Breakout Session 2106 Jeffrey L. Roth, Attorney, Fees & Burgess, P.C.

2. Important Attributes of Vendor Managed Inventory and Hub Agreements and How to Minimize Risk Breakout Session 2106 Jeffrey L. Roth, Attorney, Fees & Burgess, P.C. Allen L. Anderson, Attorney, Fees & Burgess, P.C. April 24, 2007 3:20 p.m. – 4:20 p.m.

3. Differing Terminology / Agreements • Hub Agreement • Consignment Agreement • Vendor Managed Inventory Agreement • Third Party Logistics Provider (3PL) • Warehousing Agreement • JIT

4. Hub Agreement • From “hub and spoke” and referring to centralized or focal point for consolidating product deliveries, warehousing, and other supply-chain related activities.

5. Consignment Agreement • Agreement where vendor places goods at a customer location where title does not transfer and payment is not received until such goods are “pulled.”

6. Vendor Managed Inventory Agreement • Placing responsibility for determining order size and timing on the vendor with the goal of increasing turns and reduction of stock outs.

7. 3PL Agreement • Third party logistics provider agreement usually relates to outsourcing of company’s logistics operations to a specialized company to perform services such as: transportation, warehousing, cross docking, inventory management, packaging, distribution, and freight forwarding.

8. Warehousing Agreement • Agreement that is usually limited to receipt of product, storage, shipment, and order picking.

9. JIT Agreement • Vendor managed operations taking place within a customer’s facilities. • Supplier representatives place orders to their own companies and do concurrent planning.

10. This Portion of the Supply Chain Can Be Handled In-House or Outsourced

11. Whether provided directly or through a third party, there are important attributes that each of the preceding agreements should contain.

12. Proper Party • correct legal name / EIN • parent or subsidiary • which entity is registered for tax and import / export schemes?

13. Receipt, storage, shipment (reference appropriate Incoterm) “value added” ISO certified Warehouse Management System Required reports Inventory reconciliation Performance measurements Must be flexible Incentives / penalties Scope of Services

14. By transaction, percentage, or otherwise Periodic invoicing Payment terms Applicable currency Firm for term of agreement or adjusted on periodic basis Cost-plus Cost visibility to justify rates and charges Cost reductions fuel surcharges Who has “forecast risk” or cost of money risk Pricing / Fees

15. Risk of Loss or Damage • In transit (Incoterms 2000) • At destination location • If shrinkage or “loss”

16. Term • Fixed or evergreen • Cure period prior to termination for breach • “time is of the essence” • Expedited recovery of goods upon breach • Treatment of residual or damaged goods • Termination for convenience • Termination if underlying requirement goes away

17. Volume Requirement / Forecasting • “min / max” • Based upon forecast / usage formula • “take or pay” after certain number of days • Carrying costs • Obsolescence (opportunity for value added) • Limitation on flexibility

18. Liability / Indemnification • Indemnify, defend, and hold harmless • Including attorneys’ fees • Personal injury, death, or damage to property • Arising from negligence acts, or omissions, or breach • Expect mutuality • Unlimited, except maybe consequential economic damages

19. Compliance with Laws • Customs-Trade Partnership Against Terrorism (CTPAT) • Import / export compliance (US and other) • Environmental, Health, and Safety • Revenue / Tax

20. Limitation of Liability • Related to goods handled • Risk allocation included in pricing • Attrition / Shrinkage • Self-insurance issues • Owner Managed Insurance Program (OMIP)

21. Important to interface with the company’s carrier Reasonable limits covering expected business and risk Certificate of insurance requirement 30-days notice of change Named as additional insured, primary coverage Address theft, fidelity coverage Insurance

23. Security and Fire Protection • CTPAT • Exhibit to statement of work • Special treatment for high-value items • Insurance company audit • Business continuity / Disaster recovery • Environmental controls

24. Information Systems / Transaction Processing • Systems and software utilized • Capability to track our specific goods (pallet and carton) • Speed of order fulfillment, other data collection and posting • Available reports, and how accessed (Web-based etc.) • Data security, confidentiality concerns (nondisclosure agreement) • Handling and reporting of damaged goods • Who owns any IP generated?

25. Tax Considerations • “Permanent establishment” and “doing business” issues • Exposure of parent to tax instead of just operating subsidiary • Which entity in the corporation is locally VAT registered to recover such tax • Watch where title resides and who approves “pull” signals

26. Security Interest • Marking as to ownership • Segregated area, not commingled • Promise not to encumber goods • Grant of security interest to file lien (critical) • Warehouseman’s lien

27. Dispute Resolution • Escalation process to mediation • Arbitration • Litigation • Venue • Forum selection

28. Choice of Law • Only the law you know • Watch incorporation of tariffs, route guides, industry terms, or other referenced items • May want to specify language of agreement

29. Assignment Assignable to subsidiaries, related parties, or in the event of ownership change Other Incorporated Documents Security requirements, insurance requirements, scope of work, EDI, disclaimer of boilerplate forms Audit Rights At least as to changes and cost plus items Limitation of Liability Umbrella clause limiting any damages to dollar certain or amount of services, with or without indemnity “carved out” Revenue Recognition Be accurate Miscellaneous

30. Questions? / Evaluations

31. Speakers Fees & Burgess, P.C., provides speakers, programs, and seminars for various trade associations; business groups; and clients. For information regarding a program, contact Julia S. Fees at jfees@feesburgess.com. Michael L. Fees mfees@feesburgess.com C. Gregory Burgess gburgess@feesburgess.com Allen L. Anderson anderson@feesburgess.com Jeffrey L. Roth jroth@feesburgess.com Stacy L. Moon smoon@feesburgess.com Leah M. Green lgreen@feesburgess.com Nori D. Horton nhorton@feesburgess.com FEES & BURGESS, P.C. 213 Green Street Huntsville, Alabama 35801 Telephone (256) 536-0095 Facsimile (256) 536-4440 www.feesburgess.com Newsletters Fees & Burgess, P.C., publishes F&B QuarterlyBytes, focusing on multiple practice areas, F&B HR Corner, focusing on human resource issues, F&BProtective Measures, focusing on insurance law, and F&B SCMMemo, focusing on the supply chain management industry. To receive any of these e-newsletters, please provide Julia S. Fees at jfees@feesburgess.com with your contact information. These materials should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. Anyone needing specific legal advice should consult an attorney. “No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.”