[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT 10.17
CERENT CORPORATION
MANUFACTURING AGREEMENT
This Manufacturing Agreement (this "Agreement") is entered into as of April
1, 1999 (the "Effective Date") by and between Cerent Corporation, a Delaware
corporation, whose principal place of business is 0000 Xxxxx XxXxxxxx Xxxx.,
Xxxxxxxx Xxxxxxxxxx 00000-0000 ("Customer") and P.C.B. Assembly, Inc., a
California corporation, whose principal place of business is 000 Xxxxxxx
Xxxxxxx, Xxxxxxxxx, Xxxxxxxxxx 00000 ("Manufacturer").
RECITALS
WHEREAS, Manufacturer is a contract manufacturer of printed circuit board and
other assemblies;
WHEREAS, Customer has developed certain designs, drawings, bills of materials
and other specifications for certain products in which printed circuit board and
other assemblies are used; and
WHEREAS, Customer desires to have certain assemblies manufactured by
Manufacturer on a "turnkey" basis on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and the mutual covenants and
agreements herein contained, the parties hereby agree as follows:
1. Definitions.
------------
"Confidential Information" of a party shall mean any information
--------------------------
disclosed by that party to the other pursuant to this Agreement which is in
written, graphic, machine readable or other tangible form and is marked
"Confidential," "Proprietary" or in some other manner to indicate its
confidential nature. Confidential Information may also include oral information
disclosed by one party to the other pursuant to this Agreement, provided that
such information is designated as confidential at the time of disclosure and is
reduced to writing or referred to in a writing by the disclosing party within a
reasonable time (not to exceed thirty (30) days) after its oral disclosure, and
such writing is marked in a manner to indicate its confidential nature and
delivered to the receiving party. Notwithstanding any failure to so identify it,
however, all Product drawings, designs, specifications, layouts and the like and
all business plans and forecasts of Customer shall be Confidential Information
of Customer, and all information concerning Manufacturer's personnel (including
without limitation their identities and capabilities) and Manufacturer's
processes, together with all information concerning Manufacturer's work for its
other customers shall be Confidential Information of Manufacturer.
"Cost Model" has the meaning set forth in Section 5(c).
----------
"Forecast" shall have the meaning set forth in Section 2(c).
--------
* Represents confidential information for which Cerent Corporation is seeking
confidential treatment with the Securities and Exchange Commission.
-1-
CONFIDENTIAL TREATMENT REQUESTED
"Intellectual Property" means (i) all rights held by Customer in the
---------------------
Products and in its Confidential Information and other intellectual property,
including, but not limited to, patents, copyrights, authors' rights, trademarks,
tradenames, know-how and trade secrets, irrespective of whether such rights
arise under U.S. or international intellectual property, unfair competition or
trade secret laws, and (ii) all rights held by Manufacturer in its Confidential
Information and other intellectual property, including, but not limited to,
patents, copyrights, authors' rights, trademarks, tradenames, know-how and trade
secrets, irrespective of whether such rights arise under U.S. or international
intellectual property, unfair competition or trade secret laws.
"Lead Time" means one [*]
"Material" or "Materials" means raw materials, components and other
-------- ---------
supplies necessary for the manufacture of Products pursuant to this Agreement.
"NCNR Items" means those materials which, in the event they are not
----------
incorporated into Products which are shipped to Customer or an end-customer,
cannot be returned to the vendors from which they are purchased for a full
refund.
"Products" means the products and finished goods available for shipment
--------
that are manufactured by Manufacturer pursuant to this Agreement, as mutually
agreed to in writing by the parties as of the Effective Date and as may be
amended thereafter upon mutual written agreement of the parties.
"Purchase Order for Shipment" means an order placed by Customer to ship
---------------------------
Product(s) to an end-customer, which shall specify the Product, quantity, ship-
to address and shipping method.
"Specifications" means the specifications for the Products, as provided by
--------------
Customer and accepted in writing by Manufacturer, and as revised from time to
time upon mutual written agreement of the parties.
"Virtual Factory Stores" means vendor stock rooms within Manufacturer's
----------------------
facility.
2. Manufacture and Storage of Products.
------------------------------------
(a) Agreement to Manufacture. Subject to the terms and conditions of this
------------------------
Agreement, Manufacturer shall: (1) pursuant to Forecasts, procure Materials,
manufacture, assemble and test Products; and (2) pursuant to Purchase Orders for
Shipment, ship Products to the location specified by Customer. This Agreement
shall not constitute a requirement contract and Customer shall not be obligated
to order Products from Manufacturer. Manufacturer will not place its name or
any other marking not approved by Customer anywhere on the Products or their
respective packaging material, except markings, if any, which are required by
law.
-2-
* Represents confidential information for which Cerent Corporation is
seeking confidential treatment from the Securities and Exchange
Commission.
CONFIDENTAIL TREATMENT REQUESTED
(b) Demand Flow Technology. Manufacturer shall implement Demand Flow
----------------------
Technology ("DFT") in the manufacturing of Products for Customer and shall send
---
appropriate personnel involved in the manufacturing of Products to the JIT
institute for training. The parties will mutually develop a definition of DFT
and a DFT implementation plan.
(c) Forecasts. By the [*], Customer shall
---------
provide Manufacturer with a [*] of Customer's estimated purchase requirements of
Products for such period, indicating the number of Products to be purchased
during each month of the period covered by the Forecast and designating the
quantity of Product to be maintained in Finished Goods under 2(e) . . Subject
to the obligations of Customer under this Agreement to purchase excess inventory
of material, work-in-process and finished goods in the event of a deviation from
forecast, forecasts shall not be legally binding on Customer, but shall be
prepared in good faith and shall represent Customer's reasonable expectation of
its purchase requirements of Products for such period. Each Forecast shall be
submitted in writing to Manufacturer, by mail or facsimile, and shall supersede
prior Forecasts to the extent the Forecast overlaps with prior Forecasts.
Manufacturer may place orders for Material as required to meet the Forecast
within Material leadtime [*], taking into consideration any minimum order
quantities, and may manufacture Products in reliance on the quantity
requirements specified for the first [*] of any Forecast, In the event that
Customer's actual orders are for fewer than the quantities forecast for that
period of time, or in the event of termination of this Agreement under Section
19, Customer will purchase the excess Finished Goods Held for 30 Days, Stocked
Material Held for [*], and Finished Goods, WIP and Material for No Further
Demand Products on the terms set forth in Section 5(e).
(d) Forecast Variations. For each Forecast, Customer shall be entitled,
-------------------
without penalty, to: (i) during the period of time between [*] and [*] prior to
any shipment period specified in the Forecast, increase the quantity of Product
required for such shipment period by a cumulative amount equal to [*], including
any prior increase under Section 2(d)(ii) and (ii) during the period of time
between [*] and [*] prior to any shipment period specified in the Forecast,
increase the quantity of Product required for such shipment period by a
cumulative amount equal to one hundred percent (100%). Such rescheduled
Forecasts shall be submitted in writing to Manufacturer, by mail or facsimile,
and shall supersede prior Forecasts for the same period to the extent such prior
Forecasts conflict with the rescheduled Forecast. Manufacturer shall use its
best efforts to meet increases in ordered Products requested by Customer in
excess of the foregoing amounts. Customer may, within its sole discretion,
reduce the amount of Products in a Forecast at any time, subject to its
obligations under Section 5(e).
Manufacturer and Customer shall enter good faith negotiations
regarding the terms for NCNR Items needed to support Forecast increases
requested by Customer under this Section 2(d).
Customer shall pay any freight cost premiums that are required for
Manufacturer to meet increases in the amount of Products ordered pursuant to
this Section 2(d), provided, that Manufacturer obtains Customer's written
approval prior to incurring such costs.
-3-
* Represents confidential information for which Cerent Corporation is
seeking confidential treatment from the Securities and Exchange
Commission.
CONFIDENTIAL TREATMENT REQUESTED
(e) Finished Goods Levels. Until such time as the DFT implementation plan
---------------------
is developed and implemented, Manufacturer shall manufacture, assemble and test
that amount of Products (the "Finished Goods Level") which will satisfy [*]
--------------------
rolling demand for Products according to the most recent Forecast, including any
permitted increases requested by Customer under Section 2(d). Under the DFT
implementation plan the Finished Goods Level may be less than the number which
would satisfy such two-weeks' rolling demand.
(f) Engineering Changes. Customer may request at any time, in writing,
-------------------
that Manufacturer incorporate an engineering change into the Product. Such
request will include a description of the proposed change and a proposed
implementation schedule. Manufacturer shall respond to such a request in
writing within three (3) business days, stating its ability to implement the
requested change per the proposed implementation schedule (or proposing an
alternative implementation schedule if Manufacturer cannot meet the proposed
implementation schedule) and the impact of the change on the delivery schedule
and the cost of the change per the Cost Model. Manufacturer will not be
obligated to proceed with the engineering change until the parties have agreed
in good faith in writing on the changes to the Specifications, the
implementation schedule and pricing and Customer has provided all designs,
drawings, parts lists, and other information needed to implement the change.
(g) Product Inventory. Subject to the time, quantity, and other limits
-----------------
set forth in this Agreement, Manufacturer shall be responsible for storing
Products, at Manufacturer's expense, until Customer requests shipment pursuant
to Section 4(a) or until such Products are purchased under Section 5(e).
(h) Certification. During the Term, Manufacturer shall be certified to
-------------
ISO 9002 and Underwriters' Laboratory ("UL") equivalent standards.
(i) Year 2000 Compliance. Manufacturer shall develop and implement a Y2K
--------------------
compliance plan intended to avoid any possible business interruption.
3. Components; Tooling.
-------------------
(a) Approved Vendor List. Customer shall provide a Xxxx of Materials and
--------------------
Approved Vendor List ("AVL") for each Product to be manufactured hereunder.
Manufacturer shall manufacture the Products using components obtained solely
from vendors included on the AVL. The AVL shall not be amended without prior
written approval of the Customer, and the parties recognize that Manufacturer
may need to modify prices or delivery schedules if the AVL is changed.
(b) Tooling/Non-Recurring Expenses. Except as set forth herein,
------------------------------
Manufacturer shall provide tooling for Products at its own expense. All tooling
paid for by Customer and consigned to Manufacturer shall be set forth in a
separate list maintained by Customer (the "Customer Owned Equipment"). Customer
Owned Equipment shall include the testing equipment provided by Customer to
Manufacturer pursuant to Section 6 herein. Customer shall own title to all
-4-
* Represents confidentail information for which Cerent Corporation is
seeking confidential treatment from the Securities and Exchange
Commission.
Customer Owned Equipment. Manufacturer shall hold and maintain all Customer
Owned Equipment and other property for Customer and shall exercise reasonable
care in the use and custody of such property and shall use such property only in
performing its obligations under this Agreement. Manufacturer shall not grant
any security interest, incur any liens or any other encumbrances on said
Customer Owned Equipment. Upon termination of this Agreement and upon
Customer's written request Manufacturer will promptly return all Customer Owned
Equipment in good, workable and properly maintained condition at Customer's cost
to a location identified by Customer. Upon Customer's request, Manufacturer
shall execute a form UCC-1, and any related documents, in form and substance
reasonably acceptable to Manufacturer and its counsel, for all Customer Owned
Equipment indicating Customer's interest therein.
4. Shipment and Inspection.
-----------------------
(a) Shipment. Upon receiving a Purchase Order for Shipment (or a PO under
--------
Section 5(e)) from Customer, Manufacturer shall deliver to the specified carrier
or forwarding agent the specified Product(s) suitably packed for shipment in
accordance with Customer's specifications, marked for shipment to the
destination specified in the Purchase Order for Shipment (or, in the case of a
PO under Section 5(e), to Customer). Manufacturer shall deliver such Products
to the specified carrier or forwarding agent by the date specified in the
Purchase Order for Shipment, provided that such date is within the appropriate
Lead Time. Manufacturer shall satisfy Purchase Orders for Shipment for Products
up to an amount equal to that set forth in the most recent Forecast plus, to the
extent required by Section 2(d), any increases made by Customer pursuant to
Section 2(d). Manufacturer shall use its best efforts to meet any Purchase
Orders for Shipment for amounts of Product in excess of the foregoing. Shipment
will be F.O.B. Manufacturer's factory, at which time risk of loss and title will
pass to Customer. All freight, insurance and other shipping expenses for the
Products will be paid by Customer. Customer shall provide Manufacturer with
shipping account numbers for pre-paid shipment. Manufacturer shall invoice
Customer for Products upon delivery of such Products to the specified carrier or
forwarding agent. A delivery shall be considered on-time if received by
Customer or shipped to the specified end-customer, as applicable, no earlier
than three (3) days prior to, and no later than, the shipment date.
(b) Inspection and Acceptance. Products manufactured by Manufacturer can
-------------------------
be inspected and tested by Customer or the end-customer within a reasonable time
after receipt of such Products. Customer or the end customer can reject any
Products found to be defective in material or workmanship, failing to meet the
Specifications or drawings, failing the test criteria per the Product
documentation, and/or which do not meet the IPC 610B Class 2 workmanship
standard. Customer and end-customers shall have the right to inspect Products
in Manufacturer's custody at any time provided that such inspection does not
disrupt the delivery schedule for such Products.
5. Payment.
--------
(a) Payment Terms. Payment for any products, services or other costs to
be paid by Customer hereunder is due thirty (30) days from the invoice date.
Customer shall receive a one
-5-
percent (1%) reduction in the amount due if Customer makes payment within ten
(10) days of the invoice date. Continued extension of trade credit is subject to
the approval of Manufacturer's credit department and may be revoked at any time
at Manufacturer's sole discretion. Manufacturer may place future deliveries of
goods and/or services on credit hold, suspend production after written
notification to Customer, or accept orders only on a COD or cash with order
basis in the event the Customer fails to make prompt payment or if, in
Manufacturer's reasonable opinion, the financial condition of Customer or other
grounds for insecurity warrants such action. Manufacturer reserves the right to
impose on invoices not paid when due a daily finance charge at the rate of .05%
per day (or, if less, the maximum allowed by applicable law) to cover the costs
of servicing the account. Partial orders will be billed as delivered and
payments for partial orders are subject to the same terms as full shipments.
(b) Duties and Taxes. All prices quoted are exclusive of federal, state
----------------
and local excise, sales, use and similar duties and taxes, and Customer shall be
responsible for all such items.
(c) Price. The price for Products shall be calculated as set forth on
-----
Exhibit A hereto (the "Cost Model").
(d) Security Interest.
-----------------
Customer grants to Manufacturer and Manufacturer reserves a purchase money
security interest in all goods sold to Customer to secure payment of all amounts
and the performance by Customer of its other obligations due hereunder. In the
event of default by Customer in any obligation to Manufacturer, Manufacturer
will have all rights of a secured party under the California Commercial Code,
and Customer agrees to take no action which would constitute a breach of the
peace in response. Manufacturer may file a copy of this document at any time as
a financing statement to perfect Manufacturer's security interest. On
Manufacturer's request, Customer will promptly execute financing statements and
other instruments that Manufacturer may request to perfect Manufacturer's
security interest.
(e) Cancellations or Change of Forecasts.
-------------------------------------
(i) Excess/ No Demand Schedule. Within ten (10) days after the end
--------------------------
of each fiscal quarter and within thirty (30) days after termination of this
Agreement, Manufacturer will provide to Customer an Excess/ No Demand Schedule,
which shall be a report that includes the following:
A. Excess Finished Goods Held for 30 Days. "Finished Goods
--------------------------------------
Held for 30 Days" means the Products manufactured by Manufacturer in order to
satisfy the Forecast and Finished Goods Levels pursuant to Section 2(e), and
which Manufacturer has held for at least thirty (30) days. The Excess/ No Demand
Schedule shall include the amount of Finished Goods Held for 30 Days together
with the per unit sales price and the total purchase price under this Agreement
for such items.
B. Excess Stocked Material Held for 90 Days. "Excess
----------------------------------------
Stocked Material Held for 90 Days" means the Materials ordered by Manufacturer
pursuant to
-6-
Section 2(c), and which Manufacturer has held for at least ninety (90) days. The
Excess/ No Demand Schedule shall include the quantity and part number of each
type of Material together with the per unit cost (including the applicable
overhead factor per Exhibit "A") and the total purchase price (including such
overhead factor) for all such items.
C. Finished Goods, WIP and Material for No Further Demand
------------------------------------------------------
Products. "Finished Goods, WIP and Material for No Further Demand Products"
--------
means, with respect to Products (including earlier versions of Products which
have had changes to their designs) for which no projected orders exist on the
most recent Forecast or, upon termination of this Agreement, (i) the quantity
and sales price under this Agreement of all work-in-process and finished goods
manufactured by Manufacturer pursuant to Sections 2(c) or 2(e), (ii) the
quantity, unit price (including the applicable overhead factor per Exhibit "A"),
and aggregate price of all NCNR items and partially used Material, including
broken packages, ordered by Manufacturer pursuant to Section 2(c), and (iii) a
list of all restocking fees, scrap, disposal and other charges for items ordered
by Manufacturer pursuant to Section 2(c) which cannot be returned by
Manufacturer for a full refund. The Excess/ No Demand Schedule shall include a
list of all Finished Goods, WIP and Material for No Further Demand Products.
(ii) Responsibility for Purchase of Excess. On the terms set forth
-------------------------------------
below, it shall be Customer's responsibility to purchase all Finished Goods Held
for 30 Days, Stocked Material Held for 90 Days, and Finished Goods, WIP and
Material for No Further Demand Products which are in excess of the quantities
needed (a) to fill existing Purchase Orders for Shipment, and (b) to meet
Manufacturer's obligation under Section 2(e) to maintain a Finished Goods Level.
(iii) Procedure and Timing. Within thirty (30) days after receipt
--------------------
of the Excess/No Demand Schedule, Customer will provide a Purchase Order ("PO")
to Manufacturer for all items described in the immediately preceding
subparagraph at the prices specified on the Excess/No Demand Schedule. Customer
will make payment in full for such items within ten (10) days after
Manufacturer's invoice. Failure to provide a PO within thirty (30) days shall
result in an additional charge in the amount of 1.5% per month or the maximum
rate allowed by law. Customer shall be entitled to take prompt delivery of all
materials and Products paid for by Customer under this Section.
(iv) Disputes. Customer agrees to adequately document any dispute
--------
concerning the Excess/No Demand Schedule, and the parties shall work to resolve
any such disputes in good faith. Manufacturer shall be responsible to notify
customer of excess material in a timely manner, considered to be within six
months of occurrence.
(v) Returns. Manufacturer will request credit and return of
-------
Material no longer required to meet Customer's requirements, or attempt to apply
it to other customer demand, however, cannot guarantee the ability to return
parts for credit or apply them to other customer demand.
6. Product Testing. Manufacturer shall test all Products before shipment to
---------------
demonstrate that they meet the Specifications, using tests specified in writing
and agreed to by both parties in
-7-
advance. Except as set forth below in Sections 6(a), (b) and (c), Manufacturer
shall provide, and shall bear all costs associated with, all test equipment used
to test the Products.
(a) Functional Testing. Customer shall provide the functional test
------------------
equipment to be used by Manufacturer. Manufacturer shall maintain and calibrate
such functional test equipment. Within thirty (30) days after invoice, Customer
shall pay Manufacturer's direct out of pocket costs of such maintenance and
calibration. In the event that the Functional Unit Test ("FUT") first pass
---
yield for any Product is less than ninety-five percent (95%) due to a faulty
design, component or test system, Customer shall, within a reasonable time,
provide Manufacturer with a workable plan to improve such yield, and
Manufacturer may, if reasonable under the circumstances, stop production of such
Product until such plan is received and appropriate changes are made to pricing
and scheduling.
(b) Burn-in Testing. Customer shall specify the burn-in equipment to be
---------------
used by Manufacturer. In the event Customer specifies burn-in equipment other
than that otherwise used by Manufacturer, Manufacturer shall develop, build and
maintain the burn-in equipment requested by Customer. Within thirty (30) days
after invoice, Customer shall pay Manufacturer's direct out of pocket costs of
developing, building, and maintaining such burn-in equipment.
(c) ICT Equipment. All ICT fixtures and programs shall be purchased and
-------------
owned by Customer. At Customer's request, Manufacturer shall provide Customer
with a cost quotation for ICT fixtures and programs. Manufacturer shall
maintain the ICT fixtures and programs selected by Customer. Within thirty (30)
days after invoice, Customer shall pay Manufacturer's direct costs of developing
and maintaining such ICT fixtures.
7. License Grant; Ownership Rights.
--------------------------------
(a) Nonexclusive License. For the Term, Customer grants Manufacturer a
--------------------
non-exclusive, nontransferable, royalty-free license, without right to
sublicense, to use Customer's Intellectual Property (i) that is necessary for
the manufacturing, assembling and testing Products for Customer pursuant to this
Agreement and (ii) for the sole purpose of manufacturing, assembling and testing
Products for Customer pursuant to this Agreement.
(b) Intellectual Property Rights. Each party shall retain sole ownership
----------------------------
of, and all rights to, any Intellectual Property of any kind previously owned by
that party or created solely by that party. The parties shall jointly own any
intellectual property rights where both parties made substantial contributions
to the creation thereof, provided, however, that Customer shall be the sole
owner of all right, title and interest in and to any intellectual property
rights related to Products and any improvements, modifications or derivative
works of any Products other than intellectual property rights to Manufacturer's
processes and, which shall belong solely to Manufacturer.
8. Indemnity.
----------
-8-
(a) Indemnification by Manufacturer. Manufacturer agrees, at its own
-------------------------------
expense, to indemnify the Customer against any damages, costs (including
attorneys' fees and costs) or other liability arising from any claim brought
against them with respect to any Products manufactured by Manufacturer, and any
out-of-pocket costs to Customer of any returned or failed Products manufactured
by Manufacturer, including all costs incurred as a result of a Product
withdrawal or recall (collectively "Customer Losses") to the extent such
Customer Losses are caused by Manufacturer's failure to manufacture the Products
in conformance with the Specifications and with Manufacturer's warranties as set
forth in this Agreement, or by Manufacturer's misconduct or negligence;
provided, with respect to any claim or action, that Customer provides (i) prompt
--------
written notice of such claim or action, (ii) sole control and authority over the
defense or settlement of such claim or action and (iii) proper and full
information and reasonable assistance to defend and/or settle any such claim or
action.
(b) Mutual Indemnity. The parties will indemnify each other against
----------------
actions, liabilities, loss, damages and expenses resulting from injury or death
of any person or loss of or damage to any tangible real or tangible personal
property to the extent that such injury, death, loss or damage is proximately
caused by the indemnifying party's negligent act or omission or intentional
misconduct or that of its agents, employees or subcontractors in connection with
the performance of its obligations under this Agreement, provided that the
indemnifying party has been notified in writing as soon as practicable of any
such claim. The indemnifying party will have the sole right to control the
defense of all such claims and in no event will the indemnified party settle any
claim without the indemnifying party's prior written approval.
(c) Notwithstanding any other provision of this Agreement, Customer shall
indemnify, defend and hold Manufacturer harmless from and against all expenses,
damages, liabilities, costs, losses and causes of action (including attorneys'
fees) resulting from any claim of infringement, violation or misappropriation of
any patent, copyright, trademark, trade secret, or proprietary information or
other industrial or intangible property right, unfair competition, or product
liability arising out of or in any way connected with compliance by Manufacturer
with the designs, specifications or instructions of Customer. If any such claim
is alleged prior to completion of delivery of the Products, then,
notwithstanding any other provision of this Agreement, Manufacturer may decline
to make further deliveries without being in breach of this Agreement.
9. Warranty. Manufacturer warrants that all Products will conform to the
--------
Specifications and will be free from defects in material and workmanship for a
period of one (1) year from date of shipment to Customer or to another party
specified in a Purchase Order for Shipment and that all Products will conform to
the IPC 610B Class 2 workmanship standard. Customer's sole and exclusive remedy
with respect to the Products and the liability of Manufacturer under this
Agreement shall be limited to repair or replacement, at Manufacturer's option,
of any defective Products which are returned freight prepaid to Manufacturer's
plant, (or, if repair or replacement cannot be made despite Manufacturer's best
efforts to attempt to do so, refund of the purchase price (other than any
separate set-up or NRE fees) for such Products so returned.) THE FOREGOING
STATES THE FULL EXTENT OF MANUFACTURER'S LIABILITY TO CUSTOMER OR TO ANY OTHER
PARTY BASED ON ANY LEGAL THEORY,
-9-
INCLUDING BREACH OF CONTRACT, BREACH OF WARRANTY, OR TORT THEORIES, AND FOR
DAMAGES, WHETHER DIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL, RESULTING FROM
ANY SUCH BREACH AND CUSTOMER SHALL HAVE NO RIGHT TO "COVER" BY PROCURING
SUBSTITUTE PRODUCTS AT THE COST OR EXPENSE OF MANUFACTURER. EXCEPT AS PROVIDED
ABOVE, MANUFACTURER MAKES NO WARRANTIES EXPRESS, IMPLIED OR STATUTORY, AND
EXPRESSLY EXCLUDES AND DISCLAIMS ANY WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE. Notwithstanding any other provision of this Agreement, the foregoing
warranty shall not apply to goods or parts which have been subject to improper
storage, abuse, misuse, accident, alteration, neglect or unauthorized repair or
installation. All Products returned shall be handled per Manufacturer's RMA
procedure. Manufacturer shall be responsible for tracking board serialization
and warranty dates and such information shall be accessible to Customer upon its
reasonable request.
10. Term and Termination.
--------------------
(a) Term. The term of the this Agreement shall begin on the Effective
----
Date and, unless sooner terminated as provided herein, shall extend for one (1)
year (the "Initial Term") and thereafter automatically renew for additional one
(1) year periods (each, a "Renewal Term") unless either party gives the other
written notice of termination at least three (3) months prior to the end of the
Initial Term or Renewal Term, as applicable. As used herein, "Term" means the
Initial Term plus any applicable Renewal Term.
(b) Termination for Cause. Either party may cancel this Agreement at any
---------------------
time if the other party breaches any term hereof and fails to cure such breach
within thirty (30) days after written notice specifying the nature of such
breach.
(c) Termination Liability. Except as otherwise provided in this
---------------------
Agreement, including without limitation Section 5(e), neither party shall be
liable in any manner on account of the termination or cancellation of this
Agreement. The rights of termination and cancellation as set forth herein are
absolute. Both Customer and Manufacturer are aware of the possibility of
expenditures necessary in preparing for performance hereunder and the possible
losses and damages that may occur to each in the event of termination or
cancellation. Both parties clearly understand that neither shall be liable for
damages of any kind (including but not limited to special, incidental or
consequential damages) by reason of the termination or cancellation of this
Agreement. Notwithstanding any other provisions of this Agreement, upon
termination of the Agreement, Customer will immediately purchase, for cash, all
Finished Goods, WIP and Material for No Further Demand Products as provided in
Section 5(e) of this Agreement.
(d) Obligations Upon Termination. The termination or expiration of this
----------------------------
Agreement shall in no way relieve either party from its obligations to pay the
other any sums accrued hereunder prior to such termination or expiration or
required as a result of such termination.
(e) Survival. Notwithstanding anything to the contrary in this Agreement,
--------
the following sections shall survive termination or expiration of this
Agreement: 1, 4, 5, 7(b), 8, 9, 10, 11, 13,
-10-
15, 16, and 17. The confidentiality provisions of Section 15 shall survive the
termination or expiration of this Agreement for a period of three (3) years.
11. Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY
-----------------------
HEREIN, NEITHER PARTY NOR ITS AGENT(S), REPRESENTATIVE(S) OR EMPLOYEE(S) SHALL
BE LIABLE TO THE OTHER PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING LOSS
OF REVENUES, LOSS OF PROFITS, LOSS OF BUSINESS OR INDIRECT, CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY
OF LIABILITY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. THE LIABILITY OF CUSTOMER, ITS AGENT(S), REPRESENTATIVE(S) AND
EMPLOYEE(S) TO THE MANUFACTURER FOR DAMAGES OR ALLEGED DAMAGES WHETHER IN
CONTRACT OR TORT (INCLUDING STRICT LIABILITY AND NEGLIGENCE) WITH RESPECT TO
THIS AGREEMENT IS LIMITED TO AND SHALL NOT EXCEED THE AMOUNTS PAID BY CUSTOMER
TO MANUFACTURER UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS IMMEDIATELY
PRECEDING THE EVENT AND/OR PRODUCT GIVING RISE TO THE DAMAGES.
12. Quarterly Reviews. The parties shall hold quarterly progress reviews at
-----------------
the same time as the quarterly pricing reviews per Exhibit A, in which the
parties will discuss, without limitation, quality performance, delivery
performance, the inventory plan, manufacturability issues, yield improvements,
new product plans, costs and cost reduction plans. The agenda and location of
such meetings shall be mutually agreed upon at least two (2) weeks in advance of
such meetings.
13. Attorneys' Fees. The prevailing party in any court proceeding,
----------------
arbitration or in any judicial enforcement or review proceeding shall be
entitled to its reasonable attorneys' fees, experts' fees and costs, including
the costs of arbitration, together with interest on any amount owed at the
maximum legal rate, in addition to any other amount of recovery ordered by such
arbitrator or court.
14. Insurance. During the Term, Manufacturer shall maintain in force and
---------
effect: (a) comprehensive general liability insurance in an amount not less
than $1,000,000 per occurrence for bodily injury and property damage; (b) errors
and omissions insurance in an amount not less than $1,000,000 per claim; (c)
employer's liability insurance in an amount not less than $1,000,000 per
occurrence; and (d) workers' compensation insurance in any amount not less than
that required by applicable law. Manufacturer shall provide Customer with proof
of such insurance upon Customer's request. Manufacturer shall name Customer as
an additional insured on its general liability insurance policies for work
performed pursuant to this Agreement. At Customer's request, Manufacturer will
use reasonable efforts to obtain additional insurance covering Customer Owned
Equipment located on Manufacturer's premises; provided, however, that any
increase in Manufacturer's premium resulting therefrom shall affect the Cost
Model.
15. Confidential Information.
------------------------
-11-
(a) Nondisclosure and Nonuse. Each party shall treat as confidential all
------------------------
Confidential Information of the other party, shall not use such Confidential
Information except to fulfill its obligations under this Agreement, and shall
use reasonable efforts not to disclose such Confidential Information to any
third party except as required to carry out its duties hereunder. Without
limiting the foregoing, each of the parties shall use at least the same degree
of care which it uses to prevent the disclosure of its own confidential
information of like importance to prevent the disclosure of Confidential
Information disclosed to it by the other party under this Agreement. Each party
shall disclose Confidential Information of the other party only to its
directors, officers, employees, and consultants who are required to have such
information in order for such party to carry out the transactions contemplated
by this Agreement and who have signed nondisclosure agreements protecting the
Confidential Information on substantially the same terms as this Agreement.
Each party shall promptly notify the other party of any actual or suspected
misuse or unauthorized disclosure of the other party's Confidential Information.
(b) Exceptions. Notwithstanding the above, neither party shall have
----------
liability to the other with regard to any Confidential Information of the other
which the receiving party can prove: (i) was in the public domain at the time
it was disclosed or has entered the public domain through no fault of the
receiving party; (ii) was known to the receiving party, without restriction, at
the time of disclosure, as demonstrated by files in existence at the time of
disclosure; (iii) is disclosed with the prior written approval of the disclosing
party; (iv) becomes known to the receiving party, without restriction, from a
source other than the disclosing party without breach of this Agreement by the
receiving party and otherwise not in violation of the disclosing party's rights;
(v) is disclosed pursuant to the order or requirement of a court, administrative
agency, or other governmental body; provided, however, that the receiving party
shall provide prompt notice of such court order or requirement to the disclosing
party to enable the disclosing party to seek a protective order or otherwise
prevent or restrict such disclosure.
(c) Return of Confidential Information. Upon expiration or termination of
----------------------------------
this Agreement, each party shall promptly return all Confidential Information of
the other party. In addition, each party shall, upon written request of the
other party, return Confidential Information of such other party; provided, that
Manufacturer shall incur no liability for failure to meet its obligations due to
the need for Confidential Information which has been returned after such a
request.
(d) Remedies. Any breach of the restrictions contained in this Section 15
--------
is a breach of this Agreement which may cause irreparable harm to the
nonbreaching party. Any such breach shall entitle the nonbreaching party to
injunctive relief in addition to all other available legal remedies.
(e) Confidentiality of Agreement. Each party shall be entitled to
----------------------------
disclose the existence of this Agreement, but agrees that the terms and
conditions of this Agreement shall be treated as Confidential Information and
shall not be disclosed to any third party; provided, however, that each party
may disclose the terms and conditions of this Agreement: (i) as required by any
court or other governmental body; (ii) as otherwise required by law; (iii) to
legal counsel of the parties; (iv) in confidence, to accountants, banks, and
financing sources and their advisors; (v) in
-12-
connection with the enforcement of this Agreement or rights under this
Agreement; or (vi) in confidence in connection with an actual or proposed
merger, acquisition, or similar transaction.
16. No Other Terms Apply. ALL SALES BY MANUFACTURER TO CUSTOMER, INCLUDING
--------------------
WITHOUT LIMITATION THOSE UNDER SECTION 5(E), WILL BE MADE ONLY ON THE TERMS SET
FORTH IN THIS AGREEMENT, AND MANUFACTURER WILL NOT BE BOUND BY AND MANUFACTURER
HEREBY OBJECTS TO ANY TERMS OF CUSTOMER'S PURCHASE ORDER OR OTHER DOCUMENTS THAT
ARE ADDITIONAL TO OR DIFFERENT FROM THOSE CONTAINED IN THIS AGREEMENT, AND
CUSTOMER HEREBY OBJECTS TO ANY TERMS OF ANY ACCEPTANCE DOCUMENTS OF MANUFACTURER
THAT ARE ADDITIONAL TO OR DIFFERENT FROM THOSE CONTAINED IN THIS AGREEMENT. TO
THE EXTENT THE TERMS OF ANY OTHER DOCUMENT ARE INCONSISTENT WITH THE TERMS OF
THIS AGREEMENT, THE TERMS OF THIS AGREEMENT WILL PREVAIL.
17. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with
this Section 17(a) shall be binding upon the parties and their respective
successors and assigns.
(b) Assignment. Except as may be allowed elsewhere in this Agreement,
----------
Manufacturer shall not assign any of its rights, obligations or privileges (by
operation of law or otherwise) hereunder without the prior written consent of
Customer, which shall not be unreasonably withheld. Customer shall have the
right to assign its rights, obligations and privileges hereunder to an assignee
that agrees in writing to be bound by the terms and conditions of this
Agreement. Subject to the foregoing, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(c) Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) Section Headings. The section headings and subheadings used in this
----------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-13-
(f) Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) business hours after being deposited in the regular mail as
certified or registered mail (airmail if sent internationally) with postage
prepaid, if such notice is addressed to the party to be notified at such party's
address or facsimile number as set forth below, or as subsequently modified by
written notice. Email, electronic mail, is not adequate notice.
(g) Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement and all Exhibits, Appendices and
----------------
Schedules attached hereto are the product of both of the parties hereto, and
constitute the entire agreement between such parties pertaining to the subject
matter hereof, and merge all prior negotiations and drafts of the parties with
regard to the transactions contemplated herein. Any and all other written or
oral agreements existing between the parties hereto regarding such transactions
are expressly canceled.
(i) Independent Contractors. The relationship of Manufacturer and
-----------------------
Customer established by this Agreement is that of independent contractors, and
nothing contained in this Agreement will be construed (i) to give either party
the power to direct and control the day-to-day activities of the other, (ii) to
constitute the parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) to allow either party to
create or assume any obligation on behalf of the other for any purpose
whatsoever.
(j) Advice of Legal Counsel. Each party acknowledges and represents that,
-----------------------
in executing this Agreement, it has had the opportunity to seek advice as to its
legal rights from legal counsel and that the person signing on its behalf has
read and understood all of the terms and provisions of this Agreement or has had
an opportunity to do so. This Agreement shall not be construed against any
party by reason of the drafting or preparation thereof.
(k) Expenses. Except as otherwise expressly provided in this Agreement,
--------
each party to this Agreement shall bear all expenses incurred by it in
connection with the preparation and negotiation of this Agreement and in the
consummation and performance of the transactions contemplated hereby.
(l) Acquisition. Customer will notify Manufacturer in writing at least
------------
fifteen (15) days before any proposed change in ownership of substantially all
the assets of Customer, merger of
-14-
Customer in which the Customer is not the surviving entity, or change in
ownership of more than fifty (50%) of the voting stock, identifying the other
party to the proposed transaction and, unless Manufacturer otherwise requests in
writing, Customer will use its best efforts to require the other party to the
proposed transaction to assume the Customer's obligations and commitments to
Manufacturer.
(m) Force Majeure. Manufacturer shall not be liable for any delay due to
--------------
unforeseen circumstances or to causes beyond its reasonable control or
compliance with any law, regulation or order, whether valid or invalid, of any
governmental body or any instrumentality thereof. Performance shall be deemed
suspended during and extended for such time as any such circumstance or cause
delays its execution. Whenever any such circumstance or cause has been
remedied, Manufacturer will make and Customer shall accept performance under
this Agreement. Manufacturer is not responsible for delays in delivery dates
resulting from Customer's failure to furnish test fixtures, equipment,
procedure, specifications, and other items in a timely fashion.
The parties have executed this Agreement as of the date first set forth above.
CUSTOMER: MANUFACTURER:
CERENT CORPORATION P.C.B. ASSEMBLY, INC.
By: /s/ CERENT CORPORATION By: /s/ P.C.B ASSEMBLY, INC.
------------------------------- ------------------------------
Name: ____________________________ Name: ___________________________
Title: ___________________________ Title: __________________________
Facsimile Number for Notices: Facsimile Number for Notices:
-------------------------- (000) 000-0000
-15-
[CONFIDENTIAL TREATMENT REQUESTED]
Exhibit A
---------
Pricing
1. Additional Definitions.
----------------------
"Labor Cost" means the cost of labor [*]
----------
"Material Cost" means the cost of Materials used in Products sold to Customer
-------------
by Manufacturer as determined as set forth herein.
"Overhead Cost" [*]
-------------
2. Pricing and Carried Inventory.
-----------------------------
(a) Pricing. Customer shall pay to Manufacturer for Products a price
equal to the Material Cost plus the Labor Cost plus the Overhead Cost. [*]
* Represents confidential information which Cerent Corporation is seeking
confidential treatment with the Securities and Exchange Commission.
-16-
[CONFIDENTIAL TREATMENT REQUESTED]
[*]
3. New Product Introduction. The production of prototypes for new Products
------------------------
may be included within this Agreement upon mutual agreement of the parties.
[*]
* Represents confidential information for which Cerent Corporation is seeking
confidential treatment with the Securities and Exchange Commission.
-17-
