Manufacturing, Supply and Other Sales Agreements: A ...media.straffordpub.com/products/manufacturing... · Presenting a live 90-minute webinar with interactive Q&A Lynn M. Larsen,

Manufacturing, Supply and Other Sales Agreements:

A Roadmap for Avoiding Contracting Pitfalls Strategies for Drafting, Negotiating and Executing Sale of Goods Contracts

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Tuesday, February 3, 2015

Presenting a live 90-minute webinar with interactive Q&A

Lynn M. Larsen, Corporate Counsel, Cummins, Indianapolis

Jeffrey A. Soble, Partner, Foley & Lardner, Chicago

Tips for Optimal Quality

Sound Quality

If you are listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, you may listen via the phone: dial

1-866-961-8499 and enter your PIN when prompted. Otherwise, please

send us a chat or e-mail [email protected] immediately so we can

address the problem.

If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Quality

To maximize your screen, press the F11 key on your keyboard. To exit full screen,

press the F11 key again.

FOR LIVE EVENT ONLY

Continuing Education Credits

For CLE purposes, please let us know how many people are listening at your

location by completing each of the following steps:

• In the chat box, type (1) your company name and (2) the number of

attendees at your location

• Click the SEND button beside the box

If you have purchased Strafford CLE processing services, you must confirm your

participation by completing and submitting an Official Record of Attendance (CLE

Form).

You may obtain your CLE form by going to the program page and selecting the

appropriate form in the PROGRAM MATERIALS box at the top right corner.

If you'd like to purchase CLE credit processing, it is available for a fee. For

additional information about CLE credit processing, go to our website or call us at

1-800-926-7926 ext. 35.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please

complete the following steps:

• Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.

• Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

5

February 3, 2015

6

What is the risk?

©2015 Foley & Lardner LLP / Cummins Inc.

Highest risk relationships:

– Sole-source

– Just-in-time

Worst-case scenario:

– Business at risk

– Significant costs, legal and otherwise

7

Agenda

Pre-Contract Mistakes

Contracting Mistakes

Relationship Mistakes

– Financially Troubled Suppliers

Termination Mistakes


8

Pre-Contract

Mistakes

9

Pre-Contract Mistakes

Define business goals – Yours

– Suppliers

Identify key strategic benefits – Sales

– Margin

– Expansion (customer, market, etc.)

– Develop/strengthen existing relationship

– Capacity utilization/purchase obligations

– Pricing

– Other?


10

Pre-Contract Mistakes (cont.)

Know the risks/concerns

– Sole-Source/Just-In-Time

– Compliance

– Business

– Financial

– Customer specific


11


Internal coordination

– What department/group has lead

– What person has negotiation lead/strategic lead

– Coordinate with other necessary business units

– Coordinate with legal

– Escalation process of unresolved issues

– External coordination

With whom are you dealing

Who can bind other side


12


Know your timetable key milestones

– LOI/MOU/Term Sheet

– Contract signing

– Production/delivery

– Renewal/Termination

Know your “must haves”, “would likes”, and

“give aways”


13


Avoid inadequate RFQs

– Clear, consistent, understandable

– All requirements/qualifications

– T&C’s included

Perform adequate due diligence

– Public information available


14

Contracting

Mistakes

15

Contracting Mistakes –

Process

Failure to coordinate between different

corporate interests

Failure to consider leverage points

– Past relationship/history/impact

– Current suppliers/customers

– Relative size/need

– Prior existing contracts

Precedents?

Problems/issues?


16


Process (cont.)

Contractual commitment?

– May have commitment without knowing it

Legally enforceable promise

– “Binding” vs. “Non-binding”


17


Process (cont.)

Common documents:

– Requests for Quotation

– Quotation

– Purchase Orders

– Acknowledgements

– Material Release

– Invoices

– T&C’s incorporated by reference (web)

– Emails

– Amendments


18


Process (cont.)

Address key business/legal terms – deal breakers

Neglecting to address anything with specificity (allowing UCC to gap fill)

– Delivery time

– Payment time

– Warranties

– Remedies

– Can fill in the price


19


Process (cont.)

NDAs

– Avoid other party’s form

– Mutual

– Duration

– Unusual terms

Anti-employee raiding

Non-compete

– Dispute resolution

ER relief

Money damages hard to establish

– Legal review


20


Process (cont.)

Battle of the Forms

– Disclaim other documents

– Disclaim future documents

– Limit acceptance to terms of the offer/RFQ

– Object, in writing, to new terms

– Additional terms are effective unless:

Offer expressly limits acceptance to the terms of the offer

Additional terms materially alter the offer

Offeror objects within a reasonable time of notice of new

terms


21


Process (cont.)

Good record keeping/retention

– Standardize titles

– Use unique contract numbers

– Centralized, accessible repository

– Audit/update on periodic schedule


22


Substance

Pricing strategies

– Base/standard

– Extra

– Price adjustments

“Cost-Downs”

“Best-Efforts”

Rebates/incentives


23


Substance (cont.)

Pricing fluctuations

– Commodities

– Exchange rates

– Most-favored customer/supplier

How monitor/enforce

Consider antitrust issues


24


Substance (cont.)

Exclusivity

– Product

– Geography

– Means of monitoring/enforcing

– Legal restrictions against

– Exceptions:

Take in-house

Acquire source of supply


25


Substance (cont.)

Tooling

– Location

– Ownership

Bought by manufacturer

Financed in contract

– Risks:

Maintenance

Loss


26


Substance (cont.)

Boilerplate

– Starting point, not ending point

– Each transaction is similar, not identical


27


Substance (cont.)

Warranties

– Express

– Implied

– Limited

Defects in material & workmanship

Remedies

– Independent of warranties

– Limited

Repair/replace

Disclaim consequential, special, etc.


28


Substance (cont.)

Indemnification

– Different for IP/general

– Defense?

Control of defense

Selection of counsel

Settlement authority

Other risk allocation

– Insurance

– Other, business specific


29


Substance (cont.)

Dispute resolution options

– Stepped process

Business meetings

Mediation

Litigation

– Forum

– Emergency relief


30


Substance (cont.)

Arbitration

– Pros/cons

– Number of arbitrators

Neutrals

Party advocates

– Process

– Discovery

eDiscovery

Oral discovery

– Appeal


31

Relationship

Mistakes

32

Relationship Mistakes

Failure to create an internal “Owner”

– Point of contact

– One voice

– “Buck stops here”

Failure to understand the contract – Often different person than negotiator/signer

– May see contract first time to implement it

Failure to respond to issues – Communicate

– Proactive


33

Relationship Mistakes (cont.)

Failure to enforce contract terms

– Nothing minor

– Avoid waivers

Resolving problems

– Document resolution

– “Come-Clean” agreements


34

Relationship Mistakes (cont.)

Understand remedies/options if breach – For buyer

“Cover”

Damages

Specific performance

– For seller Withhold delivery

Stop delivery

Resell and recover damages

Cancel

Damages

– Offset


35

Financially

Troubled

Suppliers

36

Financially Troubled

Suppliers

What are they?

– Critical to continued production that:

Are financially and/or managerially unsound; and

Without assistance, will not meet requirements

– Just-in-time

– Sole-source


37


Suppliers (cont.)

Preventing Financially Troubled Suppliers

– Ongoing due diligence (above, and…)

Financial wherewithal

– Review financial statements

– Determine resources (e.g., lines of credit)

– Lender, customer, vendor checking

– UCC filings, tax liens, judgments

Managerial wherewithal – internal checks regarding

past experiences


38


Suppliers (cont.)


(cont.)

– Establish criteria for success

Shared

Generate reports

– Monitor business performance generally

Quarterly financials

Periodic requests to speak to lenders


39


Suppliers (cont.)


(cont.)

– Monitor business performance specifically

Missed, late or short payments

Low quality products

Stretched payables

Calls from vendors of your business partner

Lack of profitability


40


Suppliers (cont.)

What to do in a troubled situation?

– Act early – delay and drift are your enemies

– Quickly assemble team:

Purchasing

Engineering

Finance

Legal

Turnaround consultants

– Assess resourcing options

Existing other suppliers

Quality/timing/costs of resourcing


41


Suppliers (cont.)

What to do in a troubled situation (cont.)?

– Meet with supplier & supplier’s lenders

Assess management plan

Assess lender buy-in

Assess viability moving forward

– Determine (hopefully jointly) plan

– Document

Adequate assurances

Accommodation Agreement

Access Agreement


42

Termination

Mistakes

43

Termination Mistakes

When must you terminate

– Evergreen/automatic renewal

– Diary dates

“Reasonable” notice if no date

Provide notification required

– For cause

Supported

Timely

Avoid pretext

– Difference between notification and termination


44

Termination Mistakes (cont.)

Reclaim your property

– Physical

Tooling

– Breaking down/removing

– Decontamination

– Emergency return

– Intellectual

– Legal is a poor option - Replevin


45

Termination Mistakes (cont.)

Exit/Termination Agreement

– Transfer to a new business partner

– Purchase of inventory

– Purchase of raw materials

– Tooling transfer


46

LYNN MARTINEC LARSEN

CORPORATE COUNSEL

CUMMINS INC.

317.610.2520

[email protected]

JEFFREY A. SOBLE

PARTNER

FOLEY & LARDNER LLP

312.832.5170

[email protected]

THANK YOU!

Documents

Manufacturing, Supply and Other Sales Agreements: A ...media.straffordpub.com/products/manufacturing... · Presenting a live 90-minute webinar with interactive Q&A Lynn M. Larsen,