Flextronics International Manufacturing Services Contract
This Manufacturing Agreement ("Agreement") is entered into this __day of March
2000 by and between Cabletron Systems, Inc., having a place of business at ▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, its Affiliates and any entities that
become former Affiliates after the Effective Date (collectively referred to as
"Customer") and Flextronics International USA, Inc, having its place of business
at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, Flextronics International Ireland,
Ltd., having its place of business at Plassey Technological Park, Limerick,
Ireland, and their Affiliates (collectively referred to as "Flextronics").
WHEREAS, Flextronics agrees to manufacture and sell to Customer certain Products
and provide Customer with related services, and Customer agrees to purchase from
Flextronics such Products, all subject to the terms and conditions of this
Agreement;
NOW, THEREFORE, the Parties agree as follows:
1.0 DEFINITIONS
Adjusted Overhead Shall mean the Overhead Per Product (the sum of the
Labor Cost and Non-Labor Overhead) calculated for
each Quarter by decreasing the Labor Cost of the
Product from the prior Quarter by five (5%) percent.
Adjusted Price Shall have the meaning set forth in Section 12.3.
Affiliates Shall mean, with respect to any Party, any other
party directly or indirectly controlling, controlled
by, or under common control with such Party. For
purposes of this definition, "control", when used
with respect to any party, means the possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies of
such party, whether through the ownership of voting
securities, by contract or otherwise; the terms
"controlling" and "controlled" have meanings
correlative to the foregoing.
Asset Purchase Agreement Shall mean the Asset Purchase Agreement executed by
the Parties on January 18, 2000.
▇▇▇▇ of Materials or BOM Shall mean for each Product, the list of all direct
components used to manufacture that Product.
BOM Value For each Product on any specified date, the BOM Value
shall mean the weighted average of the prices
reflected on the most recent invoices that
Flextronics has received for each component on the
BOM in Manufacturing Inventory as of that date.
BOM Value at Closing Shall mean the value of Customer's Manufacturing
Inventory, calculated using the prices on the last
invoice received before the Effective Date for the
relevant components of Customer's Manufacturing
Inventory, with the inventory in the United States
and the inventory in Ireland measured independently.
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Business Days Shall mean weekdays excluding, as applicable, United
States federal or Ireland national holidays when they
are on or are celebrated on weekdays.
Effective Date Shall mean the date of execution of this Agreement.
End of Life Shall mean the announced date on which Customer will
no longer sell a Product to End Customers.
End Customers Shall mean Customer's customers.
Engineering Change
Order or ECO Shall mean a written request for a change to a
Product's Manufacturing Specification.
First Rebate Period Shall mean the Rebate Period starting on the
Effective Date and ending August 31, 2000,
Forecast Shall have the meaning set forth in Section 3.1.
Functional Specification Shall mean, for each Product, Customer's written
specification of the minimum operating and
performance characteristics for that Product.
Initial Overhead Shall mean the Overhead Per Product as of the
Effective Date.
Initial Quarter Shall mean the period from the Effective Date until
May 31, 2000.
Intellectual Property
Rights Shall mean all patents, copyrights, trademarks, mask
works, trade secrets and other intellectual property
rights.
Inventory Buffer Period Shall mean, for class A Products: 2 weeks; for class
B Products: 4 weeks; and for class C and D Products:
6 weeks.
Labor Cost Shall mean the allocation to each Product of direct
production labor expenses, including fringe benefits,
and the expenses included in Exhibit F incurred by
the Flextronics Product manufacturing organizations
responsible for production, production control,
process engineering, manufacturing training, test
manufacturing engineering, documentation, quality,
industrial engineering and vendor engineering. The
Labor Cost for each Product during the Initial
Quarter for the United States and Ireland is shown on
Exhibit A. The Parties shall agree to an allocation
of Labor Cost to each new product added to Exhibit A
during the Term of this Agreement.
Losses Shall mean all claims, demands, proceedings, losses,
damages, obligations, liabilities, deficiencies,
fines, costs, or expenses (including, without
limitation, reasonable attorneys' fees).
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Manufacturing Inventory Shall mean the inventory of Materials and work-in-
process in connection with the manufacture of
Products, but excluding Product Inventory.
Manufacturing
Specification Shall mean, for each Product, Customer's written
specification of the technical and processing
requirements for the development or manufacture of
that Product, including a ▇▇▇▇ of Materials, design
specifications, ECOs, schematic drawings, assembly
drawings, process documentation, test specifications,
current revision number, revision history,
workmanship and quality specification, the
identification of required test equipment and a list
of approved vendors of component parts.
Materials Shall mean the component line items on any Product's
▇▇▇▇ of Materials, which are collectively assembled
according to the Manufacturing Specifications to
produce that Product.
Net Sales For a period, shall mean (x) the sum of (a) the total
amount invoiced to Customer for Products delivered in
the period, (b) the total amount of any rebate
pursuant to Section 12.6 for Rebate Periods in that
period, (c) any inventory fee imposed under Section
5.1 on Product Inventory held in that period, and (d)
any other fees or payments (other than payments for
Products) that Flextronics receives under this
Agreement in the period; minus (y) any returns of
Product in the period.
Non-Labor Overhead Shall mean the allocation to each Product of expenses
incurred by the Flextronics organizations responsible
for the purchasing, receiving and inspection of
Materials, maintenance of Material stockrooms and the
shipment of Products, and the following organizations
that support the manufacture of Products: personnel,
information services and finance and administration.
The Non-Labor Overhead for each Product during the
Initial Quarter for the United States and Ireland is
shown on Exhibit A. The Parties shall agree to an
allocation of Non-Labor Overhead to each new product
added to Exhibit A during the Term of this Agreement.
Operating Profit Shall mean Flextronics' operating profit generated
from the manufacture and sale of Products to Customer
during the relevant period. Operating Profit shall be
calculated consistent with Flextronics' past
practices by deducting the following costs from Net
Sales: net material cost, direct labor, production
overhead, production support, manufacturing support,
material overhead and SG&A. The calculation of
Operating Profit shall not include any deduction for
interest, taxes, sales and marketing expenses or any
other corporate charges or allocations.
Overhead Per Product Shall mean the sum of the Labor Cost and Non-Labor
Overhead allocated to each Product.
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Packing Specifications Shall mean, for each Product, Customer's written
specification of the minimum packaging and packing
requirements for storing or shipping that Product.
Parties Shall mean Flextronics and Customer, each of which
may be referred to as a `Party."
Products Those Customer products listed by model number on
Exhibit A to this Agreement that Flextronics has
purchased from Customer or will manufacture for
Customer pursuant to the terms of this Agreement. The
class (A, B, C or D) of each Product shall also be
indicated on Exhibit A. Additional Customer products
may be added to Exhibit A at any time during the term
of this Agreement by written agreement of Customer
and Flextronics.
Product Inventory Shall mean the inventory of finished Products
manufactured by Flextronics in accordance with the
Manufacturing Specifications.
Purchase Orders Shall mean written purchase orders submitted to
Flextronics by Customer under this Agreement, each of
which shall reference this Agreement and contain the
model number of each Product, the quantity of each
Product, the revision number, and delivery
requirements including dates and ship-to locations.
Quarter Shall mean the three-month periods that comprise the
quarters of Customer's fiscal year, with the
respective Quarters commencing on the first days of
March, June, September and December of each year.
Quarterly Review Meeting Shall have the meaning set forth in Section 2.2.
Rebate Period Shall mean each of the following two-Quarter time
periods: (i) the Effective Date through August 31,
2000; (ii) September 1, 2000 through February 28,
2001; (iii) March 1, 2001 through August 31, 2001;
and (iv) September 1, 2001 through February 28, 2002.
Rebate Share Shall mean, for each Rebate Period, as follows: (i)
the Effective Date through August 31, 2000: 0.50;
(ii) September 1, 2000 through February 28, 2001:
0.25; (iii) March 1, 2001 through August 31, 2001:
0.125; and (iv) September 1, 2001 through
February 28, 2002: 0.125.
Repair Fee Schedule Shall have the meaning set forth in Section 13.9.
Repair Facilities Shall mean (a) for Returned Products located in the
Americas, the Flextronics facility located in
Rochester, New Hampshire, (b) for Returned Products
located outside the Americas, the Flextronics
facility located in Ireland, or (c) any other
Flextronics facility to which the parties mutually
agree.
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Repair Services Shall mean revision level upgrade, refurbishment,
scrapping and other related Product repair support
and maintenance services Flextronics will provide
Customer.
Repair Warranty Shall have the meaning set forth in Section 13.10.
Repair Warranty Period The Repair Warranty Period for a Repaired Product
shall be the greater of (i) 90 days from Flextronics'
delivery of the Repaired Product to Customer or to
its End Customer or (ii) the remainder of the
Product's original Warranty Period.
Repaired Product Shall mean a Returned Product on which Flextronics
has provided Repair Services and which is not
scrapped before being returned to Customer or to its
End Customer.
Repricing BOM Value Shall mean the BOM Value as of the first day of each
Quarter after the Initial Quarter.
Repricing Notice Shall have the meaning set forth in Section 12.3.
Returned Products Shall mean Products which Customer has deemed are in
need of Repair Services.
Special Inventory Shall have the meaning set forth in Section 3.5.
Standard Hours Shall mean the industrial engineering time study
value measuring the time it takes to manufacture a
Product, including: assembly and test, process,
setup, and downtime.
Starting BOM Value Shall mean the value of the Customer's Manufacturing
Inventory as of December 21, 1999, calculated using
the prices on the last invoice received before
December 21, 1999, for the relevant components of
Customer's Manufacturing Inventory, with the
inventory in the United States and the inventory in
Ireland measured independently.
Transition Services
Period Shall mean that period starting on the Effective Date
and ending on the earlier of (a) the nine-month
anniversary of the Effective Date or (b) the date on
which the Parties have successfully completed the
transition from Customer's manufacturing ERP systems
to Flextronics' manufacturing ERP systems and their
obligations under the Transition Services Agreement
(as defined in Section 5.9 of the Asset Purchase
Agreement).
Unique Materials Shall mean Materials that are custom designed for a
Product or are not otherwise commercially usable or
salable by Flextronics.
Volume Shipment Date Shall mean the date on which Customer accepts a
Product for volume production and shipment of revenue
units to End Customers.
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Warranty Period Unless otherwise agreed by the Parties, the Warranty
Period shall be the shorter of twelve (12) months
from the date the Product is delivered to an End
Customer or fifteen (15) months from the date the
Product is shipped to Customer.
2.0 MANUFACTURING and RELATIONSHIP
2.1 Manufacturing. Flextronics agrees to manufacture Products according to
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the Manufacturing Specifications pursuant to Purchase Orders or changes thereto
issued by Customer and accepted by Flextronics. All Products manufactured by
Flextronics under this Agreement shall be solely at the direction of and for
sale to Customer.
2.2 Quarterly Relationship Reviews. Flextronics and Customer agree that their
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representatives shall meet during the last month of each of Customer's Quarters
within five (5) Business Days of Customer's receipt of the Repricing Notice,
and more frequently if reasonably required, to review their relationship and
performance under this Agreement ("Quarterly Review Meeting"). These reviews
shall consider, among other things, Product pricing and price changes (as
provided for in Section 12.3), Manufacturing Specifications, new products,
Forecasts, Purchase Orders, and Materials procurement and inventory issues.
2.3 Scheduling Cooperation. The Parties agree to use commercially reasonable
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efforts to adjust manufacturing load and scheduling among Flextronics'
facilities to accommodate Cabletron's national and international Product and
revenue requirements.
2.4 Preferred Provider Status - Flextronics. Flextronics shall be Customer's
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preferred manufacturer of Products during the term of this Agreement provided
that Flextronics continues to meet or exceed its price reduction, Product
quality and delivery commitments contained in this Agreement. Flextronics shall
also be the preferred provider of manufacturing services to Customer with regard
to new products and those materials Flextronics is capable of manufacturing.
Flextronics shall be invited to quote on all manufacturing opportunities for new
products and materials Flextronics is capable of manufacturing, and will be
selected provided that Flextronics' offer meets or exceeds the price, quality,
delivery and other reasonable and unbiased criteria for acceptance established
by the Customer for that opportunity and Flextronics' offer is at least as
competitive based upon those criteria as any other bona fide quotation submitted
by a third-party alternative provider. Flextronics agrees that in all quotations
for the manufacture of new products Flextronics will offer Customer the best
prices and terms that it offers other customers for comparable projected
volumes. Notwithstanding the provisions of this Section, Customer reserves the
unqualified right to have an appropriate amount of its products and materials
Flextronics is capable of manufacturing manufactured internally or by third-
party manufacturers.
2.5 Manufacturing Transfer. In the event that Customer decides during the term
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of this Agreement, for the purpose of dual-sourcing or otherwise, to have any
Product manufactured internally or by a third-party manufacturer, Flextronics
shall cooperate with Customer and provide reasonable assistance to effect the
orderly and efficient transfer of the manufacturing of such Product from
Flextronics to the Customer or a third party designated by the Customer. This
cooperation and assistance shall include but not be limited to: (a) the return
to Customer of relevant Manufacturing Specification materials or copies thereof,
as appropriate; (b) the transfer of such Manufacturing Inventory and Special
Inventory as Customer may request; and (c) the transfer of such Product specific
tooling and equipment as Customer may request. Customer shall compensate
Flextronics for all costs of such transfer and for any Manufacturing or Special
Inventory in accordance with Section 4.3 and provide reasonable compensation to
Flextronics for any Product specific tooling and equipment transferred pursuant
to this Section.
2.6 Preferred Provider Status - Customer. Customer shall be Flextronics'
------------------------------------
preferred provider of network products for internal use in all Flextronics'
sites worldwide. Customer shall be invited to quote
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on all future sales opportunities for network products and will be selected
provided that Customer's offer meets or exceeds the price, quality, delivery and
other reasonable and unbiased criteria for acceptance established by Flextronics
for that opportunity, including without limitation that there will be no adverse
implications associated with the integration of Customer's product on
Flextronics' existing wide area network, and Customer's offer is at least as
competitive based upon those criteria as any other bona fide quotation submitted
by a third-party alternative provider. Customer agrees that in all quotations
for the sale of network products Customer will offer Flextronics the best prices
and terms that it offers other customers for comparable projected volumes.
3.0 FORECASTS, PURCHASE ORDERS AND MATERIAL PROCUREMENT
3.1 Forecast. Each week, Customer shall provide Flextronics with a rolling six
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(6) month Product order forecast, by week for the first thirteen (13) weeks and
monthly for the following three (3) months ("Forecast").
3.2 Purchase Orders. Customer will issue Purchase Orders monthly for Products
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to be manufactured in the subsequent four (4) month period commencing on the
date of the Purchase Order. All Purchase Orders shall be submitted to
Flextronics at Flextronics' facility in either (i) Rochester, New Hampshire,
(ii) Limerick, Ireland, or (iii) any other Flextronics facility to which the
Parties mutually agree. Purchase Orders shall be accepted by Flextronics,
provided however that Flextronics may reject any Purchase Order (i) if
Flextronics cannot reasonably obtain Materials necessary to fulfill a Purchase
Order; (ii) if new and unique equipment is required to manufacture the Products;
or (iii) if a Purchase Order in the aggregate exceeds the most recent Forecast
by 10% for the first month, 20% for the second month, or 30% for the third
month. Flextronics shall notify Customer of its rejection of any Purchase Order
within five (5) Business Days of receipt of such order in writing, specifying
the reason for its rejection and proposing reasonable alternatives.
3.3 The Parties agree that the terms and conditions contained in this Agreement
shall prevail over any terms and conditions of any Purchase Order,
acknowledgment form or other instrument.
3.4 Each accepted Purchase Order constitutes: (i) a commitment by Flextronics
to manufacture the Products described in that Purchase Order; and (ii) an
authorization from the Customer to Flextronics to procure, using standard
purchasing practices, the Materials and labor necessary to manufacture the
Products covered by that Purchase Order.
3.5 In addition, Customer authorizes Flextronics to purchase, in amounts beyond
the amount necessary to fill accepted Purchase Orders, labor and Materials: (i)
with lead times greater than ninety (90) days at the time the Purchase Order is
placed ("Long Lead Time Components") plus 30 days to account for the order,
shipment, receipt and manufacturing time and, (ii) purchased in quantities
above the required amount for accepted Purchase Orders to achieve price targets
("Economic Order Inventory"), and (iii) purchased in excess of requirements for
accepted Purchase Orders because of minimum lot sizes available from
manufacturers ("Minimum Order Inventory"). Together these are called "Special
Inventory". Flextronics may purchase Long Lead Time Components sufficient to
meet all deliveries under the Purchase Orders and Product Forecast in effect at
the time the order with the supplier is placed, and may reasonably purchase
Minimum Order Inventory even if greater than the amount necessary to meet
Purchase Orders and Product Forecast. Economic Order Inventory shall be
purchased by Flextronics only with the prior approval of Customer. Flextronics
will, from time to time, hold Long Lead Time Components and finished Products in
inventory to increase Customer's sourcing flexibility. The components and
quantities of all such inventory will be documented in a separate letter and
signed by authorized representatives of both Flextronics and Customer.
4.0 SHIPMENTS, SCHEDULE CHANGE, CANCELLATION
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4.1 Shipments. All Products delivered pursuant to the terms of this Agreement
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shall be suitably packed for shipment in accordance with Customer's Packing
Specifications, marked for shipment to Customer's distribution center, or other
agreed location, and delivered to a carrier or forwarding agent. Shipment will
be F.O.B. Flextronics' facility at which time risk of loss and title will pass
to Customer. All freight, insurance and other shipping expenses, as well as any
special packing expenses not included in the price for the Products, will be
paid by Customer. If the Product is source inspected by Customer prior to
shipment, Customer will inspect goods within five (5) Business Days of its
request date.
4.2 Quantity Increases and Shipment Schedule Changes. For any accepted
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Purchase Order, Customer may (i) increase the quantity of Products or (ii)
reschedule the quantity of Products and their shipment date as follows:
Maximum Allowable Variance From Purchase Order Quantities/Shipment Dates
------------------------------------------------------------------------
# of days before Allowable Maximum Maximum
Shipment Date Quantity Reschedule Reschedule/Cancelable
on Purchase Order Increases Quantity Period
----------------- --------- -------- ------
0-30 30% 10% Reschedule 30 days from original
date
31-60 50% 25% Reschedule 60 days from original
date
61-90 75% 40% Reschedule 90 days from original
date
▇▇-▇▇▇ ▇▇▇% 100% Cancelable, subject to the charges
set forth in Section 4.3
All other changes in quantity or shipment date require Flextronics' prior
written consent. Flextronics shall use reasonable commercial efforts to meet
quantity increases. Allowable quantity increases are subject to Materials
availability. If there are extra costs to meet a reschedule or increase,
Flextronics will inform Customer for its acceptance and approval in advance. In
order to minimize excess and obsolete inventory or to respond to End Customer
requirements, Customer shall have the right to split Purchase Orders or schedule
partial deliveries.
4.3 Cancellation. If Customer cancels any portion of Product quantity of an
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accepted Purchase Order, Customer will pay Flextronics for Products, Inventory,
and Special Inventory affected by the cancellation as follows: (i) 100% of the
contract price for all Product Inventory in Flextronics' possession, (ii) 104%
of the cost of all Manufacturing Inventory and Special Inventory in Flextronics'
possession and not returnable to the vendor or usable for other customers,
whether in raw form or work in process, less the salvage value thereof, (iii)
104% of the cost of all Manufacturing Inventory and Special Inventory on order
and not cancelable, (iv) any vendor cancellation charges incurred with respect
to Manufacturing Inventory and Special Inventory accepted for cancellation or
return by the vendor, and (v) expenses incurred by Flextronics related to labor
and equipment specifically put in place to support Customer's Purchase Orders
which expenses have been approved by Customer. Flextronics will use reasonable
commercial efforts to return unused Manufacturing Inventory and Special
Inventory to and to cancel pending orders for such inventory with its supplier,
and to otherwise mitigate the amounts payable by Customer. Customer may, at its
option, instruct Flextronics to ship, at Customer's expense, all or any portion
of any Manufacturing Inventory or Special Inventory for which Customer has paid
Flextronics to any location designated by Customer. Flextronics will notify
Customer within five (5) Business Days of receipt of a cancellation if Customer
will be charged any fees for a cancellation, and the Parties agree to cooperate
in trying to reduce any such charges.
5.0 INVENTORY MANAGEMENT, DELIVERY AND ACCEPTANCE
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5.1 Product Inventory Management. Flextronics will maintain and manage
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Customer's Product Inventory so as to accommodate Customer's Forecast and to
provide a Product Inventory buffer at no additional charge. For any Product
Inventory maintained and managed by Flextronics in excess of Customer's Forecast
and the Product Inventory buffer because of Customer's failure to take delivery
of Product in accordance with its forecast, Customer shall pay Flextronics an
inventory fee of one (1%) percent of the Product price for two four-week periods
and one five-week period during each Quarter, starting on the Effective Date.
During each four or five week period, the inventory fee for each Product shall
be based upon Customer's most recent Forecast and calculated as follows: (a)
the weekly average of that forecasted amount will be taken, and that amount
multiplied by the number of weeks in the Inventory Buffer Period to determine
the maximum Product Inventory level, or Inventory buffer, for each week for each
Product; (b) at the end of each week, the actual inventory held by Flextronics
will be compared to the Inventory buffer for the week; (c) at the end of the
four-week or five-week period, the difference between the actual inventory
counts and the Inventory buffer for each Product at the end of each week are
added together and, if the sum is a positive number, it is divided by the number
of weeks in the period to determine the number of excess units of that Product;
and (d) for each Product where the actual inventory exceeds the Inventory
buffer, Customer shall pay Flextronics an inventory fee equal to one (1%)
percent of the product of the excess units of that Product times the Product
price [.01(excess units x unit price)]. A further illustration of this
calculation is attached as Exhibit B. The sum of all inventory fees shall be
payable by Customer net thirty days from the last day of each four-week period
or five-week period.
5.2 Aged Product Inventory. Upon five (5) Business Days notice to Customer
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that Flextronics has held any Product Inventory for more than ninety (90) days,
Flextronics may deliver such Product Inventory to Customer.
5.3 Delivery. Flextronics shall deliver Products to the Customer distribution
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center, or other agreed location, on the date specified in the applicable
Purchase Order. Flextronics shall promptly notify Customer of any expected
delays in meeting the delivery dates specified in each Purchase Order. Customer
shall have the right to request an expedited shipment of affected Products, and
Flextronics shall bear all incremental freight costs associated with the
expedited shipment.
5.4 Acceptance. The Parties agree that the Products shall be deemed accepted
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upon delivery to Customer's facility.
6.0 ENGINEERING CHANGES
6.1 Customer sponsored changes. Customer may request that Flextronics
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incorporate changes to the Manufacturing or Functional Specifications of a
Product by issuing a written Engineering Change Order. Any such ECO will
include a description of the proposed engineering change sufficient to permit
Flextronics to evaluate its feasibility and cost. Flextronics shall use
reasonable efforts to provide within five (5) days of receipt of an ECO a
detailed response to the ECO including a specification of: (a) material exposure
for scrap (Material procured and no longer usable); (b) material cost for new
Material to be added; (c) labor cost by activity to be performed; (d) the
proposed implementation date; and (e) the impact on the delivery schedule and
pricing of the Product. Neither Party shall unreasonably withhold or delay
agreement to an ECO and the Parties shall use all reasonable efforts to agree
to, and implement at the earliest opportunity, ECO's relating to personal and
Product safety. Until an ECO has been agreed to in writing, such ECO shall not
become effective, and the Parties shall continue to perform their obligations
under the then-effective specifications.
6.2 Flextronics Sponsored Changes. Flextronics may notify Customer in writing
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of proposed ECOs no less than the lead time of the affected Materials plus
thirty (30) days and will, if so requested, provide Customer with samples. The
notification shall include the proposed Product changes, anticipated price
changes and the proposed implementation date. Notification shall also include
the appropriate documentation to support Customer's investigation of the impact
of this proposal. Customer will review
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the feasibility of the implementation of the proposed ECO. If lead time or new
costs are required for the ECO, lead time and new prices will be reviewed.
Customer is to advise Flextronics of its decision with respect to the proposed
ECO within ten (10) Business Days after receipt of Flextronics' written
notification. No ECO's shall be made by Flextronics without Customer's prior
written approval, which may be withheld in Customer's sole discretion.
7.0 NEW PRODUCTS
7.1 New Product Introduction and Acceptance. During the Transition Services
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Period, Flextronics will provide Customer with new product services, the cost of
which services will be included in Non-Labor Overhead during that period only.
Following the Transition Services Period, Flextronics will provide new product
services in accordance with a mutually agreed on pricing schedule, an example of
which is attached as Exhibit C. Before implementing any such schedule, the
Parties agree to review and adjust Non-Labor Overhead, standard Product pricing
and the new product services pricing schedule to ensure that Customer is not
charged twice for such services and that the new product services pricing is
industry competitive. When Customer, in Customer's discretion, determines that
the Volume Shipment Date for a proposed new product has been achieved, that new
product shall be considered a Product under the terms of this Agreement and all
provisions applicable to the manufacture of any Product, including by not
limited to pricing terms and Flextronics' warranties, shall thereafter apply to
the manufacture of that Product, unless the Parties agree otherwise.
8.0 WARRANTIES
8.1 Warranty. Except as provided in Section 8.2, Flextronics warrants to
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Customer that:
(a) Each Product has been manufactured in a good workmanlike manner and in
accordance with the Manufacturing Specifications;
(b) All manufacturing services have been performed in compliance with all
applicable laws, regulations or requirements of the country in which they
are performed;
(c) All Products delivered under this Agreement shall be free and clear of
any liens or encumbrances, and at the time of delivery Flextronics shall
have all rights necessary to transfer title to such Products to Customer;
(d) The Products manufactured under this Agreement are new products and do
not contain anything used, refurbished or reconditioned; and
(e) All Materials are warranted to the extent warranted by the Materials
vendor.
8.2 The warranty in Section 8.1 does not apply to (a) defects resulting from
Customer's Manufacturing or Functional Specifications; (b) a Product that has
been abused, damaged, altered in an unintended way by any person or entity after
title passes to Customer; or (c) to any Materials consigned or supplied by
Customer to Flextronics. Flextronics makes no warranty under Section 8.1(a) with
respect to first articles, prototypes, pre-production units, test units or other
similar Products. Notwithstanding anything else in this Agreement, Flextronics
assumes no liability for or obligation related to the performance, accuracy,
specifications, failure to meet specifications or defects of or due to tooling,
designs or instructions produced or supplied by Customer and Customer shall be
liable for costs or expenses incurred by Flextronics related thereto.
8.3 Upon any failure of a Product to comply with the above warranty during the
Warranty Period, Flextronics' sole obligation, and Customer's sole remedy, is
for Flextronics, at its option, to promptly
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repair or replace such unit and return it to Customer. Customer shall return
Products covered by the warranty to Flextronics as set forth in Section 13.
8.4 FLEXTRONICS MAKES NO OTHER WARRANTIES ON THE PRODUCTS, EXPRESS, IMPLIED,
STATUTORY, OR IN ANY OTHER COMMUNICATION WITH CUSTOMER, AND FLEXTRONICS
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR CONDITION OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
9.0 QUALITY ASSURANCE
9.1 Flextronics agrees to manufacture Products in accordance with IPC 610B
Acceptability of Electronic Assemblies, IPC 7717 Rework of Electronic
Assemblies, and IPC 7721 Repair and Modification of Printed Circuit Boards and
Electronic Assemblies and to conform to the requirements of ISO 9002 and, if it
is not certified, become certified under ISO 9002 within ninety (90) days of the
date first written above. Throughout each term of the Agreement, Flextronics
shall, upon obtaining ISO 9OO2 certification, remain certified under ISO 9002
and also obtain any further quality certifications that Cabletron may reasonably
request.
10.0 AGENCY CERTIFICATIONS
10.1 Customer is responsible for obtaining and maintaining any agency
certifications for Products, including FCC, UL, and TUV certifications. Upon
reasonable notice, Flextronics will allow access to and inspection of its
manufacturing facilities to facilitate any applications for any such agency
certifications.
11.0 Quality reporting and failure analysis
11.1 Flextronics will provide product test and final inspection quality reports
on request by Customer. Flextronics agrees to provide failure analysis data and
reports on request for rejected Products and Returned Products. The report must
include the Product identification, failure description, verification process
and any corrective and preventive action. Flextronics agrees to make every
effort to provide the requested information within ten (10) Business Days of
receipt of the Product. Flextronics will provide monthly reports of the Product
return repairs containing return rates, no fault found rates, failure rates, and
other information as mutually agreed.
12.0 PAYMENT TERMS, ADDITIONAL COSTS AND PRICE CHANGES
12.1 Price and Payment Terms.
------------------------
(a) The prices for Products delivered in the Initial Quarter will be
calculated in accordance with Section 12.2 and included in Exhibit A. As of
the Effective Date, Exhibit A will reflect interim prices based upon agreed
estimates of the BOM Value at Closing and the Initial Overhead for Products to
be manufactured by Flextronics in the United States and in Ireland. On or
before March 31, 2000, or such other date as the Parties may agree, Exhibit A
will be amended to reflect prices for Products delivered in the Initial
Quarter based upon the actual BOM Value at Closing and the Initial Overhead.
As of the date on which Exhibit A is amended all outstanding Purchase Orders
and invoices shall automatically be amended to reflect the revised pricing,
and within ten (10) Business Days following the date on which Exhibit A is
amended Customer will provide Flextronics with a reconciliation statement
showing the net difference between prior payments for Products at the interim
prices and the prices for Products reflected in Exhibit A as amended. The
amount of the difference shall be paid by Customer to Flextronics or paid by
Flextronics to Customer, as appropriate, within five (5) Business Days after
the date of the reconciliation statement.
Page 11 of 24
(b) The prices for Products delivered in subsequent Quarters shall be
calculated in accordance with Section 12.3, an example calculation of which is
illustrated in Exhibit D. The prices for any supplemental services relating
to new products shall be determined in accordance with Section 7.1, and the
prices for any other supplemental services, e.g., special manufacturing or
delivery requests, shall be negotiated and agreed by the Parties. Then-current
Product prices will be stated on the Purchase Orders issued by Customer and
accepted by Flextronics. All prices are exclusive of federal, state and local
excise, sales, use and similar taxes, and any duties, and Customer shall be
responsible for all such items. Payment for any Products, services or other
costs to be paid by Customer hereunder is due five (5) days net from the date
of invoice which shall be the day the Product is shipped pursuant to Section
4.1 and shall be made in lawful U.S. currency by wire transfer in accordance
with instructions provided from time to time by Flextronics. Customer agrees
to pay 1.5% monthly interest on all payments past due more than thirty (30)
days from the date of invoice. Furthermore, if Customer is late with
payments, or Flextronics has reasonable cause to believe Customer may not be
able to pay, Flextronics may require prepayment or delay shipments or suspend
work until assurances of payment satisfactory to Flextronics are received.
12.2 Initial Pricing. Prices for all Products delivered to Customer during the
---------------
Initial Quarter shall be calculated as follows:
For Products manufactured by Flextronics in the United States:
Initial Price = (BOM Value at Closing + Initial Overhead) x .944
For Products manufactured by Flextronics in Ireland:
Initial Price = (BOM Value at Closing + Initial Overhead)
The Initial Price for all Products is included in Exhibit A.
12.3 Quarterly Price Adjustments. Until the expiration of the initial term of
---------------------------
this Agreement, prices for all Products delivered under this Agreement shall be
adjusted at the beginning of each Quarter after the Initial Quarter, with the
adjusted price for each Product calculated as follows:
Adjusted Price = (Repricing BOM Value + Adjusted Overhead) x 100/95
provided that the Adjusted Price for each Product price shall never exceed the
price for that Product in the prior Quarter, except to the extent that a higher
price results because of market forces affecting the BOM Value that can be
confirmed by independent industry benchmarks. Flextronics shall notify
Customer of its proposed Adjusted Price for a Quarter fifteen (15) days before
the beginning of the Quarter (the "Repricing Notice"). Customer may require
Flextronics to explain or provide documentation in support of the proposed
Adjusted Price before the Quarterly Review Meeting, and the Parties shall
negotiate in good faith any differences regarding the Adjusted Price for a
Quarter at the Quarterly Review Meeting. The Adjusted Prices finally agreed to
by the Parties shall apply to all Products delivered by Flextronics to Customer
during that Quarter. An example calculation of the Adjusted Price for a Product
is attached as Exhibit D.
12.4 Volume Price Adjustments. The Parties agree that if in any Quarter after
------------------------
the Initial Quarter the total unit volume of Products delivered to Customer and
the total Standard Hours used to manufacture such Products:
(a) both decline to more than ten percent (10%) below the total unit volume of
Products manufactured and the total Standard Hours used to manufacture such
Products in the Initial Quarter, the Parties shall meet and negotiate in good
faith increases in future Product prices or other mechanisms to
Page 12 of 24
compensate Flextronics for the underabsorbtion of Flextronics' manufacturing
overhead expenses caused by the decline and not covered by product purchases
by other customers; or
(b) both increase to more than ten percent (10%) above the total unit volume
of Products manufactured and the total Standard Hours used to manufacture such
Products in the Initial Quarter, the Parties shall meet and negotiate in good
faith reductions in future Product prices to provide Customer with the benefit
of the overabsorbtion of Flextronics' manufacturing overhead expenses caused
by the increase.
12.5 Payment at Closing. Within thirty (30) days of the Effective Date,
------------------
Customer shall pay Flextronics an amount equal to fifty percent (50%) of: (a)
the aggregate of the actual ▇▇▇▇ of Materials values for all Products delivered
by Customer to End Users between December 21, 1999, and the Effective Date;
subtracted from (b) the aggregate ▇▇▇▇ of Materials values for such Products
calculated using the BOM Value as of December 21, 1999.
12.6 Product Price Savings Rebate. Following the close of every Rebate Period,
----------------------------
a Product price savings rebate shall be computed and invoiced to Customer. The
rebate for a particular Rebate Period shall equal that Rebate Period's Rebate
Share multiplied by the difference between (a) the total value of all Products
delivered to Customer in the Rebate Period and (b) the total value of those
Products had Customer paid (i) in the First Rebate Period, the Initial Price for
those Products, or (ii) in the subsequent Rebate Periods, the price in effect
for those Products on the day before the first day of the Rebate Period.
Customer agrees to pay any rebate within thirty (30) days of receipt of an
invoice for the rebate. An example of such a calculation is shown in Exhibit G.
12.7 Operating Profit Rebate. Within thirty (30) days of the first anniversary
-----------------------
of the Effective Date, Flextronics shall pay to Customer the amount of
Flextronics' Operating Profit for that year that exceeds five percent (5%) of
Net Sales for that year.
12.8 Disclosure of Cost Information. Flextronics shall, subject to any
------------------------------
relevant obligation of confidentiality, provide to Customer all information and
documentation reasonably required by Customer with respect to BOM Value and
Materials costs. Flextronics shall provide reasonable assurances to Customer
that it is receiving the lowest cost for Materials charged by Flextronics to
other similarly situated customers (based on volume, types of products and
Materials, level of variance between forecasts, actual demand, manufacturing
facility used, and other criteria to be mutually agreed upon).
12.9 Right to Review. Customer shall, at its cost and expense, have the right
---------------
exercisable on a Quarterly basis upon ten (10) days' notice to Flextronics
during Flextronics' normal business hours to review Flextronics' books and
records relating to BOM Value and Materials costs and, for new products being
considered for manufacture under this Agreement pursuant to Section 7.1, Labor
Cost and Non-Labor Overhead, for the purpose of confirming those costs and the
pricing methodology for the Products and all fees or charges payable. If
Customer identifies any issues or concerns related to such costs and the
determination hereunder of any price or fee, Customer shall provide a statement
to Flextronics setting out in reasonable detail the nature of such issues or
concerns. The Parties shall attempt to resolve the matters in dispute in a
timely manner and make such adjustments, if any, to any price or fee as may be
required. For certainty, Customer acknowledges and agrees that any right to
review under this Section 12.9 may be limited by and is subject to any
confidentiality obligations that Flextronics may have to its other customers.
13.0 REPAIR SERVICES
13.1 Provision of Repair Services. Flextronics shall supply Repair Services
----------------------------
for all Returned Products sent by Customer or its designated agents to
Flextronics' Repair Facilities. Returned Products shall be sent to Flextronics
according to Customer's current process.
Page 13 of 24
13.2 Preferred Supplier Status. Flextronics shall be a Preferred Supplier of
-------------------------
Customer's requirements for any Repair Services. "Preferred Supplier" shall
mean that, provided Flextronics submits to Customer a quotation for such Repair
Services that is at least as competitive (in terms of price, quality, delivery,
performance and other standard benchmarks) as any other bona fide quotation(s)
submitted by a third-party alternate Repair Service provider, the Customer shall
place such business with Flextronics on a right of first refusal basis during
the term of the Agreement. Flextronics acknowledges that this provision shall
not apply to any Repair Services Customer elects, in its discretion, to perform
internally.
13.3 Maximum Repair Period. Flextronics shall, unless otherwise instructed by
---------------------
the Customer, complete Repair Services for each Returned Product and, where
applicable, ship the Repaired Product to the Customer or the End Customer within
the number of Business Days after receipt of the Returned Product at the
Flextronics' designated Repair Facility set forth below:
(a) End Customer Owned Repaired Product (RPR's): 10 Business Days
(b) Failure Analysis: 10 Business Days
(c) All other Repaired Products: As mutually agreed by the
Parties.
13.4 Scrap. If Flextronics confirms that a Returned Product is identified on
-----
the Customer's scrap schedule or otherwise determines that a Returned Product
should be scrapped, Flextronics shall notify Customer of its determination and
of the serial and part numbers of the Returned Product. Flextronics shall
thereafter send any such Returned Product to the location directed by Customer
unless the Parties agree otherwise. Customer shall pay Flextronics a scrap
handling fee as set forth in the Repair Fee Schedule for each Returned Product
that Flextronics scraps, except for any Returned Product scrapped due to any
damage the Returned Product incurs while Flextronics has the risk of loss for
that Product.
13.5 Product Specifications. Customer shall provide Flextronics the
----------------------
Manufacturing, Functional and Packing Specifications for all Returned Products
and such other information reasonably required by Flextronics to perform Repair
Services on Returned Products. Customer shall be responsible for creating and
maintaining all such Specifications through the fifth anniversary of the
Product's End of Life.
13.6 Ownership and Risk of Loss of Returned Products. All Returned Products
-----------------------------------------------
shall be owned by the Customer or End Customer, as applicable, and held by
Flextronics at the Repair Facility for the performance of Repair Services and,
if applicable, then delivered to the Customer or End Customer following the
performance of those services. Risk of loss for such Returned Products shall
pass from the Customer to Flextronics upon delivery of such Returned Products to
Flextronics; and risk of loss for Repaired Products shall pass from Flextronics
to Customer upon delivery of such Repaired Products to Customer.
13.7 Repair Commitments. Flextronics shall:
------------------
(a) For each Product, maintain support, repair and testing capabilities and
necessary Repair Materials through the fifth anniversary of the Product's End
of Life;
(b) Maintain ownership of those Materials required to perform Repair Services;
and
(c) Provide quality reporting and failure analysis data to Customer as set
forth in Section 11.0.
13.8 Repair Service Charges. For Repair Services provided, Flextronics will
----------------------
charge Customer as follows:
(a) In Warranty:
Page 14 of 24
(i) If Repair Services were the result of a breach of warranty: no
charge.
(ii) If no breach of warranty is found: as set forth in the Repair
Fee Schedule.
(iii) For any failure analysis Customer requests: as mutually agreed
by the Parties.
(b) Out of Warranty:
(i) As set forth in the Repair Fee Schedule.
(c) Customer shall ship all Returned Products to Flextronics on a pre-paid
basis. If the Returned Product requires Repair Services that are the result
of a breach of warranty, Flextronics shall reimburse Customer for the
shipping charges Customer incurred in shipping that Returned Product to
Flextronics.
13.9 Pricing Fee. For Returned Products or Repair Services not covered by
-----------
warranty, Customer shall pay Flextronics as set forth in the Repair Fee
Schedule. The initial Repair Fee Schedule is set forth in Exhibit E. At least
once every six months following the Effective Date, Customer and Flextronics
will review and renegotiate the Repair Fee Schedule. The Repair Fee Schedule
will be structured as follows:
(a) Product pricing fees will be broken out by Product family.
(b) Flextronics will utilize the Product's return history to determine
pricing, volume, and mix.
(c) The Product pricing fee may be a blended price or separate charge.
(d) In determining Product pricing fees, the following categories will be
considered:
. Repair
. Scrap
. Rework activity outside normal repairs - Quote individually
. Failure analysis
. Storage for holding material on Customer's behalf.
. Refurbishment
. No Trouble Found (NTF)
. Rotations
. Hourly Charge
The Parties agree to negotiate the cost and scope of any third party repair
services as necessary.
13.10 Repair Warranty.
---------------
(a) Scope of Warranty. Flextronics warrants that Repaired Products will
-----------------
comply with the warranties set forth in section 8.1(a) - 8.1(c) and 8.1(e) and
that Flextronics will otherwise perform the Repair Services in a workmanlike
manner ("Repair Warranty"). Flextronics will, without charge and as
Flextronics may elect, replace or repair for Customer any Repaired Products
for which Flextronics is in breach of the Repair Warranty, provided that
(unless otherwise specifically agreed in writing for a particular Product):
The defective Repaired Product is returned, freight charges prepaid, to the
Flextronics' Repair Facility, within thirty (30) days following the expiration
of the Repair Warranty Period; and Flextronics is notified of and provided
details of the nature of such defective Repaired Product no later than five
(5) Business Days following the expiration of the Repair Warranty Period.
(b) Limitations. The Repair Warranty shall not apply to:
-----------
(i) Repaired Products that have been misused, modified, damaged, placed in
an unsuitable physical or operating environment or maintained improperly.
Page 15 of 24
(ii) Any defect caused by the Customer or a third party or by an error or
omission or design or other fault in any Manufacturing Specification.
13.11 Repair Services Following Termination. Cabletron shall have the right to
-------------------------------------
require Flextronics to continue to provide the Repair Services under Section 13
of this Agreement for up to one (1) year following the termination or expiration
of this Agreement.
14.0 EPIDEMIC FAILURES, RECALLS
14.1 Epidemic Failures. Each Party shall notify the other whenever it believes
-----------------
that an Epidemic Failure condition exists and shall provide the other Party with
documentation supporting its belief. The Parties shall work together to (i)
determine whether an Epidemic Failure condition actually exists and (ii) if one
does, devise a comprehensive plan for responding to the condition that may
include a preventive action plan, a logistics plan, and an allocation of costs.
An "Epidemic Failure" shall mean a series of repeating failures or defects
resulting in at least a 0.5% failure rate for the same Product or Material
during any twelve-month period.
14.2 Epidemic Failure or Recall Resolution. Each Party shall promptly notify
-------------------------------------
the other whenever it believes that any Product is or may be subject to recall.
Following any such notice, the Parties shall work together and agree to
determine whether a recall or other corrective action is necessary, to determine
whether to cease shipping and manufacturing that Product, and to develop a
recall or corrective action plan. If a recall or corrective action is necessary
due to a breach by Flextronics of its warranty obligations under this Agreement,
then any such recall or corrective action shall be made at Flextronics' expense.
If a recall or corrective action is necessary due to a defect in the
Manufacturing Specifications or Functional Specifications then any such recall
or corrective action shall be made at Customer's expense.
14.3 Continuation of Obligations. Flextronics' obligations under Sections 14.1
and 14.2 shall continue for one (1) year following the termination or expiration
of this Agreement.
15.0 TERM AND TERMINATION
15.1 Term. The term of this Agreement shall commence on the Effective Date and
-----
shall continue for two (2) years thereafter unless terminated as provided in
this Agreement. After the expiration of the initial term (unless this Agreement
has been terminated), this Agreement shall automatically renew for separate but
successive one-year terms, unless one Party notifies the other in writing at
least six (6) months before the expiration of the then-current term that it does
not wish to renew the Agreement for a subsequent term.
15.2 Termination for cause. This Agreement may be terminated by either Party,
----------------------
at its discretion, immediately for cause upon notice to the other Party for the
following:
(a) the other Party makes a general assignment for the benefit of creditors,
or a receiver or similar officer is appointed to take charge of any of the
other Party's assets;
(b) the other Party ceases to carry on its business or operations;
(c) a bankruptcy or similar petition is filed by or against the other Party,
and in the case of an involuntary petition, the proceeding is not dismissed
within sixty (60) Days; or
(d) the other Party fails to perform any material obligation under this
Agreement, and such failure is not cured within thirty (30) days of notice
thereof.
Page 16 of 24
15.3 Other Terminations. At any time after the first anniversary of the
------------------
Effective Date, either Party may terminate this Agreement without cause by
giving at least six (6) months written notice to the other Party, provided that
if Cabletron gives such notice, it shall be considered a Triggering Event (as
defined in Section 7.3 of the Asset Purchase Agreement). If any Triggering Event
has occurred and Flextronics elects to exercise its Put Option, unless otherwise
agreed by the Parties, this Agreement shall terminate either: (a) on the date of
closing of Customer's purchase of the Repurchase Assets (as defined in Section
7.4 of the Asset Purchase Agreement) or (b) if Customer elects to make the lump
sum payment in lieu of purchasing the Repurchase Assets, thirty (30) days after
the date of Customer's election.
15.4 Winding-Down Obligations. Upon expiration or termination of this
------------------------
Agreement for any reason, Customer shall be responsible for the Product
Inventory, Manufacturing Inventory, and Special Inventory in existence at the
date of termination or expiration in the same manner as for cancellations as set
forth in Section 4.3. Flextronics will take commercially reasonable steps to
reduce Customer's liability under said section. Following any expiration or
termination of this Agreement, Flextronics shall cooperate with Customer and
provide reasonable assistance to effect the orderly and efficient transfer of
the manufacturing of Products from Flextronics to the Customer or a third party
designated by the Customer and without disruption to the Customer's business
("Transfer Assistance"). Transfer Assistance shall include, but not be limited
to: (a) the continued manufacture of Products by Flextronics after the
termination or expiration date for a transition period and on terms mutually
agreeable to the Parties; (b) the return to Customer of all Manufacturing
Specification materials; (c) the transfer of all Product Inventory,
Manufacturing Inventory, and Special Inventory for which Customer has
compensated Flextronics; and (d) the transfer of any Product specific tooling
and equipment. Customer shall be responsible for any other costs incurred by
Flextronics in providing Transfer Assistance.
15.5 Survival. Notwithstanding the termination or expiration of this
--------
Agreement, Articles 8, 13, 14, 16, 17, 18, 19, 20, and 21 and Sections 15.4,
15.5, 22.2 - 22.10 shall survive said termination or expiration.
16.0 INTELLECTUAL PROPERTY
16.1 Customer Ownership. Except as set forth in Section 16.2 below, Customer
------------------
shall exclusively own all right, title and interest to all Intellectual Property
Rights related to the Products; to all manufacturing processes, know-how and
other information and materials provided by Customer to Flextronics before and
after the Effective Date of this Agreement to design, manufacture or test the
Products; and to any Product specific tooling, including those Intellectual
Property Rights that relate to any improvements in such Intellectual Property
Rights that result from services rendered by Flextronics under this Agreement
("Assigned Inventions") and any other rights in any derivative works
(collectively, "Customer IP"). Flextronics hereby irrevocably transfers and
assigns to Customer all of Flextronics' right, title and interest to all
Intellectual Property Rights in the Assigned Inventions. In addition, the
Parties expressly agree to consider as works made for hire those works ordered
or commissioned by Customer which qualify as such in accordance with the
copyright laws. For all the Assigned Inventions, Flextronics agrees to provide
documentation satisfactory to Customer to assure the conveyance of the Assigned
Inventions to Customer. The Assigned Inventions shall be kept in confidence by
Flextronics and shall be used by Flextronics only in performing this Agreement
and may not be used by Flextronics for other purposes except upon such terms as
may be agreed upon between the Parties in writing. Flextronics also agrees to
acquire from its employees, agents and contractors, rights and covenants as to
assure that Customer shall receive the rights provided for in this section. Upon
the termination of this Agreement, Flextronics shall return to Customer or, in
Customer's discretion, destroy all Product specific tooling in Flextronics
possession, custody, or control.
16.2 Flextronics Ownership. Flextronics shall exclusively own all
----------------------
Intellectual Property Rights in all know-how, technology, processes, procedures,
ideas and concepts developed by Flextronics or its employees, agents, affiliates
or contractors related to manufacturing processes for products, and any
Page 17 of 24
modifications, enhancements, improvements to the manufacturing processes for
products, any non-Product specific tooling and any other idea, design, concept,
technique, invention or discovery related to the manufacture, testing, and
design of products during the term of this Agreement ("Flextronics IP"). For the
avoidance of doubt, (i) Customer shall retain all Intellectual Property Rights,
including rights in any derivative works, to all manufacturing processes, know-
how and other information and materials provided by Customer to Flextronics
before and after the Effective Date of this Agreement to design, manufacture or
test the Products, and (ii) Flextronics shall retain all Flextronics IP related
to all manufacturing processes for products developed by Flextronics during the
performance of this Agreement.
16.3 Licenses. Customer hereby grants Flextronics a non-exclusive, non-
--------
transferable, royalty-free fully-paid license for the term of this Agreement to
use the Customer IP, but solely for the purpose of manufacturing and servicing
the Products for Customer. Flextronics hereby grants to Customer a perpetual,
nonexclusive, royalty-free, fully-paid license to use any Flextronics IP
necessary and essential for the manufacture or servicing of Products by or for
Customer and to make, have made and distribute the Products manufactured or
serviced using said necessary and essential Flextronics IP. Upon request from
Customer, Flextronics shall provide Customer with such documents reasonably
necessary for Customer to document and duplicate said Flextronics IP.
16.4 Customer Trademarks. Customer authorizes Flextronics to affix and apply
--------------------
the Customer Trademarks to the Products as directed by Customer for the sole
purpose of manufacturing the Products pursuant to this Agreement. Flextronics
shall not use Customer Trademarks for any other purpose and only in such manner
as to preserve all rights of Customer. Flextronics acquires no right to Customer
Trademarks by its use and all uses by Flextronics of the Customer Trademarks
will inure to Customer's sole benefit. As used herein, "Customer Trademarks"
means those trademarks, trade names, service marks, slogans, designs,
distinctive advertising, labels, logos, and other trade-identifying symbols as
are or have been developed and used by Customer or any of its subsidiaries or
affiliate companies and which Customer owns or has the right to use.
17.0 INDEMNIFICATION
17.1 Product Liability Indemnification by Flextronics. Flextronics shall
------------------------------------------------
defend, indemnify and hold Customer, its officers, employees, and agents
harmless against any and all Losses arising directly or indirectly as a result
of, or relating to, a breach of its representations or warranties under this
Agreement or its obligations under sections 22.1 or 22.10, except to the extent
that any such Losses are due to the negligence or wrongful acts of the Customer,
its officers, employees, or agents.
17.2 Product Liability Indemnification by Customer. Customer shall defend,
---------------------------------------------
indemnify and hold Flextronics, its officers, employees, and agents harmless
against any and all Losses arising directly or indirectly as a result of, or
relating to, (a) defects in the Manufacturing and/or Functional Specifications
for the Products or (b) Flextronics' complying with the Manufacturing
Specifications, except to the extent that any such Losses are due to the
negligence or wrongful acts of Flextronics, its officers, employees, or agents.
17.3 Intellectual Property Indemnification by Flextronics. Flextronics shall
----------------------------------------------------
defend, indemnify and hold Customer harmless against any and all Losses, arising
directly or indirectly as a result of, or relating to, any claim against
Customer asserting a violation of any Intellectual Property Right resulting from
or arising out of Flextronics' supply to Customer of the Products and
Flextronics' performance of services under this Agreement unless such a claim
arises directly and necessarily from compliance by Flextronics with the
Manufacturing Specifications.
17.4 Intellectual Property Indemnification by Customer. Customer shall defend,
-------------------------------------------------
indemnify and hold Flextronics harmless against any and all Losses, arising
directly or indirectly as a result or, or relating to, any claim against
Flextronics asserting a violation of any Intellectual Property Right resulting
Page 18 of 24
from or arising out of Flextronics' supply to Customer of the Products and
Flextronics performance of services under this Agreement provided that such a
claim arises directly and necessarily from compliance by Flextronics with the
Manufacturing Specifications.
18.0 INSURANCE
18.1 Coverage. Each Party shall maintain the following insurance during the
--------
term of this Agreement.
(a) Commercial General Liability, including blanket contractual liability,
broad form property damage, products and completed operations, independent
contractors and premises/operations with limits of not less than $1 million
per occurrence, $2 million in the aggregate, and excess coverage for $9
million above those limits.
(b) Electronics Errors & Omissions with limits of not less than $2 million.
(c) Comprehensive Automobile Liability, including owned, non-owned and hired
vehicles, with minimum limits of not less than $1 million per accident.
(d) Worker's Compensation Insurance in amounts and coverages required under
worker's compensation, disability and similar employee benefit laws applicable
to the Employer's Liability insurance, with limits of not less than $500,000
or such higher amounts as may be required by law.
18.2 General. The above insurance shall be issued by an insurance company
-------
licensed to do business in New Hampshire with an A.M. Bests rating of A or
better, shall name the other Party as an additional insured on all policies
except Worker's Compensation, shall provide that it is primary insurance and not
excess over or contributory with any other valid, existing and applicable
insurance covering the same loss carried by such Party, shall provide for
severability of interests, shall further provide that an act or omission of one
of the named insureds which would void or otherwise reduce coverage shall not
reduce coverage for all claims based on acts, omissions, injury or damage which
occurred or arose (or the onset of which occurred or arose) in whole or in part
during the policy period, and shall provide that the other Party will receive
thirty (30) days written notice from the insurer prior to any cancellation or
change of coverage provided that comparable insurance is not purchased from
another carrier. Each Party shall deliver certificates of insurance evidencing
such coverages to the other Party on or before the Effective Date, and
thereafter at least fifteen (15) days before the expiration dates of expiring
policies and, in the event either Party shall fail to procure such insurance, or
to deliver such certificates, the other Party may, at its option, procure the
same for the account of the other, and the cost thereof shall be paid to the
Party who purchased such insurance within thirty (30) days after delivery of
itemized bills therefore. A Party's compliance with the provisions of this
section shall in no way limit its liability under any provisions of this
Agreement.
19.0 LIABILITY LIMITS
19.1 No Other Liability. EXCEPT AS SET FORTH OTHERWISE IN THIS AGREEMENT, IN NO
-------------------
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF
THIS AGREEMENT OR THE SALE OF PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON
THE BASIS OF CONTRACT, TORT (INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT
LIABILITY), OR OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY
OF ANY SUCH LOSS OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS
AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.
20.0 NOTICES
Page 19 of 24
20.1 All notices, reports, requests, acceptances, and other communications
required or permitted under this Agreement shall be in writing and shall
reference this Agreement. They will be deemed delivered: (i) when delivered in
person, (ii) when sent by confirmed telex, acknowledged facsimile or
acknowledged e-mail except that the communications referred to in Article 15 and
Sections 22.5 and 22.8 may not be sent by e-mail, (iii) one (1) Business Day
after having been sent by commercial overnight courier with written verification
of receipt, or (iv) five (5) Business Days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or upon actual
receipt thereof, whichever occurs first. An acknowledged e-mail communication or
fax shall be deemed to be a communication in writing. All communication will be
sent to the receiving Party as follows or to such address that the receiving
Party may designate pursuant to this Section.
If to Flextronics for notices related to operations in the Americas:
Flextronics International USA, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
Attention: President
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Attention: General Counsel
Fax No: ▇▇▇-▇▇▇-▇▇▇▇
If to Flextronics for notices related to operations outside the Americas:
Flextronics International Ireland, Ltd.
Plassey Technological Park,
Limerick, Ireland.
Attention:
with a copy to:
Flextronics International GmbH
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Attention: General Manager
If to Customer: CABLETRON SYSTEMS, INC.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: Attention: General Counsel
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: Ropes & ▇▇▇▇
One International Place
Page 20 of 24
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, III
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
21.0 CONFIDENTIAL INFORMATION
21.1 Confidential Information. "Confidential Information" means any
------------------------
information: (i) disclosed by one Party (the "Disclosing Party") to the other
(the "Receiving Party"), which, if in written, graphic, machine-readable or
other tangible form is marked as "Confidential" or "Proprietary"; (ii) which at
the time it is disclosed is or should reasonably be known by the Receiving Party
to be proprietary or confidential information of the Disclosing Party, or (iii)
which is otherwise deemed to be "Confidential Information" by the terms of this
Agreement. Notwithstanding the foregoing, Customer's Confidential Information
shall include without limitation all Manufacturing or Functional Specifications
of a Product, all Product order Forecasts, and all new product plans.
21.2 Confidential Information Exclusions. Confidential Information does not
-----------------------------------
include information that the Receiving Party can demonstrate is: (i) now or
hereafter, through no fault of the Receiving Party, in the public domain; (ii)
known to the Receiving Party from a source without an obligation of
confidentiality to the Disclosing Party; (iii) hereafter furnished to the
Receiving Party by a third party as a matter of right and without restriction on
disclosure; (iv) furnished to others by the Disclosing Party without restriction
on disclosure; or (v) independently developed by the Receiving Party without use
of the Disclosing Party's Confidential Information. Nothing in this Agreement
shall prevent the Receiving Party from disclosing Confidential Information to
the extent the Receiving Party is legally compelled to do so by any government
agency or court; provided, however, that before any such disclosure, the
Receiving Party shall (a) assert the confidential nature of the Confidential
Information; (b) immediately notify the Disclosing Party in writing of the order
or request to disclose; and (c) cooperate fully with the Disclosing Party in
protecting against any such disclosure and/or obtaining a protective order
narrowing the scope of the compelled disclosure and protecting its
confidentiality.
21.3 Confidentiality Obligation. The Receiving Party shall treat as
--------------------------
confidential all of the Disclosing Party's Confidential Information and shall
not use such Confidential Information except as expressly permitted under this
Agreement. Without limiting the foregoing, the Receiving Party shall use the
same degree of care and means that it utilizes to protect its own information of
a similar nature, but in any event not less than reasonable care and means, to
prevent the unauthorized use or the disclosure of such Confidential Information
to third parties. The Confidential Information may be disclosed only to
employees or contractors of the Receiving Party with a "need to know" who are
instructed and agree not to disclose the Confidential Information and not to use
the Confidential Information for any purpose, except as set forth herein. The
Receiving Party shall have appropriate written agreements with any such
employees or contractors sufficient to comply with the provisions of this
Agreement.
21.4 Confidentiality of Agreement Each Party agrees that the terms and
----------------------------
conditions, but not the existence, of this Agreement will be treated as the
other Party's Confidential Information and that no reference to the terms and
conditions of this Agreement or to activities pertaining thereto may be made in
any form of press release or public statement without first consulting with the
other Party; provided, however, that each Party may disclose the terms and
conditions of this Agreement: (i) as may be required by law; (ii) to legal
counsel of the Parties; (iii) in connection with the requirements of an initial
public offering or securities filing; (iv) in confidence, to accountants, banks,
and financing sources and their advisors; (v) in confidence, in connection with
the enforcement of this Agreement or rights under this Agreement; or (vi) in
confidence, in connection with a merger or acquisition or proposed merger or
acquisition, or the like.
Page 21 of 24
21.5 No Confidential Information of Other Parties. Each Party represents and
--------------------------------------------
warrants to the other that it has not used and shall not use in the course of
its performance hereunder, and shall not disclose to the other, any confidential
information of any third party, unless it is expressly authorized in writing by
such third party to do so.
22.0 MISCELLANEOUS
22.1 Compliance with the Laws and Permitting. Each Party agrees that its
---------------------------------------
performance under this Agreement shall comply with all applicable laws.
Flextronics shall, at its expense, obtain and maintain all necessary permits and
licenses required for the operation of its manufacturing facilities and
processes.
22.2 Entire Agreement. This Agreement constitutes the entire agreement between
-----------------
the Parties with respect to the transactions contemplated hereby and, except for
the Asset Purchase Agreement, the other "Principal Agreements" described in the
Asset Purchase Agreement, or as otherwise specifically stated, supersedes all
prior agreements and understandings between the Parties relating to such
transactions. In all respects, this Agreement shall govern, and any other
documents including, without limitation, preprinted terms and conditions on
Customer's Purchase Orders shall be of no effect. This Agreement will be deemed
to have been drafted by both Parties.
22.3 Amendments. This Agreement may be amended only by written consent of both
-----------
Parties, executed by their authorized representatives.
22.4 Independent Contractor. Neither Party shall, for any purpose, be deemed
-----------------------
to be an agent of the other Party and the relationship between the Parties shall
only be that of independent contractors. Neither Party shall have any right or
authority to assume or create any obligations or to make any representations or
warranties on behalf of any other Party, whether express or implied, or to bind
the other Party in any respect whatsoever.
22.5 Dispute Resolution. In the event of any dispute or disagreement with
------------------
regard to the rights or obligations of the Parties under this Agreement or any
transaction contemplated by it, the Parties shall use all reasonable efforts to
settle the dispute or disagreement. If their initial efforts are unsuccessful,
either Party may, upon written notice to the other, escalate the dispute or
disagreement for review and discussion between their chief executive officers.
The Parties agree that, except in the case of an action for preliminary relief
to enjoin an infringement of an Intellectual Property Right or any other event
that may cause irreparable injury, neither Party shall institute litigation with
regard to any dispute or disagreement until at least thirty (30) days after the
date of the notice escalating the dispute or disagreement to their chief
executive officers. In the event a dispute between the Parties hereunder with
respect to this Agreement must be resolved by litigation or other proceeding or
a Party must engage an attorney to enforce its rights hereunder, the prevailing
Party shall be entitled to receive reimbursement for all associated reasonable
costs and expenses (including, without limitation, attorneys' fees) from the
other Party.
22.6 Choice of Law and Jurisdiction. Any action brought by Customer under this
------------------------------
Agreement or with regard to actions taken pursuant to this Agreement shall be
governed by and construed in accordance with the laws of the State of
California, notwithstanding any contrary conflict of law or choice of laws
principle, and shall be brought and maintained exclusively in the state or
federal courts of the State of California. Any action brought by Flextronics
under this Agreement or with regard to actions taken pursuant to this Agreement
shall be governed by and construed in accordance with the laws of the State of
New Hampshire, notwithstanding any contrary conflict of law or choice of laws
principle, and shall be brought and maintained exclusively in the state or
federal courts of the State of New Hampshire.
22.7 Successors, Assignment. This Agreement shall be binding upon and inure to
-----------------------
the benefit of the Parties hereto and their respective successors, assigns and
legal representatives. Neither Party shall have
Page 22 of 24
the right to assign or otherwise transfer its rights or obligations under this
Agreement except with the prior written consent of the other Party, not to be
unreasonably withheld. Nothing in this section shall prohibit Customer from: (i)
transferring rights and obligations under this Agreement to its Affiliates
provided that such entities agree to be bound by the terms and conditions of
this Agreement; or (ii) transferring its rights and obligations under this
Agreement to another entity that purchases all or substantially all of
Customer's business, regardless of the nature of that transaction, so long as
that entity agrees to be bound by the terms and conditions of this Agreement.
22.8 Force Majeure. In the event that either Party is prevented from
--------------
performing or is unable to perform any of its obligations under this Agreement
(other than a payment obligation) due to any Act of God, fire, casualty, flood,
earthquake, war, strike, lockout, epidemic, destruction of production
facilities, riot, insurrection, or any other cause beyond the reasonable control
of the Party invoking this section, and if such Party shall have used its
commercially reasonable efforts to mitigate its effects, such Party shall give
prompt written notice to the other Party, its performance shall be excused, and
the time for the performance shall be extended for the period of delay or
inability to perform due to such occurrences. Regardless of the excuse of Force
Majeure, if such Party is not able to perform within ninety (90) days after such
event, the other Party may terminate the Agreement and the provisions of Section
15.4 shall apply. Termination of this Agreement shall not affect the
obligations of either Party, which exist as of the date of termination.
22.9 Country of Origin. For each Product purchased under this Agreement,
-----------------
Flextronics shall furnish Customer with all necessary country of origin
(manufacture) certifications, by quantity and part number.
22.10 Export Controls. Flextronics shall comply will all United States and any
---------------
applicable foreign law and regulations governing the export of technology and
Products. Customer and Flextronics shall cooperate with one another, including
providing all required documentation and information, to obtain all necessary
government authorizations before exporting any technology or Products under this
Agreement.
[Remainder of Page Intentionally Left Blank]
Page 23 of 24
22.11 Subcontracting. Flextronics shall not have the right to sub-contract the
--------------
performance of any of its obligations under this Agreement without the express
written consent of Customer.
ACCEPTED AND AGREED TO:
CUSTOMER: FLEXTRONICS INTERNATIONAL USA, INC.:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------ --------------------
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ By: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------- ----------------
Title: Executive Vice President Title: President
------------------------ ---------
and Chief Financial Officer
---------------------------
FLEXTRONICS INTERNATIONAL IRELAND, LTD.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------
By: ▇▇▇▇▇ ▇▇▇▇▇
-----------
Title: Director
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Page 24 of 24