Integrated Statement of Work for Production Procurement Goods Agreement

Exhibit 10.3

Integrated Statement of Work for Production Procurement Goods Agreement

SOW #3
Amendment 14

PURPOSE:

The purpose of this amendment is to:

NOW, THEREFORE, IBM and Brocade agree to delete the current SOW # 4093RL112 in its entirety and replace with the following consolidated SOW #4093RL112.

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This Statement of Work (“SOW”) No. # 4903RL1112 adopts and incorporates by reference the terms and conditions of Goods Agreement # ROC-P-68 (“GA”) between International Business Machines Corporation “Buyer” or “IBM”) and Brocade Communications Systems, Inc with offices at 1745 Technology Drive, San Jose, CA 95110 and Brocade Communications Switzerland SarL (together, “Supplier” or “Brocade”). This SOW is effective beginning on December 15, 2003 (“Effective Date”) and will remain in effect until December 14, 2011[**]Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the GA and any applicable Work Authorizations (“WAs”). This SOW is not a WA. Product Unique Attachments and any changes thereto must be in a writing signed by both parties, and the terms of a Product Unique Attachment will apply only to the Products identified in such Product Unique Attachment. The initial Product Unique Attachment is attached hereto and incorporated herein by reference as “Product Unique Attachment # 1”, and the additional Attachments 2 through 5 are attached hereto and incorporated herein by reference. Subsequent Product Unique Attachments or changes to existing Product Unique Attachments will take effect on the effective date provided therein and will be incorporated herein upon execution by the parties.

1.0 DEFINITIONS

All capitalized terms shall have the meaning provided in the Goods Agreement unless otherwise defined in this SOW.

“Affiliate ” means an entity(ies) that control, is/are controlled by, or are under common control with, a party to this Agreement.

“APAR” means the form used to report suspected Problems to Supplier, and to request their resolution.

“APAR Closing Codes” means the established set of codes used to denote the final resolution of an APAR.

“APAR Correction Times” means the objectives that Supplier will achieve for resolution of Problems.

•   “Severity 1” Problems will be resolved by Supplier within [**] of its receipt of the APAR, and Supplier will use best efforts to provide relief to affected Customers within [**] of Supplier’s receipt of the APAR.

•   “Severity 2” Problem will be resolved by Supplier within [**] of its receipt of the APAR;

•   “Severity 3” Problem will be resolved by Supplier within [**] of its receipt of the APAR; and

•   “Severity 4” Problem will be resolved by Supplier within [**] of its receipt of the APAR.

“Authorized Third Party” A party authorized to procure Product pursuant to a Letter of Authorization by Buyer and mutually agreed to by Supplier and the Authorized Third Party.

“Certified Service Product” or “CSP” means Repaired Products. Notwithstanding the relevant “Ongoing Warranties” provision in the GA, CSP may contain used or reconditioned part(s), provided that such part(s) are properly marked as “ Serviceable Used Part(S)” as further described in this SOW. “CSP” does not apply to Replacement Products.

“Consigned Material” means materials that Buyer owns and continues to own that are entrusted to Supplier.

“Customer(s)” mean Buyer’s customer(s).

“Developer Test Systems” means a configuration of installed hardware and software that Supplier maintains which is representative of typical Customer installations for the Product and, at a minimum, contains current and current minus 1 level of the Product and any prerequisite and co-requisite hardware and software specified by Buyer.

“Development Phase” shall be defined as the period of time starting from the effective date of this Agreement up to and including the date of first delivery of production units of the Product.

“DiscreteWA” means a Purchase Order issued from Buyer to Supplier that is not pursuant to the hub warehouse order fulfillment.

Integrated Statement of Work for Production Procurement Goods Agreement

“Emergency Order” or “EO” means a WA placed by Buyer for FRUs with a Lead Time not to exceed [**] .

“End of Life” or “EOL” means the date and process by which Supplier discontinues the manufacture of a product.

“End of Service” or “EOS” means date when Buyer officially discontinues Customer service and support for a Product. EOS dates are only addressed for the purposes of defining the date through which Supplier will make Repair Services available for Products.

“Engineering Change” or “EC” means any change(s) to Product.

“Field Replaceable Unit” or “FRU” means a Product, Product component, Product subassembly, Product documentation, Product code, or other Product part used to service a Customer system as described in the Product Unique Attachment 1.

“General Availability” shall mean, with respect to a particular Product, the date on which such Product is available for purchase by members of the general public by Buyer and or by Buyer’s Authorized Third Party.

“Harmful Code” means any computer code, programming instruction, or set of instructions (including without limitation, self-replicating and self propagating programming instructions commonly called viruses and worms) that is constructed with the ability to damage, interfere with, or otherwise adversely affect computer programs, data files, or hardware, without the consent or intent of the computer user.

“Integrated Products” means products which contain one or more Supplier products and or one or more Buyer products. Integrated Products may include both hardware and software.

“Lead Time” means the minimum length of time prior to a specific delivery date that Supplier must receive a WA from Buyer to ensure delivery by such date. For direct purchase orders that are within IBM’s forecast, the Lead-time for delivery FCA Brocade’s dock is [**] from the date that Brocade receives IBM’s purchase order. For direct purchase orders that are beyond IBM’s forecast, the Lead-time for delivery FCA Brocade’s dock is [**] from the date that Brocade receives IBM’s purchase order. Refer to Amendment 1/Attachment 5 for terms and conditions relating to the fulfillment of Product by Supplier under hubbing arrangements.

“Maintenance Level Service” means the service provided, as set forth below, when a Customer identifies a Problem:

•   “Level 1” is initial service in response to Customer’s request for support in connection with a suspected Problem;

•   “Level 2” is service provided to diagnose and resolve or assist Level 3 in resolving Problems identified by Level 1; and,

•   “Level 3” is service provided to develop final resolutions for Problems not resolved by Level 1 and Level 2.

“Maintenance Release” means an incremental software releases that provides maintenance fixes and may provide additional; features. Maintenance releases are designated by Supplier as a change in the digits(s) to the right of the tenths digit of the software version number [X.X.(X)] or an alphabetic digit to the right of that digit [X.X.X.(a)].

“Major Release ” means a software release that provides additional software features and/or functions. Major Releases are designated by Supplier as a change in the ones digit of the Software version number [(X).X.X.].

“Minor Release ” means an incremental software release that provides maintenance fixes and additional features. Minor releases include all Maintenance Releases issued from last minor release and are designated by Supplier as a change in the tenths digit(s) of the software version number [X.(X).X].

“Problem” means any Product defect, including, without limitation, any defects arising as a result of the failure of the Products to function in accordance with the written specifications and other requirements, or other failures or errors or other defects arising as a result of the failure of the Products to function in accordance with the written specifications and other requirements.

“Problem Management Record” or “PMR” means a record documenting support actions taken in response to a Customer’s request for support in connection with a suspected Problem.

[**]“Repair” or “Repaired” means all required repair activity including, disassembly, failure analysis, testing, component recovery, rework, warranty process, packaging, final testing, and all other processes necessary to ensure Products, which are sent to Supplier for repair within or outside of the relevant Product warranty, meet all the functional performance requirements applicable to newly manufactured Products in accordance with this SOW or relevant WA.

“Replacement” or “Replaced” Product means those products for which Repair is not available. Products will be designated as Replacement only on the applicable PUA for such products and will not follow the CSP process.

“Software Maintenance ” refers to the provision to Buyer by Supplier of certain software updates at no additional charge during the Software Maintenance period. Maintenance Releases and Minor Releases are generally included with Software Maintenance. Major Releases generally are not included with Software Maintenance.

Integrated Statement of Work for Production Procurement Goods Agreement

“Taxes” means any and all applicable taxes, charges, fees, levies or other assessments imposed or collected by any governmental entity worldwide or any political subdivision thereof and however designated or levied on sales of Products or Services, or sales, use, transfer, goods and services or value added tax or any other duties or fees related to any payment made by Buyer to Supplier for Product and/or Service provided by Supplier to Buyer under or pursuant to this Agreement; exclusive, however, of taxes imposed upon the net income or capital of Supplier or taxes in lieu of such net income taxes or such other taxes which are to be borne by the Supplier under law. Supplier shall also bear sole responsibility for all taxes, assessments, or other levies on its own leased or purchased property, equipment or software.

“Turn Around Time” or “TAT” means the elapsed time from the date of receipt acknowledgment of a Product arriving at Supplier’s location for Repair until shipment notice of Repaired Product back to Buyer.

“Yield” means the relationship between Product sent to Supplier for Repair and the CSP returned to Buyer.

The Products are described in the Product Unique Attachment #1. Products also include all FRUs, CSPs, Product code, and Product documentation as applicable and described in the Attachment #1.

Products will comply with all the requirements set forth below:

Supplier will provide Buyer with certification that the Products have the country(ies) of origin. A sample of the certification is attached hereto as Attachment 4.. If there are any changes to this information, Supplier will notify Buyer by providing a new country of origin certification signed by an authorized Supplier representative before shipping any affected Products. If any part number has more than one country of origin, Supplier certifies that each country of origin is specified in the Product Unique Attachment(s), and Supplier will deliver to Buyer, instructions regarding how Buyer can distinguish each country of origin for part numbers with more than one country of origin [**]to shipping the affected Products.

Integrated Statement of Work for Production Procurement Goods Agreement

Engineering Changes shall not be applied to any Product under this Agreement unless implementation is conducted in accordance with the following engineering process:

Supplier Changes : Supplier will not make any changes to the Products that affect the form, fit or function, which have been certified by Buyer without Buyer’s prior written consent. Supplier will notify Buyer (through the Technical Coordinator) of any engineering change proposed to be made by Supplier to the Product and will supply Buyer with a written description of the anticipated effect the engineering change will have on the Product, including price (savings), performance, reliability, serviceability, manufacturability and any cost impact to Buyer as a result of the implementation of the engineering change. Buyer has the right to approve or disapprove of such engineering change, which approval shall not be unreasonably withheld. Buyer may elect to evaluate and test the prototype, parts and/or designs specified as part of the proposed change and Supplier shall provide such parts to Buyer at no charge for such evaluation and testing. Buyer (through the Technical Coordinator) shall approve or disapprove Supplier proposed changes within [**] , unless otherwise agreed to by both parties, of receipt of a written request, except for changes required to satisfy governmental standards or safety for which Buyer shall respond within [**] , unless extended by mutual consent. Failure to respond shall be deemed to be Buyer’s acceptance of such proposed change. If such change affects price, the Buyer Business Coordinator must also provide approval. If Buyer approves the engineering change, the product specification and unit pricing will be amended as required. Buyer will not unreasonably refuse to approve Supplier’s engineering changes to the Product. In the event that Supplier makes such changes to form, fit or function, that affect the Product without Buyer’s consent, at Buyer’s discretion Supplier will either: (i) [**] mutually agreed upon by Supplier and Buyer, [**] that are associated with such Products’ [**] the price of the Products.

Buyer Changes : Buyer may request in writing (through the Technical Coordinator) that Supplier incorporate an engineering change into the Product. Such request will include a description of the proposed change sufficient to permit Supplier to evaluate its feasibility. Within [**] of such request (or extended by mutual consent), Supplier will advise Buyer of the conditions under which it would make the engineering change. Supplier’s evaluation will be in writing and will state the increase or decrease price adjustment (if any) and the effect on the performance, reliability, safety, appearance, dimensions, tolerances, manufacturability and serviceability of the Product. Buyer’s Technical Coordinator shall approve or disapprove the engineering change based on Supplier’s written evaluation. If such change affects price, the Buyer’s Business Coordinator must provide approval prior to implementation. If Buyer approves the engineering change, the product specification and unit pricing will be amended as required. Supplier will not unreasonably refuse to incorporate Buyer’s engineering changes into the Product.

Supplier will deliver, at the earlier of a date requested by Buyer or prior to its first shipment of Product, (i) a fully completed and signed certificate of originality (in form specified in Attachment 3) for all Product code and documentation, and (ii) all Product code (as may be mutually agreed upon and described in the Attachment 1 for the Product), publications, and documentation in a format and media as specified by Buyer. Additionally, Supplier will deliver to Buyer any Minor and Maintenance Releases (including bug fixes) without an additional charge. Some software releases are considered a Major Release and may be offered to Buyer for an additional fee as Supplier offers such enhancements to other customers.

“Documentation” shall mean all documents that Supplier generally makes available to its customers containing descriptive, operating, installation, engineering, Marketing and maintenance information for Products, as such documents may be amended from time to time and any updates, modifications and enhancements made to them, during the term of this SOW.

Supplier shall provide Buyer with a master copy and one copy of all Documentation for each Product, in both hardcopy format and electronic format, suitable for dissemination by Buyer. Solely in conjunction with Buyer’s sale, installation, service and support of Products purchased under this Agreement, Supplier grants Buyer and its Affiliates, subsidiaries, distributors, agents and resellers that market and sell the Products a nonexclusive, royalty-free right and license to copy, use, modify, translate [**] of the Documentation and distribute the Documentation and derivative works to its customers, provided that Buyer keep Supplier’s copyright and other proprietary notices as may appear on such Documentation and refrain from doing anything that would jeopardize Supplier’s proprietary and other rights in the Documentation. Should Buyer require Supplier to make modifications to said Documentation, the cost will be at Buyer’s expense.

Products purchased under this SOW may be subject to an annual Software Maintenance Support Program. If applicable, Annual Software Maintenance will be listed on the PUA. Under the terms of this support program Supplier shall provide Software Maintenance, which includes Maintenance Level Service, for a period of [**] commencing on the Effective Date of the Agreement. Thereafter, the annual Software Maintenance Support Program shall be automatically renewed for additional

Integrated Statement of Work for Production Procurement Goods Agreement

[**] periods commencing on the anniversary of the Effective Date of the Agreement, unless cancelled by Buyer with [**] prior written notice to Supplier. The fees for this annual Software Maintenance Support Program shall be calculated as [**] during the annual Software Maintenance Support period. For the convenience of the Buyer, Software Maintenance shall be billed to Buyer with each Product purchased as described in Attachment 1, Section 4.1 “Product Price List and Descriptions” and will be used to determine the total billings. The amounts for the Annual Software Maintenance Fee per Unit and the Software Maintenance billed to Buyer with each Product purchased shall be [**] by the Supplier and the Buyer. If total billings for Software Maintenance during an annual period [**] as determined per the calculation as described in this section, [**] , or may be used as an adjustment to amounts due to Supplier as mutually agreed upon. If total billings for Software Maintenance during an annual period are [**] as determined per the calculation as described in this section, Buyer at Buyer’s option may elect to [**] based on mutual agreement between the parties. When initiating a technical support request with Supplier, Buyer may provide only if it is reasonably available to Buyer either the serial number or worldwide name of the Product. Supplier shall have the right to assign support obligations to the appropriate local Supplier subsidiary.

To the extent that Supplier ships new Product in its final Customer ready form, Supplier shall apply tamper evident protection on the finished Product packaging in a form agreeable to both parties and in such a manner that if removed or tampered with, it would be evident that the finished Product packaging has been opened. Supplier will have controls to prevent unauthorized use or dissemination of such tamper evident protection used on Product purchased by Buyer and to limit the access to such materials to only those responsible for the tamper evident sealing on the Products.

Buyer is under no obligation to purchase any Products and/or Services, except as ordered in WAs and within the liability limits addressed elsewhere in the Agreement, including those addressed in the Product Unique Attachment(s) to this SOW. Supplier will comply with Buyer’s requested changes to delivery of Products specified in a WA as described in the Product Unique Attachment(s) to this SOW. If Buyer decreases Product quantities specified in a WA outside of allowances described in the Product Unique Attachment(s) to this SOW, Supplier will use all efforts to mitigate Buyer’s liability. The parties acknowledge that WA’s may be placed on Supplier under this SOW by entities other than the Buyer, or its Affiliates, but only to the extent preauthorized by Buyer in writing and mutually agreed to by Supplier.

The parties agree to review in good faith price changes, based on market conditions including but not limited to changes in Product cost, support variances, and the business relationship. Such reviews shall occur as mutually agreed upon between the parties. . Any pricing changes which, may result of such reviews and activities shall become effective on the first day of the following month or as otherwise agreed to by the parties.

Supplier will maintain the capability to supply and shall provide Product FRU(s) to Buyer’s along with access to technical support from Supplier in accordance with pricing as provided in this SOW for a term of five (5) years commencing upon the earlier of either the Product End of Life (EOL) in accordance with the earlier of Section 3.4 (Notice of Product Withdraw), or the termination of this SOW (Section 3.0 Goods Agreement).

Integrated Statement of Work for Production Procurement Goods Agreement

3.4.1 Buyer’s Product Withdraw Notice .

Product may be withdrawn from production and end of life at Buyer’s sole option. Buyer shall notify Supplier of withdrawal of any Product(s).[**]Product withdrawals will not affect spare parts. Upon Buyer’s notice to Supplier of withdrawal of Product, Buyer must make any last time buys for such Product [**] of the withdrawal notice, and must take delivery of all last time buys within [**] from the date of the withdrawal notice. Orders made subsequent to withdrawal notice under this section shall be non-cancelable and non-returnable.

3.4.2 Supplier Product Withdraw.

The terms and conditions for Supplier Product Withdraw are listed in the Product Unique Attachment for each product family.

Supplier’s use of subcontractors will not relieve Supplier of the responsibility for the subcontractor’s performance, and Supplier’s responsibilities assumed under this SOW will be equally applicable to such subcontractors, as must be agreed upon between Supplier and such subcontractors. [**]

Supplier agrees to join and support Buyer’s efforts to utilize Minority and Women Owned Businesses (M/WBE), Disabled Business Enterprises (DBE), and Small Business Enterprises (SBE) for a target percentage of [**] of Suppliers total enterprise spend. The parties recognize that Supplier does not participate in a M/WBE formal program at the time of this SOW execution, however Supplier will use reasonable efforts to establish such a formal program and provide status as requested to Buyer. Supplier’s failure to achieve this goal may be considered non-compliance with Buyer’s MWBE initiative and shall be considered a factor by Buyer for future business with Supplier however; it shall not be considered a material breach of this Agreement.

          As part of the parties’ obligations under this Section, the parties will perform the following:

Supplier will ensure that the Prices do not include any sales, use or other similar taxes that do not apply to Buyer as a reseller of Products and/or Services. The parties agree to negotiate in good faith to establish the terms and conditions for all legal, regulatory and administrative requirements, in addition to all associated duties and fees, associated with importation of Products into the country where the Product is received by Buyer, no later than February 15, 2004 which will be incorporated into this Agreement when signed by both parties.

Supplier’s invoices shall state applicable taxes owed by the Buyer, if any, by tax jurisdiction and with a proper breakdown between taxable and non-taxable Products and Services. Supplier shall remit such tax payments to the appropriate jurisdiction. Supplier agrees to use its commercially reasonable efforts to properly calculate any applicable Taxes at the time of invoice. Supplier and Buyer agree to cooperate to minimize any applicable Taxes, including reasonable notice and cooperation in connection with any audit. Any incremental taxes shall be Supplier’s responsibility. If Buyer provides certification of an exemption from Tax or reduced rate of Tax imposed by an applicable taxing authority, then Supplier shall not invoice for nor pay over any such Tax unless and until the applicable taxing authority assesses such Tax, at which time Supplier shall invoice and Buyer shall pay any such Tax that is legally owed.

Buyer shall withhold taxes, if required under the law to be withheld on payments made to Supplier hereunder and shall be required to remit to Supplier only the net proceeds thereof. Buyer shall remit the taxes withheld to the appropriate government authority and agrees to provide Supplier in a timely manner with properly executed documentation or other information or receipts or certificates evidencing Buyers payment of any such withholding tax.

Terms for payment on all Supplier invoices will be net [**] from: 1) receipt of an acceptable invoice for a Discrete WA’s purchases; or 2) as described in order fulfillment models (see Attachment 5). [**] Invoices to Buyer must include, at a

Integrated Statement of Work for Production Procurement Goods Agreement

minimum, the following: (i) applicable WA line item numbers; (ii) SOW and WA numbers; (iii) terms of payment as provided herein; (iv) billing date (v) applicable Product unit Prices; (vi) total amount invoiced; (vii) the Harmonized Tariff Code of the importing country for every Product; and, (viii) Product descriptions with sufficient detail to enable verification of associated Product categorical classifications.

Buyer may issue scheduling documents (“Blanket Purchase Orders”) which may have the appearance of a normal WA, but do not include a delivery date. Such Blanket Purchase Orders are issued only as a logistical processing document to enable the use of electronic purchase order communications and are not binding in any manner and shall not be considered as WA’s by the parties, regardless of quantities or prices that may be included in such Blanket Purchase Orders. Unless previously submitted by Supplier, in order to initiate electronic transfer of payments associated with this SOW, Supplier will complete the form entitled “Authorization for Electronic Funds Transfer” as provided to Supplier by Buyer and fax the completed form to Accounts Payable at the number included on the form.

Maintenance Level Services includes the Level 1, Level 2, and Level 3 responsibilities defined below, for Product, documentation and Maintenance and Minor Releases arising out of technical support responsibilities, and all such releases created or made available by Supplier.

Supplier will assist Buyer as required by Buyer, in performing the following Level 1 support responsibilities:

•  create the PMR;

•  obtain from Customer a description of the Problem;

•  search for any known resolution(s) relevant to the Problem;

•  if a resolution to the Problem is known, specify such resolution to Customer;

•  if no resolution to Problem is known, generate APAR, assign APAR Correction Time, forward APAR to Level 2; and

•  pass the PMR to Level 2, and update the PMR documenting Level 1 actions.

Supplier will assist Buyer, as required by Buyer, in performing the following Level 2 support responsibilities:

•  receive the PMR/APAR from Level 1;

•  analyze Problem symptoms and gather additional data from Customer as required;

•  recreate Problem on the Developer Test System;

•  determine if Problem is due to improper installation of the Product by Customer;

•  determine if Problem is due to operationally related hardware or software at the Customer location;

•  attempt a bypass or circumvention for high impact Problems (i.e., Severity 1 and 2);

•  create APAR record if no resolution to Problem is attained; and

•  update the PMR documenting Level 2 actions.

Supplier will perform the following Level 3 support responsibilities:

•  receive the APAR/PMR and supporting documentation and materials from Level 2;

•  analyze Problem symptoms and diagnose Problem;

•  notify Level 2 if additional information, materials or documentation are required;

•  attempt to recreate Problem on the Developer Test System;

•  assist Level 2 in developing a bypass or circumvention for high impact Problem (i.e., Severity 1 and 2);

•  deliver corrections to the Product and/or Product code (as defined in Attachment 1) to Buyer within the applicable APAR Correction Times to fix Problems identified by Buyer;

•  return all APARs to Buyer with an APAR Closing Code assigned, including text describing the resolution of Problem

•  confirm resolution of Problem with Customer, and update PMR documenting Level 3 actions; and

•  answer any questions from Buyer and/or Customer concerning the operation and use of Products.

Integrated Statement of Work for Production Procurement Goods Agreement

Supplier will provide to Buyer the name and phone numbers of Supplier Personnel to contact for all technical support matters related to the Product. Supplier will provide agreed-to training required by Buyer to enable Buyer to perform technical support functions for the Product and will keep Buyer informed of any known Problems and their associated solutions. Supplier shall contact IBM directly in the event IBM Customers contact Supplier for Product support services. No other support shall be provided unless directed by IBM for these Products.

Supplier shall make available to Buyer technical training for support of end user implementation of the Product. Buyer shall not use any training materials in a manner that provides revenue solely from the use of these materials to IBM. Technical training requested by Buyer will be made available by Supplier to Buyer as mutually agreed upon. Buyer acknowledges that the materials distributed by the Supplier during the technical training are protected by copyright, and that Buyer shall have no rights to reproduce such materials without the prior written consent of Supplier, such consent shall not be unreasonably withheld.

Supplier shall provide to Buyer applicable standard data and calculations that support the Products’ ability to meet the quality standards set forth as Attachment 2.

Buyer may inspect and test all Product at Buyer’s facility prior to acceptance or rejection, and may refuse to accept Product which does not conform to the specifications, certifications, and other requirements referenced in the Agreement. If Buyer rejects Product and requests a replacement Product, Supplier shall replace the rejected Product within [**] of Buyer’s request, and shall pay for the airfreight, if required by Buyer, and all other expenses associated with the return of the rejected Product.

Supplier will not make any changes to the Products affecting form, fit or function of the Products that have been certified by Buyer, without Buyer’s prior written consent, such consent not to be withheld unreasonably. In the event of such form, fit or function changes without Buyer’s prior written consent, Supplier will, at Buyer’s discretion, either: (i) [**] ; or (ii) [**] If Supplier improves the safety, function, cost, or reliability of products that it builds for itself or for its other customers by changing a design, component, part, supplier, or production process that may also be used in or in connection with a Product that Supplier builds for Buyer, then Supplier will inform Buyer of such improvement and implement changes to Product as approved by Buyer to incorporate such improvement in Products.

For ISO compliance, the Supplier represents and warrants that the Supplier’s contract manufacturers are ISO 9001 compliant. Compliance hereunder may be either by means of external accreditation or self-declaration. For external accreditation, Supplier will provide to Buyer, upon Buyer’s request, a copy of Supplier’s current registration, including the scope, Standard Industrial Classification code or equivalent, all locations involved, and any restrictions or exclusions. For self-declaration, Supplier will provide to Buyer, upon Buyer’s request, a letter from Supplier’s chief executive officer, chief operating officer, or other executive assuring that self-declaration was performed with due diligence based upon a previously executed internal audit report, and that such self-declaration has had executive management review and approval.

Supplier shall develop and implement a process for continuous Product improvement. Buyer may conduct reviews and/or hold meetings related to Supplier’s performance under the SOW, including but not limited to the following respects, and may compare Supplier’s performance with that of similarly situated suppliers:

•  Supplier’s compliance with delivery dates in support of WAs issued by Buyer;

•  Supplier’s compliance with Emergency Orders issued by Buyer hereunder;

•  Supplier’s compliance with the targeted Shipped Product Quality Level (SPQL) as set by the parties on a monthly basis;

•  Supplier’s compliance with the targeted Field Replace Action Level (FRAL) as set by parties on a monthly basis;

•  Supplier’s compliance with the targeted Incoming Product Quality Level (IPQL) as set by the parties on a monthly basis;

•  Supplier’s compliance with the targeted Cumulative Failure Rate (CFR) as set by the parties on a monthly basis;

•  Percentage of Products failing to function properly upon delivery (also known as the Product DOA rate);

Integrated Statement of Work for Production Procurement Goods Agreement

•  Supplier’s speed in taking corrective actions for any problems with Product identified by Buyer;

•  Supplier’s implementation of lessons learned in previous periodic quality reviews.

In any calendar month in which Supplier shows poor performance with respect to the criteria set forth above, Buyer may notify Supplier of such poor performance. In such case, Supplier will respond to Buyer with an agreed upon action plan within [**] of notification by Buyer demonstrating its ability to achieve the required measurements. Supplier’s failure to successfully execute an action plan within an agreed upon time frame shall be a material breach of the Agreement. Satisfying any or all criteria of this section shall not relieve Supplier of its warranties or other obligations of the Agreement.

This provision 7.0 (Emergency Orders) and it subsections shall apply solely to FRU purchases pursuant to a discrete WA. Supplier will accept and respond to EO from Buyer [**] Order confirmation time period begins at the time Order is received by Supplier. Supplier will provide a telephone service number for EO coverage. Supplier will use commercially reasonable efforts to respond to all EO within the time periods designated below. Buyer will place and Supplier will respond to all EO with Supplier via fax, EDI (or other electronic commerce approach) and/or telephone, such EO to be confirmed by Buyer with a written WA mailed or electronically transmitted to Supplier within [**] of EO placement. Supplier will acknowledge EO back to Buyer via fax or telephone within the specified order confirmation time periods stated below.

WAs will include Buyer’s Purchase Order number, Buyer’s part number, part number description, quantity, unit Price, order type (short lead time, in the event a short lead time order is placed, are orders with requested Delivery Dates in less than the agreed to Lead Time), Delivery Date and ship to address.

Supplier will use commercially reasonable efforts to ship Code A-Alert Emergency Orders within [**] of receipt of WA, unless specifically designated otherwise by Buyer, to arrive at the Buyer specified receiving location. If requested by Buyer in writing, Supplier will use commercially reasonable efforts to ship EOs via “Next Flight Out” and “Air Charter” to arrive at Buyer’s specified receiving location on the same day of the WA. Buyer to pay for all expedited freight/duty /insurance costs.

Supplier will deliver EOs directly to the address specified in the WA and in accordance with this SOW. Code A-Alert Emergency Order(s) are non-cancelable, however Buyer may contact Supplier prior to time of shipment to make changes to the specified receiving location.

“Epidemic Defects” shall mean Products and their associated Engineering Changes that experience one or more of the following: (a) a similar defect at a rate of [**] or more in any given [**] rolling period over the life of the Products, (b) a similar defect at a rate of [**] or more (or other rate that may be specified in the Product Unique Attachment) of total purchases over the life of the Products, (c) recalls, or (d) safety defects.

The warranty redemption set forth in the section of the GA entitled, “Warranty Redemption” as it applies to the relevant subsection of the section of the GA entitled, “Ongoing Warranties” will be available to Buyer for all Products hereunder for the warranty period of [**] and as set forth in the applicable Product Unique Attachment (as calculated from the date Buyer takes title of Product). Supplier will be responsible for its warranty redemption responsibilities under the Agreement for all Products returned to Supplier, regardless of the reason why such Products fail to meet the requirements in the Agreement. When initiating a technical support request with Supplier, Buyer shall use commercially reasonable efforts to provide the serial number or worldwide name of the Product unit. Such warranty redemption for Repaired Product shall be the longer of

Integrated Statement of Work for Production Procurement Goods Agreement

the above period for the original Product or [**] after the Buyer’s receipt of the Repaired Product. Nothing in this section shall be deemed to affect or amend the ongoing duration of the remaining ongoing warranties.

Buyer shall use commercially reasonable efforts to provide a description on the RMA field return form of the failure. If the quantity of No Trouble Found (NTF) Product returned to Supplier exceeds [**] then any additional NTF units returned above and beyond the [**] of Product may be subject to Supplier’s cost recovery if [**] of the Product returned for failure or defects are found to be NTF during any [**] consecutive rolling quarters. The cost recovery to Supplier will be limited to the quantities exceeding the [**] and shall be through an increase in Product price as mutually agreed to by the parties.

The foregoing warranty provided in the Goods Agreement and Section 8.0 shall not apply to Product(s) that has been (i) damaged by accident, Act of God, shipment, improper installation, inadequate maintenance, abnormal physical or electrical stress, misuse or misapplication, or (ii) modified without Seller’s express written acceptance of such modification for warranty purposes, so long as such occurrence has taken place after Product(s) has been received by Buyer or in accordance with the shipping terms mutually agreed upon.

Supplier will label Products as specified by Buyer to enable Buyer to determine Product warranty entitlement. Where Supplier is required to ship Product pursuant to its warranty redemption responsibilities under the Agreement, Supplier will ship such Product to Buyer’s designated “ship to” location via Buyer’s designated carrier.

Supplier represents and warrants that, on an ongoing basis:

(a) Products, Parts, EDI transmissions, and other deliverables shall not contain any Harmful Code upon shipment;

(b) Supplier and Buyer shall comply with all applicable laws, regulations, orders and policies relating to identification of country of origin, including Chinese regulations regarding the identification of country of origin ( i.e. , Taiwan cannot be referred to as “R.O.C.” or “Republic of China”; Hong Kong must be referred to as “China (Hong Kong S.A.R.)”; and Macau must be referred to as “China (Macau S.A.R.)”);

(c) Supplier shall secure and maintain all certifications (governmental, agency, or otherwise) required for performance of Services or that are required for the performance of such Services for Buyer, Buyer subsidiaries, and others authorized by Buyer and agreed to by Suppler to sell the Products worldwide;

(d) Supplier shall maintain comprehensive general liability insurance sufficient to cover all claims that might arise from Supplier’s activities under this Agreement;

(e) If Supplier refers to performance and/or upgradeability features in the Product or in marketing deliverables (e.g., advertisements, Internet pages, brochures, bids, user guides) for similar products which Supplier offers to its other customers, then Supplier represents that all such performance and/or upgradeability claims are true, and Buyer may rely on such claims in creating its own marketing deliverables for Products. Supplier will provide upgrades within a reasonable period of time, but in no event later than the earliest availability date suggested by the reference. Supplier will include in the Products and upgrades all of the performance functions and features suggested by the reference;

(f) Should Products and Services provided herein ever interact in any capacity with monetary data, Supplier will make Product euro-ready such that they will correctly process, send, receive, present, store, and convert monetary data in the euro denomination, respecting the euro currency formatting conventions (including the euro symbol).

All components of Products sent to Supplier for Repair that exhibit unsafe conditions (including but not limited to cracking, chafing, and/or other unsafe conditions) will be replaced with an identical (same manufacturer, part or model number,

Integrated Statement of Work for Production Procurement Goods Agreement

electrical/thermal rating, physical dimensions and agency approval) or an approved alternate component (identical mechanical, electrical/thermal, physical, compositional and performance characteristics but different manufacturer). Compliance with this section will not relieve Supplier of its other obligations under the Agreement and this SOW.

Supplier will make Repair and/or Replacement Services available to Buyer up through and including the relevant EOS date, as specified by Buyer in writing. Products sent to Supplier for warranted Repair or Replacement during the applicable warranty period will be Repaired or Replaced at no cost to Buyer and returned to Buyer at Supplier’s cost. Products sent to Supplier for Repair outside of the applicable warranty period shall be subject to the out of warranty fees as applicable in Attachment 1. Inbound freight to be paid by Buyer and outbound to be paid by Supplier in accordance with the delivery date specified by Buyer in the WA for such Repair as mutually agreed upon between the parties. All Repaired Products must meet the requirements regarding CSPs set forth in this SOW. Repair Services [**] with the exception of Product that [**] . In such event, Supplier will, at Buyer’s discretion, provide Buyer a replacement Product. Supplier must maintain a history of Repair activities and provide a monthly report to Buyer in the format of the attachment to this SOW that is entitled “Monthly Warranty Analysis Report.” The “Monthly Warranty Analysis Report” will not be provided for Replaced Product.

Products will only be classified as CSP with Buyer’s written approval. Products classified as CSP may be used for field service only and may not be used in the manufacturing of a new Product. CSPs will meet the following criteria: (i) the functional performance of such Products will comply with all current and applicable engineering drawings, written specifications, and other Product requirements; (ii) the appearance of such Products will be equivalent to that of a new counterpart; (iii) manufacturer warning labels will remain intact and legible or will be replaced, and protective covers (e.g., guards or shields) will be securely mounted as originally designed or will be replaced; and (iv) the Repair of such Products (including EC related Repairs) will be in compliance with all agreed upon listings and certifications issued by National Certification Body (NCB). If Supplier is not able to meet specified criteria, then Product will be deemed non-repairable and Buyer will be notified accordingly. Suppliers will place on all CSPs, a “SERVICEABLE USED PART(S)” label meeting the following criteria: (i) printed using high quality paper with a shelf life of ten (10) years; (ii) using permanent pressure sensitive and tamper evident adhesive (black printing on orange background); (iii) which do not contain any voids, ink specks, ink fill-ins or edge-roughness; (iv) which are applied in a manner that provides durable and wrinkle free labels that permanently and securely bonds to the Product and container under variable environmental conditions; (v) which are clearly visible; and (vi) which will not adversely affect the functionality or aesthetics of the Product. The original manufacture date will be preserved or restored as needed at the time of Repair. Product labels (labels applied directly to the Product) will comply with the following dimensions: (i) large labels will measure 3.0448 cm x 0.9615 cm (1.1875 in x 0.3750 in); (ii) small labels will measure 2.2435 cm x 0.6410 cm (0.8750 in x 0.2500 in). Container labels (labels applied to the container) will comply with the following dimensions: (i) 9.2948 cm x 4.4871 cm (3.6250 in x 1.7500 in).

Integrated Statement of Work for Production Procurement Goods Agreement

In instances where Buyer sends Product to Supplier for Repair, and/or provides to Supplier tooling and/or other items, Buyer may, but is not obligated to, entrust such Products, tooling, and/or other items to Supplier as Consigned Materials. Buyer will retain title to Consigned Material at all times. Supplier will: (i) use Consigned Materials only in the performance of this SOW and will not reuse or resell nor allow to be reused or resold any Consigned Material without Buyer’s prior written authorization;[**](ii) acknowledge receipt of Consigned Materials within [**] of receipt to the Buyer’s Business Coordinator via email or fax, and such acknowledgment will include a detailed report of any quantity shortages or overages (any shortages not reported to Buyer’s Coordinator in such acknowledgment will be deemed received by Supplier), all relevant part numbers, and the relevant WA (if applicable) and quantity; (iii) immediately notify carrier and Buyer’s Business Coordinator of any Consigned Materials that exhibit external damage at the time of delivery from Buyer to Supplier, document on carrier’s freight bill such damage, and receive either an inspection report or a letter from carrier stating that such inspection has been waived; (iv) ensure that Consigned Materials are not pledged, mortgaged, assigned, borrowed or encumbered by security interests or otherwise and are not be removed from Supplier’s location without Buyer’s prior written authorization, unless provided to Buyer in accordance with the terms and conditions of this SOW; (v) provide monthly reports of all transactions made by Supplier involving Consigned Materials, together with the quantities remaining in Supplier’s custody as of the date of such report, and will make due settlement and payment on a monthly basis, if not already made, for any and all Consigned Materials in accordance with this SOW; (vi) maintain account books and records providing complete information as to all such transactions involving Consigned Materials, and such books and records will be available to Buyer during normal business hours, upon forty eight (48) hours prior notice to Supplier; (vii) permit Buyer to inspect Consigned Materials at any time during normal business hours, at Supplier’s location and to remove any or all of the same if Buyer so desires; (viii) maintain replacement cost insurance on Consigned Materials; (ix) upon Buyer’s written request, or upon termination or expiration of this SOW, return Consigned Materials to Buyer pursuant to Buyer’s instructions and in the same condition as received by Supplier; (x) upon Buyer request, mark Consigned Material in a manner acceptable to Buyer to indicate Buyer’s ownership; (xi) control Consigned Materials in a secure and separate area so as to not commingle Consigned Materials with other materials, parts, or other assets of Supplier or of any third party; and (xii) notify Buyer immediately in writing of any personal property taxes or assessments that may be levied on Consigned Materials. Supplier shall not charge inventory fees or any other costs to Buyer regarding Consigned Materials.

Supplier will provide a packing slip with all return shipments of Consigned Materials to Buyer, which specifies Supplier’s name, Buyer part number(s) of Consigned Materials being returned, quantity of Consigned Materials, by Buyer part number being returned, and the relevant WA number. Consigned Materials which Supplier is unable to Repair will be returned to Buyer with a packing slip which additionally references a return authorization number, obtained from Buyer, and provide a reason why Supplier is unable to Repair such Consigned Materials. Supplier will reimburse Buyer for Consigned Materials that are not returned to Buyer in accordance with the terms of this SOW, including, without limitation, any Consigned Materials that have been stripped, stolen, lost, damaged, or unaccounted for The calculations for reimbursement of Consigned Materials[**]is as follows: (i) for new Consigned Materials, Supplier will reimburse Buyer an amount equal to Buyer’s then current price for the Consigned Materials; or (ii) for used Consigned Materials, Supplier will reimburse Buyer an amount equal to [**] of Buyer’s [**] cost per piece.

In the event Buyer wishes to authorize a third party (“Authorized Third Parties”) to purchase Products, Buyer shall issue and negotiate in good faith with Supplier a Letter of Authorization (“LOA”) which shall serve as “Written Authorization” pursuant to the [**] (dated August 5, 2003) as executed between the parties.

As provided herein, Seller authorizes Buyer to purchase Products, integrate them with Buyer’s products to create Integrated Products, and redistribute Products (either independently, as components of Integrated Products, as upgrades and/or spare parts) to End Users (both directly, and indirectly through Buyer’s Resellers).[**]

Integrated Statement of Work for Production Procurement Goods Agreement