematics, assembly drawings, process
documentation, test specifications, current revision number, and approved vendor
list (hereinafter "Specifications") as attached hereto.
Flextronics is granted by Handspring a non-exclusive license during the term of
this Agreement to use all of Handspring's patents, trade secrets and other
intellectual property in the Products, solely in connection with and to the
extent required to perform Flextronics' obligations under this Agreement.
2.0 FORECASTS, ORDERS, MATERIAL PROCUREMENT
2.1 FORECAST. Handspring shall provide Flextronics, on a monthly basis, a
non-binding, rolling twelve (12) month Product order forecast.
2.2 PURCHASE ORDERS. Handspring will issue, or have a designated 3rd party
distribution partner issue, written purchase orders once a month which specify
all Work to be completed. Handspring's designated 3rd party distribution
partners must meet Flextronics credit worthiness guidelines, or Handspring will
guarantee purchase orders according to the terms of this Agreement. Handspring
will ensure purchase orders cover a minimum four (4) month rolling time period.
Each purchase order shall reference this Agreement, and the applicable written
Specifications as described in Section 1.0. Purchase orders shall normally be
deemed accepted by Flextronics, provided however that Flextronics may reject any
order does not conform to the lead-time, flexibility or cancellation terms of
this Agreement. Flextronics shall notify Handspring of rejection of any purchase
order within five (5) working days of receipt of such order.
Handspring, or its' designated 3rd party distribution partners, may use its'
standard purchase order form to release items, quantities, prices, schedules,
change notices, specifications, or other notice provided for hereunder. The
parties agree that the terms and conditions contained in this Agreement shall
prevail over any terms and conditions of any purchase order, acknowledgment form
or other instrument.
<PAGE> 2
2.3 MATERIAL PROCUREMENT. Purchase orders issued by Handspring or its'
designated 3rd party distribution partners in conformance to this Agreement will
constitute authorization for Flextronics to procure, using standard purchasing
practices, the components, subassemblies, materials and supplies necessary for
the manufacture of Products ("Inventory") covered by such purchase orders.
2.4 LONG LEAD TIME COMPONENTS. As Handspring's strategic materials management
partner, Flextronics may be required to purchase Long Lead Time Components in
order to achieve the schedule flexibility requirements identified in Section
3.2. For the purposes of this Agreement, "Long Lead Time Components" shall mean
components, subassemblies, materials and supplies with lead times greater than
ninety (90) days at the time an order is placed. At the time of this Agreement,
no components, subassemblies, materials or supplies have lead times greater than
ninety (90) days. During the term of this Agreement, if any lead times for
components, subassemblies, materials or supplies exceed ninety (90) days due to
changes in market conditions, Flextronics may reasonably purchase minimum lot
sizes from suppliers ("Minimum Order Inventory"), even if greater than the
amount necessary to meet purchase orders, in order to ensure the schedule
flexibility requirements identified in Section 3.2 are achieved. Flextronics
will notify Handspring in writing if lead times for any components,
subassemblies, materials or supplies exceed ninety (90) days and will quantify
how much additional cancellation liability Handspring will incur above and
beyond the cancellation liability terms defined in Section 3.3. If lead times
for components, subassemblies, materials or supplies do not exceed ninety (90)
days during term of this Agreement, or any extensions thereof, Flextronics and
Handspring agree to abide by the reschedule flexibility and cancellation
liability terms defined in Sections 3.2 and 3.3.
3.0 SHIPMENTS, RESCHEDULE FLEXIBILITY, CANCELLATION
3.1 SHIPMENTS. All Products delivered pursuant to the terms of this Agreement
shall be suitably packed for shipment in accordance with Handspring's
Specifications, marked for shipment to Handspring's destination specified in the
applicable purchase order and delivered to a carrier or forwarding agent.
Shipment will be F.O.B. Flextronics' Malaysia manufacturing plant at which time
risk of loss and title will pass to Handspring or Handspring's designated 3rd
party distribution partners. All freight, insurance and other shipping expenses
from the F.O.B. point, will be paid by Handspring.
Flextronics is expected to achieve 100% on-time delivery performance to the
designated F.O.B. point. "On-time" deliver is defined as within 2 days early and
0 days late of scheduled delivery date on purchase orders placed by Handspring
in accordance to this Agreement. If delivery of Product is early, Handspring or
its designated 3rd party distribution partners, may return said Product to
Flextronics for re-delivery on the scheduled delivery date with Flextronics
bearing all cost of Product return and re-delivery. If Product is late,
Handspring may require Flextronics to air ship late for reasons with Flextronics
control, Product to locations specified by Handspring or its' designated 3rd
party distribution partners with Flextronics bearing the incremental cost
between standard cost versus premium air shipment. Handspring will not
unreasonably require Flextronics to air ship product unless Handspring needs
Product to meet customer commitments.
3.2 QUANTITY INCREASES AND SHIPMENT SCHEDULE CHANGES. For any purchase order
issued in accordance to this Agreement, Handspring may (i) increase the quantity
of Products or (ii) reschedule the quantity of Products and their shipment date
as provided in the table below:
<TABLE>
<CAPTION>
Maximum Allowable Variance From Purchase Order Quantities/Shipment Dates
----------------------------------------------------------------------------
# of days before Allowable Maximum Maximum
Shipment Date on Quantity Reschedule Reschedule
Purchase Order Increases Quantity Period
-------------- --------- -------- ------
<S> <C> <C> <C>
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
</TABLE>
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE> 3
Any purchase order quantities increased or rescheduled pursuant to this Section
may not be subsequently increased or rescheduled without the prior written
approval of Flextronics. All other changes in quantity or shipment date require
Flextronics' prior written consent. Any re-schedules that exceed the above
period on 3.2 will be subject to a one percent inventory carrying charge.
Flextronics will use reasonable commercial efforts to meet quantity increases.
If there are extra costs to meet a schedule increase in excess of the above
limits, Flextronics will inform Handspring for its approval in advance.
3.3 CANCELLATION LIABILITY. In the event Handspring cancels any purchase orders,
or portions thereof, Handspring and Flextronics agree to the following
cancellation terms:
<TABLE>
<CAPTION>
# days from the
day of notice Handspring cancellation liability:
------------------- ----------------------------------
<S> <C>
0-30 days Handspring is liable for 100% of the purchase price of Products scheduled to be delivered
within 0-30 days of the date of cancellation.
[*] Handspring is liable for the actual cost of [*] plus a handling fee [*]
[*] Handspring is liable for the actual cost of [*] plus a handling fee [*]
91 + days Handspring may cancel any orders scheduled greater than 90 days from the date of cancellation
without liability except for inventory approved by Handspring as per section 2.4.
</TABLE>
4.0 ENGINEERING CHANGES
Handspring may request, in writing, that Flextronics incorporate engineering
changes into the Product. Such request will include a description of the
proposed engineering change sufficient to permit Flextronics to evaluate its
feasibility and cost. Flextronics' evaluation shall be in writing and shall
state the costs and time of implementation and the impact on the delivery
schedule and pricing of the Product. Flextronics will not be obligated to
proceed with the engineering change until the parties have agreed upon the
changes to the Product's Specifications, delivery schedule and Product pricing
and upon the implementation costs to be borne by the Handspring including,
without limitation, the cost of Inventory and Special Inventory on-hand and
on-order that becomes obsolete.
As Handspring's strategic manufacturing engineering partner, Flextronics is
expected to make recommendations to Product design which would make Product more
manufacturable, reduce material costs and/or improve quality. Handspring will
evaluate such recommendations and incorporate such recommendations into Product
design as appropriate. Flextronics will not make changes to product design or
manufacturing processes which affect the form, fit, function, performance or
reliability of the Product without prior written authorization from Handspring.
5.0 TOOLING, NON-RECURRING EXPENSES, SOFTWARE
Flextronics shall provide non-Product specific tooling at its expense.
Handspring shall pay for or obtain and consign to Flextronics any Product
specific tooling and other reasonably necessary non-recurring expenses, to be
set forth in Flextronics' quotation. All software which Handspring provides to
Flextronics is and shall remain the property of Handspring. Handspring grants
Flextronics a license to copy, modify and use such software solely in connection
with and to the extent required to perform Flextronics' obligations under this
Agreement. All software developed by Flextronics to support the process tooling
or otherwise shall be and remain the property of Flextronics.
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE> 4
6.0 PRODUCT ACCEPTANCE AND WARRANTIES
6.1 PRODUCT ACCEPTANCE. Handspring agrees that the product is deemed acceptable
if Handspring has not exercised said right with in 20 days.
6.2 Flextronics is expected to deliver 100% quality Product in conformance to
all Products specifications, workmanship standards and quality requirements set
forth in Addendum B. As Handspring's strategic quality partner, Flextronics is
expected to institute appropriate quality controls at the factory to stop any
defective Product from shipping to Handspring or its designated 3rd party
distribution partners. Handspring's intent is not to inspect each shipment
coming from Flextronics, however, Handspring reserves the right to audit
Flextronics' facilities, conduct source inspection and/or inspect Product at
designated distribution or field repair centers. Handspring and Flextronics will
work together to jointly determine if Product is defective. Handspring may
return defective Products, freight collect, after obtaining a return material
authorization number from Flextronics to be displayed on the shipping container
and completing a failure report. Flextronics will not unreasonably withhold such
return material authorization numbers. Rejected Products will be promptly
repaired or replaced, at Flextronics' option, and returned freight pre-paid.
6.2 EXPRESS LIMITED WARRANTY. Flextronics warrants that the Products will
conform to Handspring's applicable Specifications and will be free from defects
in workmanship for a period of [*]. Materials are warranted to the same extent
that the original manufacturer warrants the materials. This express limited
warranty does not apply to (a) materials consigned or supplied by Handspring to
Flextronics; (b) defects resulting from Handspring's design of the Products; (c)
Product that has been abused, damaged, altered or misused by any person or
entity after title passes to Handspring. With respect to first articles,
prototypes, pre-production units, test units or other similar Products,
Flextronics makes no representations or warranties whatsoever. Notwithstanding
anything else in this Agreement, Flextronics assumes no liability for or
obligation related to the performance, accuracy, specifications, failure to meet
specifications or defects of or due to tooling, designs or instructions produced
or supplied by Handspring and Handspring shall be liable for costs or expenses
incurred by Flextronics related thereto. Upon any failure of a Product to comply
with the above warranty, Flextronics' sole obligation, and Handspring's sole
remedy, is for Flextronics, at its option, to promptly repair or replace such
unit and return it to Handspring freight collect. Flextronics will bear all
costs of repairing defective Product within warranty. Handspring shall return
Products covered by the warranty freight pre-paid after completing a failure
report and obtaining a return material authorization number from Flextronics to
be displayed on the shipping container.
FLEXTRONICS MAKES NO OTHER WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS,
IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION
WITH HANDSPRING, AND FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR
CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.0 PAYMENT TERMS, ADDITIONAL COSTS AND PRICE CHANGES
7.1 PRICE AND PAYMENT TERMS. The price for Products to be manufactured is set
forth in Addendum A and may be changed from time to time through purchase orders
issued by Handspring and accepted by Flextronics. All pricing changes must be
mutually agreed to by both parties. Flextronics is expected to cut in material
cost reductions negotiated by either Handspring or Flextronics in accordance
with established material lead-times. All prices quoted are exclusive of
federal, state and local excise, sales, use and similar taxes, and any duties,
and Handspring shall be responsible for all such items. Payment for any
Products, services or other costs to be paid by Handspring hereunder is due
thirty (30) days net from the date of invoice and shall be made in lawful U.S.
currency. Handspring agrees to pay 1% monthly interest on all late payments.
7.2 ADDITIONAL COSTS. Handspring is responsible for (a) any expediting charges
reasonably necessary because of a change in Handspring's requirements, if such
changes do not conform to established flexibility terms defined in section 3.2
which charges are pre-approved (b) any reasonable overtime or downtime charges
incurred as a result of delays in the normal production or interruption in the
workflow process and caused by: (1) Handspring's change in
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE> 5
the Specifications; or (2) Handspring's failure to provide sufficient quantities
or a reasonable quality level of consigned materials where applicable to sustain
the production schedule. Handspring caused delays as a result of consigned
inventory will result in a special charge to the Handspring of 1% of the cost of
materials for each month, or part thereof, delayed.
7.3 PRICE CHANGES. The price of Products to Handspring may be increased by
Flextronics if (a) the market price of fuels, materials, raw materials,
equipment, labor and other production costs, increase beyond normal variations
in pricing and (b) the parties agree to the increase after good faith
negotiation.
COST REDUCTIONS. Flextronics agrees to seek ways to reduce the cost of
manufacturing Products by methods such as elimination of components, obtaining
alternate sources of materials, redefinition of Specifications, and improved
assembly or test methods. Upon implementation of cost reductions initiated by
Flextronics, Flextronics will receive fifty percent of the demonstrated cost
reduction for a period of 6 months, at which time Handspring will receive one
hundred percent of the demonstrated cost reduction. Handspring will receive one
hundred percent of demonstrated cost reductions initiated by Handspring
immediately upon implementation of said cost reductions.
8.0 TERM AND TERMINATION
8.1 TERM. The term of this Agreement shall commence on the date hereof above and
shall continue for one (1) year thereafter until terminated as provided in
Section 8.2 or 10.9. After the expiration of the initial term hereunder (unless
this Agreement has been terminated) this Agreement shall be automatically
renewed for separate but successive one-year terms.
8.2 TERMINATION. This Agreement may be terminated by either party (a) for any
reason upon ninety (90) days written notice to the other party, or (b) if the
other party defaults in any payment to the terminating party and such default
continues without a cure for a period of thirty (30) days after the delivery of
written notice thereof by the terminating party to the other party, or (c) if
the other party defaults in the performance of any other material term or
condition of this Agreement and such default continues un-remedied for a period
of thirty (30) days after the delivery of written notice thereof by the
terminating party to the other party. Termination of this Agreement for any
reason shall not affect the obligations of either party which exist as of the
date of termination. Upon termination for any reason whatsoever, Handspring
shall be responsible for the finished Products and Inventory in existence at the
date of termination in the same manner as for cancellations as set forth in
Section 3.3. Any purchase orders shall be fulfilled by Flextronics unless
cancelled as provided in section 3.3. Notwithstanding termination of this
Agreement, Sections 6.2, 9.0, and 10.1 shall survive said termination.
9.0 LIABILITY LIMITATION
9.1 PATENTS, COPYRIGHTS, TRADE SECRETS, OTHER PROPRIETARY RIGHTS. Handspring
shall defend, indemnify and hold harmless Flextronics from all costs, judgments
and attorney's fees arising from any claim that Flextronics' manufacture of the
Products under this Agreement directly infringes any third party patents, patent
rights, copyrights or trade secrets. Flextronics shall promptly notify
HandSpring in writing of the initiation of any such claims, give Handspring sole
control of any defense or settlement, and provide Handspring reasonable
information and assistance in resolving such claim. The preceding indemnity
shall not apply, however, to any claims arising from the use by Flextronics of
any materials, components or manufacturing processes not expressly specified by
Handspring.
THE FOREGOING STATES THE ENTIRE LIABILITY OF HANDSPRING CONCERNING INFRINGEMENT
OF PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHTS.
<PAGE> 6
9.2 PRODUCT LIABILITY. Handspring agrees that, if notified promptly in writing
and given sole control of the defense and all related settlement negotiations,
it will defend Flextronics from any claim or action and will hold Flextronics
harmless from any third party loss, damage or injury, including death, which
arises from any alleged defect of Handspring's design of any Products.
Similarly, Flextronics agrees that, if notified promptly in writing and given
sole control of the defense and all related settlement negotiations, it will
defend Handspring from any claim or action and will hold Handspring harmless
from any third party loss, damage, or injury, including death, which arises from
any alleged workmanship defect of any Products.
9.3 NO OTHER LIABILITY. EXCEPT FOR THE EXPRESS WARRANTIES CREATED UNDER THIS
AGREEMENT AND EXCEPT AS SET FORTH OTHERWISE IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF THIS AGREEMENT OR THE
SALE OF PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT,
TORT (INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT LIABILITY), OR
OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS
OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS AGREEMENT FAIL OF
THEIR ESSENTIAL PURPOSE.
10.0 MISCELLANEOUS
10.1 CONFIDENTIALITY. All written information and data exchanged between the
parties for the purpose of enabling Flextronics to manufacture and deliver
Products under this Agreement that is marked "Confidential" or the like, shall
be deemed to be Confidential Information. The party which receives such
Confidential Information agrees not to disclose it directly or indirectly to any
third party, or to use it for any purpose other than as required under this
Agreement, without the prior written consent of the disclosing party.
Confidential Information disclosed pursuant to this Agreement shall be
maintained confidential for a period of three years after the disclosure
thereof.
10.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the Parties with respect to the transactions contemplated hereby and supersedes
all prior agreements and understandings between the parties relating to such
transactions. Both parties shall hold the existence and terms of this Agreement
confidential, unless it obtains the other party's express written consent
otherwise. In all respects, this Agreement shall govern, and any other documents
including, without limitation, preprinted terms and conditions on Handspring's
purchase orders and Flextronics acknowledgements shall be of no effect.
10.3 AMENDMENTS. This Agreement may be amended only by written consent of both
parties.
10.4 INDEPENDENT CONTRACTOR. Neither party shall, for any purpose, be deemed to
be an agent of the other party and the relationship between the parties shall
only be that of independent contractors. Neither party shall have any right or
authority to assume or create any obligations or to make any representations or
warranties on behalf of any other party, whether express or implied, or to bind
the other party in any respect whatsoever.
10.5 EXPENSES. In the event a dispute between the parties hereunder with respect
to this Agreement must be resolved by litigation or other proceeding, the
prevailing party shall be entitled to receive reimbursement for all associated
reasonable attorneys fees from the other party.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed under the
laws of the State of California, excluding its choice of law principles. The
parties consent to the exclusive jurisdiction of the state and Federal courts in
Santa Clara County, California.
<PAGE> 7
10.7 SUCCESSORS, ASSIGNMENT. This Agreements shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns and
legal representatives. Neither party shall have the right to assign or otherwise
transfer its rights or obligations under this Agreement except with the prior
written consent of the other party, not to be unreasonably withheld.
10.8 FORCE MAJEURE. If the event that either party is prevented from performing
or is unable to perform any of its obligations under this Agreement (other than
a payment obligation) due to any Act of God, fire, casualty, flood, earthquake,
war, strike, lockout, epidemic, destruction of production facilities, riot,
insurrection, material unavailability, or any other cause beyond the reasonable
control of the party invoking this section, and if such party shall have used
its commercially reasonable efforts to mitigate its effects, such party shall
give prompt written notice to the other party, its performance shall be excused,
and the time for the performance shall be extended for the period of delay or
inability to perform due to such occurrences. Regardless of the excuse of Force
Majeure, if such party is not able to perform within ninety (90) days after such
event, the other party may terminate the Agreement. Termination of this
Agreement shall not affect the obligations of either party which exist as of the
date of termination.
ACCEPTED AND AGREED TO:
HANDSPRING, INC.: FLEXTRONICS MALAYSIA SDN.BHD:
/s/ Michael Galluci /s/ Ash Bhardwaj
----------------------------------- ------------------------------------
By: Michael Gallucci By: Ash Bhardwaj
-------------------------------- ---------------------------------
Title: Vice President, Manufacturing Title: President, Asia Pacific
& Logistics ------------------------------
<PAGE> 8
ADDENDUM A
LEGO PRICING SCHEDULE
[*]
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
<PAGE> 9
ADDENDUM B
LEGO PRODUCT SPECIFICATIONS, WORKMANSHIP STANDARDS, QUALITY REQUIREMENTS
<PAGE> 10
QUALITY REQUIREMENTS
1. General Quality Requirements:
a. The supplier shall meet the quality requirements outlined in Handspring
Document 81-0002-01, Manufacturing Supplier Quality Procedure.
Exceptions to the requirements in this document must be approved in
writing by Handspring Quality.
b. At least 2 samples of the pilot built shall be submitted to Handspring
for inspection and approval to workmanship standards.
2. Design Validation Test (DVT):
a. Supplier will perform design validation tests at each stage of the
development cycle. The product stages are defined as engineering
prototype, pilot and production release. The DVT testing shall include
electrical, mechanical, thermal and packaging tests. Supplier may be
requested to perform all or part of some tests in the Handspring viewer.
Any change to the product affecting form, fit and/or function may
necessitate performing all or part of DVT tests.
b. For more detailed description of test requirements, please refer to
Handspring Document 81-0001-01, New Product Qualification Testing
Procedure.
3. Reliability Demonstration:
a. Calculated Mean Time Between Failures. Handspring requires calculated
(predicted) mean time between failure for each product design using the
following method: Bellcore Reliability Prediction Procedure TR-332, with
preference to part stress Method I.
b. Demonstrated Mean Time Between Failures. The specified MTBF needs to be
demonstrated by actually performing test on a predetermined number of
units prior to release. The MTBF shall be demonstrated to [*] at the
release with the intention of successfully completing the test to [*]. A
detailed test plan needs to be worked out and approved by Handspring
before the start of a demonstrated MTBF test.
4. Process Capability Index Cp and Cpk:
a. Supplier will perform process capability index for critical electrical
and mechanical parameters that are being measured in production. This
should be performed on early production units. Generally any Cpk of less
than 1.33 will be flagged as a potential problem and corrective action
will be expected before release of the product.
5. Production Stress Testing:
a. Initial production stress testing may be required for products that
exhibit uncorrected thermally induced problems in DVT testing. In these
circumstances, production stress testing would be required until the
test data substantiates discontinuance.
6. ORT (Ongoing Reliability Test):
a. Once approved and in production, the supplier will perform an ORT test
on a pre-determined number of units. A sample of product will be
periodically randomly pulled from the production line and tested for a
minimum of 1000 hours at 50 degrees C oven temperature. The purpose of
this test is to demonstrate MTBF every quarter and identify any
manufacturing anomalies prior to shipping significant quantities.
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
Handspring Confidential Page 1
<PAGE> 11
7. Yield data:
a. Supplier shall provide monthly internal yield data for each product. The
yield data shall include details of specific component failures or
process-related issues. The yield data shall include the failure details
and corrective actions for following manufacturing activities:
In-circuit Test
In-Process Inspection / Auditing
Stress Testing (if applicable)
Functional Test
Final Inspection / Out-of-Box Audits
b. The monthly report shall also include the number of customer returns for
repair during the month against the number of new products shipped the
prior month, and cumulative customer return and shipment totals.
Handspring Confidential Page 2
<PAGE> 12
--------------------------------------------------------------------------------
[HANDSPRING LOGO] 81-0002-01
HANDSPRING
--------------------------------------------------------------------------------
SUPPLIER QUALITY
PROCEDURE
--------------------------------------------------------------------------------
VERSION 1.0 Any printed copy of this document is uncontrolled. The
current controlled released version can be found on the
Handspring Document Server.
VERSION HISTORY
--------------------------------------------------------------------------------
Version: Author: Date: Comments: Approval:
1.0 Dave Cook 4/21/99 Initial release Mike Gallucci
--------------------------------------------------------------------------------
Handspring, Inc. CONFIDENTIAL
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
1.0 Description 3
2.0 Scope 3
3.0 References 3
4.0 Procedure
4.1 Value Proposition 3
4.2 Responsibilities Matrix 4
4.3 Management Communication 4
4.4 Workmanship Standards 4
4.4 Repair and Rework 4
4.5 Design for Manufacturability (DFM) and Value Engineering 5
4.6 AVL 5
4.7 Process Qualification & Controls 5
4.8 Test/Quality Data Collection & Reporting 5
4.9 Product Inspection / Process Auditing 6
4.10 RMA Processing 6
4.11 Supplier Corrective Action Requests 6
5.0 Records
Appendix A: Product Development Flow Diagram & Input Matrix 7
Appendix B: Corrective Action Request (CAR) Form 8
</TABLE>
Handspring, Inc. CONFIDENTIAL
<PAGE> 14
1.0 DESCRIPTION
1.1 This procedure outlines the generic product and process quality requirements
for key commodity parts supplied to and/or manufactured for Handspring, Inc.
2.0 SCOPE
2.1 This procedure applies to contract manufacturing partners and other key
suppliers to Handspring, Inc. It may also be applied, at Handspring's
discretion, to products specifically developed for Handspring by OEMs and other
third party providers.
2.2 If a conflict arises between any requirement outlined in this procedure and
a specific supplier contract signed by Handspring Inc., the contract provisions
take precedence.
3.0 REFERENCES
3.1 Acceptability of Printed Boards (Class 2) ANSI/IPC-A-600E
3.2 Acceptability of Printed Circuit Assemblies (Class 2) ANSI/IPC-A-610B
3.3 Suggested Guidelines for Modification, Rework and Repair of Printed
Boards and Assemblies (Level C) ANSI/IPC-R-700C
3.4 ANSI/IPC-T-50D (Terms and Definitions for Interconnecting and Packaging
Electronic Circuits)
4.0 PROCEDURE
4.1 Value Proposition
4.1.1 The Handspring supply chain value proposition is to establishing
supplier partnerships characterized by the following:
- Open and honest communication
- Strong "values based" management
- On-time delivery of quality products
- End user customer focus
- Timely data driven decision making
- Mutual respect and responsiveness
- Ongoing mutual total life cycle cost reduction
4.1.2 We believe that relationships with these characteristics will enable us
to establish a world class supply chain management system and provide
products and services that consistently meet or exceed our customer's
requirements.
Outputs/Inputs Your Outputs/Inputs
Supplier --------------> (Value Added --------------> Customers
Process)
4.1.3 We believe that everyone in a supply chain is a customer for the work
done by an "upstream" internal employee or external supplier. As such,
you have a right to expect good work from them and an obligation to
deliver work of high caliber to your internal and/or external customer.
4.1.4 Sustained quality excellence requires continuous process improvement.
This means, regardless of how good present performance, it can become
even better. "You can manage what you can measure." Align what you
measure to the individual behaviors you want to support.
Handspring, Inc. CONFIDENTIAL
<PAGE> 15
4.2 RESPONSIBILITIES MATRIX
4.2.1 Contract manufacturing and other key suppliers are expected to actively
participate in the Handspring product development process. We depend on
your ideas, recommendations and contributions to optimize the quality,
cost and delivery of Handspring products.
4.2.2 APPENDIX A contains a high level flow diagram of the Handspring Product
development stages. The matrix below the flow diagram outlines
opportunities for key supplier input to the design process.
4.3 MANAGEMENT COMMUNICATION
4.3.1 Our goal is to create a communication process to establish and sustain
mutually profitable and rewarding business relationships. We want to
become your best customer, and we want you to become our best supplier.
4.3.2 To this end, Handspring will participate in periodic management
communication meetings with key suppliers. These meetings will include a
review of quality, cost and delivery performance metrics and ongoing
improvement plans.
4.3.3 Unless otherwise specified, the following performance metrics apply:
[*]
4.4 WORKMANSHIP STANDARDS
4.4.1 Printed Wiring Boards shall meet the requirements of ANSI/IPC-A-600E,
Class 2.
4.4.2 Printed Circuit Assemblies shall meet the requirements of
ANSI/IPC-A-600E, Class 2
4.4.3 Unless otherwise specified, workmanship standards for other commodities
shall default to standard industry practices for each commodity.
Supplier specific workmanship standards should be identified and
communicated to Handspring, Inc. prior to production.
4.5 REPAIR AND REWORK
4.5.1 ANSI/IPC-T-50D (Terms and Definitions for Interconnecting and Packaging
Electronic Circuits) contains the following definitions:
Repair(ing): The act of restoring the functional capability of
a defective article in a manner that precludes compliance with
applicable drawings or specifications.
Rework(ing): The act of reprocessing non-complying articles,
through the use of original or alternate equivalent
processing, in order to bring the article into compliance with
applicable drawings and specifications.
4.5.2 ANSI/IPC-R-700C (Suggested Guidelines for Modification, Rework and
Repair of Printed Boards and Assemblies) categorizes modifications,
rework and repairs into three levels (A, B and C). Paragraph 1.1.3
states; "Class 2 products should use level C modifications or repairs --
for assured safety and dependability but Level B or A modifications or
repairs can be used if it has been determined that they are suitable for
the specific product's performance and capability applications."
4.5.3 Handspring will accept PWB fab and assemblies that have been reworked
(not repaired), using Level C techniques outlined in ANSI/IPC-R-700C.
Level A and B rework techniques may be authorized by Handspring, only
through prior Handspring Engineering or Quality approval.
4.5.4 All rework must meet the workmanship requirements of ANSI/IPC-A-600E,
Class 2 and/or ANSI/IPC-A-610B, Class 2. Any rework or repair method not
contained in ANSI/IPC-R-700-X must be authorized by Handspring Quality
before being used on any Handspring product.
4.5.4.1 Rework Examples : Welding conductors is a Level C rework method outlined
in Procedure 4.2.5 of ANSI/IPC-R-700-X. As a Level C method, it is authorized on
internal or external layers of Handspring bare boards, without prior approval
from Handspring.
* Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
Handspring, Inc. CONFIDENTIAL
<PAGE> 16
4.5.4.2 Surface conductor (foil jumper method) is a Level C rework method
outlined in Procedure 4.2.2. As a Level C method, it is authorized on
external layers only of Handspring bare boards, without prior approval.
4.5.4.3 Surface jumper wires are a Level B repair (Procedure 4.2.6.1). Surface
jumper wires are not authorized on field shippable production units. Any
exceptions to this policy must be obtained in writing from Handspring
Quality prior to implementation.
4.6 DESIGN FOR MANUFACTURABILITY (DFM) AND VALUE ENGINEERING
4.6.1 Contract manufacturing suppliers shall conduct Design for
Manufacturability analysis for every new Handspring board design and/or
significant ECO. Other key suppliers should participate in these
reviews, as appropriate and/or conduct similar reviews for their
respective products.
4.6.2 Suppliers are expected to initiate and/or participate in periodic value
engineering efforts to reduce the current and future Handspring cost of
goods sold (COGS). The timing and content of this activity shall be
determined on a case by case basis.
4.7 AUTHORIZED VENDOR LIST (AVL)
4.7.1 Contract manufacturers and other partners who supply critical components
to Handspring must use Handspring's AVL, as required. Notification of
this requirement will be made in advance.
4.7.2 Handspring will consider AVL change recommendations from any supplier.
Change requests must be submitted in writing and approved by Handspring
prior to implementation.
4.7.3 Handspring reserves the right to refuse materials or require rework at
no additional cost of any materials supplied with non-AVL approved
content. This will be considered a serious offense and may have a
negative impact on the offending supplier relationship with Handspring.
4.8 PROCESS QUALIFICATION & CONTROLS
4.8.1 Handspring may require certain documentation from selected suppliers
prior to commencing production.
4.8.2 The following supporting documentation may be requested:
- Production process flow diagram
- Product qualification testing plan and results
- Supplier version of BOM's and AVL's used to produce Handspring
products
- Process characterization documentation [e.g. SMT stencil,
solder paste, SMT and through-hole reflow, board cleaning,
rework, etc.]
- Production test specifications and instructions, and
in-process quality plan
- Assembly process flow diagram
- Other documentation as appropriate
4.9 TEST/QUALITY DATA COLLECTION & REPORTING
4.9.1.1 Suppliers will be required to provide periodic test and inspection yield
information to Handspring, upon request. Typical test and inspection
results requested would be:
- Functional Test
- Environmental Stress Screening
- Incoming Inspection
- In-circuit Test
- In-Process Audit Results
- Test Failure Pareto Charts [debug/rework]
- Quality Inspection Pareto Charts
- Final Inspection Results
- Corrective Action Status
- Third Party Audit Results
4.9.1.2 Performance reporting charts and graphs should generically include the
following information:
- Goals: benchmarks of best in class performance
- Targets: interim goal for a given period
Handspring, Inc. CONFIDENTIAL
<PAGE> 17
- Actions: actions that are necessary to realize these
improvements with owners assigned and planned completion dates
- Progress: measured by relative improvements (delta) each
period
4.10 PRODUCT INSPECTION / PROCESS AUDITING
4.10.1 Handspring reserves the right to conduct planned and short notice
product inspection and/or process audits of supplier facilities engaged
in producing supplied parts or Handspring final products. These
activities would be conducted with prior notification of the respective
supplier. Discrepancies found during these audits will result in a
Corrective Action Request (CAR) (see Paragraph 4.11 below.)
4.11 RETURN MATERIAL AUTHORIZATION (RMA) PROCESSING
4.11.1 Handspring will contact suppliers with RMA requests via telephone,
e-mail and/or fax, depending upon the specific arrangements made.
4.11.2 Unless otherwise specified, suppliers shall provide RMA numbers to
Handspring within one workday (24 hrs.) from receipt of the request.
4.11.3 Suppliers shall repair or replace the defective part within five (5)
working days of receipt of the defective product.
4.11.4 Suppliers shall maintain records of all RMA requests and provide
in-process and completion status of Handspring RMA's.
4.12 CORRECTIVE ACTION REQUESTS (CARS)
4.12.1 Handspring will issue a Corrective Action Request (CAR) whenever a
discrepant product or unsatisfactory supplier process condition is
discovered. The CAR Form may be transmitted to the supplier via e-mail
or fax. (SEE APPENDIX B.)
4.12.2 The CAR Log and numbering system shall be administered by Handspring
Quality. CAR numbers shall be in the following format: XXX-MM/YY-ZZZ
[XXX= supplier abbreviation, ZZZ= sequential number]
4.12.3 Unless otherwise specified, suppliers shall acknowledge receipt and
provide a preliminary assessment and immediate corrective action of the
discrepancy within one working day (24 hrs.) of receipt. Unless
otherwise specified, the preventative measures shall be completed and
the documentation submitted no later than ten (10) working days of a CAR
receipt.
6.0 RECORDS
6.1 Handspring shall maintain Supplier Corrective Action Request records on
the document server for a minimum of one (1) year.
Handspring, Inc. CONFIDENTIAL
<PAGE> 18
SUPPLIER QUALITY PROCEDURE - APPENDIX A
RESPONSIBILITIES MATRIX
PRODUCT DEVELOPMENT PROCESS FLOW
Concept --------- Engineering --------- Design ---------A
Validation Validation
Test (EVT) Test (DVT)
A --------- Production
Validation --------- Volume --------- EOL
Test (DVT) Production
<TABLE>
<CAPTION>
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
CONCEPT EVT DVT PVT VOLUME EOL
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
"Manufacturing Manufacturing Define Finalize Ongoing Materials
Technology" Test Strategy manufacturing Manufacturing procurement & excess and
input process flow process flow scheduling of obsolescence
and materials plans
documentation
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Supply base DFX (Design For Procure Ensure all Inventory "Mothball" or
eval/development Everything) materials, volume control of sell tooling
for new technology Analysis build & test materials are materials in as appropriate
DVT units on order raw, WIP &
finished goods
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Identify key Identify Develop test Implement final Quarterly Execute final
Engineering and critical programs and Mfg Test Plans reviews of EOL spare
Manufacturing material fixtures (ICT, non-strategic parts buys
resources availability Functional and suppliers where
risks OBQ) appropriate
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Identify volume Establish Establish Qualify testers Monthly review EOL Field
manufacturing Preliminary AVL manufacturing in high volume of cost, Service &
facility capacity and manufacturing quality, & Warranty
flexibility facility delivery Support Plan
plans performance
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Preliminary Implement DFX Volume purchase Yield
cost estimate and cost contracts in improvement
(materials, reduction plans place initiatives
labor, O/H, (non-strategic
NRE, tooling, commodities)
etc.)
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Identify all Finalize BOM/AVL Verify Mfg Cost reduction
unique and/or Process QA & value
critical path Plans (SPC, engineering
mfg process training,
issues calibration,
etc.
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Electrical Finalize COGS Procure Flexibility
simulation/models (materials and materials, improvement and
transformation build and test E&O management
cost) PVT units in
volume facility
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Cost Reduction Ensure long Define Ongoing Implement ORT
& Value lead time Reliability Testing program
Engineering volume Testing (ORT)
materials are Plan
on order
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Evaluate EVT Supplier Qual Implement 2nd ECO
boards to gain and Incoming Sourcing Implementation
learning for Procedures Strategy for Process
future builds non-critical
commodities
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Service Repair Evaluate DVT Production Product
Planning boards for Readiness Review transition/EOL
future builds plan
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
</TABLE>
Handspring, Inc. CONFIDENTIAL
<PAGE> 19
[Handspring Logo]
HANDSPRING
SUPPLIER QUALITY PROCEDURE - APPENDIX B
CORRECTIVE ACTION REQUEST
--------------------------------------------------------------------------------
DATE: CAR#
------------------------------ ------------------------------------
SUPPLIER:
-----------------------------------
DISCREPANT MODEL/PART NUMBER: # PARTS AFFECTED
--------------- --------------------
WHERE USED (HIGHER ASSEMBLIES):
-------------------------------------------------
--------------------------------------------------------------------------------
PROBLEM STATEMENT:
--------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RECURRING PROBLEM? YES [ ] NO [ ]
---------------------------------------------
INITIAL ASSESSMENT (POSSIBLE CAUSES):
-------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHORT TERM CORRECTIVE ACTION:
---------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PREVENTIVE MEASURES:
------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INITIATED BY:
-----------------------------------------
RESPONSIBLE SUPPLIER REPRESENTATIVE: DATE RECEIVED:
----------------- -------------
INITIAL ASSESSMENT DUE DATE:
-------------------------
COMPLETION DUE DATE: ACTUAL COMPLETION DATE:
------------------------ -------------
--------------------------------------------------------------------------------
Please return hard or soft copy of completed form to Handspring Quality. You
will receive formal notification of closure upon satisfactory review of the
actions.
Handspring, Inc. CONFIDENTIAL
<PAGE> 20
ADDENDUM C
LONG LEAD TIME MATERIALS
At the time of this Agreement, no components, subassemblies, materials or
supplies have lead times greater than ninety (90) days. During the term of this
Agreement, Flextronics will notify Handspring in writing if lead times for any
components, subassemblies, materials or supplies exceed ninety (90) days.