Electronic Manufacturing Services Agreement

EXHIBIT 10.29


LARSCOM, INC.

AND

SPARQTRON MANUFACTURING CORP.

AGREEMENT FOR

ELECTRONIC MANUFACTURING SERVICES


1


MANUFACTURING AGREEMENT


Table of Contents


1.

Definitions

p.3

2.

Manufacture of Products

p.5

3.

Consigned Materials

p.6

4.

License Grant

p.6

5.

Subcontractor

p.6

6.

Delivery

p.6

7.

Acceptance

p.7

8.

Inspection by LARSCOM

p.7

9.

Engineering Change Order

p.8

10.

Repair

p.8

11.

Price

p.8

12.

Payment

p.8

13.

Attrition.

p.8

14.

Testing Failures

p.8

15.

Warranty

p.8

16.

Indemnity

p.9

17.

New Products

p.10

18.

Forecasts

p.10

19.

Purchase Orders

p.11

20.

Schedule Changes

p.11

21.

Cancellation

p.11

22.

Minimum Order Components and Materials

p.12

23.

Long Lead-Time Components and Materials

p.12

24.

Non-Cancelable Non-Returnable Components and Materials (NCNR)

p.12

25.

Excess Inventory

p.12

26.

Safety Stock

p.13

27.

LARSCOM Property

p.13

28.

Terms

p.13

29.

Termination

p.13

30.

Effect of Termination

p.14

31.

Liability Limitation

p.14

32.

Relationship of Parties

p.14

33.

Ownership

p.14

34.

Dispute Resolution

p.14

35.

Confidentiality

p.15

36.

Equitable Relief

p.16

37.

Force Majeure

p.16

38.

Governing Law

p.16

39.

Assignability

p.16

40.

Insurance

p.16

41.

Amendment

p.17

42.

Notice

p.17

43.

Waiver

p.17

44.

Severability

p.17

45.

Mutual Agreement

p.17

46.

Entire Agreement

p.17

Signature Page

p.18

Exhibit A-Product Price List

p.19

Exhibit B-Minimum Order Quantity Components and Materials

p.20

Exhibit C-Long Lead Time Components and Materials

p.21

Exhibit D-Non-Cancelable, Non-Returnable Components and Materials

p.22

Exhibit E-List of Prods and Revs; and Price for Rework

p.23

Exhibit F-Consigned Tooling and Equipment

p.24

Exhibit G Excess Inventory Calculation

p.25


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MANUFACTURING AGREEMENT


This Manufacturing Agreement (" Agreement" ) is entered into on October 21, 2002, (the " Effective Date" ) by and between LARSCOM, INC., (" LARSCOM" ), a California Corporation, with its principal place of business at 1845 McCandless Drive, Milpitas, CA 95035 and Sparqtron Manufacturing Corporation (" Sparqtron" ), a California Corporation, with its principal place of business at 5079 Brandin Ct., Fremont, CA 94538. LARSCOM and Sparqtron are referred to collectively as the " Parties" , and individually as a " Party" .


Whereas, Sparqtron is in the business of providing manufacturing services that include the custom manufacture of SMT and PTH electronic printed circuit board assemblies and/or box level assemblies (the " Product" ); and


Whereas, the Parties desire to establish the terms and conditions that will apply to LARSCOM' s purchase of Sparqtron' s manufaacturing services for certain SMT and PTH electronic printed circuit board assemblies and/or system level assemblies;

In consideration of the foregoing and the Agreements contained herein, LARSCOM and Sparqtron hereby agree as follows:


1.0 Definitions.


1.1 " Approved Vendor List" shall mean LARSCOM' s list of vendors that shall be used to supply Inventory listed on the Bill of Materials included with the Specifications.

1.2 " Attrition" shall mean the documented material lost to production fallout and test failures.


1.3 " Bills of Materials (BOM)" shall mean LARSCOM' s listing or reference for the Components and Materials included in or required for the manufacture/assembly of Products based on Specifications.


1.4 " Components" shall mean the parts, materials and supplies included in or required for each Product, as stipulated in the Bills of Materials. Components may be supplied by LARSCOM as defined herein, if so indicated in the Bills of Materials.


1.5 " Days" shall mean calendar days, unless otherwise specified, include Saturdays, Sundays and United States Government recognized holidays. " Business Days" do not include Saturdays, Sundays or United States Government recognized holidays.


1.6 " Delivery Date" shall mean a date for which delivery of a Product is requested in a LARSCOM Purchase Order or is otherwise mutually established by the Parties.

1.7 " Downside" shall mean the percentage decrease in the quantity of Products that LARSCOM may purchase less than the quantities in any Purchase Order.

1.8 " Engineering Change Order" (ECO) shall mean the document that details a change in the Specifications and/or design of a Product.


1.9 " Excess Inventory" shall mean those components listed in the Specifications which, are in Sparqtron' s or its subcontractor' s possession, whose quantity exceed LARSCOM Purchase Order requirements, at a referenced date and/or termination. (Note Section 25.0)


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1.10 " Finished Goods Inventory (FGI)" shall mean the finished Products that LARSCOM requests that Sparqtron temporarily store on site. (Note Section 6.2)

1.11 " Intellectual Property " shall mean all rights held by either Party in its Products and/or Confidential Information, including, but not limited to each Party' s patent rights, copyrights, trade secret rights, mask work rights and other intellectual property and proprietary rights, including the right to impose restrictions on the manufacture, assembly or distribution of the Products or the subsequent use, sale or repair of the Products as purchased by LARSCOM from Sparqtron, anywhere in the World.


1.12 " Inventory" shall mean raw materials, supplies, and components that comprise Product pursuant to this Agreement.


1.13 " Long Lead Time Components and Materials" shall mean the Inventory used in the manufacture of the Products that require a longer time to procure than the time from Purchase Order acceptance to production start time. (Note Section 23.0)


1.14 " Minimum Order Components and Materials" shall mean the Inventory that is procurable only in minimum quantities that exceed the quantities required for LARSCOM Purchase Orders. (Note Section 22.0)

1.15 " Non-cancelable Non-Returnable (NCNR) Components and Materials shall mean (i) Inventory listed on the Bills of Materials that is to be procured from suppliers that will not accept returns or cancellations once such Inventory is ordered or (ii) Inventory that may not be returned because the right of return has expired. (Note Section 24.0)


1.16 " Premium Charge" shall mean the charge for particular documented services hereunder including, but not limited to time incurred at the then current shop rate, off-hour work, weekend or holiday work, additional material handling, storage, re-inventorying and re-stocking.


1.17 " Product" shall mean the completed products (which may include, without limitation,Components, Printed Circuit Board Assemblies and/or Box Assemblies) as identified by the LARSCOM part number or assembly identification specified in each Purchase Order issued under this Agreement and as described in the Specifications. There can be multiple versions of a Product, based on differences provided for the Bills of Materials.

1.18 " Program" shall mean the manufacturing services to be performed by Sparqtron to LARSCOM pursuant to this Agreement.


1.19 " Program Management" shall mean the dedicated resources that the Parties will provide to manage the overall effort on the Program. (Note Section 2.1)

1.20 " Program Reviews" shall mean the scheduled review meetings (monthly and/or quarterly) to review the overall Program status. LARSCOM and Sparqtron shall meet to develop the frequency, agenda and contents of these meetings.

1.21 " Purchase Order" shall mean the LARSCOM written authorization submitted to Sparqtron and accepted by Sparqtron as identified herein stipulating the product(s), Engineering Change and/or Revision level, quantity, pricing, and requested delivery date(s). The terms of this Agreement shall control over printed terms on any Purchase Order, quotation, acknowledgement, confirmation or invoice. (Note Section 19.0)

1.22 " Purchase Price Variance" or " PPV" shall mean the difference between the standard cost agreed upon by the Parties for the Components and actual purchase price for Components. Where such actual purchase price is less than such standard cost, the PPV shall be considered favorable. Where such actual purchase price exceeds such standard cost, the PPV shall be considered unfavorable.


1.23 " Specifications" shall mean the written specifications provided by LARSCOM for the manufacture and testing of the Products including, without limitation, the current revision number, approved vendor list (AVL), bills of material (BOMs), manufacturing procedures, schematics, testing procedures, drawings and documentation.


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1.24 " Upside" shall mean the percentage increase in the quantity of Products that LARSCOM may purchase above the quantities in any Purchase Order.

1.25 " Exhibits" shall include the following;


Exhibit A Product Price List

Exhibit B Minimum Order Quantity Components and Materials

Exhibit C Long Lead Time Components and Materials

Exhibit D Non-Cancelable Non-Returnable (NCNR) Components and Materials

Exhibit E List of Products and Revision Level; and Prices for Rework

Exhibit F Consigned Tooling and Equipment

Exhibit G Excess Inventory Calculations


sThe Parties agree to work in good faith and mutually agree on the final contents of the Exhibits, set forth herein. The final Exhibits will be incorporated by reference into this Agreement, within ninety (90) days after the date of execution of this Agreement. Each Exhibit may be amended from time to time by the Parties.

2.0 Manufacture of Products. During the term of this Agreement, Sparqtron shall manufacture and test the Products in accordance with the Specifications and as requested pursuant to LARSCOM purchase orders, under Section 19.0, and maintain manufacturing and test records in accordance with reasonable industry standards. Sparqtron shall manufacture and build Products to IPC-A-610-Rev. C, Class 2. All inventory and equipment required in connection with such manufacture and testing will be acquired or supplied by Sparqtron pursuant to the Specifications, except for certain inventory or tooling and equipment that may be supplied by LARSCOM (" LARSCOM Inventory" and " LARSCOM Property," respectively). Sparqtron will purchase inventory and/or special dedicated equipment upon receipt of the relevant Purchase Orders and as necessary to fill Purchase Orders.


2.1 Program Management. Each Party shall appoint a technical coordinator as the technical liaison with the other Party in connection with the initial coordination and implementation of the manufacture of the Products as well as ongoing support issues thereafter. This coordination will include all technical aspects of the Program, but not limited to the release of the manufacturing specifications, design or engineering of the Products, pending ECOs and release dates, and the status of the manufacturing program. The Parties shall agree in writing as to the frequency (monthly or quarterly) of these business performance reviews which include but are not limited to documentation, quality, delivery, field quality, communications, responsiveness, costs, payments and other related issues. The Program Managers will coordinate these meetings.


2.2 Quality Requirements. Sparqtron agrees that the manufacture of the Products under the terms of this Agreement will be in accordance with the Quality Standards IPC-A-610-Rev. C, Class 2. Sparqtron agrees to maintain and be responsible for ISO 9002 and TL 9000 certifications.

2.3 Product Training. LARSCOM and Sparqtron will jointly develop a program specifying the process for training Sparqtron personnel on the Products, the number of personnel and where they are to be trained on the Products. In addition, during the term of this Agreement, Sparqtron will maintain a sufficient trained staff of personnel to adequately support all the requirements set forth in this Agreement.


3.0 Consigned Materials. LARSCOM may supply certain LARSCOM components and materials (" Consigned Materials" ) to Sparqtron for use in manufacturing the Products. If LARSCOM supplies Consigned Materials to Sparqtron, LARSCOM will use commercially reasonable efforts to ensure that that all Consigned Materials shall be delivered to Sparqtron in sufficient time and in sufficient quantities, taking into account mutually agreed to Attrition levels by the Parties, to allow Sparqtron to meet scheduled Delivery Dates for the applicable Products. LARSCOM will use commercially reasonable efforts to ensure that all Consigned Materials shall be in good condition, meet Products Specifications, be packaged in a readily usable format, and be free of any material defects or deficiencies. Premium Charges may apply in the event of late delivery of Consigned Materials, or the delivery of materially defective Consigned Materials, if such late delivery directly and materially impacts the original Delivery Date where such original Delivery Date is required to be maintained by LARSCOM. LARSCOM may agree to extend such Delivery Date mutually agreed to by the Parties, in which event, the Premium Charges will not apply. LARSCOM shall retain all rights, title and interest in the Consigned Materials, and the Consigned Materials shall be used by Sparqtron, without modification, unless directed in writing by LARSCOM, and used only in filling Purchase Orders from LARSCOM. Sparqtron shall bear all risk of damage or loss for the Consigned Materials until such LARSCOM' s Consigned Materials are returned to LARSCOM, or otherwise leaves the care and custody of Sparqtron at LARSCOM' s request. Sparqtron shall keep the Consigned Materials segregated from other


5

components and materials for tracking and inventory management purposes, and to the extent practical, and shall clearly identify all Consigned Materials with " Property of LARSCOM" or a similar marking, and shall use at least the same degree of care in managing and protecting the Consigned Materials it uses in managing and protecting its own inventory, but no less care than reasonable care. LARSCOM may request to transfer certain Components to Sparqtron at cost; however, this will in good faith be separately discussed and mutually agreed to in writing. Sparqtron shall not be obligated to purchase any Excess Consigned Materials.


4.0 License Grant. Subject to the terms and conditions of this Agreement and during the term of this Agreement, LARSCOM grants Sparqtron a non-transferable, non-exclusive, royalty-free license with the right to grant sublicenses, as set forth in Section 5.0, under LARSCOM' s Intellectual Property Rights to (i) use the Specifications and any other proprietary information, documents and materials including software, drawings bills of materials, test procedures and manufacturing procedures provided by LARSCOM to Sparqtron (collectively, the LARSCOM Materials) internally and solely to manufacture the Products and otherwise perform its obligations as expressly authorized hereunder, and (ii) reproduce and install in the Products any software provided by LARSCOM. Except as permitted herein, Sparqtron will not use, reproduce, modify, create derivative works of, sublicense, distribute, or otherwise transfer any LARSCOM Materials.


5.0 Subcontractor. Sparqtron may grant sublicenses under the license granted in Section 4.0; provided however, (i) any sublicense shall be subject to the prior written approval of LARSCOM, which approval shall not be unreasonably withheld, and (ii) such sublicense shall bind such subcontractor to the same terms and conditions of this Agreement; and (iii) Sparqtron will be responsible for sublicense' s compliance with the terms and conditions of this Agreement.


6.0 Delivery. Delivery of Products to LARSCOM' s principal place of business as listed above, shall be F.O.B. destination shipped via Sparqtron' s choice of transport at no cost to LARSCOM or its customers, if located within twenty (20) miles from Sparqtron' s principal place of business as listed above. Title and risk of loss to all Products shall pass to LARSCOM upon receipt of the shipment by LARSCOM or its customers at the destination.


6.1 This Section 6.1 shall apply only to deliveries over twenty (20) miles from Sparqtron' s principal place of business as listed above, which deliveries shall be F.O.B. Sparqtron' s plant. Title and risk of loss to all Products shall pass to LARSCOM upon delivery to the common carrier specified by LARSCOM. Sparqtron shall assist LARSCOM in arranging any desired shipping and insurance (in amounts that LARSCOM shall determine). All costs of shipping, insurance and freight and customs, duties, taxes, insurance premiums, and other expenses relating to such transportation and delivery, shall be at LARSCOM' s expense.


6.2 Sparqtron shall deliver Products on or no earlier than three (3) days before the mutually agreed upon Delivery Date and no later than the Delivery Date. If circumstances arise that prevent Sparqtron from such timely delivery of Products, Sparqtron shall immediately notify LARSCOM of the nature of the problem, the methods taken to overcome the problem and the estimated time of delay. If the delay was caused by Sparqtron, Sparqtron may be requested to employ accelerated measures such as material expediting fees, premium transportation costs and/or labor overtime to minimize lateness at no additional cost to LARSCOM.


6.3 Finished Goods Inventory (FGI). Should LARSCOM choose to establish a Finished Goods Inventory at Sparqtron, any Product destined for the FGI shall be invoiced as it is delivered to the FGI. Any storage charges for Product remaining in FGI over thirty (30) days will in good faith be mutually determined and agreed to in writing at least ninety (90) days prior to establishment of the Finished Goods Inventory. Storage of FGI for thirty (30) days or less will be at no charge. Sparqtron shall keep all Products in the FGI segregated from other products for tracking and inventory management purposes in a separate area, clearly identified " Property of LARSCOM" or a similar marking, and shall use at least the same degree of care in managing and protecting such Products as it uses in managing and protecting its own inventory, but no less care than reasonable care. Prior to the establishment of the FGI the Parties will agree in good faith and set forth in writing the specifics regarding delivery of Products in the FGI to LARSCOM' s customer or LARSCOM.

7.0 Acceptance. All Products supplied by Sparqtron under this Agreement shall conform to the Specifications. Notwithstanding any prior inspection or payment by LARSCOM, LARSCOM may reject any portion of any shipment of Products which is not conforming to the Specifications as determined by LARSCOM following quality control tests and inspection or as otherwise found to be defective including defects in workmanship. Any Products so returned to Sparqtron shall be repaired or replaced, at Sparqtron' s option and expense, within ten (10) business days of receipt by Sparqtron of the rejected Product; provided that (i) LARSCOM


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obtains a Return Material Authorization (" RMA" ) from Sparqtron prior to returning the Products and which Sparqtron shall provide to LARSCOM a RMA number promptly upon request, (ii) the Products are returned within sixty (60) days of the date the Product was delivered to LARSCOM by Sparqtron, and (iii) the failure analysis, or summary thereof, conducted by LARSCOM shall accompany the Product.

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