Manufacturing And Purchase Agreement

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.


MANUFACTURING AND PURCHASE AGREEMENT


between
SCI Technology, Inc.
doing business as SCI Systems ("SCI")
and
Network Engines Incorporated ("Network Engines Inc.")


SCI agrees to manufacture the products described on attached Schedule 1 ("Products"), sell the finished Products to Network Engines, and ship them, at Network Engines' expense, to the location specified on the Network Engines purchase order. Network Engines Inc. agrees to purchase the finished Products from SCI. The manufacture, sale and purchase of the finished Products will be governed by the terms and conditions of this Agreement.


This Agreement consists of the attached General Terms and Conditions and the
---------------------------- following Schedules (as applicable):


-- Schedule 1 - Product Specifications
-- Schedule 2 - Product Pricing
-- Schedule 3 - Non-Disclosure Agreement
-- Schedule 4 - Pricing Schedule


Effective Date: August 4, 2000


SCI SYSTEMS: NETWORK ENGINES INC.:


By: /s/R. E. Patterson By: /s/Lawrence A. Genovesi
--------------------- ------------------------ Signature Signature


Ron Patterson Lawrence A. Genovesi -------------------------- --------------------------- Typed or Printed Name Typed or Printed Name


Plant Mgr. V. P. President -------------------------- --------------------------- Title Title


Address: Address: 300 Technology Drive 25 Dan Road Hookett, NH 03106 Canton, MA 02021 Attn: Plant Mgr. Attn: President Tel: 603-628-4800 Tel: 781-332-1000 FAX: 603-628-4899 FAX: 781-770-2000


MANUFACTURING AND PURCHASE AGREEMENT


TABLE OF CONTENTS


NUMBER SUBJECT PAGE ---------------------------------------------------


Signature Page 1 1. Purchase Price 3 2. Purchase Orders 3 3. Payment Terms 5 4. Warranties, Remedies and Limitation 5
of Liability 5. Inspection 6 6. Rescheduling and Cancellation 7 7. Non-recurring Engineering Charges 7 8. Changes To The Products 7 9. Inventory Indemnification 8 10. Term and Termination 9 11. General 9


Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.


SCI SYSTEMS
GENERAL TERMS AND CONDITIONS


1.0 PRODUCT PURCHASE PRICES.


1.1 Purchase prices ("Purchase Prices") for the Products are set forth on Schedule 2 and are effective for the period(s) and on the terms stated. Purchase Prices are FOB SCI's Plant of manufacture and are net of all taxes, duties, and all other charges.


1.2 Purchase Prices will be reviewed by Network Engines and SCI as follows: Commodity prices will be reviewed monthly, items on allocation will be reviewed monthly, all other items will be reviewed quarterly. Commodities are defined as Processors, Memory Modules, Disk Drives, and CD Rom Drives. Prices will be increased or decreased as appropriate. In all cases, all cost components of the "Material Overhead" for commodity items shall not exceed [**]%. SCI will notify Network Engines Inc. of any industry-wide or sole source shortages of components affecting price or delivery schedules. In such event, SCI and Network Engines Inc. will mutually agree on equitable adjustments to the Purchase Prices and delivery schedules.


1.3 If the Purchase Prices are based upon minimum quantities of Product purchased by Network Engines, Inc., and through no fault of SCI, Network Engines Inc. purchases significantly less than the minimum quantities, the Purchase Prices will be equitably increased by an amount equal to SCI's verified additional labor and material costs to manufacture the lesser number of Products actually purchased by Network Engines Inc.


1.4 If the purchase prices are based on volumes of business as measured in $U.S., and Network Engines Inc. purchases exceed the agreed upon business volumes, then SCI shall equitably lower the purchase price in accordance with the price structure (as defined in schedule 4) at the higher business volumes for all products produced after the higher business volumes were achieved.


1.5 Network Engines Inc. business volumes shall include all product purchased directly from SCI by Network Engines Inc. and by Network Engines Inc. licensees.


1.6 SCI agrees to attempt, as a goal, to reduce purchase prices of Network Engines Inc. products by [**]% per quarter year. Purchase price reductions can employ any and all of the following (i) material cost reductions, (ii) labor cost reductions, and (iii) cost reductions resulting from manufacturing process improvements. However, design changes for improved manufacturability and testability will be handled separately, in accordance with paragraph 1.8 below, and shall not contribute to the [**]% per quarter year purchase price reduction requirement. Quarterly reviews will be held between both parties to view the progress on this target.


Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.


1.7 Cost reductions that are a result of process change proposals brought to the table by SCI will be shared [**]% by both parties for a period of six months, with [**]% to NEI after that time. Cost reductions brought to the table by NEI will be incorporated as soon as mutually agreed to. Cost reductions for materials may be incorporated immediately if NEI bears the expense of the inventory write down.


1.8 Cost reductions attributed to product design changes that are proposed by SCI after completion of prototype and pre-production phases (i.e. changes that are defined during steady state production) and implemented by Network Engines Inc. shall be shared by Network Engines Inc. and SCI as follows: Network Engines Inc. will receive [**]% of the cost reduction and SCI will receive [**]% of the cost reduction.


2.0 NETWORK ENGINES INC. PURCHASE ORDERS.


2.1 Products will be manufactured and shipped according to a mutually agreed schedule. Once agreed to, manufacture and shipment of Products will be in accordance with Network Engines Inc. Purchase Orders ("Purchase Order(s)"). The parties agree that TIME AND ACCURACY OF DELIVERY ARE OF THE ESSENCE UNDER THIS AGREEMENT. Purchase Orders may be issued in hard copy or electronically ("EDI") and will be issued at intervals as mutually agreed. Issued Purchase Orders are firm and will cover a minimum of ninety (90) days. Purchase Orders will state the number of Products to be manufactured and shipped during the period covered by the Purchase Order, and other terms as mutually agreed. Network Engines shall provide SCI with the exact configuration of Products to be shipped to NEI customers with two to three days lead time.


2.2 Network Engines Inc. will provide a rolling 90 day forecast of product purchases beyond ninety (90) days for planning purposes only. These are not firm, and will be issued at thirty day intervals.


2.3 SCI will purchase material to manufacture Products according to the quantity and delivery schedules set forth in Purchase Orders in effect from time to time during the term of this Agreement. SCI will purchase material for the Products according to Network Engines Inc.'s Approved Vendor List ("AVL"). With Network Engines Inc.'s prior written consent, SCI may purchase material in excess of Purchase Order requirements, such as long lead time components or components which can be purchased in volume at a lower price.


3.0 PAYMENT TERMS.


Payment terms are net thirty (30) days from invoice date in United States dollars. Invoices shall state the correct amount of Product and price, reference Network Engine's P.O. number, and reference SCI's Packing Slip number. The invoice date shall be no earlier than the ship date. Payments are not subject to off-set or setoff. Acceptance of a partial payment


Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.


will not be a waiver of the right to be paid the remainder due. The parties agree that TIME IS OF THE ESSENCE UNDER THIS AGREEMENT, AS IT RELATES TO PAYMENTS TO SCI.


3.1 The parties acknowledge that in previous business done between Network Engines and SCI, SCI has required Network Engines to post a standby Letter of Credit to guarantee payment. Upon the closing of Network Engines' initial public offering of stock, SCI shall no longer require such standby Letter of Credit with regard to any payments hereunder.


4.0 WARRANTIES, REMEDIES, LIMITATION OF LIABILITY.


4.1 SCI warrants to Network Engines Inc. that each Product shall be free from defects in workmanship and materials for [**] months from the Product ship date (the "Product Warranty"). SCI shall also pass on to Network Engines, as permitted, any component manufacturer's warranties. Additionally, SCI warrants to Network Engines Inc. that each "Lot" of product produced will meet a quality level of not more than "[**] defective parts per million" as measured by the Product Acceptance tests in paragraph 4.1.2.


4.1.1 The materials portion of the Product Warranty shall not apply to (ii) Product that is abused, damaged, altered or misused other than by SCI, or (iii) Product damaged by external causes not directly contributed to by SCI.


4.1.2 Products shall be considered free from defects in workmanship if they are manufactured in accordance with SCI's manufacturing workmanship standards, conform to the Product specifications, and successfully complete Network Engines Inc. documented Product Acceptance Tests. These tests are system level tests performed after successful completion of A.T.E and Functional tests. These tests may be performed at SCI and/or Network Engines Inc. integration facility. Network Engines Inc. may perform additional acceptance testing which measures a different array of performance criteria, but the parties agree that the documented Network Engines Inc. Product Acceptance Tests will be the measurement standard to determine if the Produ ...