ELECTRONIC MANUFACTURING SERVICES

Exhibit 10.36


AGREEMENT FOR
ELECTRONIC MANUFACTURING SERVICES


This Agreement for Electronic Manufacturing Services (this "Agreement"), dated as of March 1, 2000 (the "Effective Date"), by and between Visual Networks Operations, Inc., a Delaware corporation, located at 2092 Gaither Road Rockville, Maryland 20850 ("Customer"), and Celestica Corporation, a Delaware corporation, located at 3600 Tarheel Drive, Raleigh, North Carolina 27609 ("Contract Manufacturer").


In consideration of mutual promises, covenants and agreements set forth below, the parties agree as follows:


I. Term


A. This Agreement shall become effective upon the Effective Date and shall remain in effect for twenty-four (24) months from the Effective Date (the "Initial Term"). The term of this Agreement shall be automatically renewed for successive terms of twenty-four (24) months each immediately following the expiration of the then-current twenty-four month term (each, a "Renewal Term"). The Initial Term and the Renewal Terms are collectively referred to herein as the "Term."


II. Scope of Work Performed


A. Contract Manufacturer shall manufacture a range of electronics products or assemblies as instructed by Customer in the quantities and at the prices (subject to adjustment in accordance with the terms of this Agreement) set forth in Exhibit A (unless otherwise specifically identified, the "Products").


B. The Customer and Contract Manufacturer may from time to time add additional Products to Exhibit A pursuant to written amendments to this Agreement mutually agreed upon by both parties.


C. Contract Manufacturer is authorized by the Customer to, and shall only proceed to, manufacture Products upon receipt of a purchase order (each, a "Purchase Order") issued by the Customer. Each Purchase Order shall include a requested delivery date for the Products ordered therein.


D. Immediately after receipt of Customer's initial Purchase Order for each Product, Contract Manufacturer shall commence development of product enhancements, improving testability, enhancing manufacturability, and cost reductions for the manufacture of the Product pursuant to Section IX. Customer and Contract Manufacturer shall review such matters at each Semi-Annual Review (as defined in Section VIII (A)).


E. The parties agree to the pricing schedule as set forth in Exhibit A, so long as the Forecast provided by Customer to Contract Manufacturer for manufacture of the Products, or a like product, is equal to or exceeds the quantity of the Products required by Customer during the Term as set forth on Exhibit A. If the Forecast (as defined in Section III (A) below) of estimated annual usage is projected to exceed the quantity of Products set forth in Exhibit A, Contract Manufacturer shall provide to Customer cost savings, which amount shall be mutually agreed to by both parties in good faith at the Semi-Annual Review. In the event that the Customer does not purchase the anticipated volume of Product, the Contract Manufacturer reserves the right to adjust Prices, which amount shall be mutually agreed to by both parties in good faith at the Semi-Annual Review.


F. Contract Manufacturer shall purchase materials for the manufacture of Products ("Materials") from vendors (each, an "Approved Vendor") identified in the approved vendor list ("AVL") provided by the Customer. In the event Contract Manufacturer cannot purchase Materials from an Approved Vendor for any reason, including unavailability of the Material or because it is commercially unreasonable to do so, upon prior written consent of the Customer, Contract Manufacturer shall be authorized to purchase such components from a vendor not identified in the AVL.


*** Confidential Information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.


III. General Planning and Procurement Process


A. At least monthly during the Term the Customer shall provide a non-binding forecast (the "Forecast") stating the expected number and types of Products that Customer plans to order on an estimated annual usage basis. The parties understand and agree that the Customer provides the Forecast to Contract Manufacturer solely for informational purposes and Contract Manufacturer shall not rely or forebear upon reliance of the information provided in the Forecast unless the Customer specifically states otherwise in writing. In the event that the Customer deems it appropriate for purposes of assisting Contract Manufacturer plan for procurement of Materials that require significant lead-time, Customer shall, at its sole discretion, make commercially reasonable efforts to provide specific instructions for procurement purposes. As of the Effective Date, the Customer has provided Contract Manufacturer with an initial Forecast for the Initial Term, which initial Forecast is the basis for the prices set forth on Exhibit A.


B. Contract Manufacturer shall develop, generate, and disclose to the Customer an "Open Order Status Report" that will provide Customer with a status report for each Purchase Order, including an anticipated delivery date. Each Open Order Status Report will be subject to revision on a rolling weekly basis in accordance with Section III (C) below and based upon the Purchase Orders and the Forecasts.


C. Subject to Article III(G), Contract Manufacturer shall procure materials, determine manufacturing capacity projections, and make internal capacity commitments in order to achieve the delivery dates scheduled in the Open Order Status Report (i.e. based on the Purchase Orders and Forecasts). 1. Contract Manufacturer shall use the information provided by the initial Purchase Order and Forecast to establish the first three months of the Open Order Status Report. 2. Contract Manufacturer will use the Forecast referred to in Section III (A) to revise the Open Order Status Report on a rolling weekly basis. 3. The parties agree that the Open Order Status Report is for planning purposes only and, except pursuant to Section X, is not a binding obligation on either party unless otherwise specifically agreed to in writing by the parties. 4. Contract Manufacturer shall obtain Customer approval for purchases of individual BOM items where Minimum Order Quantities are [***] in excess of purchase quantities supported by the Open Order Status Report. Contract Manufacturer shall provided Customer a detailed report of such purchases monthly.


D. The Materials that Contract Manufacturer purchases or orders to fulfill the Purchase Orders on behalf of the Customer to manufacture the Products, and any associated expenses related to purchasing, ordering, manufacturing (including labor and overhead), shipping, storing and eliminating such Materials shall constitute a part of the Customer's total liability under Section XV (B) of this Agreement. The cost, and disposal, of unused Materials will be determined pursuant to Section IV.


E. Contract Manufacturer shall provide or contract for all maintenance and calibration required for the process tooling, manufacturing tooling and test equipment, whether purchased by Contract Manufacturer or consigned by the Customer, while in the possession of Contract Manufacturer. Required preventative maintenance and scheduled calibration shall be at (i) the sole cost and expense of Contract Manufacturer for tooling and test equipment Contract Manufacturer owns, and (ii) at the sole cost and expense of the Customer for tooling and test equipment Customer owns. Contract Manufacturer shall tag all of the Customer's equipment on loan to Contract Manufacturer with consigned asset tags as per Contract Manufacturer's Standard Operating Procedures, a copy of which Standard Operating Procedures has been delivered to the Customer.


F. If deemed necessary, and upon Customer's written consent, Contract Manufacturer shall purchase or lease the tools required to fulfill the Purchase Orders. The Customer shall pay for the cost of, and own, all such tools. Contract Manufacturer shall be deemed to be a bailee of any such tools, and no interest in the title to such tools shall vest in Contract Manufacturer. Contract Manufacturer shall ensure that no lien shall attach to such tools and shall maintain such tools in good repair and working order, subject to ordinary wear and tear.


*** Confidential Information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.


G. The parties acknowledge that, from time to time during the Term, Contract Manufacturer will be required to place purchase orders with its suppliers for certain parts in order to meet Customer's forecasted delivery dates that are beyond the Product delivery dates reflected in the Purchase Order(s) issued by the Customer. Contract Manufacturer will not issue purchase orders to its suppliers for such parts without the express, written consent of Customer (a "Long Lead Item Request").


IV. Materials


A. Customer shall be responsible for the cost of Materials that Contract Manufacturer has procured on behalf of the Customer for use in the manufacture of the Products and that are surplus to the Contract Manufacturer's requirements because the Customer has reduced or canceled a Purchase Order or Long Lead Item Request pursuant to Section VII below, respectively; provided, however, and notwithstanding anything stated to the contrary herein, that such cost is limited to only Materials that Contract Manufacturer ordered pursuant to purchase orders that cannot be canceled prior to their receipt or are surplus to committed or Forecast requirements for the following [***]. This includes parts that cannot be canceled because of insufficient time between the Manufacturing Resource Planning ("MRP") signal to cancel and the expected or actual receipt date at Contract Manufacturer's place of business.


B. For a period of [***] from the date Customer reduces or cancels a Purchase Order or Long Lead Item Request, the Contract Manufacturer shall use commercially reasonable efforts to: (i) cancel outstanding orders for such Materials; (ii) sell such Materials back to the original supplier or to a third party on commercially reasonable terms; or (iii) use excess/uncancellable/unreturnable Materials for the manufacture of other products.


C. After such [***], Contract Manufacturer shall be entitled to deliver to the Customer (or, if the Customer so requests, otherwise dispose of) all obsolete and/or surplus Materials then held by the Contract Manufacturer.


D. The Contract Manufacturer shall provide the Customer an itemized bill so that the Customer can confirm its charges under this Section IV, which may include a Materials handling charge of no more than [***]. Such itemized bill may invoice the Customer for (i) the full cost of Material disposed of pursuant to Section IV (C), (ii) any price variance incurred by Contract Manufacturer in connection with the resale or disposal of Materials pursuant to Section IV (B) and, (iii) a reasonable handling charge of no more than [***]. Such bill shall be paid by the Customer in US Dollars [***] of the date of invoice.


E. In addition, only with respect to Purchase Orders canceled in their entirety, Customer shall be liable for any investment incurred by the Contract Manufacturer that has been specifically agreed in writing by the Customer, that has not been recovered by the Contract Manufacturer from the Customer through amortization or other means and which the Customer agrees in writing will not be recovered in the foreseeable future under future Purchase Orders and that relates directly to the products included in the cancelled Purchase Order.


V. Rescheduling Delivery of Ordered Products


A. The Customer may reschedule the delivery dates of the following quantities (expressed as a percentage of the amount of a Product type ordered) of a Product type as follows:


Notice Prior to Percent of Scheduled
Rescheduled Delivery Quantity that can be
Date Rescheduled
-------------------- --------------------


[***] [***]


*** Confidential Information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.


The Customer will be responsible for carrying charges for costs incurred by the Supplier to accommodate any such rescheduling of Purchase Orders or Long Lead Item Requests by the Customer at the rate of [***]. per month of the value of the held inventory.


B. In the event that, pursuant to Section V (A) above, the Customer requests a reduction in the number of a type of Product designated for delivery on a specific delivery date, Contract Manufacturer and the Customer shall mutually agree [***] of such request to a new delivery date.


C. Contract Manufacturer shall use commercially reasonable efforts to accommodate any increase in the number of Products requested by the Customer to be delivered at a specific date.


VI. Engineering Change Orders


A. In the event the Customer requests engineering changes to a Product (each request, an "Engineering Change Order" or "ECO"), Contract Manufacturer shall advise and notify the Customer of any impact, if any, an ECO would have on the cost and scheduled delivery of the affected Product within five (5) business days after Contract Manufacturer's receipt of Customer's ECO. If the Customer does not consent to the change in the cost as notified by Contract Manufacturer, the requested ECO shall be deemed canceled. If the Customer does consent to the change in cost, any increases in the cost of the Products resulting from ECO shall be borne by the Customer.


B. Any Materials made obsolete or unused because of an ECO shall be disposed in accordance with Section IV, unless Contract Manufacturer is otherwise instructed in writing by the Customer.


VII. Cancellations


A. The Customer may cancel:


1. [***] of a Purchase Order for any one type of Product by notifying Contract Manufacturer in writing at least [***] prior to the delivery date of such Purchase Order.


2. [***] of a Purchase Order for any one type of Product by notifying Contract Manufacturer in writing at least [***] prior to the delivery date of such Purchase Order.


3. [***] of a Purchase Order for any type of Product by notifying Contract Manufacturer in writing at least [***] prior to the delivery date of such Purchase Order.


B. Within thirty (30) days after any cancellation made pursuant to Section VII (A) above, Contract Manufacturer shall provide the Customer the cancellation charges incurred pursuant to Section IV for the canceled Purchase Order or portion thereof. The Customer shall pay such cancellation charges to Contract Manufacturer within thirty (30) days from the date of the invoice. Any Materials that are unused because of a cancellation shall be disposed of in accordance with Section IV, unless Contract Manufacturer is otherwise instructed in writing by the Customer.


C. Nothing in this Section VII shall be construed to prevent Customer from rejecting defective Products or rejecting Products that do not meet specifications set forth in the Purchase Order for the respective Product.


VIII. Pricing


A. The price for each Product shall be as set forth in Exhibit A. Prices will be subject to a good faith review by the Parties on a semi-annual basis (the "Semi-Annual Review") at a price review to be arranged by the authorized representatives of each of the parties. Changes to prices, and the manner and timing of their implementation, will be mutually agreed to by the parties in good faith. The pricing changes at the Semi-Annual Review shall include, but not be limited to:


1. Any increases or decreases in costs of procuring Materials arising from exchange rate variances.


2. The cost reductions or increases of an ECO.


3. Any cost reduction resulting from Contract Manufacturer's exercise of its rights under Section XVI (M) to manufacture competing similar or competitive products.


*** Confidential Information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.


4. Where Prices are related to volume and (a) Customer does not purchase the anticipated volume of Product, Contract Manufacturer and Customer will mutually agree upon an adjusted price to reflect the actual quantities of Product shipped to Customer and Contract Manufacturer shall be allowed to invoice Customer for the difference between the price paid and the adjusted price or (b) Customer purchases more than the anticipated volume of product, Contract Manufacturer and Customer will mutually agree upon an adjusted price to reflect Contract Manufacturer's savings and Contract Manufacturer shall reimburse or credit Customer the difference between the adjusted price and the price paid.


B. Notwithstanding anything in Section VIII (A) to the contrary, cost reductions made pursuant to Section IX will be reflected in pricing pursuant to Section IX (B).


C. The parties have agreed that the non-recurring expenses are as set forth in Exhibit C.


IX. Cost & Price Reductions


A. Contract Manufacturer shall use commercially reasonable efforts to reduce the price of each Product initially set forth in Exhibit A by [***] within the first [***] from the Effective Date and by an additional [***] on or before the [***] of the Effective Date. This will be a compound reduction. Contract Manufacturer shall use commercially reasonable efforts to reduce the price of each new Product added to Exhibit A after the Effective Date pursuant to an amendment to this Agreement by [***] on or within the [***] from the effective date of the amendment adding such Product to Exhibit A and by an additional [***] on or before [***] after the effective date of the amendment adding such Product to Exhibit A.


B. Contract Manufacturer covenants that the reduction in the manufacturing costs of the Products will be predicated on (i) implementation of DFT/DFM as identified by Contract Manufacturer to the Customer and subsequently approved by the Customer in writing, (ii) Contract Manufacturer's efficient material acquisition and alternative sourcing as presented by Contract Manufacturer and subsequently approved by the Customer in writing, and (iii) any increase in Purchase Orders in excess of the initial Forecast set forth in Exhibit A. The actual cost reduction per period may be less than listed if the Customer fails to approve the cost reductions as identified by Contract Manufacturer or if the forecasted quantity is reduced, therefore impairing cost reduction opportunities. Contract Manufacturer agrees to reduce the price of the Products in the event that such manufacturing cost is reduced in accordance with the following:


1. [***] of all cost reductions that result from a proposal identified by the Customer, which costs reduction will be reflected in the price [***] of submission.


2. [***] of all cost reductions arising from proposals identified by Contract Manufacturer, which costs reduction will be reflected in the price [***] after Customer's written approval. Customer must approve Contract Manufacturer's cost reductions in advance of implementation of such cost reductions. X. Delivery


A. Delivery of all the Products shall be delivered F.O.B. from Contract Manufacturer's plant located at the address specified in Exhibit B ("Delivery Point"), at which time the risk of loss and title shall pass to the Customer. Products held or stored by Contract Manufacturer at the Delivery Point or any other location because of a request of the Customer shall be held or stored at the risk and expense of the Customer.


B. Contract Manufacturer shall use reasonable efforts to deliver the Products on or prior to the agreed upon delivery dates. In the event that the Contract Manufacturer determines that there is a reasonable possibility that a delay in any delivery may occur, the Contract Manufacturer shall immediately notify Customer, in writing, and shall specify in such notice all actions to be taken by the Contract Manufacturer to prevent or minimize such delay. TIME IS OF THE ESSENCE WITH RESPECT TO ALL DELIVERIES. Delivery dates will be agreed upon by the following procedure:


*** Confidential Information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.


1. Customer will provide Contract Manufacturer a requested delivery date in each Purchase Order.


2. Contract Manufacturer will provide an anticipated delivery date in each Open Order Status Report. If such delivery dates match Customer's requested delivery date, then that shall be the delivery date. If such delivery date does not match the Customer's requested delivery date, and Customer does not respond in writing within [***] after receipt of an Open Order Status Report, then Customer shall be deemed to have accepted such date as the delivery date.


3. In the event that Customer rejects Contract Manufacturer's anticipated delivery date in writing within [***] after receipt of an Open Order Status Report, then Customer and Contract Manufacturer shall negotiate in good faith to determine a delivery date.


C. Contract Manufacturer shall notify the Customer on the changes to a Product's price when Contract Manufacturer is required to meet delivery within [***] after the receipt of each Purchase Order ("ARO") or when Contract Manufacturer is required to identify the components the Customer must supply to meet stated delivery date. Contract Manufacturer shall also advise Customer on the best delivery date ARO if no premium or expedited charges are to be incurred.


D. Unless otherwise specified by the Customer, Contract Manufacturer shall arrange for delivery of the Products to a Delivery Point in a manner deemed by Contract Manufacturer to be most efficient and expeditious to 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 Contract Manufacturer, is required under the circumstances, the additional expenses related to such special packaging shall also be borne by the Customer.


XI. Payment and Invoicing


A. Contract Manufacturer shall invoice Customer on the date of delivery. Customer shall pay Contract Manufacturer [***] from the date of the invoice.


B. The Customer shall pay all non-recurring expenses set forth on Exhibit C on or before the date it places the first production Purchase Order. The Contract Manufacturer shall have the right to delay delivery of the Products until it receives payment for the non-recurring expenses.


C. In the event that the Customer has outstanding invoices of more [***], Contract Manufacturer may, at its sole discretion, stop shipments of the Products to Customer until the Customer makes sufficient payment to return th ...