Custom Product Development

CONFIDENTIAL TREATMENT REQUESTED]


EXHIBIT 10.18


CUSTOM PRODUCT DEVELOPMENT AND PRODUCTION AGREEMENT


between


Fiberlane Communications, Inc. And Hamilton Hallmark


1. AGREEMENT TO BUY AND SELL
-------------------------


(a) SELLER and BUYER agree to sell and buy, respectively, Custom Products and/or Services for the price and on the terms and conditions contained herein. The manufacturer of the Custom Products will be LSI LOGIC ("MANUFACTURER").


(b) SELLER certifies that MANUFACTURER has agreed with SELLER to undertake the obligations and responsibilities as set forth for MANUFACTURER in this Agreement.


2. DEFINITIONS
-----------


The below terms shall have the following meanings:


(a) "Custom Product". An integrated circuit manufactured, assembled or otherwise fabricated or obtained by MANUFACTURER incorporating standard characteristics defined by MANUFACTURER and the unique characteristics of a "Pattern". Custom Products are either "Prototypes" or "Production Units" as defined below.


(b) "Product Acceptance Specification". The written specifications which BUYER and SELLER agree describe the functionality and physical characteristics of the Custom Product which is developed pursuant to the Statement of Work in Attachments A and C.


(c) "Prototype". The Custom Product fabricated pursuant to the "Statement of Work" for the purpose of BUYER determining whether the Pattern meets the Product Acceptance Specification.


(d) "Production Unit". A Custom Product other than a Prototype.


(e) "Pattern" The unique characteristics of a Custom Product developed under this Agreement as provided by customer.


(f) "Design Technology". The design tools, systems and libraries of SELLER or MANUFACTURER.


3. STATEMENT OF WORK
-----------------


SELLER, MANUFACTURER and BUYER will perform tasks as specified in the Statement of Work. If BUYER and MANUFACTURER have entered into a separate agreement related to this Agreement, then that agreement, if any, is set forth in Attachment B.


4. PRICING
-------


(a) BUYER shall pay SELLER development charges for each Pattern as specified in Attachment C ( quotation attached hereto).


(b) Price schedules, if any, for Production Units are listed in Attachment C and are valid only for the time period specified. If no time period is specified, then such prices are estimates only.


5. DESIGN CHANGES
--------------


(a) Requests by BUYER for design changes after the parties have agreed upon the Product Acceptance Specification shall be at BUYER's expense (except, however for SELLER's or MANUFACTURER's error).


(b) If it is determined, during the course of executing the Statement of Work, that a modification of the Statement of Work is required to meet BUYER's requirement, including but not limited to a change in array size or type, SELLER agrees to promptly inform BUYER of the effect of such modification on the Statement of Work, the estimated schedule, and the price. Pending written instruction from BUYER and written agreement by SELLER (which written agreement shall not be unreasonable withheld), SELLER may suspend its performance hereunder without liability.


6. CUSTOM PRODUCT ACCEPTANCE
-------------------------


(a) BUYER may reject only those Prototypes that fail to meet the Product Acceptance Specification. Notice of rejection must be in writing and include a description of the failure and a return of the Prototype to SELLER. BUYER's exclusive rights upon rejection of Prototypes are set forth in Section 7. Notice and return of the Prototype to SELLER must be within four (4) weeks of delivery of the Prototype to BUYER.


(b) BUYER may reject only those Production Units that fail to meet the Product Acceptance Specification and any applicable MANUFACTURER's specifications. BUYER shall be deemed to have accepted Production Units unless notice of rejection is given within fifteen (15) calendar days of receipt.


(c) BUYER agrees to provide Seller with any other written acceptance or rejection identified in the Statement of Work within 20 Calender days of presentation.


7. SELLER'S LIMITED WARRANTY
-------------------------


(a) SELLER warrants to BUYER that the prototype(s) will conform to the Product Acceptance Specification. SELLER makes no other warranty, express or implied, with respect to Prototypes. With respect to any such Prototype which does not conform to the Product Acceptance Specification, SELLER's liability is limited to replacing the non-conforming Prototype(s) or, at SELLER's election and in the case where SELLER assisted in the design, refunding to BUYER the development charges paid by BUYER hereunder. SELLER shall have no liability hereunder unless BUYER complies with the requirements of Paragraph 6(a).


(b) SELLER warrants to BUYER that the Production Units will conform to the Product Acceptance Specification. SELLER makes no other warranty, express or implied, with respect to Production Units. SELLER will further transfer to BUYER whatever transferable warranties SELLER receives from MANUFACTURER with respect to Production Units. With respect to Production Units which do not meet the Product Acceptance Specification, SELLER's liability is limited (at SELLER's election) to (i) Refund of BUYER's purchase price for such Production Units (without interest), (ii) Repair of such Production Units, or (iii) Replacement of such Production Units; provided, however, that such Production Units must be returned to SELLER, along with acceptable evidence of purchase, within twenty (20) Calendar days from date of delivery, transportation charges prepaid.


8. OWNERSHIP RIGHTS
---------------- (a) BUYER shall obtain title to a Pattern upon acceptance of the Prototype and payment in full to SELLER, and SELLER shall thereupon furnish to BUYER the netlist, test vectors and bonding diagrams which SELLER has furnished to MANUFACTURER relating to the Pattern.


(b) Nothing contained in this Agreement shall grant SELLER or MANUFACTURER any right to use for any third party any item first developed hereunder by BUYER or for BUYER without BUYER's prior written approval.


(c) All Design Technology provided by SELLER hereunder, including all circuit macros, shall remain the sole property of SELLER; provided, however, that Seller shall deliver any and all netlists for Custom Products to Buyer within fifteen (15) Calendar days of Buyer's written request.


(d) All tooling, processing technology, Design Technology, and proprietary information of MANUFACTURER shall remain the sole property of MANUFACTURER.


9. PRODUCTION UNIT ORDERS
---------------------- (a) BUYER may place orders for Production Units upon its written acceptance of the Prototype. Shipment of Production


* Represents confidential information for which Cerent Corporation is seeking confidential treatment with the Securities and Exchange Commission.


1


[CONFIDENTIAL TREATMENT REQUESTED]


Units will be scheduled as nearly as possible in accordance with BUYER's requested delivery dates subject to MANUFACTURER's lead time at the time of order acceptance. Shipment will be made against BUYER's specific purchase orders.


(b) Each purchase order for Production Units is subject to acceptance in writing by SELLER, which acceptance shall not be unreasonably withheld.


10. RESCHEDULING
------------


BUYER may reschedule delivery of Production Units, provided BUYER gives SELLER written notice at least [*] Calendar days prior to the originally scheduled shipment date and further provided SELLER accepts the new delivery schedule. SELLER's acceptance shall not be unreasonably withheld.


11. TERMINATION
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(a) This Agreement may be terminated as follows:


(i) CONVENIENCE: BUYER may at any time prior to accepting the
----------- Prototype elect to terminate this Agreement, or thereafter cancel any Production Units ordered hereunder, for its convenience. Such election shall be in writing and sent to SELLER as provided herein.


(ii) NON-FEASIBILITY: This Agreement shall automatically terminate
--------------- if SELLER and BUYER are unable to complete a Product Acceptance Specification acceptable to both parties.


(iii) CAUSE: This Agreement may be terminated and/or any orders for
----- Production Units may be cancelled immediately for cause by either party in the event the other party fails to perform any of its material obligations under this Agreement so as to be in default hereunder and fails to cure such default within thirty (30) Calendar days after written notice thereof, or if such default cannot reasonably be cured within thirty (30) Calendar days then the other party fails to commence such cure within thirty (30) Calender days after written notice and fails to diligently pursue such cure to completion.


(b) In the event of termination, the following sums shall become due and payable:


(i) PROTOTYPE PHASE: If BUYER terminates this Agreement for CAUSE
--------------- prior to BUYER accepting the Prototype, then SELLER shall refund all sums paid by BUYER to SELLER. If this Agreement is terminated for any other reason prior to accepting the Prototypes, then BUYER shall pay SELLER all charges due at the time of termination together with accrued time, material and equipment charges, if any. Charges associated with a billable event (applicable to both NRE and Engineering Development Charges) shall be due if the work associated with any phase following the previous billable event has been started.


(ii) PRODUCTION UNIT PHASE: If BUYER cancels any order for
--------------------- Production Units for CAUSE then BUYER may so cancel without liability therefor. If any order for Production Units is cancelled for any other reason, BUYER agrees to pay SELLER the full purchase price for such Production Units scheduled for ...