Materials And Manufacturing Agreement

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS ENCLOSED BY BRACKETS AND UNDERLINED. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.


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MATERIALS AND MANUFACTURING AGREEMENT


BY AND BETWEEN


ARROW ELECTRONICS, INC.


AND


ACCELERATED NETWORKS, INC.


DATED


MARCH 15, 1999


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MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE)


This Agreement is entered into as of 15 MARCH, 1999, by and between ACCELERATED NETWORKS, INC. ("Customer") with its principal place of business at 301 Science Drive, Moorpark, CA 93021 and the SEMICONDUCTOR GROUP of Arrow Electronics, Inc. ("Arrow") with its principal place of business at 25 Hub Drive, Melville, New York 11747-3509.


The Customer and Arrow hereby agree as follows:


1. WORK, ENGINEERING CHANGE ORDERS, ATTRITION KITS, MANUFACTURING YIELD,
PAYMENT, PRICE, TAXES AND SUBCONTRACTORS


1.1 WORK. Arrow agrees to use reasonable commercial efforts to perform the work ("Work") pursuant to purchase orders or changes to purchase orders issued by Customer and accepted by Arrow. Work shall mean to procure components and other supplies ("Components") and to engage a subassembly house (the "Subcontractor") to manufacture or assemble products ("Products") pursuant to detailed, written specifications ("Specifications") for each such Product which are provided by Customer and accepted by Arrow and to deliver such Products to a Customer designated location. For each Product or revision thereof, Specifications shall include but not be limited to bill of materials, schematics, assembly drawings, test specifications, current revision number, and a Customer approved Subcontractor and vendor list. All printed circuit boards (PCBs) to be provided hereunder are listed in APPENDIX 1 hereto, and will amend from time to time as mutually agreed upon.


1.2 ENGINEERING CHANGE ORDERS. Any engineering change order or other change that results in any revision to the Specifications for any Product ("ECO") must be in writing, signed and dated by Customer. Arrow will make a reasonable best effort to acknowledge receipt of, and impact of and to sign and return a copy of the revised Specifications to Customer within forty-eight (48) hours of receipt by Arrow of such written notice. In the event that the price, or delivery schedule, or both, are affected by the ECO(s), Arrow shall make a reasonable best effort to notify Customer within forty-eight (48) hours as to the impact of any such changes and shall provide Customer with the date when any such ECO will become effective. Components that are affected by any ECO shall be treated in accordance with Section 4.3 hereof. Arrow shall not take action on any ECO from Customer until Customer has indicated in writing to Arrow that such request is acceptable to Customer.


1.3 INTENTIONALLY OMITTED (NOT APPLICABLE).


1.4 MANUFACTURING YIELD. As part of the manufacturing process there will be completed Products that the test procedures and equipment or manufacturability will not "yield" as good. After review of the test procedures, the supplied test equipment, and manufacturability by the Subcontractor, this "yield" loss is not expected to exceed [***] of the total Products produced. The Subcontractor will use available troubleshooting techniques and equipment, but after due diligence the defective Products within this percentage will be shipped


-------------------- *** Confidential Treatment has been requested for certain redacted provisions of this agreement. The redacted provisions are identified by three asterisks, enclosed by brackets and underlined. The confidential portion has been filed separately with the Securities and Exchange Commission.


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separately from the "good" Products, marked as "Assembly Rejects" and invoiced to the Customer at the contracted pricing. Product loss due to manufacturing or handling errors or losses greater than the above percentage will be the responsibility of the Subcontractor. After Customer's receipt and review of these Assembly Rejects, if the defect was due to material defects or manufacturing process errors the Customer's account will be credited for the invoiced Product price.


1.5 PAYMENT. Terms of payment shall be [***] from the date of invoice, payable in U.S. Dollars.


1.6 PRICE. Price for the Work shall be as agreed upon by Arrow and Customer from time to time as set forth in purchase orders issued by Customer and accepted by Arrow. Preliminary prices shall be as set forth in Appendix 1, attached hereto, and made a part hereof. Arrow agrees to review pricing as set forth in Appendix 1, with Customer, every ninety (90) days during the term of this Agreement. Price reductions or increases (if applicable) shall be negotiated on a case by case basis. In the event the parties are unable to mutually agree on any such price change(s), within a thirty (30) day period from notification thereof, unless otherwise mutually agreed, any such item(s) shall be removed from Appendix 1, within the terms of this Agreement.


1.7 TAXES. Customer shall be responsible for payment of all taxes relating to the sale of the Products including but not limited to any license fees and sales taxes.


1.8 SUBCONTRACTORS. The Work may be performed, in whole or in part, by third parties selected by Arrow and approved by Customer.


2. COMPONENTS, WARRANTY AND RETURNS


2.1 COMPONENTS. All Components, other materials and equipment required in connection with the Work acquired or supplied by Arrow will be in compliance with the Specifications, except Components, other materials or equipment which are supplied by Customer ("Customer Components"). Arrow shall bear the risk of loss for Customer Components while in Arrow's care and custody, while Subcontractor shall bear the risk of loss for Customer Components while in its care and custody.


2.2 WARRANTY. Seller warrants to Buyer that Products purchased hereunder will conform to the applicable manufacturer's specifications for such Products and that any value-added work performed by Seller of such Products will conform to the applicable Buyer's specifications relating to such work. Seller makes no other warranty, express or implied, with respect to the Products. IN PARTICULAR, SELLER MAKES NO WARRANTY RESPECTING THE MERCHANTABILITY OF THE PRODUCTS OR THEIR SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE OR RESPECTING


-------------------- *** Confidential Treatment has been requested for certain redacted provisions of this agreement. The redacted provisions are identified by three asterisks, enclosed by brackets and underlined. The confidential portion has been filed separately with the Securities and Exchange Commission.


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INFRINGEMENT. However, Seller will transfer to Buyer whatever transferable warranties and indemnities Seller receives from the manufacturer of the Products. With respect to Products which do not meet applicable manufacturer's specifications and with respect to value-added work by Seller which does not meet applicable Buyer's specifications, Seller's liability is limited (at Seller's election) to (1) refund of Buyer's purchase price paid for such Products (without interest), (2) repair of such Products, or (3) replacement of such Products; provided, however, that such Products must be returned to Seller, if Seller is unable to repair or replace despite diligent efforts, Seller shall refund Buyer's purchase price paid for such Products (without interest) along with acceptable evidence of purchase, within twenty (20) days from date of delivery, transportation charges prepaid. NEITHER PARTY SHALL IN ANY EVENT BE ENTITLED TO, AND NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE INCLUDING, WITHOUT BEING LIMITED TO, LOSS OF PROFIT, PROMOTIONAL OR MANUFACTURING EXPENSE, OVERHEAD, INJURY TO REPUTATION OR LOSS OF CUSTOMERS. A PARTIES' RECOVERY FROM THE OTHER FOR ANY CLAIM SHALL NOT EXCEED THE PURCHASE PRICE FOR THE PRODUCTS IRRESPECTIVE OF THE NATURE OF THE CLAIM, WHETHER IN CONTRACT, TORT, WARRANTY, OR OTHERWISE. THE FOREGOING LIMITATIONS SHALL NOT APPLY TO EITHER PARTIES INDEMNITY OBLIGATIONS OR BREACH OF CONFIDENTIALITY UNDER SECTION 8 HEREUNDER.


The attached A-Plus Manufacturing warranty statement (APPENDIX 4) is incorporated by reference, and made a part hereof.


2.3 RETURNS. Customer may return to Arrow any Product that does not comply with the above warranty, provided that: (i) Customer obtains a return material authorization ("RMA") from Arrow prior to returning the Product; (ii) the Product is returned within applicable warranty period; and (iii) the product deficiency is identified and attached to the Product. Any Product so returned to Arrow shall be promptly repaired or replaced, or the purchase price therefor refunded or credited price paid, at Arrow's option. Product determined to be defect free after inspection will be returned to Customer and Customer will be responsible for any inspection charges from Subcontractor. This shall be Customer's sole and exclusive remedy for any breach of any warranty provided in this Agreement. Seller agrees to make a reasonable best effort to replace non-conforming material within ten (10) business days of return, freight prepaid.


3. LICENSE


3.1 GRANT. Customer grants to Arrow, with the right to sublicense to the Subcontractor or any replacement therefor, a license under any copyright, patent, trade secret or other proprietary right necessary or useful for the manufacture or assembly of the Products, solely for the purpose of performing the Work pursuant to purchase orders issued by the Customer.


3.2 OWNERSHIP. Customer represents and warrants that: (i) it owns the entire right, title and interest to the Customer Components; (ii) the performance of the Work does not infringe the proprietary rights of any third party; and (iii) the Customer has the right and power to


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enter into this Agreement. Customer agrees to indemnify Arrow and hold Arrow harmless from and against any and all claims, losses, liabilities, damages, expenses and costs (including attorneys' fees and court costs) that result from a breach or alleged breach of any of these representations and warranties or other obligations co ...