AGREEMENT FOR ELECTRONIC MANUFACTURING SERVICES

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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



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



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



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



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 mark-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



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 chambers,

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 [*] d ...