SUPPLY AGREEMENT
This Supply Agreement ("Agreement") is entered as of December 1, 1999
("Effective Date") by and between Cygnus, Inc., a Delaware corporation, with its
principal place of business at 400 Penobscot Drive, Redwood City, California
94063 ("Cygnus"), and Key Tronic Corporation., a Washington corporation, with
its principal place of business at N. 4424 Sullivan Road, Spokane, Washington
99216 ("Key Tronic").
1. SCOPE OF AGREEMENT
A. This Agreement shall cover the purchase by Cygnus and the sale by Key
Tronic of one or more of the products identified in Exhibit A (the "Product"),
attached to this Agreement. Key Tronic agrees to manufacture the Product in
accordance with Cygnus' specifications and drawings set forth in Exhibit B (the
"Specifications"), attached to this Agreement. Exhibit B may be amended from
time to time by mutual written agreement of the parties. Key Tronic acknowledges
that (i) time is of the essence in the delivery of the Product and (ii) Product
quality is of critical importance to Cygnus. Failure of Key Tronic to supply
Product as specified shall be grounds for termination of this Agreement by
Cygnus.
B. Whenever Cygnus wishes to purchase the Product from Key Tronic, Cygnus
shall issue its purchase order which shall reference this Agreement and shall be
construed to have incorporated the terms and conditions hereof. Purchase orders
issued by Cygnus shall include the part number, description of the Product,
quantity, unit price and requested delivery date for the Product.
C. Cygnus will notify Key Tronic if it wishes to add a new Product to this
Agreement. The parties shall then proceed to establish pricing and delivery
schedules for each such new Product. Upon agreement of these items, such Product
shall be considered Product under this Agreement.
2. TERM
This Agreement shall commence on the Effective Date set forth above and will be
for a term of three (3) years, unless terminated as otherwise provided herein.
During the term of this Agreement Cygnus agrees to purchase from Key Tronic,
Product in accordance with the Exhibit C, attached to this agreement.
3. PRICE AND PAYMENT
A. PRICES. The prices for the Product are set forth in Exhibit C, attached
to this Agreement. Prices will not change for the term of this Agreement except
for the following reasons:
(1) For price changes to extraordinary raw material as listed in
Exhibit C; any extraordinary price adjustments due to cost fluctuations (up or
down) to such raw material will be effective on January 1st of each year during
the term of this Agreement and will be based on costs actually paid by Key
Tronic as evidenced by actual invoices or quotations made available for Cygnus'
review.
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(2) Changes in design, materials, or requirements made by Cygnus.
(3) PRODUCTIVITY. Commencing on [CONFIDENTIAL TREATMENT REQUESTED] Key
Tronic will implement a continuous productivity program with the
objective of achieving actual cost reductions as set forth in Exhibit
C. The productivity projects will be jointly agreed on by both parties
and involve the following types of activities:
(a) manufacturing process improvements;
(b) the Key Tronic's involvement in the design process to
ensure manufacturability;
(c) target saving for materials/design;
(d) review of processes and equipment to ensure quality
and cost;
(e) joint efforts to plan inventory levels;
(f) reduced overhead rates; and
(g) improved layout and alternative packaging.
B. TAXES. Prices do not include applicable U.S. federal or state sales or
use taxes which shall be paid by Cygnus, unless an exemption is available, if
separately indicated on the invoice for the applicable Product shipment.
C. INVOICING. Invoices will be submitted by Key Tronic to the Cygnus
location indicated on purchase orders. Invoices will reference Cygnus' purchase
order number and will contain such other information as Cygnus may request.
Invoices are to be submitted upon shipment of the Product. Payment for
acceptable Product will be made by Cygnus within thirty-five (35) calendar days
of receipt of invoice. Any invoice not paid within thirty five (35) calendar
days from receipt of invoice or Product, whichever is later, shall be subject to
a late charge of [CONFIDENTIAL TREATMENT REQUESTED] per month of the invoice
amount.
4. VALUE ENGINEERING
Key Tronic agrees to explore and identify cost reduction opportunities in the
Product in addition to those set forth in Section 3. Cygnus and Key Tronic agree
to share equally, all cost reductions once all price increases for raw materials
have been offset.
5. PURCHASE ORDERS
On the first day of each month during the term of this Agreement, Cygnus shall
issue its written purchase order to Key Tronic for the current month for
purchase of the Product. Purchase orders may be issued by EDI, facsimile or via
U.S. mail. Purchase orders shall not be binding on Key Tronic until acknowledged
in writing by Key Tronic. Such acknowledgement shall be made within five (5)
business days of receipt by Key Tronic; otherwise the purchase order shall be
deemed binding on Key Tronic. In addition, purchase orders shall contain the
following data:
(1) Purchase Order number and date;
(2) Description, quantity and price of Product;
(3) Date and Location of delivery; and
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(4) Mode of shipment.
6. DELIVERY AND SHIPPING TERMS
Subject to Section 10 hereof, Key Tronic shall deliver Product to Cygnus'
facility to meet the delivery dates requested by Cygnus in its purchase orders,
which in no event shall be less than the lead times for the Product as set forth
in Exhibit A. Delivery of the Product shall be F.O.B. Key Tronic's facility,
freight collect. The price of all Product shall exclude transportation charges.
Transportation charges will be the responsibility of Cygnus and shall be billed
directly to Cygnus by carrier. Key Tronic shall use Cygnus' designated contract
carriers which are indicated on the purchase order. Risk of loss of the Product
shall pass to Cygnus upon delivery to the designated carrier at Key Tronic's
facility.
7. FORECASTS, BINDING PURCHASE ORDERS AND BUFFER STOCK
A. Cygnus shall provide Key Tronic on a monthly basis a non-binding three
month rolling forecast. Key Tronic is authorized to rely on the forecasts to
order, purchase and otherwise make available within normal acquisition cycles in
existence from time to time as determined by Key Tronic in its reasonable
judgment parts and materials required for incorporation into forecasted Product.
B. Key Tronic agrees to maintain an inventory of stock sufficient to
provide Cygnus an additional [CONFIDENTIAL TREATMENT REQUESTED] of Product over
and above the stock necessary to meet Cygnus' forecasted requirements of
Product.
8. ORDER CANCELLATION AND RESCHEDULING
A. Cygnus may cancel any purchase order for Product by giving Key Tronic
written notice of at least the number of days specified for the given products
in Exhibit A, prior to the scheduled delivery date. Upon cancellation of a
purchase order Cygnus agrees to pay the cancellation charges set forth in
Exhibit C.
B. Cygnus may reschedule the delivery of any purchase order for Product by
giving Key Tronic written notice in advance of scheduled delivery, according to
the terms for the product in Exhibit A. Cygnus agrees to pay a rescheduling
charge for every purchase order that is rescheduled to cover Key Tronic's
documented material holding costs and production line utilization costs.
9. CHANGES
A. KEY TRONIC CHANGES. Key Tronic agrees that it will not make any changes
in: (i) Product, (ii) specified qualified suppliers for all components, (iii)
engineering or manufacturing processes, or (iv) the approved manufacturing
facility, without the prior written approval of Cygnus. In the event Key Tronic
does make an unapproved change, then Cygnus shall have the right to cancel the
purchase orders for such Product at no liability to Cygnus if not corrected
within thirty (30) days of written notice by Cygnus.
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B. CYGNUS CHANGES. When a change to the Product is required by Cygnus,
Cygnus shall provide Key Tronic the applicable documentation, specifications and
requested effective date of such change. Key Tronic shall respond within ten
(10) working days after receipt of such change, advising Cygnus as to (i)
implementation and the effective date of such change, (ii) associated costs and
effect to on-hand materials, (iii) on-order materials, work in process, and (iv)
the impact of the change upon existing Product pricing and shipment schedules
for the entire period for which purchase orders are outstanding.
10. CONSIGNMENT OF MATERIAL
A. Cygnus shall deliver on consignment to Key Tronic certain material
listed in Exhibit D, attached to this Agreement, for the sole purpose of
incorporation by Key Tronic into the Product (the "Consigned Material"). All
such Consigned Material shall remain the sole property of Cygnus and Key Tronic
shall not pledge or otherwise encumber such Consigned Material. Key Tronic shall
keep all Consigned Material in the same safe manner as its own procured material
and apply the same security measures to it. Key Tronic shall maintain full
replacement value insurance coverage for all Consigned Material. Key Tronic
agrees to assume liability for all losses of the Consigned Material while in Key
Tronic's possession, including scrap in excess of the range set forth in Exhibit
C, except losses due to passage of shelf life.
B. Cygnus may require Key Tronic to perform, at Cygnus' expense,
acceptance testing on Consigned Material. This testing will be performed in
accordance to the Specifications as set forth in Exhibit B and the Quality
Agreement set forth in Exhibit E.
11. WARRANTY
A. Key Tronic warrants that all Product furnished hereunder shall be free
from defects in material (excluding Consigned Material to the extent that Key
Tronic does not perform any acceptance testing) and workmanship, and shall
conform to all Specifications, samples and descriptions referred to in this
Agreement and in Cygnus' Purchase Order(s). Additionally, Key Tronic warrants
that it has good title to the Product supplied (other than Consigned Material),
and that the Product supplied are free and clear from all liens and
encumbrances. These warranties shall survive acceptance and payment by Cygnus.
B. If, within [CONFIDENTIAL TREATMENT REQUESTED] from date of manufacture,
such Product fails to conform to the warranties set forth above, Cygnus shall
have the right to return the Product to Key Tronic with all charges for
transportation both ways to be Key Tronic's responsibility. Key Tronic shall
repair, replace, or correct the defect(s), and/or non conformance at no cost to
Cygnus within ten (10) days following receipt thereof. In the event such failed
Product is found during automated processing at Cygnus, it may be rendered scrap
and will be accounted for by Cygnus and reported to Key Tronic. At periodic
intervals, scrap reports will be generated by Cygnus and sent to Key Tronic. At
the request of Key Tronic the scrap material will be sent to Key Tronic. Key
Tronic will credit Cygnus for this failed Product.
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12. QUALITY
A. Cygnus intends to, from time to time, and without notice to Key Tronic,
subject samples of the Product to be purchased hereunder to qualification tests,
which will consist of sufficient testing to ensure that the Product meets all
the requirements of this Agreement and purchase orders. Cygnus shall notify Key
Tronic of any deficiencies indicated by the testing and Key Tronic shall, at Key
Tronic's expense, take appropriate corrective action. Design responsibility
shall remain solely with Cygnus and any costs associated with design deficiency
shall be borne by Cygnus.
B. If Key Tronic fails to satisfactorily correct any and all deficiencies,
except deficiencies which are the responsibility of Cygnus, discovered in
Cygnus' qualification testing within a reasonable time after receipt of notice
from Cygnus, Cygnus shall have the right to cancel all or any portion of its
purchase orders for said discrepant Product without charge or billback and
without further obligation or liability to Key Tronic relating to that Product.
C. Cygnus shall have the right to conduct a source inspection or process
control audit at Key Tronic's facility at any time prior to delivery of the
Product. Any such inspection or audit shall in no way relieve Key Tronic of its
obligations to comply in all respects with the terms of this Agreement.
D. Product will be made in accordance with the Quality Agreement attached
hereto as Exhibit E, and Key Tronic will maintain ISO 9002 certification and
will comply with all applicable U.S. Federal Drug Administration (FDA) Code of
Federal Regulations.
13. INDEMNITY AND INSURANCE
A. Each party shall defend, indemnify and hold harmless the other party from and
against all damages, claims or liabilities and expenses (including attorney's
fees) arising out of or resulting in any way from any act or omission of the
indemnifying party, its agents, employees or subcontracts. With respect to Key
Tronic, the indemnification obligations in this Section shall include, but not
be limited to claims arising out of or resulting in any way from (a) a
manufacturing defect in the Product; (b) Key Tronic's non-compliance with
Cygnus' Specifications; or (c) Key Tronic's breach of any of the provisions of
this Agreement. With respect to Cygnus, the indemnification obligations in this
Section shall include, but not be limited to, claims arising out of or resulting
in any way from (a) a design defect, (b) Cygnus' Specifications as provided to
Key Tronic under this Agreement; or (c) Cygnus' breach of any of the provisions
of this Agreement.
B. Additionally, Key Tronic agrees, solely at its expense, to indemnify and
defend any suit or proceeding brought against Cygnus, its affiliates or their
customers because of any Product based on a claim (of which claim timely notice
shall have been given to Key Tronic) that said Product constitutes an
infringement of any patent, copyright, trade secret or any other proprietary
right, strictly limited to the processes and materials which Key Tronic has
control over, and Key Tronic agrees to defend, hold harmless and indemnify such
parties, for all damages, liabilities, costs and expenses (including reasonable
attorney's fees) arising from any such claim. Key Tronic agrees to either
procure for Cygnus the right to continue selling and/or using said Product; or
to replace said
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Product with non-infringing Product; or to modify it so that it becomes
non-infringing. The provisions of this section shall not apply to any claim for
infringement resulting solely from Key Tronic's compliance with Cygnus'
Specifications or to the Consigned Material supplied by Cygnus, and in such
event, Cygnus agrees, solely at its expense, to indemnify and defend any suit or
proceeding brought against Key Tronic. .
C. During the Term, Key Tronic and Cygnus each will purchase and
maintain in full force and effect, with a responsible insurance carrier,
having Best's ratings of A-VIII or greater, a comprehensive Product liability
insurance policy in amounts typical in the medical devices industry. At the
time of execution of this Agreement, Key Tronic and Cygnus will exchange
Certificates of Insurance. Each party shall keep such policy current. Each
such insurance policy shall provide for at least thirty (30) days' prior
written notice to Cygnus and Key Tronic of the cancellation or any
substantial modification of the terms of coverage.
14. TERMINATION
A. TERMINATION FOR CAUSE
(1) This Agreement may be terminated immediately for cause by
either party in the event the other party (i) becomes insolvent or
bankrupt, or (ii) ceases to function as a going concern or to conduct
its operation in the normal course of business, or (iii) fails to
perform any of the obligations imposed upon it under the terms of this
Agreement so as to be in default hereunder and fails to cure such
default within thirty (30) days after written notice.
(2) Notwithstanding the termination of this Agreement, the parties
will honor any of Cygnus' purchase orders which have been acknowledged
by Key Tronic.
B. SETTLEMENT OF TERMINATION CLAIMS
(1) Cygnus shall pay Key Tronic the following amounts within
thirty (30) days after termination of this Agreement:
(a) The price for all Product completed (which items were
delivered or available for delivery at the time notice of termination
was given) and not previously paid for by Cygnus only to the extent
such completed Product does not exceed any binding purchase orders;
(b) The actual, documented costs incurred related to the
terminated portion of the Agreement, including, only to the extent that
any components, materials and other inventory cannot be used in any of
Key Tronic's non-Cygnus Product: (1) Key Tronic's cost of work in
process materials, and (2) all components, materials and other items on
hand or on order but not yet received by Key Tronic to meet Cygnus'
forecasts for Product and which Key Tronic is unable to cancel; and
(c) the Key Tronic's actual on-hand buffer inventory but no more
than the amount
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identified in Section 7, and
(d) In the event the agreement is terminated due only to Cygnus'
uncured default, Key Tronic's cost of production line(s) shut down will
be limited to immediate and direct severance costs for employees
affected by the reduction, and the un-depreciated value of any
equipment, tooling, fixtures purchased for, and exclusive to, the
Product production process. Equipment, tooling, and fixtures purchased
for, and exclusive to, the Product production process will be
transferred to Cygnus upon payment.
C. Notwithstanding the foregoing, payments made under Section 14 B above
shall in no event exceed the aggregate price specified in the terminated portion
of the Agreement less payments otherwise previously made.
15. OWNERSHIP AND CONTROL OF MARKS
A. Cygnus may require Key Tronic to affix one or more of Cygnus'
trademarks or tradenames (the "Marks") to the Product. The Marks shall be
applied only in accordance with Cygnus' instructions. Key Tronic recognizes the
value of the goodwill associated with the Marks and acknowledges that the Marks,
and all rights therein, belong exclusively to Cygnus.
B. This Agreement shall not be construed as a grant of a license or an
assignment to Key Tronic of any right, title and/or interest in and to the
Marks. The Marks are and shall remain the exclusive property of Cygnus and at no
time shall Key Tronic acquire property rights or any interests therein.
C. As between the parties, Cygnus shall own all rights, title, and
interest in the Product, including without limitation, all patent rights,
copyrights, trade secret rights, mask work rights and other rights throughout
the world, collectively, "Proprietary Rights".
16. CONFIDENTIALITY
A. Each party agrees that all code, inventions, algorithms, source code,
schematics, test vectors, list of suppliers, know-how and ideas and all other
business, technical and financial information it obtains from the other which is
identified in writing as "Confidential" or "Proprietary" are the confidential
property of the disclosing party ("Proprietary Information" of the disclosing
party). Except as expressly allowed herein, the receiving party will hold in
strictest confidence and not use or disclose any Proprietary Information of the
disclosing party, shall take reasonable protective measures to insure same (and
at least the same measures it takes for its own Proprietary Information) and
shall similarly bind its employees in writing. The receiving party shall not be
obligated under this section with respect to information the receiving party can
document:
(1) is or has become readily publicly available without
restriction through no fault of the receiving party or its employees
or agents; or
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(2) is received without restriction from a third party lawfully in
possession of such information and lawfully empowered to disclose such
information; or
(3) was rightfully in the possession of the receiving party
without restriction prior to its disclosure by the other party; or
(4) was independently developed by employees or consultants of the
receiving party without access to such Proprietary Information; or
(5) is required to be disclosed by law or order of a court.
B. If either party breaches any of its obligations with respect to
confidentiality, the other party shall be entitled to equitable relief,
including specific performance or an injunction, in addition to any other rights
or remedies, including money damages provided by law.
C. During the term of this Agreement, Key Tronic will not directly or
indirectly engage in (or assist or encourage others in) the Diagnostics Field.
"Diagnostics Field" shall mean all applications for the detection of glucose in
connection with the diagnosis and treatment of diabetes in humans; however
currently available, whether through publication or commercialization, invasive
diagnostics applications are not included within the definition of "Diagnostics
Field."
17. LIMITATIONS ON WARRANTY AND LIABILITY
A. Except as expressly provided in this Agreement, Key Tronic disclaims
all other warranties, express or implied, or arising by course of dealing or
performance, custom, usage in the trade or otherwise, including without
limitation the implied warranties of merchantability, title and fitness for a
particular use.
B. In no event, whether as a result of breach of contract or otherwise,
shall either party be liable to the other party for any special, incidental,
consequential, or exemplary damages of any kind whether or not the other party
has been advised of the possibility of such damages.
18. GENERAL
A. CONFLICTING TERMS. The parties agree that the terms and conditions of
this Agreement shall prevail, notwithstanding contrary or additional terms in
any purchase order, sales acknowledgment, confirmation or any other document
issued by either party affecting the purchase and/or sale of Product.
B. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes all prior
agreements relating thereto, written or oral, between the parties. Amendments to
this Agreement must be in writing, signed by the duly authorized agents of the
parties.
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C. ASSIGNMENT. Key Tronic may not assign or transfer, in whole or in part,
this Agreement or any of its rights or obligations arising hereunder without the
prior written consent of Cygnus.
D. COMPLIANCE WITH LAWS. Key Tronic warrants that in performance of work
under this Agreement it has complied with or will comply with all applicable
federal, state, local laws and ordinances enacted, including, but not limited
to, all laws which regulate any material because it is radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment. In
addition, Key Tronic shall secure and maintain adequate worker's compensation
insurance in accordance with the laws of the state or states from which Key
Tronic shall furnish Product for Cygnus. Upon request, Key Tronic agrees to
issue certificates certifying compliance with any of the aforementioned laws or
regulations as may be applicable to the Product being furnished hereunder.
E. CONTROLLING LAW. This Agreement shall be governed, controlled,
interpreted and defined by and under the laws of the State of California without
regard to the conflicts of laws provisions thereof.
F. RELATIONSHIP OF THE PARTIES. In fulfilling its obligations under this
Agreement, each party shall be acting as an independent contractor. This
Agreement does not make either party the employee, agent or legal representative
of the other.
G. SURVIVORSHIP. The terms and obligations of Sections 11, 13, 15, and 16,
17, and 18, as well as all applicable definitions shall survive termination or
expiration of this Agreement. Remedies for all breaches hereunder will also
survive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CYGNUS, INC. KEY TRONIC CORPORATION
By: /s/ Barbara G. Mcclung By: /s/ Ronald F. Klawitter
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Barbara G. McClung Ronald F. Klawitter
- --------------------------------------- -----------------------------------
Printed Name Printed Name
Title: Senior. Vice President and General Counsel Title: Exec. Vice President of
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Administration, CFO & Teas.
Date: 1/12/00 Date: January 20, 2000
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EXHIBIT A
PRODUCTS AND LEAD TIMES
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT B
SPECIFICATION
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT C
SENSOR ASSEMBLY WEB PRICING
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT D
CONSIGNED MATERIAL
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT E
QUALITY AGREEMENT
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