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EXHIBIT 10.5
SANMINA CORPORATION
AGREEMENT FOR
ELECTRONIC MANUFACTURING SERVICES
This Agreement between Gadzoox Networks, Inc. hereinafter referred to
as "Customer" or "Gadzoox", and Sanmina Corporation hereinafter referred to as
"Sanmina" is entered into on December 29, 1998. Sanmina shall perform
manufacturing services for the Customer under the terms and conditions set forth
herein.
I. TERM
This Agreement shall be in effect for [*] from the date of this
Agreement. This Agreement shall automatically renew for a period of one year
unless termination notice is provided [*] prior to the termination date.
II. SCOPE OF WORK PERFORMED
Customer wishes Sanmina to manufacture a range of Electronics products
or Assemblies on behalf of Customer at the prices identified in Exhibit A.
Sanmina and the Customer shall mutually agree upon a delivery schedule for the
Products.
Customer shall be liable for [*] is defined in Section IV. A. 1.) that
Sanmina procures or otherwise contracts for in order to manufacture the products
that Customer wishes to buy from Sanmina on a turnkey basis.
Sanmina shall purchase components for the Products in accordance with a
vendor list approved by Sanmina and the Customer ("AVL"). In the event Sanmina
cannot purchase a component from an approved vendor for any reason, including
unavailability or commercial unfeasibility of the purchase of such components,
Sanmina may purchase such components from an alternate vendor with the prior
written consent of the Customer.
III. GENERAL PLANNING AND PROCUREMENT PROCESS
A. On the date this Agreement is executed and [*] thereafter, the
Customer shall provide Sanmina with firm, monthly, rolling
purchase orders covering a minimum period of [*] ("Purchase
Order").
B. [*] the Customer shall provide Sanmina with additional
monthly, rolling [*] forecast ("Forecast") covering
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[*] immediately following the Purchase Order period. Forecast
does not incur any liability for either Sanmina or Customer
except that of any [*] for which the forecast would cause
procurement activity, and, even in such a situation such
liability for Customer would be limited per Section IV and it
sub-sections.
C. Sanmina will take the Purchase Orders and Forecast referred to
in III(A) and III(B) above and generate a Master Production
Schedule (MPS) for a [*] using the process described in
Section III(D) below.
D. This MPS will define the master plan on which Sanmina will
base its procurement, internal capacity projections and
commitments.
1. Sanmina will use the Purchase Orders
referred to in III A to generate the
[*] of the MPS.
2. Sanmina will use the Forecast referred to in
III B to generate the [*] of the MPS.
3. The MPS created as described above does not
incur any liability for either Sanmina or
Customer except that of any [*] for which
the forecast would cause procurement
activity, and, even in such a situation such
liability for Customer would be limited per
section IV and it sub-sections.
E. Per this agreement Sanmina will plan and schedule material to
be at Sanmina within sufficient time to allow for
manufacturing to occur before the products are due to ship to
Customer.
F. Sanmina will also release (launch) orders to suppliers of
materials sometime prior to the anticipated date that the
material is needed (per section III(E) above). When these
orders are launched will depend on the Vendor lead-time that
Sanmina will determine from time to time and maintain as a
parameter of Sanmina's manufacturing or materials planning
systems.
G. Sanmina, through its MRP System will also issue an instruction
(MRP Signal) to its procurement group to buy parts
approximately [*] before the order is due to be placed
per section F above.
H. When Sanmina places an order with its suppliers per the
sections above, Sanmina will order parts in various quantities
(defined in periods-worth-of-supply) that are defined by the
part's ABC Classification. This classification as well as the
expected distribution or characteristics of various classes of
parts, and, the periods-worth-of-supply (Periods-of-Supply)
that will be bought for each class of part is shown on Table
1.
Table 1. ABC Classifications, Descriptions and Periods-of-Supply
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Part Class Total Parts % of Total Value (Of Periods Worth of
Gross Supply to be Bought
Requirements) with Each Order
A [*] [*] [*]
B [*] [*] [*]
C [*] [*] [*]
I. In addition to ordering parts for various periods-of-supply,
Sanmina will order parts according to various minimum-buy
quantities, tape and reel quantities, and, multiples of
packaging quantities.
J. The components Sanmina purchases or orders to fulfill the
Purchase Order and the Forecast on behalf of the Customer to
manufacture the Products, and any associated expenses related
to purchasing, ordering, manufacturing (labor and overhead),
shipping, storing and eliminating such components and agreed
upon ▇▇▇▇-up shall constitute a part of the Customer's Total
Liability ("Total Liability") as defined in Section IV below.
IV. LIABILITIES FOR MATERIALS
A. Customer's Total Liability for material that Sanmina has
procured is limited to the following:
1. Parts that Sanmina, having ordered per the
guidelines above, [*] are their
responsibility and are defined as any part
that a) has not been used by Sanmina for any
other customer or internal usage in the most
recent [*] and b) for which there is no
demand in the MRP system or c) for which
projected demand over the [*] is not
adequate to consume the inventory of parts.
Common parts used by other customers will
not be considered as part of Customer's
Total Liability for the parts that can not
be otherwise utilized by Sanmina after
Sanmina deduction for the number of common
parts in the MRP system for the next [*].
This includes parts that may not be
cancelable by virtue of having insufficient
time between the MRP signal to cancel and
the expected or real receipt date at
Sanmina.
2. Parts that Sanmina, having ordered per the
guidelines above, cannot return to the
vendors and where the total extended value
of each specific part number using the most
recent purchase costs [*] and where Sanmina
has made reasonable efforts to return the
parts (for at [*]).
3. For part numbers with a total extended value
of [*], using the most recent purchase
costs, Sanmina is not required to attempt
return to
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vendors. Customer's Total Liability is
limited to the lesser of actual cost or [*]
for all part numbers that are defined in
this section.
4. See also Section VII, Cancellations which
describes Customer's Total Liability for
Cancellations. The cost of cancellations, as
described in Section VII is also considered
part of Customer's Total Liability.
B. Where Sanmina is able to return parts with a re-stocking or
other fees, those fees shall also become part of Customer's
Total Liability.
C. If necessary and with the Customer's written consent as
evidenced by Customer Purchase Order, Sanmina shall purchase
any necessary tools to fulfill the Purchase Order and Forecast
and charge the Customer according to the Purchase Order. All
such tooling (which tooling can include, for example,
stencils, test fixtures, tooling plates, burn in ▇▇▇▇▇▇▇▇,
etc) purchased by Sanmina on behalf of the Customer shall
remain the Customer's property, and Sanmina shall return such
tooling (normal wear and tear excepted) to the Customer upon
request, the completion of the relevant order or the
termination of the Agreement.
D. Customer's Total Liability for the material defined in the
previous sections will be at the [*] as agreed between Sanmina
and Customer. Sanmina will use its best efforts to reduce
Customer's Total Liability.
V. RESCHEDULES AND INCREASES
The Customer may increase the quantity of any Product to be delivered
against any Purchase Order subject to the following matrix:
NOTICE PRIOR TO PERCENT OF ORIGINAL
ORIGINAL QUANTITY THAT CAN BE
DELIVERY DATE INCREASED
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[*] [*]
As an example, if the Customer notifies Sanmina in writing between [*]
prior to the scheduled delivery date of the Products, the Customer may increase
a [*] of the total amount of the Products to be delivered on such date.
A. For a decrease in quantity of Products to be delivered on a
specific delivery date, Sanmina and the Customer shall
mutually agree upon a date to deliver the undelivered Products
[*] from the original delivery date. Customer may reschedule
delivery any number of times as long as the ultimate delivery
date is [*] from the original delivery date.
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B. Any change in the delivery dates of any Product for a period
[*] in the aggregate shall be deemed [*] the Customer with
respect to such Products. If the Customer's schedule change
results in additional expenses to Sanmina to store such
Products or to acquire additional components, such additional
expenses shall be deemed Part of the Customer's Total
Liability and in the event that storage services are required,
the parties will negotiate in good faith the cost of such
storage services.
C. Sanmina agrees to maintain the proper buffer stock that will
allow Gadzoox to increase customer shipments in accordance
with this Section V which describes increases in quantity to
be delivered and will become subject to Customer Total
Liability as described in Section IV.
The buffer stock required to ensure increases in customer shipments, as
described herein will be based on the forecast demand provided to Sanmina by
Customer on a monthly basis and inventory required to deliver product subject to
Increases as herein described.
VI. REVISIONS
In the event the Customer requests and engineering change to a product,
Sanmina shall notify the Customer of any impact on the cost and/or scheduled
delivery of such Products within [*] of the receipt of Customer's request.
Unless the Customer consents to the amended notification from Sanmina, the
requested engineering change shall be deemed canceled. Any increases in the cost
of the Products resulting from such Engineering Change Order ("ECO") shall be
deemed a part of the Customer's Total Liability as defined above and will be
negotiated in good faith by the parties and in accordance with Customer's Total
Liability as described in Section IV. Similarly, any parts made obsolete or
excess as a result of such an ECO shall be deemed part of the Customer's Total
Liability and will be negotiated in good faith by the parties in accordance with
Customer's Total Liability as described in Section IV. Any Customer liability
arising from an ECO will be paid to Sanmina [*] of Sanmina invoice date.
VII. CANCELLATIONS
The Customer may cancel any order by notifying Sanmina in writing at
[*] prior to the delivery date of such order.
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If such cancellation occurs within [*] of scheduled delivery, Sanmina
shall provide the Customer with the amount of the Customer's total liability
related to such canceled order. Customer's Total Liability shall include the
following:
Liability for Materials (parts) as defined in Section IV and V
Buffer/Safety Stock/ABC Classifications as defined in Section III, H,
Table 1 Liability for Work-in-Process ("WIP") as defined below
Liability for Finished Goods as defined below
Customer liability for Work In Process will be limited to only units
that have labor applied to them. All WIP will be invoiced to Gadzoox based on
which step in the manufacturing process the product was when Sanmina was
notified. The process steps are defined in Exhibit A. There are [*] defined so
each part number will be evaluated based on which step it is in the production
process. If we have partial steps completed Gadzoox & Sanmina will negotiate in
good faith to determine the cost applied to that step. The cost for each step is
defined as the latest quoted price to Gadzoox. The total cost will be an
accumulation of the cost for each step, however, some products may not go
through each step in which case Gadzoox will be invoiced for only steps that
have been applied to that product.
The Customer shall pay such cancellation amount to Sanmina on a [*]
basis.
After payment by Customer of Customer's Total Liability of such
cancellation, Sanmina shall deliver to the Customer, at the Customer's expense,
any WIP, Finished Goods or components purchased but unused as a result of such
cancellation or scrap such components, at the sole direction of the Customer.
Sanmina will use its best efforts to minimize Customer's Total Liability as
described in Section IV.
VIII. PRICING
The prices for the Products are shown in Exhibit A and shall remain
fixed until adjusted by mutual agreement of Sanmina and Customer. Such pricing
will be reviewed quarterly. Sanmina will use its best efforts to effect an
aggressive price reduction of materials, labor and overhead with a goal of at
least [*] per quarter.. Pricing will be adjusted in accordance with the Overhead
reduction as shown in Exhibit A. This reduction is based on total dollar volume
and will not be used to meet the [*] reduction goal. Gadzoox will receive
[*] of all cost reductions, regardless of whether Sanmina or Gadzoox initiated
the cost reduction through material purchasing, redesign, rework, testing
protocols or any other method, until total costs charged Customer by Sanmina
reach the below listed amounts, ("Price Ceiling") as described in Exhibit A.
After that time, Gadzoox will receive [*] of future cost reductions and Sanmina
will receive [*] of future cost reductions. For other products not covered in
Exhibit A,
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Gadzoox will receive all cost reduction dollars up to the [*]. All cost
reductions after that time will be shared [*] to Sanmina and [*] to Gadzoox.
IX. DELIVERY
Delivery of all items under this Agreement shall be delivered F.O.B.
Sanmina's plant located at the address specified by Gadzoox at which time risk
of loss and title shall pass to the Customer. Product will be shipped from
Sanmina to any location as specified by Gadzoox.
Sanmina shall deliver early 5 working days with 0 days late to the
agreed to delivery date. Sanmina will notify Customer immediately if it will be
unable to deliver product previously committed for delivery by Sanmina. Late
deliveries, previously committed by Sanmina, shall be considered a material
breach of this Agreement. Sanmina will use its best efforts to deliver as soon
as possible and will apprise Gadzoox on a daily basis until previously committed
deliveries are made in full. Should Sanmina be habitually late in delivering
previously committed deliveries, Gadzoox may terminate this Agreement.
Unless otherwise specified by the Customer, Sanmina shall transport the
Products by the method Sanmina deems most advantageous in order effect an
on-time delivery, to the Customer's address or to an address specified in
writing by the Customer. All freight, insurance and other shipping expenses from
the delivery point shall be borne by the Customer. When special packaging is
requested or, in the opinion of Sanmina, is required under the circumstances,
written notice of special packaging shall be provided to the Customer who must
approve the additional expenses related to such special packaging.
X. PAYMENT AND INVOICING
Payment terms will be [*] days from invoice date. Sanmina will provide
the Customer with a credit limit set at (to be determined) and shall deliver
such credit limit information in writing to the Customer. In the event that the
Customer exceeds this credit limit Sanmina and Customer will negotiate in good
faith a higher credit limit. In the event Customer owes outstanding invoices
which are more than [*] past due, and after written notice is provided to
Customer and Customer has failed to pay late invoices within [*] days of such
notice, Sanmina may stop shipments of Products to Customer until the Customer
makes sufficient payment to bring its account consistent with terms outlined
above.
XI. WARRANTY AND REPAIR
Sanmina warrants that the Products (excluding components purchased from
third-party vendors ("Vendor Components")) shall be free from any defects in
workmanship for a period of [*] from the date of manufacture. Warranty on
components is limited to the warranty provided by the component manufacturer.
Sanmina will comply, at all times, with Quality and Acceptance criteria outlined
in Exhibit B. Sanmina shall pass on any unexpired warranty for such Vendor
Components provided by third-party vendors or passed on by such third-party
vendors from the original manufacturers until the expiration
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of such warranties or up to a maximum of [*] from date of manufacture of the
Product by Sanmina, whichever is shorter. Sanmina and Gadzoox will work
diligently with parts vendors to extend their respective warranty periods to at
least [*]. As the Customer's sole remedy under the warranty, Sanmina will, at no
charge, rework, repair and retest any such Products returned to Sanmina and
found to contain such defects caused by Sanmina. Warranty coverage does not
include failures due to the Customer design errors, the supply or selection of
improper or defective parts or materials used by the Customer, the Customer
requested changes, damages caused by the Customer's misuse, unauthorized repair
or negligence. Sanmina does not assume any liability for expendable items such
as lamps and fuses. Sanmina reserves the right to inspect the Products and
verify that they are defective or non-conforming. Sanmina's total liability
shall be limited to the value of the Product supplied under this Agreement.
The warranty afforded to these assemblies is limited to these items,
parts and defects that are within the capability of existing test equipment,
program and processes.
The performance of any repair or replacement by Sanmina does not extend
the warranty period for any Products beyond the period applicable to the
Products originally delivered.
EXCEPT FOR THE ABOVE EXPRESS WARRANTIES, SANMINA MAKES AND THE CUSTOMER
RECEIVES NO WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED,
STATUTORY, OR OTHERWISE, AND SANMINA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
For any product which requires repair under Warranty, ("Defective
Product"), Sanmina will repair or replace such Defective Product and return to
Gadzoox, or to such location as Gadzoox so directs, within [*] days after
receipt. Gadzoox will pay for the shipment of Defective Product to Sanmina.
Sanmina will pay for the shipment of Defective Product to Gadzoox, or to other
such location as Gadzoox so directs. Sanmina, at its sole expense, will carry in
its inventory, parts and subassemblies required for repair of Defective Product.
In the event that a Product completely fails to function within the
first forty-eight (48) hours of installation ("dead-on-arrival" or "DOA"),
Sanmina agrees to replace the failed Product with a new Product within [*] days
after receipt.
Sanmina will provide support hereunder for the current and immediately
preceding [*] Major Releases (including all interim releases) and during the
Warranty repair of Product, bring such Product to the latest revision level, to
the extent practicable and unless otherwise directed by Gadzoox. For Products
that are or are not within Warranty, Gadzoox and Sanmina will negotiate in good
faith the cost of such support.
In addition to the warranties specified above, Sanmina shall warrant
that all Products against epidemic failure against workmanship for a period of
[*] after
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shipment and for the period of time in which components are under warranty from
the original vendors. An epidemic failure shall mean the occurrence of the same
root cause failure in [*] of the total of each Product shipped within the
immediately preceding [*]. Sanmina shall dedicate the required resources, and
make best efforts, to determine the root cause of the failures and to submit a
corrective action plan as quickly as possible. Such corrective action plan shall
be implemented as quickly as possible but within a maximum of [*] from the
initial notice by Gadzoox of such epidemic failure, unless otherwise agreed to
by both parties. In the case of an epidemic failure, Sanmina shall reimburse
Gadzoox for all reasonable costs incurred by Gadzoox in recalling, replacing, or
repairing the affected Products, until such time as the reported failure rate
drops to less than the occurrence stated above. Such reasonable costs shall be
limited to the transportation of failed Products, both inbound and outbound to
and from Sanmina, as well as the reasonable transportation costs of Gadzoox
required for epidemic failures.
Sanmina and Gadzoox will establish a swap program ("Swap Program")
whereby Product to be repaired ("Swap Product"), when returned to Sanmina will
be immediately exchanged for new Product. The Swap Product will then be repaired
or replaced by Sanmina and put into Finished Goods.
Should greater than [*] of Product returned to Sanmina during any
calendar quarter for repair for which no trouble was found ("NTF Product"), then
Sanmina and Gadzoox will work together in good faith to determine the cause for
such returns. If the occurrence of NTF Product returns has not been decreased to
[*] or below by the next calendar quarter, Sanmina and Gadzoox will negotiate in
good faith the charge for testing of NTF Product which exceeds the [*] threshold
on a prorated basis for the prior [*].
XII. General Indemnity
The Customer shall indemnify Sanmina against, and hold it harmless from
any loss, cost, liability or expense (including court costs and the reasonable
fees of attorneys and other professionals) to the extent that such loss, cost,
liability or expense arises out of, or in connection with, in whole or in part,
(A) infringements of any patent, trademark, copyright or other intellectual
property of the Customer, or (B) any negligence or willful misconduct by the
Customer, its employees or agents and subcontractors, including but not limited
to any such act or omission that contributes to: (i) any bodily injury,
sickness, disease, or death; (ii) any injury or destruction to tangible or
intangible property of the injured party or any loss of use resulting therefrom;
or (iii) any violation of any statute, ordinance or regulation.
Sanmina shall indemnify Gadzoox against, and hold it harmless from any
loss, cost, liability or expense (including court costs and the reasonable fees
of attorneys and other professions) to the extent that such loss, cost,
liability or expense arises out of, or in connection with, in whole or in part,
any negligence or willful misconduct by Sanmina, its employees or agents and
subcontractors, including but not limited to any such act or omission that
contributes to: (i) any bodily injury, sickness, disease, or death; (ii) any
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injury or destruction to tangible or intangible property of the injured party or
any loss of use resulting therefrom; or (iii) any violation of any statute,
ordinance or regulation.
XIII. Quality, Inspection and Reporting
The Customer will have the right at all reasonable times, upon
reasonable advance notice, to visit Sanmina's plant to inspect the work
performed on the Products. Inspection of the work shall not relieve Sanmina of
any of its obligations under the Agreement or purchase orders. Sanmina shall
provide Customer with all mutually agreed upon quality reports at agreed upon
intervals as defined in Exhibit B. Sanmina reserves the right to restrict the
Customer's access to the plant or any area within it as necessary to protect
confidential information of Sanmina or its other customers.
If Customer demands inspection of the Products prior to the delivery of
such Products as a condition of acceptance of such Products, the Customer must
inspect the Products [*] of a transmission of written notice by facsimile or
other electronic or telephonic delivery system from Sanmina informing the
Customer that the Products are ready to be shipped. If Customer does not inspect
the Products within such [*], Customer shall be deemed to have waived its right
to inspect the Products as a condition of acceptance of such Products.
Customer and Sanmina will implement a joint quality improvement program
that will develop and implement a continuous quality improvement that is in
compliance with the requirements as defined in Exhibit B.
XIV. Termination
Either party may, without penalty, terminate this Agreement upon [*]
written notice to the other party in either one of the following events:
a) The other party materially breaches this Agreement and such
breach remains uncured for [*] following written notice of
breach the non breaching party;
The other party becomes involved in any voluntary or involuntary bankruptcy or
other insolvency petition or proceeding for the benefit of its creditors, and
such petition, assignment or proceeding is not dismissed within [*] after it was
filed.
Upon termination, Sanmina shall provide the Customer with an invoice of
the Customer's Total Liabilities. In addition, the Customer shall be liable for
all work-in-progress and any outstanding charges. Upon termination, Customer
shall pay all invoiced charges in net [*].
XV. Limitation of Liability
IN NO EVENT WILL SANMINA BE LIABLE FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER
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CAUSED AND ON ANY THEORY OF LIABILITY, ARISING IN ANY WAY OUT OF THIS AGREEMENT.
THIS LIMITATION WILL APPLY EVEN IF THE CUSTOMER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN.
XVI. Miscellaneous
A. Governing Law. This Agreement will be governed by and
interpreted under the laws of the State of California, without
reference to conflict of laws principles.
B. Jurisdiction. For any dispute arising out of this Agreement,
the parties consent to personal and exclusive jurisdiction of
and venue in the state and federal courts within Santa ▇▇▇▇▇
County, California.
C. Entire Agreement; Enforcement of Rights. This Agreement sets
forth the entire agreement and understanding of the parties
relating to the subject matter herein and therein and merge
all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing
signed by the party to be charged. The failure by either party
to enforce any rights thereunder will not be construed as a
waiver of any rights of such party.
D. Assignment. The rights and liabilities of the parties hereto
will bind and incur to the benefit of their successors,
executors or administrators.
E. Notices. Any required notices thereunder will be given in
writing at the address of each party set forth above, or to
such other address as either party may substitute by written
notice to the other in the manner contemplated herein, and
will be deemed served when delivered by facsimile or mail or
when tendered in person.
F. Unless otherwise stated, the term "days" means business days.
G. Force Majeure. Neither party shall be liable to the other for
any alleged loss or damages resulting from failure to perform
due to acts of God, natural disasters, acts of civil or
military authority, government priorities, fires, flood,
epidemics, quarantine, energy crisis, war or riots. Each party
shall promptly notify the other party of such event. If
Sanmina is unable to deliver in accordance with agreed
delivery schedules for a period of more than [*], Gadzoox may
either (i) extend the time of performance, or (ii) cancel the
uncompleted portion of the Purchase Order at no cost to
Gadzoox.
Notices shall be sent to the following:
Sanmina Customer
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Sanmina Corporation Gadzoox Networks, Inc.
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▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
H. Counterparts. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original and all of which together will
constitute one instrument.
I. For the length of this contract as stated in Section I, Sanmina will
be given first right of refusals on all new manufacturing programs.
Sanmina and Gadzoox will negotiate in good faith costs on new
manufacturing programs, using a cost model described in this Agreement
and will work together to reduce cost on all products in an effort to
reduce total costs. This Agreement is non-exclusive.
J. To the best of their knowledge, Sanmina and Gadzoox are not aware of
any infringements of any patents, trademark, copyrights, confidential
manufacturing or test processes, or other intellectual property of
others.
K. If within [*] of the execution of this Agreement, the anticipated
manufacturing volume is significantly less than initially anticipated,
Sanmina and Gadzoox will meet and negotiate, in good faith, future
pricing for manufacturing services.
L. Quarterly Review Meeting. At least once per quarter Sanmina and
Gadzoox will meet to discuss, among other topics including, but not
limited to, vendor warranty issues, pricing and cost reduction, quality
status and goals for improvement.
Signed: /s/ Signature Illegible Signed: /s/ Signature Illegible
------------------------- ------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------- ------------------------
Title: V.P. ?? Operations Title: V.P. of Manufactures
------------------------- ------------------------
SANMINA CORPORATION GADZOOX NETWORKS. INC.
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
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EXHIBIT A
Gadzoox volume Pricing:
[*]
[*]
[*]
[*]
[*]
[*]
Price Ceiling
Ceiling
Product Name Amount Date
--------- --------------
Gz 12 Port M5(*) [*] [*]
(*) Price for each of the Gadzoox 12 Port-based Products, regardless of model
or version; Price for the Gadzoox 6 Port will be less than, and in
proportion to, the Price ceiling for the Gadzoox 12 Port Products.
HOURLY LABOR RATES:
San ▇▇▇▇ Alabama
-------- -------
SMT Assembly Rates [*] [*]
Hand Load Assembly [*] [*]
ICT Test [*] [*]
Board Functional Test [*] [*]
Box Assembly [*] [*]
Box Functional Test [*] [*]
Box Burn In [*] [*]
Packout & ship [*] [*]
OVERTIME RATES:
Labor - [*]
Test - [*]
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
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WIP PROCESS STEPS AND PERCENTAGE OF COMPLETION:
WIP Process Step
----------------
[*]
Material ▇▇▇▇-ups:
Material [*]
Consigned Material
PCB's
Price Reduction:
Pricing margin (OH for labor & SGA-Profit) will be reduced as Gadzoox's total
dollar volume of business increases as shown below.
Cum dollars spent with Sanmina Pricing margin
[*] [*]
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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EXHIBIT B
PROCEDURE TITLE: SUPPLIER QUALITY AGREEMENT
DOCUMENT NUMBER: QAP020
REVISION: B
FUNCTIONAL DEPARTMENT: QUALITY
APPROVALS
Name Title Signature Date
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Materials Manager
▇▇▇▇ ▇▇▇▇▇▇▇ VP Operations
[*]
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ Quality Manager
Document Control:
REVISION HISTORY
Revision Page(s) Author Description Date
01 ▇▇▇▇▇▇ ALL 1/12/98
A All ▇▇▇▇▇▇ Release 4/19/98
B 2, 5, 6, 11 ▇▇▇▇▇▇ ▇▇▇▇▇ changes 11/9/98
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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1 PURPOSE
This document establishes the Quality System Requirements and
Reliability provisions which shall apply to all Suppliers manufacturing
Gadzoox products. The Quality System Requirements are based on 9002. It
is expected that Gadzoox' Suppliers are ISO Registered. If Supplier is
not registered, it is expected that Supplier will pursue and obtain ISO
registration within a mutually acceptable date.
2 SCOPE
This Quality Agreement applies to all Suppliers, who supply material,
sub-assemblies, finished product or services. This document is intended
as a guideline with product specific goals. In certain instances this
document may be supplemented by a product specific quality plan
customized by the responsible Supply Base Engineer.
3 REFERENCES
ISO 840 Quality Vocabulary
ISO 9000 Quality management and quality assurance standards
ISO 9002 Model for QA in Production, Installation & Servicing.
ANSI/ASQC- Guidelines for Quality System Audits
Q10011
MTP018 Gadzoox Packaging & Handling Electrostatic Sensitive
Devices
MFP003 Gadzoox Product Identification & Labeling Specification
4 DEFINITIONS
QA - Quality Assurance
IQC - Incoming Quality Control
MRB - Material Review Board
SPC - Statistical Process Control
TQC - Total Quality Control
CPI - Continuous Process Improvement
ORT - On-Going Reliability Testing
BI - Burn-In
PM - Defects Per Million
Failures - The part/product fails to meet the specification
OOBA - Out of Box Audit
CLCA - Closed Loop Corrective Action
MTBF - Mean Time Between Failure
5 RESPONSIBILITY
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Gadzoox strongly supports the premise that the Supplier take full
ownership of the quality and reliability of the product that is being
purchased by Gadzoox. It is also the responsibility of Supplier to
adhere to the guidelines set forth in this Quality Agreement as well as
the product quality and performance specified. It is agreed that
Supplier will not knowingly ship defective product to Gadzoox.
In certain cases Gadzoox may participate with Supplier or conduct
activities in parallel to provide its own confidence that the product
specifications or quality requirements are met. However, this does not
imply that Supplier is relieved of the responsibility of supplying
defect free product.
The Gadzoox product team will be responsible for ensuring that the
requirements set forth in this document are met prior to product
manufacturing release. After manufacturing release the Quality Engineer
will be responsible for ensuring continued compliance to these
requirements.
6 QUALITY SYSTEM REQUIREMENTS
6.0.0 Supplier agrees to maintain a formal Quality Assurance Program that
ensures the achievement and maintenance of Gadzoox' quality and
reliability goals as set forth by this document and the product
specification.
6.1.0 Compliance to ISO Requirements may be consistent with many portions of
this document; however, the specifics detailed in this document, the
Business Agreement and the product specification take precedence.
6.2.0 Supplier shall submit to Gadzoox Commodity Team a Quality Manual
annually which details the actual practices in use throughout the
process including the following information:
6.2.1 An organization chart identifying Company organizations or
groups.
6.2.2 A statement of the functions and responsibilities of each
organizational element involved in the design, manufacture,
procurement, inspection and testing of items deliverable under
this order.
6.2.3 Reference to specific policies and procedures governing
management of the quality assurance required herein.
6.2.4 A manufacturing and inspection flow diagram that identifies
points of inspection/test and the inspection/test documents
employed, including the criteria used to determine
acceptability at each inspection test point.
6.2.5 Supplier's Vendor Control procedures.
6.2.6 MRB administration.
6.2.7 CLCA Process implementation.
6.2.8 Sampling plan criteria.
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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6.3.0 Approval of the Supplier's Quality Assurance Program as defined by the
QA Manual [*].
6.4.0 Supplier shall maintain control of its manufacturing process, utilizing
Statistical Quality Control techniques, Process Flow Diagrams, Assembly
Instructions, Test Procedures, etc, [*].
6.5.0 Supplier agrees that no process changes, design changes, or
process-step discontinuances affecting product performance (whether
specified or not), the mechanical form/fit, the compatibility or
chemical characteristics, or the reliability of products shall be made
without prior written approval from Gadzoox Commodity Team. The process
flow shall be logical and well defined to prevent material co-mingling
and promote prompt disposition of defective material. It is expected
that Supplier will achieve continuous improvement throughout the
product lifecycle in terms of costs and quality, and Supplier has the
latitude to make changes in its process to achieve that. However, if
critical process changes are made, then Gadzoox must be notified in
writing and written approval by Gadzoox will be required.
6.6.0 Workstations and equipment shall be ergonomically designed to reduce
defects associated with human factor issues. Each process step must
have a current copy of work instructions, assembly aids or other
documents which detail proper operating procedures, at the relevant
workstation.
6.7.0 At Gadzoox discretion, each shipment pursuant to this Quality Agreement
may be accompanied by objective evidence of acceptance by the
Supplier's Quality organization. [*] Gadzoox Commodity Team approval
shall be obtained for acceptance of assembly & test procedures, ICT,
BI, OOBA and inspection audit points prior to conducting tests on
electronic assemblies to be delivered under this Quality Agreement.
6.8.0 Written procedures should define the inspection methodology and
equipment used for IQC and In-Process inspection. The procedure should
also include the characteristics to be measured and the frequency of
inspection. [*].
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
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6.9.0 Final Inspection: Supplier must have a formalized inspection document
that identifies defect characteristics and records actual test results
or dimensions. PASS/FAIL results may be acceptable with approval from
Gadzoox Commodity Team. [*]
6.10.0 Out-Of-Box-Audit (OOBA): An OBA will be accomplished and documented.
Sampling level will be subject to approval by Gadzoox Quality. [*]
6.11.0 First Article Inspection: Pre-production samples with dimensions or
test data indicating the product meets all specifications may be
reviewed at the Supplier site or at Gadzoox facility. [*]
6.12.0 Lot Acceptance/Rejection: Material is subject to inspection and
approval after delivery. If specifications are not met, material may be
rejected and the entire lot returned at Supplier's expense. Gadzoox
will notify Supplier of any rejected lots prior to return. Supplier is
required to take corrective action for the causes of the non-conforming
items prior to shipment of succeeding lots. Rejection can occur by the
following:
6.12.1 Receiving Department: Damaged material or packaging. Material
does not conform to Purchase Agreement or Receiving
specification.
6.12.2 Quality Department: Non-conformance of engineering
specification. Process related failures.
6.12.3 [*]
6.13.0 Supplier shall provide and maintain a training and certification
program for special processes (such as soldering, wiring, etc,)
wherever these processes are used in the performance of work pursuant
to this Quality Agreement. A description of Supplier's training
program, testing procedures, and certification procedures shall be
submitted to Gadzoox Quality for approval. It is the responsibility of
Supplier to pursue other training programs targeting SPC, TQM, Problem
Solving and Quality Basics.
6.14.0 All test/measurement devices which provide a quantitative value for the
production of the end item must have certificates of traceability to
the National Institute of Technology with conformance with
MIL-STD-45662 or the equivalent locally recognized national standard. A
formal calibration program defining the calibration cycle must be in
place and actively monitored for compliance.
6.15.0 All machine performance, both mechanical and electronic, must be
measured, monitored and optimized per a formal documented maintenance
schedule. Any
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
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adjustments, repairs or modifications shall only be done by factory
trained personnel using current OEM approved procedures and components.
6.16.0 The Supplier shall take the proper precautions throughout the process
to prevent damage to static sensitive devices used in the production of
the end item. This includes the training of personnel, use of
anti-static containers/bins, and the proper grounding of workbenches
and personnel involved in the handling and assembly of subassemblies.
6.17.0 Packaging of the end item will be of natural or anti-static material
[*]. No static generating material shall be received at Gadzoox.
7 DOCUMENTATION
7.0.0 Supplier shall make available to Gadzoox any documents that define the
quality management systems and processes as well as product specific
documentation that Gadzoox is procuring. Documentation may exist in the
form of procedures, flow charts, work instructions, test procedures,
etc, This documentation will be used as a basis for conducting the on
site quality system assessment. If Supplier has multiple sites then
each site must provide the documentation that is specific to that site.
8 QUALITY ASSESSMENTS
8.0.0 Prior to awarding a contract or a purchase order, the Gadzoox Commodity
Team will conduct [*] audit of Supplier's processes. If there are
multiple sites then each site will be surveyed prior to issuance of the
contract or purchase order as deemed necessary.
8.1.0 Supplier shall provide all reasonable facilities and assistance for the
safety and convenience of the representative in the performance of
their duties. The Gadzoox Commodity Team will also conduct periodic
evaluations to determine compliance to ISO registration or to this
Quality Agreement. Any non-compliance's found during the initial audit
or subsequent audits will be documented and it is the Supplier's
responsibility to correct within a defined time frame set by the
Supplier and Gadzoox.
9 PRODUCT REQUIREMENTS
9.0.0 Burn-In: All electronic assemblies are required to undergo an effective
burn-in to eliminate infant mortality or remove marginal design
tolerances. [*]
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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[*]
9.1.0 Supplier is expected to perform appropriate accelerated life testing as
required to precipitate failures and aid in the problem detection,
analysis, and correction process. Supplier shall provide documented
test results to Gadzoox each month for all problems related to units
under contract. Accelerated life testing will conform to the Arhenius
Model. Calculation of the expected reliability will be done to the
current Mil-STD-217, Belcore or equivalent method approved by Gadzoox
Quality.
9.2.0 On-Going Reliability Testing (ORT): [*] The exact nature of the ORT
plan is to be designed by the Supplier and Gadzoox Quality for approval
prior to first shipment. ORT Definition: A continual process of MTBF
demonstrations using regular production units. This will indicate if
the product being produced continues to meet the product specification
and that no latent defects have been introduced during the latest
production run.
9.3.0 Design or component changes implemented to improve Field MTBF to
specified levels must be incorporated in all field return units in
accordance with engineering change orders. The Supplier must conduct
their own qualification presenting the results to Gadzoox indicating
fit for use and that conformance to specification has been achieved.
[*]
9.4.0 Supplier shall, in the performance of this Quality Agreement, provide
and maintain a system of traceability on all material used in the end
item for purposes of recall if necessary. Traceability is defined as
the ability to match a certain type or date code of a component to a
specific range of end items.
9.5.0 A unique Serial Number shall be assigned to each unique electronic
assembly prior to any testing being performed. Complete test
traceability by shippable unit serial number is required. [*] The same
serial number shall not be used more than once for a particular model
type. If a serial number is scrapped, that number must die with the
unit. Serial numbers shall not be duplicated on a subsequent purchase
agreement. [*].
[*] CONFIDENTIAL INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
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9.6.0 Supplier shall label each item as required by Gadzoox Product
Identification & Labeling Specification MFP003.
10 INFORMATION REQUIREMENTS
10.0.0 Supplier shall have procedures and resources in place to collect,
analyze and report data which is to be used for measurement which
drives CLCA and CPL This data must be collected utilizing statistically
valid techniques based on established SPC methods. Measurement tools
used throughout the process, such as control charts, Pareto analysis
shall be clearly posted and monitored by personnel that can institute
corrective action in the case of breakdown. Measurement tools and
resources must be designated to identify the type, range and causes of
defects and clearly report the information to appropriate personnel on
a regular basis. Statistical tools (CPk, DOE) shall be implemented to
assess and optimize procedure and machine capability.
10.1.0 Gadzoox will provide Supplier with all documents, which Gadzoox deems
necessary to enable Supplier to produce products, and shall be treated
as proprietary information. Supplier agrees not to use this
documentation for other than the purpose of providing to Gadzoox
products manufactured and developed under this agreement.
10.2.0 Supplier agrees to only use components approved by Gadzoox for use in
the product as specified on the drawings, AVL and BOM's. Change will be
encouraged and approved by Gadzoox.
10.3.0 Supplier agrees not to implement any changes to product that may affect
any approval or certification of any of the safety agencies, whether
the application for such approval or certification is completed or
pending, without prior written approval by Gadzoox. Information
describing all of the items on this Quality Agreement must be supplied
before qualification can begin. This information will be acceptable in
the form of catalogue sheets or other published documents containing
identification, markings, physical dimensions, typical test data or
other pertinent information upon which receiving inspection can be
based. All changes must be made through, and in accordance with Gadzoox
Document Control Department practices and procedures.
10.4.0 Suppliers design drawings, fabrication methods, work instructions, and
applicable product specification shall be approved by the Gadzoox
Commodity Team. They shall not be changed except by written approval
from the Gadzoox Commodity Team.
10.5.0 For electronic assemblies, a monthly report detailing quality activity
is due by the 10th of the month following the month covered. The format
of this report will be
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determined by the Supplier and Gadzoox Quality Engineer [*]:
10.5.1 [*]
10.5.2 [*]
10.5.3 [*]
10.5.4 [*]
10.5.5 [*]
10.5.6 [*]
10.5.7 [*]
10.5.8 [*]
10.5.9 [*]
11 CORRECTIVE ACTION PROCESS
11.0.0 For all items that are non-conforming, Supplier will analyze the causes
for the defects and submit a written CLOSED LOOP CORRECTIVE ACTION form
or equivalent within [*] from the date that the defective material
is received at the Supplier's facility. Initial defect verification and
assessment must take place within [*]. Corrective actions must be
effective and permanent and must be approved by the Gadzoox Supplier
Quality Engineer. Corrective action data must be returned to Gadzoox
indicating the symptom, root cause, and solution to the specific
problem and state what action was taken to prevent the problem from
recurring. Subsequent occurrences of the same nature are cause for
disqualification.
11.1.0 All Corrective Action Reports must include:
11.1.1 Root cause of problem.
11.1.2 Number of units affected by serial number range and date code.
11.1.3 Date and method of discovery by Supplier.
11.1.4 Disbursement of affected units by inventory locations (i.e.
Supplier's inventory, in-transit, Gadzoox inventory, customer,
and field).
11.1.5 Short term corrective action.
11.1.6 Final corrective action.
11.1.7 Rework plan on future returns affected by the problem but not
recalled.
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11.2.0 On reject/returned lots, the Supplier is expected to identify all
non-conforming items not just the rejected characteristics. Care should
be taken not to introduce other non-conforming conditions during
rework. [*]
11.3.0 All rejected/returned material must be re-submitted as unique lots and
not mixed with new material.
12 GADZOOX RESPONSIBILITY
12.0.0 Expectations from Gadzoox as pertaining to Suppliers process
compliance, product quality and specifications should be shared with
the Suppliers so they are able to meet and exceed Gadzoox expectations.
12.1.0 Evaluations and results of all audits and quality data will be shared
with the Suppliers on a periodic basis as determined by Gadzoox and the
Supplier. However, quality data will be sent to Suppliers every month.
[*]
13 QUALITY MEASUREMENTS
13.0.0 In-Process Failures/Defects: In process defects in terms of defects per
million (DPM) or percent failures will be measured at open box and
final inspection. This can be done once the part or subassembly is
received at Gadzoox, or during in-process inspections performed at the
Supplier by Gadzoox Source and/or Supplier Auditors. It is expressed by
the number of failures that occur at a process step divided by the
total number of parts processed through that process step. The
calculation is:
DEFECTS PER UNIT FAILURE RATE
Total Number Defects * 1,000,000
--------------------------------
Total Number Units Inspected
DEFECTS PER MILLION OPPORTUNITY - DPM
Total Number Defects * 1,000,000
--------------------------------
Qty Inspected * Qty Defect Opportunities
[*]
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13.1.0 Out of Box Failures & ORT Failures: These failures, in terms of percent
failure rate. This failure implies that the part has been integrated
with the Gadzoox (or Gadzoox Customer system) and then failed after all
routine manufacturing operations have been completed.
[*]
13.2.0 DOA Failures: These failures, expressed in percent fail rate, are the
number of failures that occur in the first 30 days of operation after
installation. DOA's for a particular month will be DOA failures that
get reported in that month divided by the total number shipped for the
prior month.
[*]
13.3.0 Field Failures: These are failures that occur past the first 30 day
window for DOA's, termed as DR's. Field failures are a direct
correlation to the reliability of the product. This is measured by the
failures reported in a month (not counting DOA's) divided by the total
installed base up to that month.
FIELD FAILURE RATE % = 100 *
Current month failures (excluding DOA's
---------------------------------------
Total Installed Base
[*]
13.4.0 Quality Requirements
The table below contains the quality requirements for the product. This
information is to be filled in and agreed to by both the Supplier and
Gadzoox.
In cases where "design errors" have been identified and Gadzoox is in
agreement, those errors will still be reported, but not be included in
the quality measures.
In some cases the quality requirements would be defined in the higher
level product specifications, and this section would remain blank.
TABLE 1. QUALITY REQUIREMENTS
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IN-PROCESS AUDITS OOBA DOA'S DR'S
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
* Time "0" equals Gadzoox EPR (Product Release)
** Quality Requirements may be determined later based on historical
quality indicators.
13.5.0 Exceptions to This Document
The table below contains any exceptions to this document that are
agreed to by both the Supplier and Gadzoox.
In some cases these exceptions would be defined in the higher level
product specification, and this section may remain blank.
TABLE 2. EXCEPTIONS TO THIS AGREEMENT (IF ANY)
SECTION DESCRIPTION OF EXCEPTION
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