Manufacturing Service Agreement

EXHIBIT 10.9


CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. OMITTED INFORMATION HAS BEEN REPLACED BY [*].


FLEXTRONICS MANUFACTURING IRELAND AND STORAGE SYSTEMS INC. EUROPE
MANUFACTURING SERVICE AGREEMENT


SECTION 0.0 PREFACE AND PARTIES


This Manufacturing Service Agreement ("Agreement") is made and entered into as of 4 August 2000 by and between Flextronics International Cork B.V. Ireland (FIC), a division of Flextronics International, having its place of business at Kilbarry Industrial Park, Dublin Hill, Cork, Ireland and LSI Storage Systems Europe Holdings, Ltd. (SSE) having its place of business at Kilbarry Industrial Park, Dublin Hill, Cork, Ireland; SSE being a division of LSI Logic Storage Systems, Inc., a Delaware corporation, with a place of business located at 3718 North Rock Road, Wichita, KS 67226-1397 USA (LSI-SSI).


RECITALS


WHEREAS, SSE desires to have FIC procure Components (as defined below) manufacture, assemble and ship certain Product Units (herein defined) pursuant to one or more Purchase Orders (hereinafter defined) issued by SSE in accordance with this Agreement; and


WHEREAS, FIC desires to procure, manufacture, assemble and ship such Product Units for SSE hereunder;


NOW, THEREFORE, SSE and FIC, intending to be legally bound, hereby agree as follows:


SECTION 1.0 DEFINITIONS


Definitions. The following terms, in singular and/or plural forms of the same term as and wherever used herein, shall have the meanings set forth in this Section:


1.1 "BOM" shall mean SSE's bill of materials which includes a listing or reference for the Components included in or required for the manufacture or assembly of the Product Units based on their Specifications. Generic or staple Components may be provided for in general terms sufficient to give SSE an estimate of approximate cost.


1.2 "Components" shall mean parts, materials, and supplies procured for, included in or required for each Product Unit, as provided in the BOM for such Product Unit. The Components will include all equipment or intellectual Property Rights included in or required for each Product Unit. Components may be manufactured by or for FIC (FIC Components) from SSE's approved vendor list or obtained from or through SSE (SSE Components), if so indicated in the BOM for the Product Units.


1.3 "Days" shall mean Calendar days unless otherwise specified, provided that if a deadline fails on a Saturday, Sunday or holiday, it shall be extended until the following regular business day.


1.4 "Delivery" shall mean delivery of Product Units, FOB FIC's facility.


1.5 "Intellectual Property Rights" shall mean any rights under patent, semi-conductor chip protection, copyright, trade secret, trademark, or similar laws which would restrict the manufacture, assembly, or distribution of the Product Units or the subsequent use, sale, or repair of the Products as purchased by SSE from FIC hereunder.


1.6 "Manufacturing and Design Documentation" shall mean materials and media provided to FIC by SSE or third-party contractors, suppliers, or licensors acting at SSE request or created by SSE or third-party
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contractors, suppliers, or licensors acting at SSE request, in each case specifically for use in the manufacture and assembly of Product Units hereunder, including but not limited to drawings, routings, BOMs, schematics, circuit diagrams, Specifications, and test documents.


1.7 "Excess Material" shall mean Components on hand that are no longer needed for current production of SSE's Product Units or that there is no SSE open Purchase Order for the following [*] or valid forecast for the following [*].


1.8 "Material(s)" shall mean Components identified in the BOM which are collectively used to produce the Product Unit(s).


1.9 "Manufacturing Lead Time" shall mean the total aggregate lead time of that Component of the Product Unit having the longest lead time, plus the time necessary for receiving, inspection, manufacturing, systems integration, test and distribution as designated by FIC.


1.10 "NRE" shall mean nonrecurring charges for special development or other activities listed under this designation in a Statement of Work.


1.11 "Obsolete Material" shall mean Materials on hand and non-cancelable FIC order that can no longer be used on SSE's Product Unit(s) and are not returnable nor useable on FIC production for other customers.


1.12 "Purchase Order" shall mean an order to purchase a specific quantity of a Product Unit submitted by SSE and accepted by FIC, in accordance with, and which shall specifically reference this Agreement. Such Purchase Order shall include the quantity and type of Product Units to be manufactured and purchased; the unit price; the Product Unit revision level; scheduled delivery dates (unless submitted on open delivery terms); and "sold to", "invoice to", and "ship to" addresses. The terms of this Agreement shall control over any printed terms on a Purchase Order, acknowledgement, confirmation, or invoice.


1.13 "Product Unit" shall mean the product identified by SSE's part number or assembly identification name specified in its Purchase Order issued under this Agreement as more fully described in SSE's Specifications including any and all modifications, changes and improvements made to such Product Unit during the term of this Agreement, which comprises the integrated unit described in each Statement of Work. There can be multiple versions of a Product Unit, based on differences provided for under BOMs and Statements of Work.


1.14 "Specifications" shall mean the description of the Product Unit, as provided through detailed drawings, an approved vendor list, in process and final test criteria, or similar documentation.


1.15 "Statement of Work" shall mean a document relating to a particular Product Unit, documented and agreed on by FIC and SSE, which refers to the Specifications for the Product Unit that FIC agrees to manufacture or assembly pursuant to Purchase Orders SSE may submit hereunder. If multiple versions of a Product Unit are contemplated, an initial Statement of Work may give a generalized description or provide sample specifications and leave the detailed specifications of each version to the terms of further BOMs, Statements of Work, or ordering procedures. Price terms, packaging, and applicable testing procedures for each Product Unit will be set forth in a Statement of Work. A Statement of Work may include minimum volume purchase commitments to be satisfied through future Purchase Orders. A Statement of Work may be implemented by reference to a new or changed BOM. A Statement of Work may provide for special packaging or logo requirements.


SECTION 2.0 AGREEMENT TO MANUFACTURE


2.1 Scope of Work. FIC shall procure and manufacture Components and sell the resulting Product Units to SSE, and SSE shall order and purchase Product Units, as specified on Exhibit A, from FIC in accordance with the terms and conditions of this Agreement.


2.2 Specifications. SSE shall have primary responsibility for the preparation of the Specifications for the Product Units, and shall provide FIC with copies of preliminary, working draft, and completed portions of the Specifications for review. The parties agree to cooperate with each other to implement changes to the


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Specifications made by SSE from time to time. The parties shall jointly review the impact of such changes, and, in the event FIC believes that any such change will affect the work performed by FIC under this Agreement, it shall notify SSE and advise SSE of any such effect, including any impact on the manufacture or assembly of the Product Unit, design considerations, and/or the costs to be incurred by FIC and SSE as a result of such changes. A description of the then-current Product Units and their Specifications shall be attached as Exhibit B. SSE agrees to purchase from FIC all Products Units manufactured in accordance with the terms of this Agreement.


2.3 Project Coordination. Each party shall appoint technical coordinators to maintain technical liaison with the other party in connection with the manufacture of the Product Units. Communication between the parties regarding the design or engineering of the product shall be between the designated coordinators.


2.4 Consigned Materials. Upon agreement with FIC, SSE may supply consigned materials to FIC. All consigned materials will be delivered to FIC in sufficient time and in sufficient quantities, including normal attrition levels, to allow FIC to meet scheduled delivery dates for the applicable Product Units. All consigned materials shall be in good condition and working order. SSE assumes liability for the quality of all consigned materials and FIC shall not be responsible for any defects or deficiencies therein prior to consigned materials undergoing FIC's receiving inspection process for cosmetic inspection or parts found to be defective based on test results.


SECTION 3.0 PURCHASE ORDERS/FORECASTS AND RESCHEDULING & CANCELLATIONS


3.1 Forecasts. On a [*] basis, SSE shall provide FIC with a minimum [*] forecast of Product Unit requirements. This forecast is to be used for Component procurement purposes. SSE hereby authorizes FIC, and FIC shall be required to make such purchases as are reasonably necessary to meet SSE's forecast. SSE will be responsible for all Excess Material and/or Obsolete Material as defined within the terms of this Agreement. FIC shall make Component purchase commitments to suppliers as are reasonably necessary to meet SSE's forecasts taking into consideration the Manufacturing Lead Time of the actual Components.


3.2 Purchase Orders. SSE will order Product Units by issuing Purchase Orders to FIC. Each Purchase Order shall cover SSE's estimated requirements derived from the Forecast, for a period of at least [*]. Purchase Orders may be delivered to FIC by any reasonable means, including but not limited to postal delivery, courier delivery, facsimile transmission, or electronic mail. Purchase Orders, regardless of delivery means, will be confirmed by FIC. No Purchase Order shall be binding upon FIC unless and until it is accepted by FIC in writing. Within [*] of receipt of a Purchase Order, FIC shall either accept or reject the same. If FIC is unable to meet the delivery schedule set forth in a Purchase Order or finds the same to be unacceptable for some other reason, FIC and SSE shall negotiate in good faith to resolve the disputed matter(s).


3.3 Purchase Order Releases. SSE shall issue FIC firm Purchase Order releases a minimum of [*] prior to the required delivery date based on accepted forecasts. FIC will use reasonable efforts to meet increases within the Manufacturing Lead Time if the Purchase Order Release is net based on accepted forecasts.


3.4 Rescheduling of Released Orders. FIC agrees to use its best efforts to accommodate requests for rescheduling (acceleration and delay) and before accepting such rescheduling requests will quote applicable charges resulting from changes in costs associated with such rescheduling SSE may reschedule delivery of Product Units by sending FIC a written change order. Deliveries may be rescheduled in accordance with the schedule contained in Exhibit C attached to this Agreement.


3.5 Cancellations. In the event that SSE wishes to cancel some quantity of Product Units ordered pursuant to this Agreement, FIC upon receipt of such written notice shall stop work to the extent specified therein. SSE's termination liability shall be limited to the terms set forth in Exhibit C attached to this Agreement.


3.6 Cancellation Charges. As specified in Exhibit C, with respect to canceled Purchase Orders, SSE agrees to pay FIC: a) for Components (other than items provided or paid for by SSE acquired solely for the execution of such Purchase Order), and FIC's out-of-pocket costs for such Components, minus amounts
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saved as a result of any return, reuse, or sale; and b) for completed work and work in progress that cannot be used to fill other orders, FIC's costs for actual and reasonable labor and supplies incurred pursuant to SSE's Purchase Orders up to the date of receipt of notice of cancellation. In no event shall cancellation charges set forth in Exhibit C exceed the price of the Components and/or the Product Units, as the case may be, covered by the canceled portion of the Purchase Order.


Obligations for payment for NRE, as set forth in Statements of Work or Purchase Orders, are not subject to reduction unless associated costs can be actually avoided. If such cost can be avoided, all reasonable effort will be made to minimize such cost and to reduce the requirement payments in an equitable manner. FIC will provide SSE with documentation adequate to support such claim for cancellation charges. Components and completed work and work in progress that are paid for by SSE pursuant to such cancellation charges shall be SSE's property and shall be held or delivered to SSE as SSE may request.


Notwithstanding the foregoing, SSE shall have no obligation to pay cancellation charges where cancellations are the result of any failure of FIC to perform its obligations under this Agreement.


SECTION 4.0 PAYMENT AND SHIPPING TERMS


4.1 Invoices and Payment. FIC may invoice for Product Units upon completion and shipment of such Product Units pursuant to Purchase Orders. To the extent FIC is entitled to do so under a Statement of Work, FIC may invoice for NRE and associated charges, if any, as set forth in such Statement of Work, upon commencement of production or as otherwise set forth in the applicable Statement of Work. Payment is due [*] from date of invoice, and payment shall be made by wire transfer or as otherwise agreed upon. In the event SSE fails to make payment within [*] after date of invoice, FIC may, at its option, unless the invoice is in dispute, (1) cease shipments to SSE immediately and/or 2) make a good faith effort to expedite the resolution of the dispute.


4.2 Packaging and Shipping. FIC shall package each Product Unit to SSE's Specifications, or, if not specified by SSE, to good commercial standards. All shipments made by FIC to SSE shall be F.O.B. FIC. Title, risk of loss and damage shall pass from FIC to SSE upon delivery to the F.O.B. point. Shipments will be made in accordance with SSE's specific routing instructions, including method of carrier to be used, and all special and incidental charges resulting from the choice of freight carrier shall be borne by SSE.


4.3 Security Interest. FIC may request, and SSE in its sole discretion may grant, a purchase money security interest in each of the Product Units (except to the extent such Product Units embody Consigned Materials) produced pursuant to this Agreement in the amount of its purchase price. This interest will be satisfied by payment in full for the Product Units. A copy of this Agreement and/or appropriate UCC documents may be filed on FIC's behalf with appropriate state authorities at any time after signature by SSE as a financing statement in order to perfect FIC's security interest. SSE agrees to execute any and all such documents necessary to perfect said purchase money security interest.


4.4 Taxes. SSE shall be responsible for sales, use, or custom taxes or duties resulting from the sale or shipment of Product Units in accordance with its Purchase Orders. SSE shall provide tax exemption numbers, if applicable, for such purchases.


SECTION 5.0 WARRANTY


5.1 Warranty. FIC warrants to SSE that Product Units assembled or manufactured by FIC will (i) conform in all respects to their mutually agreed upon Specifications: (ii) will be merchantable, of good workmanship and be tree from defects in workmanship and programming under normal use and service for a [*] after shipment by FIC. FIC's obligation under this warranty is limited to promptly replacing or repairing at its option and expense any such non-compliance Product Unit(s), or paying SSE its cost of remedying such non-compliance. All defective Product Units shall be returned to FIC manufacturing facility, F.O.B. SSE, with reference to a FIC supplied Returned Materials Authorization number ("RMA"). The foregoing warranties shall inure to SSE, its successors and assigns, and those who purchase or use each Product Unit.


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THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR PARTICULAR PURPOSE AND FOR ALL OTHER OBLIGATIONS OR LIABILITIES
ON FIC'S PART.


FIC NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR FIC ANY OTHER LIABILITY IN CONNECTION WITH THE SALE OF THE SAID ITEMS. THIS WARRANTY SHALL NOT APPLY TO ANY OF SUCH PRODUCTS WHICH SHALL HAVE BEEN REPAIRED OR ALTERED EXCEPT BY FIC OR WHICH SHALL HAVE BEEN SUBJECT TO MISUSE, NEGLIGENCE, OR ACCIDENT. A PRIOR WRITTEN AUTHORIZATION MUST BE OBTAINED FROM FIC BEFORE ANY ITEMS CAN BE RETURNED TO FIC PURSUANT TO A WARRANTY CLAIM.


SECTION 6.0 RESPONSIBILITY FOR ADDITIONAL COSTS AND EXCESS INVENTORY


6.1 Excess Inventory. In the event that FIC purchases or orders Components and related materials in order to meet its obligations to SSE's with respect the quantity of Product Units specified in the Forecast and/or a Purchase Order(s), SSE shall be required to purchase the unused portion of Components and related materials at [*], from FIC upon notice, [*]: if (i) SSE fails to purchase such Product Units in accordance with Purchase Orders(s); and (ii) FIC using best efforts cannot return, or cancel or use the Components or related materials. The total cost to be borne by SSE shall not exceed the unit cost of the Components and any related materials, multiplied by the quantity in excess plus a [*] handling fee.


6.2 Additional Costs. Product Unit pricing shall remain firm for Product Units ...