Manufacturing Services Agreement

MANUFACTURING SERVICES AGREEMENT


This Manufacturing Services Agreement ("Agreement") is entered into by Pathlight Technology, Inc. ("PATHLIGHT"), 9 Brown Road Ithaca, NY 14850, and XeTel Corporation ("XeTel"), 2105 Gracy Farms Lane, Austin, Texas 78758. This Agreement specifies the terms and conditions which shall apply to the manufacturing services to be provided by XeTel to PATHLIGHT during the Term of this Agreement.


1. TERM. This Agreement becomes effective on the later of the signature
dates of the parties, and continues in effect for an initial period of
one year. The Agreement will remain in effect beyond this initial one
year period unless terminated by either party as stipulated in this
Agreement.


2. SERVICES PROVIDED. This Agreement applies to all Purchase Orders and
other communications regarding the service provided unless this
Agreement is explicitly referenced by title and Effective Date with
regard to any exception to these terms and conditions. This Agreement
is not an authorization for XeTel to begin services.


3. DELIVERY


a. XeTel agrees to provide to PATHLIGHT the products ordered
pursuant to a Purchase Order in accordance with the delivery
requirements specified therein, or as modified in paragraph 3e
below, so long as such requested deliveries comply with the
provisions of Section 8. XeTel agrees to use commercially
reasonable efforts to deliver all products on time in
accordance with PATHLIGHT's requested delivery dates. Over a
three (3) month period, products must be delivered, on
average, no more than five (5) days early and no days late
from XeTel's committed delivery date. XeTel agrees that no
individual deliveries shall be more than five (5) days early
or late except in unusual situations beyond XeTel's reasonable
control where deliveries will be made at the earliest
practical time. If XeTel cannot meet its committed delivery
date, XeTel shall promptly notify PATHLIGHT of XeTel's revised
commit date and PATHLIGHT may, at it's option: (i) terminate
this Agreement in accordance with Section 15; (ii) hold XeTel
liable for any premium material, labor, and/or shipping costs
incurred by XeTel as a result of expediting to minimize the
lateness of the delivery; (iii) exercise all other remedies
provided at law, in equity and in this Agreement.


b. Any claims for alleged discrepancies must be given within
thirty (30) days of the shipment or such claim is deemed
waived by PATHLIGHT.


c. If XeTel is unable to meet its delivery commitments and must
allocate its capacity, inventory, test equipment, resources,
use of personnel, etc. that are used to produce products, then
XeTel agrees to: (i) act in good faith; and/or (ii) source
PATHLIGHT's product(s) at any of its manufacturing service
locations provided that such locations maintain the same
approved processes and that Pathlight is afforded a two (2)
week period to approve such manufacturing locations; (iii)
allocate its capacity, inventory, test equipment, resources,
use of personnel, etc. on a pro rata basis to fill PATHLIGHT's
and XeTel's other customers orders. XeTel will, at its sole
discretion, allocate material, equipment and resources
according to the following priorities: (I) emergency
(end-customer down or a safety defect) requirements will be
filled first; and (2) then a fair allocation (such as
first-in, first-out) between manufacturing orders and
non-emergency requirements.


d. XeTel will only deliver the products specified in PATHLIGHT's
Purchase Orders. XeTel further agrees to build no more than
four (4) weeks of finished goods "box level" product at any
given time thus minimizing the potential for high rework
costs.


e. In the event that PATHLIGHT requests XeTel to hold shipments
of completed product for aggregation to enable prompt
shipment of product for order fulfillment, to implement an
engineering change, or for other request, XeTel shall invoice
and hold the product, and


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Pathlight shall take full ownership of and title to the product
on XeTel's manufacturing premises, upon the shipment to a
designated segmented section of XeTel's on-site warehouse or a
third party warehouse upon notification to Pathlight. Such
shipments shall be one-hundred percent complete with respect to
underlying purchase orders. Such shipments are nonreturnable
except for valid warranty claims. Pathlight shall consign its
product to XeTel for any other subsequent requirements. In the
event the holding period for such product exceeds forty-five
days, XeTel, upon notification to Pathlight, is pre-authorized
to transfer Pathlight's inventory to a third party warehouse
or, at Pathlight's direction to Pathlight; XeTel shall make
such transfer and Pathlight shall be invoiced for storage
costs. XeTel shall move product from Pathlight's segmented
warehouse or the third party warehouse upon receipt of separate
instructions from Pathlight. In no event shall payments of
invoices be delayed as a result of these provisions.


4. CREDIT AND PAYMENT TERMS


a. Payments for services performed under this Agreement are due
and payable promptly at net thirty (30) days after date of
invoice, which shall not pre-date the date of shipment as
defined in paragraph 3e above.


b. PATHLIGHT shall provide an irrevocable standby letter of credit
or other security for receivable amounts outstanding and
inventory liability in excess of its credit limit which may be
drawn upon in the event of payment delinquency.


c. If PATHLIGHT becomes delinquent in payments to XeTel, XeTel
may do the following after notifying PATHLIGHT:


i. Charge interest at one and one-half percent (1 1/2%)
per month, but in no event shall the interest
charged be higher than the highest rate for which the
parties may legally contract; and/or


ii. Withhold shipment of products/services until all of
PATHLIGHT's obligations have been brought current.
PATHLIGHT will be given a reasonable amount of time
to bring invoices current prior to being placed on
credit hold. If XeTel elects to withhold shipment,
PATHLIGHT is not relieved of any obligations
hereunder; and/or


iii. Pursue legal remedies to collect the delinquent
payments; and/or


iv. Change credit terms.


d. PATHLIGHT agrees to verbally review Pathlight's quarterly
financial statements with XeTel.


e. XeTel agrees to review Pathlight's credit terms quarterly.


5. COORDINATION. Each party shall designate a Coordinator to represent
that party in the implementation of this Agreement. PATHLIGHT has
identified Bruce Fabens, Director of Manufacturing, as its
Coordinator, and XeTel has identified Pete Casarez, Program Manager, as
its Coordinator. Either party may change its Coordinator by written
notice to the other party.


6. ENGINEERING CHANGE ORDERS. PATHLIGHT may initiate Engineering Change
Orders (ECOs); so long as the following procedures are followed:


a. PATHLIGHT shall notify XeTel of the proposed ECO in writing,
including the documentation for the change to support XeTel's
research of the impact of the proposed ECO.


b. XeTel, upon receipt of the notice, will make its best effort
to review all costs impacted within five (5) working days. All
cost impacts and material availability issues will be reviewed
and agreed upon with PATHLIGHT to enable PATHLIGHT to issue a
Purchase Order for the charges prior


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to implementation. In addition, XeTel will charge $150 for
each ECO implementation for design related changes.


c. Emergency ECOs will be implemented immediately at PATHLIGHT's
request and PATHLIGHT will be liable for such costs pertaining
to the emergency ECO.


7. PRICING


a. All XeTel pricing for a particular product/service will be
based on Purchase Order quantities released for the applicable
quarter plus nine (9) month forecast provided by PATHLIGHT.
The Purchase Order(s) and forecast should include a
description of the product/service to be purchased, quantity,
and estimated delivery dates.


b. In order for Pathlight and XeTel to remain competitive in the
market place, Pathlight and XeTel agree to conduct periodic
(not less than quarterly) cost/price reviews throughout each
year. Continual reduction in cost/price will receive on-going
focus during this Agreement. XeTel shall negotiate in good
faith methods of improved productivity, procurement and
processes that can result in on-going cost/price reductions to
Pathlight. As business needs warrant, Pathlight may request
additional cost/price reductions from XeTel during this
Agreement.


c. If the actual quantity of products/services ordered for
delivery during any twelve (12) month period is lower than the
forecasted quantity, PATHLIGHT may be subject to billbacks
based upon the volume dependent pricing provided Pathlight.
XeTel will make its best effort to mitigate material liability
resulting from the volume changes.


d. At any time, in the event of extraordinary increases or
decreases in the market price of fuels, materials,
raw materials, equipment, labor and other production costs,
XeTel and PATHLIGHT can renegotiate in good faith with the
other party the price of goods not yet shipped or services to
be performed. If, in good faith, Agreement is not reached,
either party has the right to terminate the specific
service(s) or the entire Agreement subject to the appropriate
termination/cancellation changes set out in Paragraphs 8 and
15 of this Agreement.


8. PURCHASE ORDERS, FORECASTS, RESCHEDULES, AND CANCELLATIONS


a. Pathlight will provide a twelve (12) month rolling forecast
for the quantities of products that may be required. The
forecast will be issued during each month and will forecast
Pathlight's projected requirements for products for the next
twelve (12) months, which begins on the first day of the next
succeeding month.


b. XeTel agrees to manufacture, supply and deliver products in
accordance with the terms and conditions of this Agreement.
XeTel shall manufacture and deliver only such products
requested by Pathlight Purchase Orders. XeTel may not consider
a Pathlight Purchase Order as "closed completed" until XeTel
delivers the full quantity called for in the Purchase Order
only for orders where Pathlight has authorized the manufacture
of additional like product to account for yield loss and
Pathlight shall be responsible for any such excess inventory
manufactured. XeTel shall include for consumption any such
excess inventory accumulated into subsequent manufacturing
build plans.


c. Purchase Orders shall be placed a minimum of three (3) months
in advance of delivery time. XeTel will purchase materials in
accordance with the Purchase Order and the forecast based on
the mutually agreed upon lead-time and inventory buy policy
(see Appendix A-XeTel Inventory Buy Policy). PATHLIGHT is
liable for material purchased, particularly non-cancelable
non-returnable (NCNR) and custom/unique items, if there is a
schedule reduction or cancellation. PATHLIGHT is also liable
for all material purchased due to minimum buy quantities
including standard tape and reel quantities.


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Commencing July 1, 2000, in the event that Pathlight requests
an expedited order (versus shipping or order fulfillment
instructions for products in Pathlight's segmented warehouse
to complete final system configurations) within the three
month window; XETEL WILL CHARGE A FEE OF $40 PER EXPEDITED BOM
LINE ITEM, NOT TO EXCEED $1500 EXPEDITE FEE. Any such request
will be accompanied by a purchase order for XeTel to initiate
this process. After receipt of the purchase order covering the
expedite charge, XeTel will make its best effort to meet
Pathlight's requested delivery date and will notify Pathlight
within three (3) business days of its ability to meet such a
requested delivery date including available capacity. Such
charge shall apply independent of XeTel's ability to meet the
expedited delivery date, except where delivery is missed
solely for XeTel's manufacturing performance using standard
manufacturing lead times.


XeTel agrees to supply a material shortage report as necessary
and the following inventory reports on a monthly basis:


On-hand inventory
- On order inventory
- Excess to 5 weeks demand
- Total excess to demand
- Obsolete inventory (no demand)
- Component Supply-Demand Profile (as required)


XeTel agrees to provide other mutually agreed upon standard
informational reports set forth in Appendix E.


d. XeTel agrees to promptly respond to Pathlight's Purchase
Orders no later than two (2) business days after receipt


e. The Purchase Order pack quantity is a single unit and may be
ordered in multiples of one.


f. PATHLIGHT may reschedule deliveries on orders that are due
thirty (30) days or more from the date such change notice is
provided to XeTel provided that:


i. If such reschedule of delivery represents a delay in
shipment, the reschedule cannot be for more than ninety (90)
days from the original delivery date. PATHLIGHT agrees to
provide XeTel an inventory prepayment, net of any previous
unremitted prepayments, BY THE FIFTEENTH DAY OF EACH MONTH
EQUAL TO THE AMOUNT BY WHICH ON-HAND INVENTORY ON THE LAST DAY
OF EACH FISCAL MONTH EXCEEDS THE MAT ...