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BROCADE COMMUNICATIONS SYSTEMS INC | International Business Machines Corporation

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Date: 6/4/2009
Industry: Computer Storage Devices     Sector: Technology

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Exhibit 10.4


Agreement # ROC-P-68
SOW# 8

This Statement of Work #8 (“SOW #8”) adopts and incorporates by reference and solely for the purposes of this SOW #8 amends certain terms and conditions of Goods Agreement # ROC-P-68 (the “Agreement”) between International Business Machines Corporation (“Buyer”) and Brocade Communications Systems, Inc. and Brocade Communications Switzerland SarL (collectively, “Supplier”). Transactions performed under this SOW #8 will be conducted in accordance with and be subject to the terms and conditions of this SOW and the Agreement. The initial term of this SOW #8 shall be effective upon the last signature to this SOW #8 (“Effective Date”). The initial term of this SOW #8 is three (3) years from the Effective Date (the “Initial Term”). Upon expiration of this Term, this SOW will be automatically renewed for additional one (1) year terms (each period, a “Renewal Term”) unless terminated by either party upon [**]written notice prior to the expiration of any Renewal Terms. (Unless otherwise specified, the Initial Term and each Renewal Term shall be collectively referred to as the “Term”). Unless otherwise provided herein, capitalized terms shall have the meaning as set forth in the Agreement.


      WHEREAS, Buyer and Supplier desire that Buyer become the worldwide leader in sales of Ethernet networking products through the OEM distribution of Supplier’s portfolio of Ethernet networking products covered by this SOW;

      WHEREAS , Buyer and Supplier desire to attain first year revenue of [**] USD and second year revenue of $[**] USD; provided, however, neither party has guaranteed to the other that such revenue targets will be achieved; and

      WHEREAS , in order to accelerate Buyer’s entry and growth into this product segment and in recognition of Supplier’s status as Buyer’s preferred vendor for such Ethernet networking products, [**]; and.

      WHEREASNOW, THEREFORE, in consideration of the mutual premises and other good and mutual consideration contained herein, Supplier and Buyer agree as follows:



1.1 Initial Products

The following is the initial set of Products to be made available to Buyer under this SOW #8: NetIron MLX 4/8/16 Slot Chassis, NetIron CES 2000 48-port switches, FastIron GS 48-port switches and FastIron SX800/SX1600 chassis. A complete description and listing of Products and related post warranty maintenance and support service offerings is attached hereto as Attachment A, which may be updated from time to time by written consent of the parties.

1.2 Customization Of Products



Products will be sold and marketed under the Buyer’s brand;


1.2.2  Supplier products that are already generally available by Buyer’s announcement date will not be subject to customization, unless agreed to by Supplier and Buyer in advance; provided, however, that such products will receive new Mylar (i.e., the Buyer logo) and labels, but there will be no changes from the Supplier black paint to Buyer black paint and no painting in areas that are not currently painted;




Future customization support for new releases of these products or for added products will be as mutually agreed upon; and




Supplier will meet Buyer’s accessibility requirements process in a mutually agreed upon timeframe.




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.




1.3 Future Product Roadmap

Supplier is not required to include any Buyer-specific future features, product lines, software code streams or any other custom product or accessories, unless otherwise agreed. Buyer and Supplier will work to unify the Supplier product set with Buyer data center management offerings (e.g., Director/Tivoli).

1.4 Open Source Software

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 a form to be specified by Buyer) for all Code and Documentation, and (ii) all Code and Documentation owned or licensable by Supplier that is required to operate the Products and for the purpose of facilitating the basic design or use of the Products including, by way of example, all drivers, firmware and software development kits associated with the Products or useful in the design of Buyer systems which will incorporate Products. The foregoing will be provided in a format and media as specified by Buyer. Additionally, Supplier will promptly deliver to Buyer all updates (including, without limitation, all error corrections, enhancements and new versions) to such Code and Documentation in the same format and media as specified by Buyer.

1.5 Certifications

Supplier is responsible (at its own cost) for obtaining Supplier’s standard agency approvals as agreed to by the Parties. Should Buyer require multiple listing registration of such agency approvals, Supplier will assist Buyer, at Buyer’s cost. Cost of any unique or incremental listings agreed to by the parties will be at Buyer’s expense.

1.6 Quality Standards

1.6.1 Supplier shall provide to Buyer information documenting the Products’ compliance with the quality standards set forth as Attachment B to this SOW#8.

1.6.2 Any of Supplier’s contract manufacturers shall be certified to an ISO 9000 standard or higher.

1.6.3 At Buyer’s request, supplier shall perform failure analysis on failed Products returned to Supplier. Upon determining the root cause of the failure, Supplier shall communicate that root cause to Buyer and establish a corrective action plan to remediate such root cause. Buyer will assist Supplier with tracking all open failures and will work with Supplier to implement appropriate corrective action as reasonably determined necessary by Supplier.

1.7 General Product Specifications

          Where applicable, Products will comply with all the requirements set forth in the Buyer documents identified below:



CS1-1121-015, IBM Corporate Standard “Automatic Identification (AI) for Packaging, Distribution and Manufacturing — Bar Coded Labels”




BA21-9261-11b, “Packaging and Handling - Supplier and Interplant Requirements”




ISO 2859, Sampling Procedures for Inspection by Attributes




ISO 3951, Sampling Procedures for Inspection by Variables




EIA - 599 - A, Continuous Improvement




EIA - 659 - A, Failure, Mechanism, Driven Reliability Monitoring




EIA - 670, Quality System Assessment




EIA - 671- A, Problem Analysis and Corrective Actions




EIA - JESD - 38, Standard for Failure Analysis Report Format




EIA - JESD - 46, Product Change Notice




EIA - JESD - 50, Maverick Product Elimination




SQE 001 ECAT Supplier Quality Requirements




Supplier’s published specifications, catalogs, marketing materials, and other documentation, including references in such materials to future upgrades or performance




FAA Certification, Supplier certifies that Products and their packages do not contain explosives, hazardous materials, incendiaries and/or destructive devices as defined by the FAA




IBM Environmental Engineering Specifications 46G3772, and either 53P6233 or 97P3864 (as approved by Buyer) found in the Environmental Requirements section of IBM’s Information for Suppliers website:



( ).



All Product claims, descriptions, specifications, and other requirements described in the Product bill of material, elsewhere in this Agreement, and via other written or electronic communications sent from or approved by Buyer.




Supplier Quality Requirements Document (SQRD).




Product Quality Addendum (PQA)




Vol 3 section 3.1.1 of the IBM Global Label guidelines documents the required format for shipping labels:
http://www-$file/gl_guide 3.pdf

Please be advised that all IBM Global Label Guidelines can be found externally on the IBM Global Procurement website:




The IBM Corporate Standard for country of origin marking can be found at:




The IBM Corporate Standard for Accessibility Guidelines can be found at:

Buyer and Supplier will mutually agree to the applicable Accessibility Guidelines for each Product.


2.1 Pricing

All product part numbers and pricing are attached hereto as Attachment A, Products and Pricing.

All prices are in U.S. dollars. Transfer prices will be based on [**], as shown in Attachment A, and such prices will be updated to reflect changes to [**]. Supplier agrees to give Buyer [**]. No price increases would be effective until 30 days after such notice is received.

Supplier agrees to a minimum [**]. Both Supplier and Buyer must mutually agree to additional products added to the agreement .

Supplier agrees to provide a quarterly rebate of one percent (1%) on those [**] if Buyer achieves the quarterly revenue spend targets with Supplier set forth below. The initial eligibility period is [**]. If Buyer [**] for [**] and [**], then [**]. The parties will [**] for the foregoing [**] shall be [**].

OOW (Out of Warranty) post warranty unit price for repair is as stated in Exhibit A, “Post Warranty Services”, under Pricing.

The parties agree to meet as required from time to time, but no more often than once each quarter, to discuss any changes in marketplace conditions and if warranted, agree to negotiate in good faith any price adjustments necessary to have the Products remain competitively priced.

2.2 Payment terms Terms for payment on all invoices will be net [* * ]days from receipt of an acceptable invoice by Buyer.




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



2.3 Taxes and duties 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. As may be necessary from time to time, 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, which terms 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 Buyer’s payment of any such withholding tax.

2.4 Point of Sale (POS) Reporting

Buyer will provide Point of Sale (POS) Information to Supplier by the 15th of each month for sales in the previous month. The POS report will include the following information:

Supplier — i.e. Brocade
Channel (Chnl) — i.e. Retail, Internal, GTS, etc.
Contract (Con) — i.e. IBM contract number
Machine Type (Mt) —
Feature Code (PnFc) —
IBM Part number (IBM Pn)
Brocade Part number (Brocade Pn)
Serial Number
Country Name or State
Zip Code
Ship Date (Assd)
MES = non-configured upgrade to existing order
Bp = IBM Business partner; this field indicates whether the unit(s) went to IBM reseller or direct end user

2.5 Delivery

2.5.1 Shipment All Products purchased under this Agreement will be shipped Ex-Works manufacturing site/merge centers (based on Incoterms 2000) to Buyer and/or designated End Users or Buyer Resellers, except where Buyer requires Product in a consignment hub where shipment will be ExWorks consignment hub location or other terms negotiated between the parties. As used in this Agreement, shipment and delivery are synonymous. For purposes of this Agreement, shipment and delivery occur upon delivery of Products by Supplier at Supplier’s point of shipment to the common carrier specified by Buyer. Supplier will notify Buyer prior to shipping a partial quantity of a particular Order of Products. In the event that Supplier is unable to ship Products on the committed Ship Date as specified in Section 4.2, Supplier agrees, at Buyer’s option, to use reasonable premium freight transportation to expedite delivery to Buyer.



2.5.2 Delivery Flexibility Buyer and Supplier will work together to ensure maximum order delivery flexibility. Supplier shall obtain Buyer’s approval prior to making any early shipments. Early shipments are defined as any deliveries made [**] or more prior to Buyer’s requested shipment date.

2.5.3 Title and Risk of Loss Title to Equipment (exclusive of title to Software), and risk of loss will pass from Supplier to Buyer upon delivery to Buyer’s designated carrier, as specified in Buyer’s Purchase Order. Title to Software Products remains with Supplier but risk of loss passes upon delivery to Buyer’s designated carrier. At the time of Product delivery, Supplier shall provide Buyer with all documents of title necessary for Buyer (or its Affiliates) to take possession of such Products.

2.6 Country of Origin Supplier certifies the Products purchased hereunder shall have a country of origin of USA, Mexico or China, as provided under applicable United States law and regulations. If there are any changes to a Product’s country of origin, Supplier will notify Buyer by providing a new country of origin certification signed by an authorized Supplier representative before shipping any Products other than those with the country of origin listed above. Additionally, for MES orders, Supplier will provide Buyer with country of origin details for each line item within every MES order. These details are to be made available to Buyer prior to shipment, so as to enable Buyer to update shipping systems and create shipping documentation with relevant and accurate country of origin information. Supplier acknowledges that Buyer will rely upon this certification in making representations to Buyer customers and to comply with various laws and regulations.

2.7 Warranty period Product warranty period is [**] from the date of shipment for Equipment and [**] for Software, except for Products identified as FRU’s (Field Replacement Units) in Attachment A for which the [**] warranty period will commence on the earlier of: (i) [**] following the date of shipment, or (ii) upon installation at a customer site; provided Buyer notifies Supplier in writing of the date the FRU is installed, the serial number of the switch the FRU is installed into, and the serial number of the defective FRU. For warranty redemption, Buyer shall not return any Product, which Buyer determines to be defective, without a return material authorization number (“RMA”) issued by Supplier.

2.8 Notice of Product Withdraw Supplier will provide Buyer with [**] written notice of its intent to withdraw any Product prior to the last date of manufacture of a Product (“End of Life” or “EOL”). Buyer shall provide to Supplier a non-binding forecast for Products and FRUs [**] from the receipt of Supplier’s notice of End of Life. Buyer will provide a revised EOL FRU forecast in each year during the [**] EOL period, as requested by Supplier. Buyer shall provide to Supplier a non-cancelable last-time buy WA for forecasted Products no later than [**] prior to the End of Life date (last date of manufacture). Such Product purchases must be scheduled to ship no later than the End of Life date. For delivery requests outside of the Notice Period or order requests after Buyer’s last-time buy purchase has been placed, Supplier will review on a case-by-case basis Buyer’s request(s).

2.9 Epidemic Defect Rate The Epidemic Defect Rate is defined as [**] or more occurring with the same Product for the same defect over a [**] rolling average.

2.10 Use of Subcontractors Either party may use subcontractors to perform its obligations hereunder. Notwithstanding this subsection, either party’s use of subcontractors will not relieve such party of the responsibility for the subcontractor’s performance.


3.1 Configure To Order (CTO) — Supplier agrees to manufacture, assemble, test, inspect, package and deliver Configure to Order (CTO) Products in accordance with Buyer’s Product configuration details contained in Release WA’s. Supplier will assemble the CTO Product in accordance with Specifications, test per Buyer approved process, and package for shipment designated by Buyer in support of customer order fulfillment. CTO products will be manufactured in accordance with IBM Quality standards specified in the Supplier Quality Requirements Document (SQRD), including Product Quality Addendums (PQA), if any, to the SQRD, and in accordance with




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



IBM’s product structure / content defined in the formal EC released BOM structure. Initially, non-integrated chassis based Product may ship as a zero port base chassis and modules (e.g. port blades), but must be tendered in a single complete shipment. Supplier recognizes Buyer’s need for a factory install configuration model and will work with Buyer to implement such a model no later than [**]

3.2 Fulfillment Logistics — General

Buyer will acquire and sell products on a direct ship basis via a single Supplier US source of supply during the initial phase of this Agreement. The parties will negotiate in good faith the location and timing of future changes to a single worldwide source of supply so as to limit disruption in supply to Buyer’s customers and allow adequate time for required infrastructure changes to Buyer’s fulfillment processes.

3.3 Forecast

Buyer shall provide Supplier with a non-binding twelve (12) month rolling monthly forecast no less often than monthly throughout the term of this Agreement for Products and Parts as mutually agreed between the parties. The first forecast shall be made available to Supplier no later than sixty (60) days prior to the date Buyer declares the Product as being generally available (“GA”) to Buyer’s customers. Forecasts are not Orders or a commitment to buy, and are used for planning purposes only, and Buyer has no obligation to purchase units of Products in accordance with its forecasts. Supplier understands and agrees that such forecasts are for Supplier’s planning purposes only and they do not create any obligation or liability on the part of Buyer, either directly or indirectly.

The most recent forecast will supersede previous forecasts. Buyer will send WAs to Supplier or Supplier’s subcontractor(s) on a daily basis as they are generated.

3.4 WA Issuance

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. Supplier or Supplier’s subcontractor(s) will comply with Buyer’s requested changes to delivery of Products specified in a WA as described in this SOW without additional charge to Buyer. The parties acknowledge that WAs may be placed on Supplier under this SOW by entities other than the Buyer, but only to the extent expressly authorized by Buyer (and agreed to by Supplier, such that Supplier’s consent will not be unreasonably withheld) in writing, and Supplier agrees that for such purchases that (a) the Buyer authorized third party purchaser under this SOW, shall have extended to it all the obligations, protections, rights, and other benefits of the Agreement with respect to the applicable WA; (b) Buyer is a third party beneficiary and has the right to enforce the terms of this Agreement on such purchases on a joint and several basis; and (c) Buyer shall not be liable to either party with regard to such purchase transactions.


4.1 Allocation of Product Supply

Supplier or Supplier’s subcontractor(s) shall deliver Products as specified in the WAs. Notwithstanding any other provisions of this Agreement if Supplier or Supplier’s subcontractor(s) are unable to deliver Product as specified in the WAs, Supplier or Supplier’s subcontractor(s) will give Buyer prompt written notice of such inability to deliver Product along with an estimate of the duration of the shortage. During such shortage period, the parties agree that Supplier or Supplier’s subcontractor(s) will use an allocation method for fulfilling Buyer’s WAs providing Buyer, at a minimum, a share of available capacity equivalent to the proportion of normal production capacity applied to fulfilling Buyer’s WAs immediately before the occurrence of such shortage. If Supplier or Supplier’s subcontractor(s) fail to correct such inability to supply Product or fail to develop a plan, acceptable to Buyer, to correct such inability to supply Product, Buyer will have the right to cancel such WA(s) or portions thereof by written notice. If Buyer cancels WAs under this Section 4.1 Buyer’s only obligation is to pay for Products already delivered at the time of Buyer’s cancellation notice.

4.2 Standard Order Lead Time, End of Quarter, and End of Month Lead Time

Supplier is responsible to plan, purchase and stock inventory levels in accordance with Buyer’s forecast to support a time commitment of [**]beginning on the Effective Date. [**], Supplier will support a time commitment of [**] or




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



less between WA receipt and shipment. Prior to September 1, 2009, the Parties will establish a mitigation plan for high priority orders that require a ship time of less than [**].

Notwithstanding the foregoing, Supplier agrees to a standard WA turnaround time of [**] from the time of WA receipt to shipment during the last [**] of the quarter (March, June, September, December) or last [**] of a non-quarter-end month-end (January, February, April, May, July, August, October, and November), and will use commercially reasonable efforts to meet this requirement and to satisfy last day WAs inside of [**].

Supplier understands the need and agrees to work (and agrees to have Supplier’s subcontractor(s) work) weekends and holidays as necessary when the weekend or holiday falls within the last [**] of Buyer’s quarter (March, June, September, December) and within the last [**] of Buyer’s non-quarter month-ends (January, February, April, May, July, August, October, and November). Buyer will notify Supplier at least [**] in advance of such weekends or holidays if Supplier is required to staff for such holidays and weekends.

4.3 Order Process

Supplier or Supplier’s subcontractor(s) shall acknowledge and accept via WA Acknowledgement all of Buyer’s WAs issued in accordance with the provisions of this SOW within [**] of receipt or as required by Buyer.

WA’s will be communicated to the Supplier or Supplier’s subcontractor(s) via Buyer’s Hardcard, to be replaced by Buyer’s FTP Interface program within a commercially reasonable timeframe. These messages will be transmitted in batches three (3) or more times per day. Each batch of WAs will be separated into three categories; “new WAs”, “altered WAs”, and “cancelled WAs”. WA detail is passed in the form of CTO Product part numbers, with each Product part number to be invoiced against its respective blanket purchase order. The WA detail shall include the “due date” which indicates the date the Product, MES or FRU, as the case may be, must be ready for transport to Buyer or its designated agent ( “Due Date”) .

4.4 Modified/Cancelled Order

Buyer may cancel or modify a WA [**] prior to Supplier or Supplier’s subcontractor(s) tender of product to Buyer or Buyer’s agent. Supplier or Supplier’s subcontractor(s) will use commercially reasonable efforts to manage all requests. Buyer will work to minimize and/or mitigate such events within [**] of the scheduled ship date.

4.5 Upside Flexibility

Supplier will use commercially reasonable efforts to meet a [**] increase to the current forecast within [**] of Buyer’s notification of such requirement.

4.6 Resolution of Customer Shipment Conflicts

Except in the case of evidence sufficient to convince Buyer, acting reasonably and in good faith, of a third party’s fault or Buyer’s misorder, Supplier assumes full responsibility for shipment of Product which Buyer’s customers claim as missing from Supplier or Supplier’s subcontractor(s) shipment; provided that, Supplier or Supplier’s subcontractor(s) failed to include such Product Part in the shipment and the Part’s absence is not a result of third party actions (e.g. Buyer’s carrier or the Parts were not included in the original order) taken after Supplier or Supplier’s subcontractor(s) delivered the Product package to Buyer’s carrier. In such cases, Buyer will notify Supplier of the specific missing Products or Parts. Supplier will use commercially reasonable efforts to ship missing Products or Parts to designated Buyer location with [**]of notification from Buyer. Supplier is responsible for all freight and handling charges associated with missing Product or Parts if Supplier is responsible for missing Parts in the shipment. All shipments for missing Parts are to be shipped next day air or the most expeditious method possible.

4.7 Special Orders

Supplier agrees to use commercially reasonable efforts to fulfill Buyer’s WA requirements placed outside Buyer’s FTP Interface Program. There will be no additional charges for WA requirements placed outside Buyer’s FTP Interface.




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



4.8 Shipped and Uninstalled (S&U) Process

Supplier shall provide Shipped & Uninstalled CTO Product and MES Product (“S&U”) support to Buyer as outlined in the process below for shipping, controlling, and reuse of S&U that have been returned to Buyer as S&U.

Shipped and Uninstalled (S&U):

a)   Will be returned to Buyer from Buyer’s business partners, locations and customers, then shipped by Buyer to Supplier or Supplier’s subcontractor(s)

     b)   Buyer will confirm that S&U is un-used through an inspection process

     c)   Buyer will request an RMA from Supplier for S&U.

d)   Per the RMA, Buyer will deliver the S&U to Supplier or Supplier’s subcontractor(s) and Supplier or Supplier’s subcontractor(s) will accept return of the S&U Product and credit Buyer [**] for the S&U upon Supplier’s acceptance of the returned S&U product.

e)   Buyer shall pay Supplier a flat fee per order for each S&U that is returned to Supplier or Supplier’s subcontractor(s) as an approved RMA, as outlined below. Each fee covers the complete order per the original WA invoice price.

CTO (Plant) Orders: [**]
MES Orders:

Notwithstanding the foregoing, Supplier or Supplier’s subcontractor(s) shall have no obligation to accept return of S&U if Supplier is no longer providing Buyer with CTO or MES Products for any reason, including without limitation, termination of the Base Agreement or SOW or Buyer’s decision to no longer have Supplier supply Buyer with CTO or MES Products and to move such function to a third party or back to Buyer. Supplier or Supplier’s subcontractor(s) shall, at Buyer’s expense and risk of loss, send any S&U Product received by Supplier or Supplier’s subcontractor(s) after such time to a location which shall be designated by Buyer in writing. The return of S&U’s in any given quarter is limited to [**] of the previous quarter’s spend.

In the event that a CTO Product represented as S&U by Buyer is believed by Supplier to be damaged or used, Supplier will contact Buyer or Buyer’s designated representative for instructions to return damaged or used product to Buyer. Product mutually agreed to be “used” cannot be refurbished and returned to Buyer as new. Otherwise, S&U may be considered new by Supplier and may be used to fulfill future Buyer new WAs after any necessary re-testing and /or re-configuration.

4.9 Rework Orders

For Product that does not comply with the requirements of Section 4.8, Supplier or Supplier’s subcontractor(s) shall rework unopened, unused returned Product per Buyer requirement in exchange for a reasonable rework fee. Supplier will not be required to credit Buyer for these returns outside the limitations of Section 4.8. Buyer will pay freight for such returns to Supplier and return of Product to Buyer.

4.10 HVEC Hub Replenishment

4.10.1 Pull Definitions

“Pull Products” means Products specified in the Pull Product Profile per agreement of the Parties.

“Pull Product Profile” or “Pull Profile” or “MIRS Profile” means the agreed to Pull Products and process including, but not limited to, Product Type, Part Number, Replenishment Lead-Time and Packaging Specifications.

“Pull Purchase Order” or “Pro forma Purchase Order” or “PPO” means a blanket PO used for invoicing, receiving and forecasting purposes and does not represent a firm offer by Buyer nor bind Buyer to any quantity or delivery date.

“Upside Flexibility” means a percentage of Pull Products specified in the Pull Profile in excess of the Planning Schedule Quantity.

“Buffer Inventory Replenishment Lead-time” means the time from Supplier’s receipt of Buyer’s Planning Schedule for Supplier to replenish the Buffer Inventory.

“Planning Schedule” means Buyer’s forecast of requirements for Pull Products.




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



“Pull Notification” or “Shipping Schedule” means Buyer’s only authorization (WA) for Supplier to deliver a specified quantity of Pull Products.

“Pull Notification Lead-Time” means the time from Supplier’s receipt of a Pull Notification to shipment of the Pull Products to Buyer’s location.

“Pull Program Inventory” means the minimum inventory for which Supplier is responsible to maintain, to satisfy Buyer’s quantities as specified in the Planning Schedule.

“Buffer Inventory” means the additional inventory that Supplier keeps as a safety inventory.

4.10.2 Planning

Buyer will issue a PPO to Supplier for all Pull Products. Buyer may issue a Planning Schedule at intervals as specified in the Pull Profile, the most recent Planning Schedule to supersede all previous Planning Schedules. The Planning Schedule provides a forecast of requirements for the Pull Products and establishes Upside Flexibility, if any, with the Supplier.

4.10.3 Pull Delivery

Supplier will deliver to Buyer on the delivery date the Pull Products specified in the Pull Notifications issued by Buyer, provided such Pull Notifications do not exceed the Planning Schedule Quantity. To the extent practicable, Supplier will comply with Pull Notifications for quantities of Pull Products in excess of the Planning Schedule Quantity, but at a minimum in accordance with the Upside Flexibility.

4.10.4 Pull Limitation of Liability

Buyer makes no representation or warranty and assumes no liability regarding the quantity of Pull Products that it will purchase.

4.10.5 End of Life Order

Pull Products for which Supplier has provided a written End of Life notice will be in accordance with Section 2.8, “Notice of Product Withdrawal”.

4.10.6 Inventory

Supplier will maintain a minimum of [**] of inventory in the hubs based on Buyer’s Forecast.


“Documentation” shall mean the OEM Manual and the Users Guide that Supplier generally makes available to its customers containing descriptive, operating, installation, engineering 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 a nonexclusive, royalty-free right and license to copy, use, modify, translate and otherwise prepare derivative works 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.


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




Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.



Supplier Changes : Supplier will notify Buyer (through the Technical Coordinator) of any engineering change that materially affects form, fit or function of the Product or any changes in sourcing or critical component suppliers. Notification will be in the form of a monthly 30, 60, 90 day report 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. For material changes that affect form, fit or function, Buyer has the right to approve or disapprove of such engineering changes, 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 thirty (30) days of receipt of a written request, except for changes required to satisfy governmental standards or safety for which Buyer shall respond within five (5) business days, unless extended by mutual consent. Failure to respond within the applicable timeframe 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 into the Product.

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 thirty (30) days 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.

In the event a change/improvement initiated by either party shall result in a cost decrease, it is understood and agreed the parties shall mutually agree to a price decrease effective immediately upon complete implementation of such change/improvement.


Supplier shall maintain throughout the term of this SOW a formal disaster recovery plan which covers Supplier’s ability to continue Product shipment and maintain contracted commitments in the event of a disaster.


8.1 Cessation of Product Business:

If, during the term of this Agreement:



Supplier (or its contracted manufacturer) ceases engineering, manufacturing or assembling services (except as expressly provided in Section 2.8 of this Agreement) contracted for hereunder; or




An assignment is made of Supplier’s business for the benefit of creditors; or




A petition in bankruptcy is filed by or against Supplier; or




A receiver or trustee in bankruptcy or a similar officer is appointed to take charge of all or part of Supplier’s property under bankruptcy law or corporate reorganization law; or




Supplier is adjudicated a bankrupt; or




Supplier shall be dissolved or liquidated or have a petition for dissolution or liquidation filed with respect to it

(Each such event shall hereafter be referred to as a “Trigger Event”).



Buyer shall notify Supplier in writing if Buyer is aware or becomes aware of the occurrence of such a Trigger Event, or Supplier shall notify Buyer in writing if Supplier is aware or becomes aware of the occurrence of such a Trigger Event, and Supplier shall have thirty (30) days after the date of such written notification or from the date of the occurrence of such a Trigger Event in which to remedy such condition or conditions, or such longer period as is mutually agreed to by the parties in writing (hereafter referred to as the “Cure Period”).

8.2 Election of Remedies by Buyer:

If Supplier is unable to remedy the Trigger Event during the Cure Period, within [**] after the end of the Cure Period, Buyer shall select one of the following options to ensure an adequate supply of Product: (i) exercise the right to manufacture (or have manufactured) Products pursuant to Sections 8.3 through 8.6 inclusive, or (ii) purchase Product from third parties. If Buyer fails to provide Supplier with written notice of such election within such [**] period, the parties agree that Buyer will be deemed to have selected option (ii) of this Section 8.2.

8.3 Know-How Transfer:

If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will promptly deliver to Buyer the following “Manufacturing Assistance Items”: those tools, fixtures, microcode and equipment (over which Supplier has control) that were designed and built for the manufacture and test of Products, if available for transfer; copies of engineering drawings of parts, subassemblies and applicable packaging; copies of inspection, assembly and test instructions; copies of test cases; copies of tooling prints and detailed part production process documentation; and a list of Supplier’s suppliers and their addresses and Supplier’s consent, where required, to the sale of such supplies to Buyer. These Manufacturing Assistance Items are to be provided by Supplier in order to enable Buyer to make or have made Products and/or Spare Parts. In addition, Supplier shall, upon Buyer’s request and payment by Buyer of Supplier’s then-current standard rates therefore, provide such technical assistance as may be reasonably requested to enable Buyer to make or have a third party make Products and/or Spare Parts, subject to the reasonable availability of Supplier personnel. Nothing contained herein shall obligate Supplier to disclose to Buyer any confidential information of a third party, the disclosure of which requires permission of such third party, provided that Supplier agrees to use commercially reasonable efforts to obtain such permission if such confidential information is necessary for Buyer to make or have made Products and/or Spare Parts. All Manufacturing Assistance Items and non-public information of any kind that is required to produce the Products and Spare Parts, whether in written or oral form (“Supplier Confidential Information”) shall be deemed to be confidential to Supplier and shall not be disclosed to any employee or agent without a need to know such information to manufacture the Products and Spare Parts as authorized in Section 8.4 below, both during the term of this SOW and thereafter. Buyer shall ensure that it has obtained or will obtain from its employees and agents, and the employees and agents of its Subsidiaries and authorized third parties, who will receive Supplier Confidential Information a written agreement to hold such Supplier Confidential Information in confidence and to use the same care and discretion to avoid disclosure of such information as Buyer uses with its own similar information which it does not wish to disclose, but in no event less than commercially reasonable measures to protect such information. All such Supplier Confidential Information shall be maintained in a locked facility accessible only by authorized personnel.

8.4 Right to Manufacture:

If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will grant to Buyer a non-exclusive, non-assignable, royalty-free, worldwide license under all Supplier’s and Supplier’s Subsidiaries’ patents, copyrights, mask work rights, and trade secrets and all related information, such license being sufficient to allow Buyer to use the Manufacturing Assistance Items and other information provided by Supplier pursuant to Subsection 8.3 above (the “Manufacturing Know-How”) and to make, have made, use lease and/or sell Products, successor Products and/or Spare Parts, together with the right of Buyer to sublicense to its Subsidiaries or a third party to make, have made, use, lease and/or sell Products, successor Products and/or Spare Parts, subject to the limitation set forth in Section 8.5 below (“Limited Manufacturing License”). Unless earlier terminated as set forth in Section 8.5 below, except with respect to existing Products or Spare Parts that are being manufactured on or after such time and except as specified in the next sentence, Supplier acknowledges and agrees that the Limited Manufacturing License granted under this Section 8.4 shall immediately terminate upon termination of this SOW. Notwithstanding the foregoing, as to successor Products, Supplier agrees that provided Buyer has used commercially reasonable efforts to discontinue the use of Supplier’s Confidential Information after




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the termination of the Limited Manufacturing License, Supplier hereby grants to Buyer an immunity from suit with respect to the usage of any Supplier Confidential Information that has been mentally retained in the unaided memory of the employees and agents of Buyer, its subsidiaries and any third parties authorized by Buyer and its Subsidiaries.

8.5 Termination of Manufacturing Rights:

If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, and, during the term of Limited Manufacturing License, begins to make substantial volume purchases of any similar Ethernet Products from any third party, the parties agree that the Limited Manufacturing License granted to Buyer under Section 8.4 shall terminate effective [**] after the commencement of any such substantial volume purchases. Upon any termination of the Limited Manufacturing License, Buyer shall use commercially reasonable efforts to return to Supplier or destroy all Supplier Confidential Information to Supplier, retaining no copies in any tangible form or medium, and provide to Supplier a certificate from a Buyer executive attesting to such fact.

8.6 Cancellation of Purchase Order(s) (WAs) under Section 8, Manufacturing Rights:

Upon the date of transfer of “Manufacturing Assistance Items” under Section 8.3 above, any WAs of Buyer for Products issued by Buyer on or after the date of any of the Trigger Events, may be canceled by Buyer by a written notice to Supplier, and Buyer will have no further obligations thereunder except Buyer’s obligations in connection with acceptable Products already delivered prior to such cancellation, including but not limited to, payment obligations for such delivered Products, unless otherwise agreed to by the parties.


9.1 Professional Services: Unless otherwise specified by a customer, for Ethernet engagements involving the sale of Supplier Ethernet Products that require relevant services including installation, design, implementation, and consulting, including leased-based, onsite engineers (collectively, “ Professional Services”), and where Buyer’s Services organizations do not have the capability to source the resource for these services from within Buyer’s organization or its established vendors, Supplier shall be the preferred subcontractor to Buyer. Any Professional Services purchased by Buyer will be set forth in a separate statement of work for such engagement and shall be provided in accordance with the terms and conditions of the existing Brocade/IBM International Master Agreement for Subcontracting # [**].

9.2 Product Repair— Field Failures: Supplier shall use commercially reasonably efforts to comply with the requirements set forth in the Certified Service Part (CSP) document on file with Buyer and Supplier, CSP Specification PN: 22R0129; EC: H83590A, as updated, outlining the Buyer requirements of Supplier to bring a field returned, used Product to a level that qualifies the Product as a CSP. Supplier agrees to repair and/or upgrade field returned, used Products in accordance with this CSP document.

9.3 Post Warranty Services

9.3.1 Definitions:

" Backline Support ” refers to the escalation point for Frontline Support, for issues that cannot reasonably be resolved by Frontline Support, such as complicated installation or configuration issues, compatibility issues, complicated problem isolation and troubleshooting, and escalation of verified bugs to engineering. Backline Support is provided through telephone and e-mail support during normal Supplier business hours and after-hours support for Severity 1 problems. For more details, please refer to Supplier’s Service Plan Policies Document

" End of Life” or “EOL” means the date and process by which Supplier discontinues the manufacture of a product as set forth in 2.8.

“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




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Repair Services available for Products, and do not affect Supplier’s obligations with respect to FRU or other Product availability.”

“Frontline Support” includes the initial direct contact with the end-user, call logging, entitlement verification, problem definition and isolation, determination of whether a solution is contained in the end user documentation, review of symptoms in the Supplier Knowledge Base for known resolutions, problem escalation to Supplier, and closing the case with the end user after problem resolution.

“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 written specifications.

“Maintenance” — Maintenance Release Version is always a number. It is used to indicate a scheduled (date driven) release of defect fixes and carefully selected RFEs (Requests for Enhancements).

“Major Release” — Major Release is always indicated by a number. (Example: 3.6.00c — The first two numbers (3.6) indicate a major release.) It is used for introducing major features and/or major hardware architectural changes or introductions.

“Minor Release” — Minor Release is always indicated by a number. (Example: 3.6.00c — The second set of numbers (.00) to the right of the decimal point indicate a minor release.) It is used for introducing a carefully selected set of minor features, within the major release train, that have minor impact on the code, and/or sometimes for introducing support for a minor hardware enhancement — e.g., a new line card for a chassis.

“Patch Release” — Patch release is always indicated by a letter. It is used only to identify fixes

“Post Warranty Products” means Products for which the original warranty period has expired.

“Product_version_code (string designator)” — the product code name that will be used. To avoid potential issues, all products will be named with lowercase.

“Software Maintenance” refers to the provision to Buyer by Supplier of certain software updates at no additional charge (beyond any charges for Support and Maintenance” during the Software Maintenance period). Maintenance and Patch releases are generally included with Software Maintenance. Platform and Feature releases generally are not included with Software Maintenance.

“Support and Maintenance” or “Software Maintenance and Support” mean Backline Support and Software Maintenance.

“Turn Around Time” or “TAT” means the elapsed time from Products arriving at Supplier to shipment date back to Buyer.

9.3.2 Availability: Supplier will maintain the capability to supply spare parts of Products (“Spare Parts”) for a period of [**] of such Products as specified herein. Supplier may assign its rights to warranty replacement Spare Parts or EOL Spare Parts to a Buyer approved third party. Buyer will have no obligation to have any Products repaired by Supplier.

9.3.3 Pricing: Post Warranty repair (OOW) pricing is set forth in Attachment A, which shall not be greater than [**] of the then current FRU price. In the event Supplier determines, in good faith, that a Product returned for repair is unrepairable, Buyer may purchase a replacement FRU at the then-current FRU price. All other FRUs that are not listed in Attachment A, “Products and Pricing”, have been determined by Supplier to be non-repairable. Any change in this unit price shall be as mutually agreed upon by the Parties.




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9.3.4 Planning: Buyer may periodically issue non-binding forecasts for post warranty repair service. The Supplier will implement an auditable process for Products sent to the Supplier for repair and Supplier will inform Buyer of receipt of Products from Buyer. Supplier will use commercially reasonable efforts to achieve a maximum Repair Yield and will inform Buyer if it is unable to achieve the Yield.

9.3.5 Packaging and Delivery: The Products will be individually packaged and labeled according to Buyer specification GA-21-9261-11, unless otherwise agreed to. Packaging may be reused only with Buyer’s written authorization. The terms of delivery for Products will be as stated under Section 2.5 (Delivery) and Supplier will notify Buyer of discrepancies between the shipping documents and received Products. The TAT for Serviced Products will not be more than [**] after receipt of said Products, unless specified otherwise. Supplier will use commercially reasonable efforts to reduce the TAT days and make adjustment to Buyer accordingly.

9.3.6 Materials: All Products and associated spares, including scrap materials, will be returned to the owning affiliate as specified in the relevant WA. Buyer may request a quarterly inventory report of AFR Products and associated spares or may designate a third party to conduct such activity. All consigned materials supplied on a consigned basis will remain property of Buyer and Supplier will provide a quarterly inventory report of such materials. Supplier will use all parts supplied by Buyer solely for the performance of this Agreement unless otherwise agreed.

9.3.7 Repair Warranty

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