SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the
quarterly period March 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the
transition period from _____ to _____.
Commission File No. 0-22428
ZYTEC CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1465891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7575 MARKET PLACE DRIVE, EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip Code)
(612) 941-1100
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and, (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of May 2, 1997, there were outstanding 9,322,642 shares of the registrant's
common stock, no par value.
ZYTEC CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of March 30, 1997 and
December 31, 1996 3
Statements of Operations for the three
months ended March 30, 1997 and
March 31, 1996 4
Statements of Cash Flows for the three months
ended March 30, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL
CONDITION 9-11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZYTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 1997 AND DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
March 30, December 31,
1997 1996
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,705 $ 8,535
Accounts receivable 34,280 26,213
Inventories 23,073 20,776
Other current assets 3,469 3,182
-------- --------
Total current assets 67,527 58,706
Property, plant and equipment, net 20,371 19,985
Deferred income taxes 2,845 3,067
Other assets 1,650 1,719
-------- --------
Total assets $ 92,393 $ 83,477
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt and capital lease obligations,
current portion $ 8,231 $ 8,997
Accounts payable 16,449 11,486
Accrued expenses 10,100 7,279
-------- --------
Total current liabilities 34,780 27,762
Debt and capital lease obligations,
less current portion 20,369 20,861
Other liabilities 1,907 1,867
-------- --------
Total liabilities 57,056 50,490
-------- --------
Commitments
Stockholders' equity:
Common stock, no par value:
25,000,000 shares authorized,
9,280,303 and 9,167,104 shares
outstanding at March 30, 1997 and
December 31, 1996, respectively 13,629 13,271
Retained earnings 22,769 20,166
Foreign currency translation adjustments (1,061) (450)
-------- --------
Total stockholders' equity 35,337 32,987
-------- --------
Total liabilities and stockholders' equity $ 92,393 $ 83,477
======== ========
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
<CAPTION>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 30, 1997 AND MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 30, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 57,598 $ 61,087
Cost of goods sold 47,650 53,141
------------ ------------
Gross profit 9,948 7,946
------------ ------------
Other revenue 608 353
------------ ------------
Operating expenses:
Selling, general and administrative 2,894 2,460
Research and development 2,630 2,390
------------ ------------
Total operating expenses 5,524 4,850
------------ ------------
Operating income 5,032 3,449
Other income (expense):
Interest expense (383) (381)
Other, net (406) (129)
------------ ------------
Income before income tax expense 4,243 2,939
Income tax expense 1,640 831
------------ ------------
Net income $ 2,603 $ 2,108
============ ============
Net income per share:
Primary $ 0.26 $ 0.22
============ ============
Fully diluted $ 0.26 $ 0.21
============ ============
Common and common equivalent shares outstanding:
Primary 10,108,869 9,606,038
============ ============
Fully diluted 10,108,869 9,812,288
============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 30,
1997 AND MARCH 31, 1996
(IN THOUSANDS)
March 30, March 31,
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 2,603 $ 2,108
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 1,390 817
Changes in operating assets and liabilities (3,632) (8,691)
Other 147 (44)
-------- --------
Net cash provided by (used in)
operating activities 508 (5,810)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,589) (1,343)
Cash paid for Zytec Hungary Elektronikai Kft -- (839)
Increase in other assets -- (25)
-------- --------
Net cash used in investing activities (1,589) (2,207)
-------- --------
Cash flows from financing activities:
Proceeds from debt and capital lease obligations 1,306 1,931
Payments of debt and capital lease obligations (2,401) (2,283)
Proceeds from revolving credit agreement 3,847 55,509
Payments on revolving credit agreement (3,847) (48,866)
Sale of common stock for cash 358 120
Decrease in bank overdrafts -- 1,534
-------- --------
Net cash (used in) provided by
financing activities (737) 7,945
-------- --------
Effect of exchange rate changes on cash (12) 72
-------- --------
Change in cash and cash equivalents (1,830) --
Cash and cash equivalents, beginning of period 8,535 2
-------- --------
Cash and cash equivalents, end of period $ 6,705 $ 2
======== ========
See accompanying notes to unaudited consolidated financial statements.
ZYTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Interim Consolidated Financial Statements:
The consolidated financial statements as of March 30, 1997 and for the
periods March 30, 1997 and March 31, 1996, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the results for
the indicated periods. The results of operations for any interim period are
not necessarily indicative of results for the full year. Certain
information and accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
2. Selected Balance Sheet Data:
<TABLE>
<CAPTION>
(In thousands)
March 30, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Inventories
Work in process and finished goods $ 6,829 $ 6,123
Parts and subassemblies 16,244 14,653
-------- --------
$ 23,073 $ 20,776
======== ========
Property, plant and equipment:
Land and land improvements $ 76 $ 76
Building and building improvements 1,821 1,829
Equipment, furniture and leasehold improvements 24,949 23,488
Equipment, furniture and leasehold improvements
under capital leases 10,988 11,525
-------- --------
37,834 36,918
Less accumulated depreciation (16,032) (15,293)
Less accumulated amortization (2,681) (2,603)
-------- --------
19,121 19,022
Construction in progress and deposits on equipment 1,250 963
-------- --------
$ 20,371 $ 19,985
======== ========
</TABLE>
3. Supplemental Cash Flow Data:
The following provides supplemental disclosures of cash flow activities for
the three months ended March 30, 1997 and March 31, 1996, respectively:
<TABLE>
<CAPTION>
(In thousands)
Increase (Decrease)
In Cash and Cash Equivalents
March 30, March 31,
1997 1996
-------- --------
<S> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable $(8,676) $(7,644)
Inventories (2,686) (7,137)
Other current assets (470) (162)
Accounts payable 5,198 4,977
Accrued expenses 3,002 1,275
------- -------
$(3,632) $(8,691)
======= =======
Significant noncash investing and financing transactions:
Property and equipment, furniture and leasehold
improvements acquired through capital lease obligations $ 441 $ 2,920
Equipment, furniture and leasehold improvements
acquired through issuance of debt -- 781
</TABLE>
4. Net Income Per Share:
Net income per share is based on the weighted average number of common and
common equivalent shares, assuming the exercise of stock options, when
dilutive.
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS
No. 128), Earnings Per Share (EPS), was issued by the Financial Accounting
Standards Board. This standard, which the Company must adopt effective with
its fourth quarter of 1997, requires dual presentation of basic and diluted
EPS on the face of the consolidated statements of operations. Fully diluted
EPS currently presented by the Company approximates the diluted EPS
required under SFAS No. 128. Basic EPS is calculated based on only common
shares outstanding and is therefore greater than the primary EPS currently
presented because basic EPS does not consider the dilutive effects of
common stock equivalents.
5. Income Taxes:
The effective tax rate of 38.7 percent for the first quarter of 1997
differs from the federal statutory tax rate primarily due to state taxes.
The 1996 first quarter effective tax rate of 28.3 percent differs from the
statutory rate primarily due to state taxes and utilization of the Austrian
subsidiary's net operating loss (NOL) carryforwards. On a pro forma basis,
the effective tax rate for first quarter 1996 without recognition of NOL
utilization would have been 38.2 percent.
In May 1996, the Austrian government changed the treatment of NOL
carryforwards by (a) suspending the use of NOLs during the years 1996 and
1997 retroactively to January 1, 1996 and (b) removing the time limitations
on the use of the NOLs. In light of this new statute, and based on its
assessment of the financial results of its Austrian operations, the Company
recognized the deferred income tax benefit related to the Austrian NOL
carryforwards in the second quarter of 1996. This resulted in a $2,626,000
net reduction of income taxes in the second quarter, comprised of a tax
benefit of $3,175,000 relating to recognition of the deferred tax benefit
offset by $549,000 in income tax expense resulting from the retroactive
application of this tax law change to first and second quarter Austrian
operations.
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. This Form 10-Q and other materials filed or to be
filed by the Company with the Securities and Exchange Commission, as well as
other written materials or oral statements that the Company may make or publish
from time to time, contain forward-looking statements relating to business
prospects, plans for future expansion, anticipated financial performance and
similar matters. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially from the anticipated
results or other expectations expressed in the forward-looking statements. These
risks and uncertainties include, but are not limited to, changes in order
quantities by customers, general conditions in the computer and other electronic
equipment market, and the risks and uncertainties described in Management's
Discussion and Analysis of Results of Operations and Financial Condition.
RESULTS OF OPERATIONS
The Company's business falls into two business segments: power supply design and
manufacture (Power Conversion) and Services and Logistics. The Power Conversion
segment is further segmented geographically between the US and Europe.
The following table sets forth certain information derived from the Company's
Consolidated Statements of Operations for the three month periods ended March
30, 1997 and March 31, 1996, expressed as a percentage of net sales:
THREE MONTHS ENDED
MARCH 30, MARCH 31,
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of goods sold (82.7) (87.0)
----- -----
Gross profit 17.3 13.0
Other revenue 1.0 0.5
Selling, general and administrative (5.0) (4.0)
Research and development (4.6) (3.9)
----- -----
Operating income 8.7 5.6
Other income (expense):
Interest expense (0.6) (0.6)
Other, net (0.7) (0.2)
---- ----
Income before income tax expense 7.4 4.8
Income tax expense (2.9) (1.3)
----- ----
Net income 4.5 % 3.5 %
=== ===
NET SALES
Net sales in the first quarter of 1997 were $57,598,000, a decrease of 5.7
percent from net sales of $61,087,000 in the first quarter of 1996. Sales in the
first quarter of 1996 were a record for the Company. Net sales in the first
quarter of 1997 represent a 9.3 percent sequential increase from the fourth
quarter of 1996. The Company believes there is no seasonal pattern to its sales,
and that rates of growth are a function of demand in the industry and patterns
controlled by startup of new products. Compared to the first quarter of 1996,
sales in the first quarter of 1997 for US Power decreased, and sales of Europe
Power and the Services and Logistics business both grew at moderate to strong
rates.
GROSS MARGIN
Gross margin was 17.3 percent for the first quarter of 1997, an improvement of
4.3 percentage points from 13.0 percent in the first quarter of 1996. Gross
margin benefited from a favorable mix of products, a quarter marked by
operational improvements, a favorable foreign exchange environment, and
increased margins at Services and Logistics.
With respect to mix of products, the Company's sales into the internetworking
hardware market over the last several years have grown rapidly. Internetworking
margins generally are slightly higher than historical margins. The products are
challenging to design and build on short time horizons, but they offer slightly
better gross margin than the Company has experienced in the past.
With respect to operations, the first quarter of 1997 was a quarter of lower
growth, better supply conditions and fewer capacity constraints than the first
quarter of 1996. In 1996, certain parts (particularly semiconductors) were in
short supply, causing difficulties in scheduling. In the first quarter of 1996,
the Company also incurred costs from starting up the Colorado facility, which is
now in full operation. The addition of this facility has increased operating
efficiency by relieving the capacity shortage experienced in the first quarter
of 1996. The strength of the dollar also helped improve gross margins
approximately 1.4 percentage points and increased EPS by approximately $0.02.
Finally, underlying gross margins in all operations improved as a result of
improved processes.
OTHER REVENUE
Other revenue, which consists of customer payments to fund development of custom
power supplies, was $608,000 in the first quarter of 1997, a 72 percent increase
from $353,000 in the first quarter of 1996. Other revenue represented 23.1
percent and 14.8 percent of research and development expense in the first
quarters of 1997 and 1996, respectively. The 1997 revenues are a result of the
16 product "wins" in the first quarter of 1997, which is a record for the
Company.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses were $2,894,000, or 5.0
percent of sales, in the first quarter of 1997 compared with $2,460,000, or 4.0
percent of sales, in the first quarter of 1996. The increased rate is a result
of development of separate administrative facilities in the Services and
Logistics operation, which was not fully accomplished in the first quarter of
1996, and by increased spending in US Power related to growth. In Europe Power
Conversion, the trend of reduction in SG&A as a percent of sales continued. The
Company anticipates a smaller rate of growth in SG&A as a percent of sales in
subsequent quarters.
RESEARCH AND DEVELOPMENT
Research and development was $2,630,000 in the first quarter of 1997, an
increase of 10.0 percent from $2,390,000 in the first quarter of 1996. This
spending increase is due to an overall increase in the number of new programs;
however, the increase does not reflect the level of spending that will be
necessary to support the large number of program wins in the first quarter. The
Company has announced its intention to develop additional research and
development capacity in the USA and Europe. A new engineering department will be
added in the Broomfield, Colorado plant and an additional engineering team will
be added to the Vienna, Austria engineering facility. As a result, the Company
expects research and development spending to grow more rapidly in the last three
quarters of 1997 than in the several previous quarters.
INTEREST EXPENSE
Interest expense of $383,000 in the first quarter of 1997 was virtually
unchanged from interest expense of $381,000 in the first quarter of 1996.
Although the Company's debt structure has changed substantially since the first
quarter of 1996 due to replacing bank debt with a convertible subordinated
debenture in the USA, the interest rate is not substantially different.
OTHER EXPENSE
Other expense was $406,000 in 1997, compared with $129,000 in 1996. While other
expense contains a number of non-operating items, the largest component is the
financial effects of foreign exchange conversion and translation. In the first
quarter of 1997, the dollar strengthened substantially which gave rise to
improved gross margins in Europe, as discussed above. Part of the gain in gross
margin was offset by losses on foreign currency option and forward contracts
purchased at rates below the average rate of the quarter. At the end of the
quarter, the Company had no open foreign currency option and forward contracts
because of the strength of the dollar.
INCOME TAXES
The Company's consolidated effective tax rate was 38.7 percent in the first
quarter of 1997 and 28.3 percent in the first quarter of 1996. In the first
quarter of 1996, the Company was using a net operating loss (NOL) carryforward
against income in Austria. The resulting zero tax rate on Austrian operations
combined with an approximately 40 percent effective tax rate on domestic
operations resulted in a consolidated 28.3 percent rate. In May 1996, the
Austrian government changed the treatment of NOL carryforwards by (a) suspending
the use of NOLs during the years 1996 and 1997 retroactively to January 1, 1996
and (b) removing the time limitations on the use of the NOLs. In light of this
new statute, and based on its assessment of the financial results of its
Austrian operations, the Company recognized the deferred income tax benefit
related to the Austrian NOL carryforwards in the second quarter of 1996. Because
the tax benefit of the Austrian NOL carryforwards has been recognized, the
Company expects that its future consolidated effective tax rate will stabilize
at approximately 38-39 percent, based on Austria's 34 percent statutory tax rate
and US's 40 percent effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1997, the Company's operating activities provided cash
of $508,000. Net income and depreciation and amortization provided cash of
$3,993,000, and changes in operating assets and liabilities necessary to support
growth compared to the fourth quarter of 1996 used cash of $3,632,000. Cash and
cash equivalents were $6,705,000 at March 30, 1997 and $8,535,000 at December
31, 1996. The reduction in cash balances was primarily due to the purchase of
capital equipment. Working capital was $32,747,000 at March 30, 1997 and
$30,944,000 at December 31, 1996, a growth of 5.8 percent. This is slightly
lower than the sequential growth experienced from fourth quarter 1996 to first
quarter 1997 and is in line with expectations.
Accounts receivable increased $8,067,000 during the first quarter of 1997
resulting in average days sales outstanding (DSO) of 54.3 in the first quarter
of 1997 compared with 46.3 in all of 1996 and 45.4 in the fourth quarter of
1996. The increasing DSO in first quarter is within normal limits for the
Company. Accounts receivable at December 31, 1996 were slightly lower than
expected as the result of timing of payments received in Services and Logistics.
Inventory turnover averaged 8.3 times annualized in the first quarter of 1997
and 7.5 times in all of 1996. Inventory has generally been improving slightly as
processes normalized for the Colorado facility. During 1997, the Company expects
inventory turnover to decrease slightly as a result of its successful
implementation of a limited finished goods inventory strategy with certain
customers; however, the Company expects that its inventory turnover will
continue to be significantly higher than industry standards.
Investing activities required cash of $1,589,000 in the first quarter of 1997.
Capital expenditures to purchase automated insertion and test equipment,
computer equipment and other items were $2,030,000, including $441,000 acquired
through capital lease obligations. The Company expects to purchase capital
equipment at higher than historical levels as it adds surface mount capacity in
the US and in Europe. In addition, the manufacturing facility in Kindberg,
Austria will be re-configured during the second and third quarters of 1997 to
increase manufacturing capacity.
Cash of $737,000 was used by financing activities in the first quarter,
primarily to pay lease and notes payable obligations. This was offset by
$358,000 provided by the sale of common stock, which was the result of normal
option exercise activity, as well as the first sale of shares under the Employee
Stock Purchase Plan (ESPP).
The Company has two bank lines of credit which are described in Note 4 of the
Consolidated Financial Statements for the year ended December 31, 1996. The US
facility provides up to $23,000,000 in borrowings through May 1999. This
facility is unsecured and requires the Company to maintain certain leverage,
interest coverage, current and funded debt ratios. At March 30, 1997, there were
no borrowings under this facility. The Company's other line of credit is
guaranteed by the Austrian National Bank and is used to finance Austrian export
sales. At March 30, 1997, borrowings under this line were $3,803,000. In the
fourth quarter of 1996, the Company completed a convertible subordinated
debenture financing of $12,000,000. The debentures, which bear interest at 7.5
percent and mature in year 2001, are convertible at $13.68 per share.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
10.1 Basic Order Agreement between Digital Equipment
Corporation and the Company dated March 12, 1997,
regarding the purchase and sale of power supplies.
(Confidential treatment has been requested for
portions of this exhibit.)
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any current reports on Form 8-K
during the quarter ended March 30, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYTEC CORPORATION
(Registrant)
Date: May 12, 1997 By /s/ John B. Rogers
---------------------------------------------
John B. Rogers
Vice President Finance & Treasurer
(Principal financial and principal accounting
officer)
EXHIBIT 10.1
BASIC ORDER AGREEMENT
BETWEEN
DIGITAL EQUIPMENT CORPORATION
AND
ZYTEC CORPORATION
FOR
POWER SUPPLIES
TABLE OF CONTENTS
1. BASIC ORDER AGREEMENT
2. PURCHASE ORDERS
3. PURCHASE PERIOD
4. PRODUCTS SHIPPED TO A THIRD PARTY LOGISTICS SUPPLIER (3PL)
5. PRODUCTS SHIPPED ON A JIT BASIS
6. PRICING
7. DELIVERY
8. QUALITY, INSPECTION AND ACCEPTANCE
9. PAYMENT AND SET-OFF
10. WARRANY
11. CONFIDENTIAL INFORMATION AND ADVERTISING
12. INTELLECTUAL PROPERTY INDEMNITY
13. CHANGES
14. TERM OF AVAILABILITY
15. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
16. FORCE MAJEURE
17. COMPLIANCE WITH LAWS
18. TERMINATION FOR CAUSE
19. BUSINESS REVIEWS
20. NOTICES
21. SURVIVAL
22. GENERAL
23. EXHIBIT A PRODUCTS, PRICING & LEADTIME
24. EXHIBIT B FLEXIBILITY
25. EXHIBIT C CANCELLATION
26. EXHIBIT D SAMPLE 3PL AMENDMENT
27. EXHIBIT E MCS PACKAGING GUIDE
28. EXHIBIT F QUALITY AND RELIABILITY
1. BASIC ORDER AGREEMENT
A. This Basic Order Agreement and all attachments (called the "Agreement") is
made by Digital Equipment Corporation ("Buyer") and Zytec Corporation
("Seller"). Buyer's worldwide subsidiaries may place Purchase Orders under this
Agreement per Section 2.A. The Terms and Conditions contained in this Agreement
exclusively govern the purchase and sale of the material more fully described in
Exhibit A, Products, Pricing and Leadtime ("Material") and in applicable
specifications attached hereto and/or incorporated herein by reference.
B. This agreement does not specify a quantity of Material to be procured by
Buyer, NOR DOES THIS AGREEMENT OBLIGATE BUYER TO PURCHASE ANY MATERIAL. All such
quantities will be specified on a Buyer's order as defined in Section 2.A.
Purchase Orders issued under the provisions of this Agreement are incorporated
herein by reference.
C. Notwithstanding the requirement in Section 22, General, for two signatures to
amend the BOA, if any term typed on the face of an issued Purchase Order
conflicts with the terms of the Agreement, the typed Purchase Order term shall
take precedence over this Agreement for such Purchase Order.
2. PURCHASE ORDERS
A. The term "Purchase Order" shall mean Buyer's written purchase order form and
any documents incorporated therein by reference.
B. Buyer will order Material by issuing facsimile, e-mail or telephonic orders
or Purchase Orders. Buyer will issue confirming written Purchase Orders within
ten (10) days after issuing such facsimile, e-mail or telephonic orders. Each
Purchase Order will specify items such as: Material, quantity, delivery
schedule, destination, and total price of Purchase Order. Each Purchase Order
issued under this Agreement shall be made a part of, and be incorporated into,
this Agreement. Seller shall have five (5) days after receipt to reject the
Purchase Order. By not rejecting the Purchase Order within five (5) days, Seller
will have accepted the Purchase Order. Acceptance by Seller is limited to the
provisions of the Agreement and the Purchase Order. No additional or different
provisions proposed by Seller shall apply. In addition, the parties agree that
this Agreement and issued Purchase Orders constitute the Contract for the Sale
of Goods and satisfy all statutory and legal formalities of a contract.
C. If Buyer's Purchase Order specifies export after passage of title, Seller
shall furnish Buyer with all necessary Export/Import documentation. If Buyer's
Purchase Order specifies export before passage of title, Seller shall prepare
all Export/Import documentation and furnish a copy to Buyer. Export/Import
documentation shall be in accordance with the INCOTERMS then in force.
D. Orders placed and acknowledgments sent under this Agreement may be sent in
writing or by electronic means. The parties agree: I) the provisions of the
uniform Commercial Code Section 2-201 (Statute of Frauds) shall not apply to
these electronic transmissions; II) these electronic transmissions shall be
deemed to satisfy any legal formalities requiring that agreements be in writing;
III) computer maintained records when produced in hard copy form shall
constitute business records and shall be admissible to the same extent as other
generally recognized business records.
3. PURCHASE PERIOD
A. The period during which Buyer may issue Purchase Orders under this Agreement
(Purchase Period) shall last three (3) years, beginning on the date of the last
signature on this contract and expiring three years later.
B. The Purchase Period may be extended by Buyer for one (1) additional year upon
no less than thirty (30) days written notice to the Seller prior to the end of
the current Purchase Period.
4. PRODUCTS SHIPPED TO A THIRD PARTY LOGISTICS SUPPLIER (3PL)
A. For products shipped from Seller to a 3PL supplier on behalf of Buyer a
separate amendment may be developed that will contain specific terms and
conditions for specific products. A sample of such an amendment is contained in
Exhibit D, Sample 3PL Amendment. If a separate amendment is not developed the
Terms and Conditions contained herein apply.
5. PRODUCTS SHIPPED ON A JIT BASIS
For all products that we have agreed will be shipped on a JIT basis supplier
must develop the required, methods, procedures, processes, etc. to meet Buyer's
requirements. The specific requirements for each product or family of products
will be negotiated and agreed to annually.
6. PRICING
A. The prices set forth in Exhibit A, Products, Pricing & Leadtime, shall
remain fixed for the period set forth therein (Pricing period). Thirty (30) days
prior to the end of the then current Pricing Period, Buyer and Seller shall
review the pricing and Material for the next Pricing Period. If Buyer and Seller
reach agreement, a new Exhibit A shall be generated for the next Pricing Period
and shall be added by amendment to this Agreement. If Buyer and Seller fail to
reach agreement on pricing and Material for the next Pricing Period, this
Agreement may be terminated at the end of the then current Pricing Period.
Buyer's sole liability to Seller for such termination shall be to pay Seller any
unpaid balance due for conforming material: 1. Delivered against Buyer's
Purchase Order(s) before receipt of Buyer's termination notice; or 2. Ordered by
Buyer and scheduled for delivery within the notice period specified in Exhibit
C, Cancellation.
B. Prices include all charges such as packaging, packing, customs duties imposed
before passage of title, and all applicable taxes except sales, use, and other
such taxes imposed upon the sale or transfer of Material for which Buyer is
solely responsible under applicable law and for which Buyer is properly invoiced
by Seller.
C. Prices will be expressed in U.S. Dollars and payment will be made in U.S.
dollars. Current products will be converted to U.S. dollars at the rate of
10.573 ATS/USD.
D. Prices will be agreed upon by referencing the Buyer's Power Supply Cost
Model, competitive quotes, prices of similar products now being purchased from
Seller or other power supply suppliers to Buyer as well as the exchange rate
between the USD and the ATS for products Seller manufactures in Austria.
E. Prices will decline on an annual basis with the percent reduction to be
agreed to prior to June1st of each calendar year for which this agreement is in
force. Buyer and Seller agree to work together to reduce the cost of the
products through value engineering activities.
F. For Material purchased under Section 14, Term of Availability, Seller shall
adjust prices no more than once in every calendar year. Seller shall notify
Buyer 60 days in advance for price adjustment requests. Any adjustments shall be
applicable to the PO's issued on or after the effective date of the adjustment.
Seller shall provide objective evidence to Buyer for any price increases.
7. DELIVERY
A. Buyer's Purchase Orders shall state Seller's committed delivery dates for
Material. TIME AND RATE OF DELIVERY ARE OF THE ESSENCE OF ALL PURCHASES MADE
UNDER THIS AGREEMENT. The minimum agreed period between Buyer's issuance of a
Purchase Order and the scheduled delivery date (hereinafter "LEADTIME") shall be
as stated in Exhibit A, Products, Pricing and Leadtime.
B. All deliveries shall be F.O.B. Origin, Freight Collect. Buyer shall select
carrier.
C. If Seller delivers Material more than three (3) days in advance of the
scheduled delivery date, Buyer may either return such Material at Seller's
expense for subsequent delivery on the original delivery date or retain such
Material and postpone payment until it would have been due if Seller had
delivered Material as scheduled. Without limiting any of Buyer's rights and
remedies in equity or at law, if Seller is late in meeting the scheduled
delivery date, Buyer may require that Seller ship the Material via premium means
with Seller responsible for any incremental added cost, or may cancel the order
for such Material without liability.
D. Seller shall deliver the exact quantity of Material scheduled. If Seller
delivers less than the scheduled requirement, Seller shall correct the shortage
within a two (2) day period. If Seller fails to correct such shortage within
this period, without limiting any of Buyer's rights and remedies in equity or at
law, Buyer may cancel and/or return all or part of the order without cost or
liability. If Seller delivers more than the quantity ordered, Buyer may return
excess Material at Seller's expense.
E. Buyer may, without cost or liability except as specified elsewhere in this
contract ,reschedule delivery of any Material and/or cancel Purchase Orders or
parts of them, by giving notice as specified in Exhibit C, Cancellation.
F. Buyer shall use its best efforts to forecast its intended purchases for a
twelve (12) month period on a monthly or weekly basis. Such forecast is for
Seller's convenience only, and shall not create any liability for Buyer or
obligation to purchase Material except as specified elsewhere in this contract.
MCS, Buyers service division, will provide a rolling monthly forecast updated
quarterly for spares and repairs.
G. Buyer will measure Seller's performance against commitments for the purpose
of establishing Seller's rate of timely delivery and schedule flexibility
improvements against the Buyer's requirements. Timely delivery shall mean
delivery of scheduled quantities no more than three (3) days early, or zero (0)
days late.
H. Buyer and Seller agree that all Material shall be classified for shipping
purposes as specified in Buyer's Purchase Orders. If Buyer fails to specify
freight classification, Seller shall select the proper and most economical
freight classification. If Seller fails to classify any Material as provided
above, and Buyer incurs increased transportation costs, Buyer may either recover
such costs directly from Seller or deduct such costs from any amounts due
Seller.
I. Seller shall accept and process Priority One (P1) Spares emergency orders
twenty-four (24) hours per day three hundred and sixty five (365) days per year.
Seller shall ship said order within twenty-four (24) hours after receipt of a
Purchase Order at Sellers' facility. If Buyer places a P1 order due to late
shipment by Seller, Seller shall be responsible for transportation charges.
J. Seller agrees that leadtime for repairs shall be fourteen (14) days from
receipt of repairs at Seller's facility.
8. QUALITY, INSPECTION AND ACCEPTANCE
A. Buyer, or its designee if the destination for Material is other than the
Buyer's site, may inspect Material at its destination. Material shall be deemed
non-conforming if it fails to comply in any way with applicable specifications.
Buyer may within forty (40) days after delivery, return non-conforming Material
to Seller for credit or replacement within warranty period. Seller shall repair
or replace at their option. Seller will bear all costs and risk of loss. Seller
shall provide Buyer with a block of RMA's for authorization of return of
non-conforming material . Buyer shall return non-conforming material on a weekly
basis. All material returned to Seller shall be replaced by Seller within seven
(7) days.
B. Seller authorizes Buyer to perform source inspection and process control
audits at Seller's manufacturing facilities but this shall in no way relieve
Seller of its obligation to deliver conforming material or waive Buyer's right
of rejection at its destination.
C. Seller agrees to meet the PPM goals established by Buyer that are defined as
"Best in Class" by Buyer and deemed necessary by Buyer. PPM goals may be
established for each product separately, or may be established for a group of
products or may be established based on the sum of all products supplied to
Buyer by Seller.
9. PAYMENT AND SET OFF
A. Buyer shall issue payment greater of following conditions: net 30 calendar
days after shipment, or net 30 calendar days after date of invoice or net five
days after receipt of material.
B. Amounts owed to Buyer due to rejections of Material or discrepancies on paid
invoices will be fully credited against future invoices payable by Buyer. Buyer
and Seller agree to continue to work to rid payment process of debit and credit
memos either through Seller's "Skyhook Program", Buyers "Return For Credit
Program" or through other mutually agreed upon means.
C. Buyer shall have the right at any time to set-off any amount owed from Seller
to Buyer or its subsidiaries or affiliates against any amount payable by Buyer
pursuant to this Agreement and/or any Purchase Order issued hereunder, provided
such set-off does not contravene applicable exchange control laws or any other
applicable statute.
10. WARRANTY
A. Seller warrants for thirty-six (36) months, unless specified otherwise in
Exhibit G, Warranty, from date of acceptance of Material by Buyer that all
Material shall be free from defects in Material, workmanship, and design, shall
conform to applicable specifications, drawings, samples, and descriptions
referred to in this Agreement and shall be suitable for the purpose for which
intended. Seller warrants it has the right to convey the Material and that the
Material is free of all liens and encumbrances, and that the Material does not
infringe on any intellectual property interest. These warranties shall survive
any inspection, delivery, payment clauses, and termination of this Agreement,
and shall run to Buyer, its customers, successors and assigns.
B. Seller shall correct defects in Material at its facility. At Seller's option,
Seller shall repair or replace all defective Material within five (5) days of
receipt of such Material. Seller shall bear all warranty costs such as labor,
material, inspection, and shipping to and from Buyer's facilities.
C. Seller warrants that for twelve (12) months after Buyer's acceptance of
repairs, all repairs shall be free from defects in material, workmanship and
design and shall conform to all applicable specifications, drawings, samples and
descriptions as referred to in the Agreement and shall be suitable for the
purposes for which intended. These warranties shall survive any inspection,
delivery and payment clauses and termination of this agreement and shall run to
Buyer its customers, successors and assignees.
11. CONFIDENTIAL INFORMATION AND ADVERTISING
A. Seller shall maintain as confidential and shall not disclose to any person
outside its employ, nor use for purposes other than performance of this
Agreement, any specifications, drawings, blueprints, data, business information,
or other confidential information which Seller learns by virtue of this
Agreement, except as required by law, and after written notice to Buyer. Upon
termination of this Agreement, Seller shall promptly return to Buyer all
confidential material and all copies.
B. Without Buyer's prior written consent, Seller shall not in any manner
disclose, advertise, or publish the existence or terms of transactions under
this Agreement unless such disclosure is required by applicable law or
government regulations, in which case prior to making such disclosure the seller
shall give written notice to Buyer.
C. Buyer may reproduce and use Seller's manuals, schematics, and merchandising
literature provided by Seller under this Agreement.
12. INTELLECTUAL PROPERTY INDEMNITY
A. Seller shall defend, at its expense, any claim against Buyer alleging that
Material, or any part thereof infringes any patent, copyright, trademark, trade
secret, mask work, or other intellectual property interest in any country and
shall pay all costs and damages awarded, if Seller is notified promptly in
writing of such a claim. If an injunction against Buyer's or Buyer's customer's
use, sale, lease, license, or other distribution of the Material or any part
thereof results from such a claim (or, if Buyer reasonably believes such an
injunction is likely), Seller shall, at its expense, (and in addition to the
Seller's other obligations, hereunder) and as Buyer requests: obtain for Buyer
and/or Buyer's customers the right to continue using, selling, leasing,
licensing, or otherwise distributing the Material; or replace or modify it so it
becomes noninfringing but functionally equivalent. The provisions of this
Section shall not apply to any claim for infringement resulting solely from
Seller's compliance with Buyer's detailed design specifications, where provided.
13. CHANGES
A. No changes shall be made in the form, fit, function, design, appearance,
reliability, place of manufacture, or packing and packaging of Material without
Buyer's prior written approval.
14. TERM OF AVAILABILITY
A. In consideration for Buyer's purchase of any Material hereunder, Seller
grants to Buyer the option to purchase Material, at the last revision level
purchased under this Agreement, for the period of seven (7) years after the last
purchase against this Agreement, or for as long as said Material is made
available to any of Seller's other customers, whichever is the later. The
quantity of Material under this option shall be limited to a maximum of one (1)
times the amount of Material purchased during the term of this Agreement.
B. Thereafter, Seller may discontinue availability of Material by giving Buyer
twelve (12) months prior written notice, provided that, at Buyer's option,
Seller shall: 1. Grant to Buyer a royalty-free, non-exclusive, worldwide license
to make, have made, use, sell, or otherwise dispose of said material, and
furnish Buyer all necessary documentation, specifications, drawings, and other
data, including its sources for raw material necessary to make such Material; or
2. Sell Buyer sufficient quantities of Material as Buyer deems necessary, up to
the quantity limit listed in Clause A. above.
C. The parties shall negotiate in good faith the Terms and Conditions of the
purchase or license set forth in Clauses A. and B. above. However, in no event
shall the purchase price for Material, or any other charges related to Buyer's
exercise of its rights in Clause B. above, exceed the prices then charged to
Seller's other customers for like quantities of Material at like volumes.
15. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
A. Country of Origin: 1. "Country of Origin" Marking: The Seller shall mark, in
English, all Material with the Country of Origin (manufacture), in compliance
with Section 304 of the United States Tariff Act. Both the Material and its
container must be conspicuously marked with the Country of Origin. If the
Material itself cannot be marked legibly due to size, then its immediate
container must be marked. 2. For each delivery against purchases made under this
Agreement, Seller shall furnish Buyer with a signed certificate stating Country
of Origin (manufacture) by quantity and part number (Buyer's and Seller's).
B. Duty Drawback: 1. For each purchase under this Agreement, and for each item
of Material delivered hereunder for which U.S. Customs import duties have been
paid upon importation, or for Materials that contain parts for which import
duties have been paid, Seller shall furnish Buyer with a signed "MANUFACTURING
DRAWBACK ENTRY and/or CERTIFICATE" (U.S. Customs Form #CF331 or its successor).
Seller warrants that information contained in such Form #CF331 shall be accurate
and shall comply with United States Duty Drawback and Customs laws and
regulations. Seller shall indemnify and hold Buyer harmless from and against any
claims, costs, or damages resulting from or arising out of Buyer's reliance on
such information and/or Form #CF331 2. Seller shall provide such required
Form(s) #CF331, and/or information, at the end of each fiscal quarter, unless
otherwise agreed in writing by both parties. 3. Buyer reserves its first right
to claim Duty Drawback on all purchases made under this Agreement.
16. FORCE MAJEURE
A. Neither party shall be liable for failure to perform any of its obligations
under this Agreement during any period in which such party cannot perform due to
fire, flood, or other natural disaster, war, embargo, riot, or the intervention
of any government authority, provided that the party so delayed immediately
notifies the other party of such delay. If Seller's performance is delayed for
these reasons for a cumulative period of twenty (20) days or more, Buyer may
terminate this Agreement and/or any Purchase Order hereunder by giving Seller
written notice, which termination shall become effective upon receipt of such
notice. If Buyer terminates, its sole liability under this Agreement or any
Purchase Orders issued hereunder will be to pay any balance due for conforming
Material (1) delivered by Seller before receipt of Buyer's termination notice;
and (2) ordered by Buy for delivery and actually delivered within fifteen (15)
days after receipt of Buyer's termination notice.
17. COMPLIANCE WITH LAWS
A. All Material supplied and work performed under this Agreement shall comply
with all applicable United States and foreign laws and regulations including,
but not limited to, emission and safety standards, the Occupational Safety and
Health Act (29 U.S.C. Sections 651 et seq.), the Fair Labor Standards Act of
1938 (29 U.S.C. Sections 201-219), the Toxic Substance Control Act of 1976 (15
U.S.C. Section 2601), all laws restraining the use of convict labor, and
Worker's Compensation Laws. Upon request, Seller agrees to certify compliance
with any applicable law or regulations. Seller's failure to comply with any of
the requirements of this Section may result in a material breach of this
Agreement.
B. The following provisions and clauses of the Federal Acquisition Regulation
(FAR), 48 CFR Chapter 1, are hereby incorporated by reference, with the same
force and effect as if they were given in full text and are hereby made binding
upon the subcontractor or vendor. Where the clauses or provisions say
"Contractor", substitute "subcontractor or vendor." 1) Nonexempt Subcontracts
and Purchase Orders over $2,500: 52.222-36 Affirmative Action for Handicapped
Workers (APR 1984) 2) Nonexempt Subcontracts and Purchase Orders over $10,000 or
subcontracts and purchase orders the aggregate value of which in any twelve
month period exceeds or can be expected to exceed $10,000: 52.222-26 Equal
Opportunity (APR 1984) 3) Nonexempt Subcontracts and Purchase Orders over
$10,000: 52.222-21 Certification of Nonsegregated Facilities (APR 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans (APR
1984) 4) Subcontracts and Purchase Orders over the small purchase limitation,
$25,000: 52.219-13 Utilization of Women-Owned Small Business (AUG. 1986) 5)
Subcontracts over $500,000, except for small business concerns: 52.219-8
Utilization of Small Business Concerns and Small Disadvantaged Business Concerns
(FEB 1990) A copy of the Filing Standard Form 100 (EEO-1) and Development of
Affirmative Action Compliance Program is incorporated herein by reference.
C. The provisions of the Clean Air Act (42 U.S.C. Sections 7401 et seq.) and the
Clean Water Act (33 U.S.C. Sections 1251 et seq.) are made a part of this
Agreement. A copy of the Certification required under these statutes is
incorporated herein by reference.
D. The provisions of any applicable State "Right-To-Know" laws and regulations
are made a part of this Agreement. A copy of the applicable Material Safety Data
Sheets as required under such laws and regulations shall be provided by Seller
upon delivery of Material and updated as necessary.
E. This Agreement is subject to all applicable United States laws and
regulations relating to exports and to all administrative acts of the U.S.
Government pursuant to such laws and regulations.
G. The 1980 United Nations Convention on contracts for the international sale of
goods shall not apply to this agreement or any order issued under this agreement
18. TERMINATION FOR CAUSE
A. The occurrence of any of the following constitutes a breach and is cause for
Buyer's termination of this Agreement and or/its Purchase Orders.
1. Seller fails to deliver Material on time without having notified and obtained
written agreement from Buyer.
2. Material does not conform to the applicable descriptions or specifications.
3. Seller fails to perform any material provision of this Agreement.
4. Seller assigns this Agreement, or any obligation or right hereunder. (The
word "assign" to include, without limitation, a transfer of major interest in
Seller.)
5. Seller merges with a third-party (not a parent or subsidiary company),
without the prior written consent of Buyer.
6. Seller becomes insolvent or makes an assignment for the benefit of creditors,
or a receiver or similar officer is appointed to take charge of all or part of
Seller's assets.
B. Seller must cure any of the above breaches except late delivery pursuant to
Clause A., Paragraph l., above, for which there shall be no cure period, and
notify Buyer of such cure within ten (10) days from receipt of a notice to cure
from Buyer. If Seller fails to so cure, Buyer may terminate this Agreement
and/or any Purchase Orders under it by giving Seller written notice. Buyer shall
have no liability except for payment of any balance due for conforming Material
delivered before the date of Buyer's notice to cure.
19. BUSINESS REVIEWS
A. Buyer and Seller shall, each at their own expense, meet periodically to
review performance, business transacted, and to identify and resolve those
issues which have arisen since the last business review meeting.
20. NOTICES
Any notice given under this Agreement shall be written or sent by telex or
facsimile. Written notice shall be sent by registered mail or certified mail,
postage prepaid, return receipt requested, or by any other overnight delivery
service which delivers to the noticed destination, and provides proof of
delivery to the sender. Any telex or facsimile notice must be followed within
three (3) days by written notice. All notices shall be effective when first
received at the following addresses:
If to Seller: If to Buyer:
Vice President - Sales & Marketing Power Commodity Manager
Zytec Corporation Digital Equipment Corporation
7575 Market Place Drive 129 Parker St.
Eden Prairie, MN 55344 Maynard, MA 01754
with copies to: with copies to:
Josef J. Matz Vice President and General Counsel
Managing Director Digital Equipment Corporation
Zytec GmBH 111 Powdermill Road
Breitenfurter Strabe 251 Maynard, MA 01754
A-1231 Vienna, Austria
21. SURVIVAL
A. The provisions of this Agreement dealing with Delivery, Payment and
Set-Off, Warranty, Pricing, Confidential Information and Advertising,
Intellectual Property Indemnity, Term of Availability, U.S. Customs,
Marking, and Duty Drawback Requirements, Compliance with Laws, and General
shall survive termination or expiration of this Agreement.
22. GENERAL
A. This Agreement is the complete and entire understanding between the parties
on this subject matter and supersedes all prior agreements, discussions,
proposals, representations, statements, or understandings whether written or
oral on this subject between them. The provisions of this Agreement may be
amended or waived only by a writing executed by the authorized representatives
of the parties hereto.
B. In the event that either party to this Agreement shall, on any occasion, fail
to perform any provision of this Agreement, and the other party does not enforce
that provision, the failure to enforce shall not prevent enforcement of the
provision on any other occasion.
C. As used in this Agreement, except where otherwise noted, the term "days"
shall mean business days.
D. Seller, including its servants, agents and employees, is an independent
contractor and not an agent or employee of Buyer. Without limiting the
generality of the foregoing, Seller is not authorized to represent or make any
commitments on behalf of Buyer, and Buyer expressly disclaims any liability
therefore.
E. Additional terms are included in Exhibit A through Exhibit F are incorporated
herein by reference.
F. All rights and remedies conferred by this Agreement, by any other instrument,
or by law are cumulative and may be exercised singularly or concurrently. If any
provision of this Agreement is held invalid by any law or regulation of any
government or by any court, such invalidity shall not effect the enforceability
of any other provisions hereof. This Agreement and any Purchase Orders issued
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the authorized representatives of the parties have executed
this Agreement under seal as of the date(s) set forth below.
ZYTEC CORPORATION DIGITAL EQUIPMENT CORPORATION
(Seller) (Buyer)
By /s/ John M. Steel By /s/ John P. Murphy
-------------------------------- -------------------------------
(Signature) (Signature)
John M. Steel John P. Murphy
Vice President Sales & Marketing Acquisition consultant
(Title) (Title)
March 24, 1997 March 17, 1997
- ----------------------------------- ----------------------------------
(Date) (Date)
By /s/ Josef J. Matz
- ----------------------------------
(Signature)
Josef J. Matz
Managing Director
(Title)
March 20, 1997
- ----------------------------------
(Date)
23. EXHIBIT A PRODUCTS, PRICING & LEADTIME
DIGITAL PN DESCRIPTION APRIL, 1997 - VOLUME
- ---------- ----------- ------------- ------
JUNE, 1997 FORECAST
---------- --------
PRICE
-----
* CONFIDENTIAL TREATMENT REQUESTED*
24. EXHIBIT B FLEXIBILITY
Upside Flex Downside Flex
* CONFIDENTIAL TREATMENT REQUESTED*
25. EXHIBIT C CANCELLATION
* CONFIDENTIAL TREATMENT REQUESTED*
26. EXHIBIT D SAMPLE 3PL AMENDMENT
PART NUMBER *
PRICE FOR Q4 FY97 *
FLEXIBILITY
SELLER WILL MAINTAIN * OF STOCK AT THE 3PL FIRM AT ALL
TIMES. IN ADDITION SELLER WILL HAVE RAW MATERIAL POSITIONED
TO MEET THE FOLLOWING UPSIDE REQUESTS
BUSINESS DAYS BEFORE FLEXIBILITY PERCENTS
MATERIAL IS SCHEDULED
TO BE SHIPPED
QUANTITY QUANTITY
INCREASE PUSH OUT
PERCENT PERCENT
* * *
* * *
* * *
The * schedule change is an increase for any particular weekly bucket to the
original purchase order schedule. For example, if the original schedule is * per
week, a change to * or * units per week can be supported by Seller.
Schedule increases and/or decreases "inside" the guidelines will be considered.
If labor, capital and materials issues can be resolved, these schedule changes
will be implemented. (Note" in all cases Seller will build out all WIP).
Buyer will cover Seller actual costs for unique material costs absorbed by
Seller because of schedule decreases. This could include inventory and handling
costs at Seller plus Seller supplier incurred charges.
* CONFIDENTIAL TREATMENT REQUESTED
27. EXHIBIT E MCS PACKAGING GUIDE
This document, document number A-F-FSGUIDE-GS-DAOO REV E is included herein by
reference.
28. EXHIBIT F QUALITY AND RELIABILITY AGREEMENT
1.0 GENERAL
This Exhibit sets forth and defines the requirements for quality and reliability
processes and performance pertaining to the product(s) as listed in BOA Exhibit
A and detailed in Table I of this Exhibit.
If the Seller chooses to purchase the finished product(s) or any part(s) used
therein from a third party for re-sale to the Buyer, Seller shall notify Buyer
of such intent, and be responsible to assure that the third party product(s)
meets all requirements of this BOA and all Exhibit(s).
Seller shall notify Buyer of any changes in product design, internal
manufacturing process or location, or source of materials used in the production
of Buyer's product(s), prior to the implementing such changes. Buyer may request
product qualification samples to assure there is no negative impact of any such
changes on Buyer's processes or products prior to authorizing or accepting
further delivery of product.
2.0 QUALITY AND RELIABILITY ASSURANCE
2.1 CONFORMANCE TO THE PRODUCT (PURCHASE/ENGINEERING) SPECIFICATION
Prior to production of product, Seller shall perform tests to assure conformance
to the Buyer's Product (Purchase/Engineering) Specification. This shall include
but not be limited to all environmental, safety, and regulatory requirements
contained therein. In addition, Seller shall work with Buyer's designated
engineering representatives to assure conformance to any and all end-use
(systems configuration) performance requirements. Seller shall, upon Buyer's
request, provide any test results or agency reports that the Buyer may require,
for review and concurrence.
Seller shall acquire all materials and manufacture said materials in such a
manner that the agency certifications and ratings are maintained in the Seller's
finished product.
Seller shall provide to Buyer copies of all regulatory and safety agency
submittal reports and approvals, to facilitate Buyer's timely achievement of
required end-use system-level agency submittals.
2.2 PRODUCT SAFETY ISSUES
Seller shall designate a representative within its organization to interface
with Buyer on product safety issues. The Seller shall maintain an internal
product safety reporting process and a method to insure that the Buyer is
notified within 24 hours of Seller's gaining knowledge of real or potential
product safety problems.
2.3 PRODUCT MARKING AND TRACEABILITY
Seller shall assure that records are maintained for traceability of all
regulatory controlled parts listed in any agency (UL, CSA, TUV, etc.) reports.
Regulatory controlled parts must be traceable to their source of manufacture by
lot code, date code or serialization. This inform shall be provided to the Buyer
upon request.
Finished product shipped to the Buyer shall be marked in accordance with the
requirements of the Buyer's Product (Purchase/Engineering) Specification. For
serialized products, the general format shall be SSYWWxxxxx, where SS is the
Seller's supplier code (assigned by the Buyer), Y is the last digit of the
calendar year, WW is the calendar week, and xxxxx is a unique alpha-numeric
sequence.
Any bar code labels shall conform to industry standard Code 39 format, and UPC-A
as applicable, with size and location as specified in Buyer's Product
(Purchase/Engineering) Specification.
2.4 WORKMANSHIP
Seller shall be responsible to assure that all product provided to Buyer meets
all requirements of the Seller's internal workmanship standards and practices.
It is further expected that such Seller standards and practices are sufficient
to assure that the product provided to the Buyer meets all quality, reliability,
safety and regulatory agency requirements.
2.5 QUALITY SYSTEM PLAN
Seller shall submit to the Buyer for review and concurrence a Quality Manual and
a Quality Control Plan. The plans shall define the Seller's overall Quality
Assurance system elements, and detail inspection, test and audit points for
manufacture of Buyer's material. If ISO 9000 registration has been achieved, the
plan shall identify the level achieved (9001, 9002, 9003) by Seller facility and
location.
2.6 PRODUCT ACCEPTANCE REQUIREMENTS
Seller shall demonstrate to Buyer's satisfaction that its process control
systems and assurance processes deliver product that meets these acceptance
requirements.
Seller shall insure that product delivered to the Buyer's receiving facility
meets all the requirements of:
* Product Specification (Buyer's Purchase/Engineering Specification) and
all recognized standards and requirements referenced therein.
* Product marking per external agency requirements.
* Product protection against damage and loss.
* End use (systems level) performance requirements as mutually agreed to
by both Buyer and Seller. o Product specific performance levels as
negotiated between Buyer and Seller and defined in Section 3.0 below.
* Compliance to then current European Economic Community standards and
application of "CE" mark to product marking, as applicable.
Seller shall make all product acceptance data available to Buyer for review,
upon request.
2.7 PRODUCT RELIABILITY
All qualification and reliability testing shall be conducted at the Seller' site
with representatives of the Buyer present at the Buyer's option.
Buyer shall have full access to all reliability plans and test results data
generated by Seller. These shall include, but not be limited to, MTBF
predictions and associated environmental parameters, acceleration factors,
component derating factors, stress test parameters, test conditions, test
failures, number of unit hours, time to failure, failure modes and symptoms,
root cause failure analysis, and resultant corrective actions.
Summary reports of results for each phase of reliability testing shall be
published and provided to the Buyer's Quality Assurance organization.
Reliability Testing shall be accomplished in three phases:
* Phase I shall assure that the product design is capable of achieving
the inherent design reliability.
* Phase II shall assure that the manufacturing process does not degrade
the inherent design reliability.
* Phase III shall assure that the reliability performance of the product
design and the manufacturing process are maintained during volume
production. It shall also serve as an ongoing process control point,
with data provided to the Buyer. Buyer and Seller mutually agree to
the content, format, and frequency of reporting as set forth in
Section 3.4 below.
Buyer reserves the right to review Seller's test plans for each phase of
reliability testing, at lease one month prior to the start of that phase. If
such review is conducted, Buyer's concerns shall be raised and resolved jointly
with the Seller before each test phase can commence. Seller's plans will include
mutually agreed-upon statistical confidence limits for each phase of testing,
where applicable.
The Seller shall be solely responsible to assure that the product design, third
party vendor components, and manufacturing processes employed in the production
of the product meet the product reliability requirements as set forth in the
Product Specification (Buyer's Purchase/Engineering Specification). Seller shall
further assure that any changes to the product design as a result of engineering
change, vendor change, or process change do not adversely affect the reliability
of the product as delivered to Buyer.
2.8 CONTINUOUS IMPROVEMENT PROCESS
Having achieved the requirements of the Product Specification (Buyer's Purchase/
Engineering Specification), Seller shall implement a process to continuously
improve the level of product performance within the manufacturing process.
Seller shall establish a performance baseline for the Buyer's product and shall
negotiate with the Buyer mutually acceptable goals for periodic product and
process improvement. Agreed-upon goals shall be documented in Section 3.0 below.
Buyer and Seller agree that major product design changes will normally be
required to significantly increase the inherent reliability performance of the
product. However, infancy failure rates may be improved through continuous
improvement of the manufacturing process and purchased vendor components.
2.9 CORRECTIVE ACTION
If at any time data from either the Seller' or Buyer's control and measurement
systems indicates that product quality and/or reliability has fallen below the
minimum agreed-to levels, corrective action shall commence immediately. It will
continue until the quality and/or reliability again meets or exceeds the minimum
acceptable levels. The following is required of the Seller, as a minimum:
* Immediately notify the Buyer of the problem, its manifestations,
symptoms, and an initial assessment of the problem severity and
impact.
* Perform root cause failure analysis.
* Communicate corrective action to the Buyer within a mutually agreeable
time frame.
* Take whatever actions are deemed necessary, including additional
inspections and tests, until the Seller's manufacturing process is
demonstrated to be under control.
* Instruct Buyer in dispositioning product if product in Buyer's
possession or at Buyer's customers' sites is affected or suspect.
* If required, discontinue shipment to Buyer until the correction action
has been proven to be satisfactory to the Buyer and Seller.
Should failures/defects occur in the Seller's production process that are
repetitive in nature but which do not cause process control limits to be
exceeded, Seller shall immediately notify Buyer and corrective action shall
commence immediately. Seller shall resolve problem(s) in a reasonable period of
time thereafter.
Buyer's personnel may become involved in problem evaluation activities at the
Seller's facility if Buyer determines that such involvement is necessary and
appropriate, or if Seller requests such support.
Seller's personnel may be requested to come to the Buyer's facility to
participate in problem evaluation activities to facilitate timely problem
resolution, if Buyer and Seller agree that such involvement is necessary and
appropriate.
2.10 FAILURE ANALYSIS REPORTING
From time to time, failed product will be returned to the Seller as set forth in
the BOA. Some product may be under warranty, and some may be out of warranty.
This section applied to all returned product, whether still under warranty or
not.
When product fails at the Buyer's manufacturing facility or at Buyer's customer
site(s), it will be returned to the Seller for analysis and repair. The Seller
shall generate a Failure Analysis Report listing each returned product by model
and serial number, detailing type of failure, verification testing process
performed, and whether or not the failure mode could be verified or duplicated.
If the failure mode was duplicated, the report should also list specific action
taken to repair the product (components replaced, etc.), and any action(s) taken
within the Seller's manufacturing process or the design of the product to
prevent recurrence of the problem.
Unverified failures shall be prominently identified in the report to allow the
Buyer's personnel to engage in further analysis activities when the returned
product is received at the Buyer's manufacturing facility. Buyer reserves the
right to contest claims of unverified failures if returned product continues to
fail in Buyer's manufacturing process or field repair facilities.
Based upon the severity or magnitude of the product failures at the Buyer's
facility, the Buyer may request that "priority" handling or root cause failure
analysis be performed on selected returned product by the Seller. In such cases,
Seller shall provide more detailed Failure Analysis Reports to the Buyer,
including root cause component analysis and other relevant information as
appropriate.
The turnaround time for the Seller to generate a Failure Analysis Report and
send it to the Buyer's Quality Assurance organization shall be agreed upon by
Buyer and Seller at the time of product return to Seller's repair facility for
critical problems identified as "priority" by the Buyer. If additional time is
required due to the nature of the failure, that shall be negotiated for each
case by Buyer and Seller. For normal production returns, Failure Analysis
Reports shall be sent to the Buyer's Quality Assurance organization when the
product is repaired and returned to the Buyer's facility.
The Buyer may also issue SCAR (Supplier Corrective Action Request) forms from
time to time to address systemic failure modes, or failure modes that do not
meet agreed-upon performance levels. Seller will be expected to respond to all
such forms within the timeframe specified on the SCAR form.
2.11 AUDITS
The Buyer reserves the right to engage in audits of the Product at the Seller's
site, audits of the Seller's manufacturing process, and audits of the Seller's
business or plant support processes at any time during the life of this
contract. Buyer will notify Seller at lease seven (7) working days in advance of
its desire to perform an audit and shall identify areas to be covered by the
audit.
3.0 PRODUCT SPECIFIC REQUIREMENTS
3.1 QUALITY ACCEPTANCE REQUIREMENTS
3.1.1 Measure of Outgoing Product Performance at Seller's Facility
Prior to shipment to the Buyer, the quality of new products, spare
parts, and repaired and refurbished product shall be measured. If the
quality falls below the minimum acceptable level, the corrective action
process (Sec. 2.9) shall commence immediately. Minimum performance
levels by product shall be agreed to by Buyer and Seller.
3.1.2 Measurement of Product Performance at Buyer's Facility
Buyer shall institute a standardized data collection and reporting
system to measure the performance of the Seller's products in the
Buyer's manufacturing process. It is expected that the performance of
Seller's product as measured at Buyer's facility shall be
substantially equivalent to the outgoing product performance per
section 3.1.1. If major deltas in performance beyond the expectations
stated in section 3.1.1 are experienced, then the Seller shall
immediately commence corrective action activity (see section 2.9).
3.2 PRODUCT RELIABILITY PERFORMANCE
Seller shall assure that reliability performance is maintained during volume
production. Phase III testing shall begin with the first production shipment to
the Buyer and shall continue for the life of the program. Seller shall submit a
comprehensive plan for Phase III testing that describes how the minimum
acceptable MTBF will be demonstrated. Statistical confidence limits will be
included if applicable. As closely as possible, the test sample will reflect the
mix of product Buyer is purchasing.
Specified product MTBFs and lower statistical confidence limits of the Seller's
test method shall be agreed by Buyer and Seller, and listed in Table I, as
applicable.
3.3 CONTINUOUS IMPROVEMENT
During execution of this agreement, Seller shall establish plans and goals to
continuously improve the outgoing product performance as defined in section
3.1.1.
As continuous improvement is achieved, product performance expectations shall be
updated when the contract is periodically reviewed.
3.4 PERFORMANCE DATA REPORTING
During the execution of this agreement, Seller shall provide Buyer with data
reports in a mutually agreeable reporting format. Data from the Seller's
manufacturing and product acceptance processes shall be reported to Buyer on a
monthly basis, and shall contain at a minimum the information detailed in
sections 3.1 thru 3.3, detailed in Table I.
TABLE I
DIGITAL PN DESCRIPTION PPM MTBF *
- ---------- ----------- ---
5131-110-17690 Printer 105W 2000
20-39403-01 300W 5V DC-DC 1000
20-39893-02 200W 3.3V DC-DC 1000
20-39894-01 250W Dual 1000
20-46895-01 138W 2.3V DC-DC 1000
30-34690-01 Pmariah (H7819-AA) 2000
30-35042-01 Waverly 2000
30-39579-01 Laser 16 Amp 0
30-39579-02 Laser 30 Amp 0
30-39579-03 Laser 20 Amp 0
30-41323-01 AC Dist Box 2000
30-41323-02 AC Dist Box ECO 2000
30-41523-01 2400W Bulk 2000
30-41782-01 One Hub 163W (H7894-MA) 2000
30-41976-01 Widetower 2000
30-41976-02 Widetower Variant 2000
30-42075-01 Madison USA 0
30-42075-02 Madison Euro 0
30-42756-01 2400W BBU 1000
30-42856-01 2400W Battery 1000
30-44712-01 Rawhide 2000
30-45494-01 ISIS - 4 2000
70-29764-05 150W Stg 1 Green 1000
70-29764-08 150W Stg 1 Gray 1000
70-29764-12 48V DC Storme 2000
70-29764-13 48V DC Gray 2000
70-29764-14 150W Stg 1 Teal 1000
TBD 180W Stg 1 + TBD
* Per purchase specification
EXHIBIT 11.1
ZYTEC CORPORATION
COMPUTATION OF NET INCOME PER SHARE
Three Months Ended
---------------------------
March 30, March 31,
1997 1996
----------- -----------
Net income $ 2,603,000 $ 2,108,000
Net income per common and common
equivalent share, primary $ 0.26 $ 0.22
Net income per common and common
equivalent share, fully diluted $ 0.26 $ 0.21
Primary:
Weighted average number of common
shares outstanding 9,248,213 8,753,904
Common equivalent shares:
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 860,656 852,134
----------- -----------
10,108,869 9,606,038
=========== ===========
Fully Diluted:
Weighted average number of common
shares outstanding 9,248,213 8,753,904
Common equivalent shares:
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 860,656 1,058,384
----------- -----------
10,108,869 9,812,288
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 6,705
<SECURITIES> 0
<RECEIVABLES> 34,280
<ALLOWANCES> 0
<INVENTORY> 23,073
<CURRENT-ASSETS> 67,527
<PP&E> 39,084
<DEPRECIATION> 18,713
<TOTAL-ASSETS> 92,393
<CURRENT-LIABILITIES> 34,780
<BONDS> 20,369
0
0
<COMMON> 13,629
<OTHER-SE> 21,708
<TOTAL-LIABILITY-AND-EQUITY> 92,393
<SALES> 57,598
<TOTAL-REVENUES> 58,206
<CGS> 47,650
<TOTAL-COSTS> 47,650
<OTHER-EXPENSES> 2,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383
<INCOME-PRETAX> 4,243
<INCOME-TAX> 1,640
<INCOME-CONTINUING> 2,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,603
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
