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Exhibit 10.11
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
ACT MANUFACTURING INC. AND
[CONVERGENT LOGO] CONVERGENT NETWORKS, INC. [ACT LOGO]
MANUFACTURING SERVICES AGREEMENT
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This Manufacturing Services Agreement ("Agreement") between ACT
Manufacturing, Inc. ("ACT") and Convergent Networks, Inc. ("Convergent") is
entered into as of September 20, 2000 (the "Effective Date").
1. SERVICES
ACT agrees to use diligent efforts to perform the services (hereinafter
"Services") pursuant to purchase orders or changes thereto issued by Convergent
Networks. The Services shall mean (a) the procurement of components, materials,
equipment and other supplies, (b) the manufacture, assembly, and testing, of
products (hereinafter "Products") pursuant to detailed written specifications
for each such Product as provided by Convergent Networks, (c) the delivery of
such Products, and (d) the provision of the services set forth on Attachment A.
For each Product or revision thereof, written specifications shall include but
are not limited to bill of materials, schematics, assembly drawings, process
documentation, test specifications, current revision number, and approved vendor
list (hereinafter "Specifications") as attached to each purchase order issued
hereunder.
2. ORDER ADMINISTRATION AND FORECAST MANAGEMENT
Convergent Networks must have 90 days worth of purchase orders in place at all
times. Convergent Networks must also have an additional 90 days (for a total of
180 days) of forecast in place at all times. Purchase orders must specify part
number, quantity, rev level, price and requested delivery dates provided such
additional forecasts shall be fully cancelable and re-scheduled until such time
as such forecasts fall within a 90 day period. First 30 days of forecast are
non-cancelable/non-rescheduled. ACT will schedule all material to arrive at
least 21 days prior to requested in-house date at Convergent Networks. Days 31-
60 are non-cancelable but can be rescheduled out to a maximum of 60 days one
time only. Days 61-90 are fully rescheduled/cancelable within the following
guidelines:
Convergent Networks will be responsible for all excess custom and unique
material bought on their behalf. Convergent Networks will be responsible for
all excess created by non-cancelable/non-returnable items. Convergent Networks
will be responsible for all excess created by purchasing of minimum order
quantities and minimum package sizes. ACT will plan material to support the
forecast provided by the Convergent Networks. Convergent Networks must convert
[**]% the forecast for the 90 day period. Convergent Networks will be
responsible for all charges set forth below, and custom/unique parts purchased
to support orders and forecast within the 90-day period. ACT shall use its best
efforts to return all returnable/cancelable items to distributors.
ACT will charge [**]% per month for items carried in inventory greater than 7
weeks as a result of reschedules.
ACT will charge [**]% for material returned to ACT's Distributors on the
Convergent Networks behalf due to reschedules or cancellations for non-
distribution items only.
ACT will change a [**]% handling charge for excess or obsolete material, which
must be returned to the Convergent Networks.
Convergent Networks shall not pay the foregoing charges for any materials,
parts, components and/or inventory purchased by ACT in excess of Convergent
Networks' forecasts; provided, however, if the Minimum Amount (as defined below)
of a particular component or part purchased by ACT is greater than the amount
for such component or part in Convergent Network's forecast, the foregoing
cancellation charges shall apply to the Minimum Amount less those components or
parts converted into Product by Convergent or may be allocated to meet the
requirements for other ACT customers. For purposes of this Section 2, "Minimum
Amount" means the smallest quantity of a component or part that ACT can purchase
to meet Convergent Network's forecasts for such components or parts, but does
not include any greater minimum amount purchased by ACT to obtain better per
unit pricing or other more favorable terms.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
CONVERGENT NETWORKS AND ACT MANUFACTURING
MANUFACTURING SERVICES AGREEMENT
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3. PRICING
ACT will submit a formal quote to set pricing for the upcoming quarter. ACT and
Convergent Networks will meet every three months to review process and material
cost changes. New pricing for the upcoming quarter will be set at that time.
Major changes may be negotiated by either party during the quarter when
necessary.
All prices are F.O.B. shipping point, on any product not delivered directly by
ACT owned vehicles. Payment terms are Net 30 days. Convergent Networks will
have the right to select the method of shipment, including carrier, insurance,
means of transportation and routing. ACT will assist Convergent Networks in
obtaining favorable logistics services from ACT's partners and vendors.
Material cost reductions negotiated solely by Convergent Networks shall be
passed [**]% to Convergent Networks. Material cost reductions negotiated
solely by ACT on behalf of the Convergent Networks will be split [**]% to each
party for a period of one year, unless Convergent establishes better pricing
during such one-year period, in which case ACT shall pass all of the savings on
to Convergent.
4. FLEXIBILITY
ACT agrees to provide a [**]% "upside" (i.e. quantities of Product in
excess of forecast) in any given quarter commencing three weeks from receipt of
request. Convergent Networks will be promptly informed in advance of any
charges associated with holding critical components in stock (boards/ASICS/sheet
metal, etc.). Convergent Networks assumes all risk for Engineering Change Orders
(ECOs) to critical parts held in stock to support flexibility. Should
Convergent Networks exercise the full [**]% flexibility it will not again be
available until the lead time of the longest lead-time component; provided,
however, ACT shall use reasonable efforts on behalf of Convergent Networks to
negotiate arrangements with distributors and brokers to obtain additional
inventory to provide for [**] upside flexibility for the quarterly immediately
following the quarter during which Convergent Networks has exercised the [**]%
upside.
5. CONVERGENT NETWORKS DELIVERABLES
Unless otherwise stated in writing, Convergent Networks agrees to provide
to ACT all information required to properly manufacture the Product (Attachment
B). Convergent Networks agrees to provide all unique test equipment, test
procedures and software code required to isolate defects. Subject to Section 7,
ACT disclaims liability for any non-manufacturing related defects which such
tools did not isolate.
6. APPROVED MANUFACTURERS
ACT will only purchase components specified and approved by Convergent
Networks. Any changes are subject to Convergent Networks advance written
consent. If Convergent Networks refuses to give such consent or fails to
respond within ten days of ACT's request therefor, and ACT has used its
reasonable efforts to purchase from the approved manufacturers and shortages or
allocation exist, ACT shall not be liable for failing to deliver the affected
Product. In the event that ACT is unable to purchase a specified component from
approved manufacturers due to unavailability and Convergent Networks has given
ACT advance notice of its need for the specified component with at least the
lead time specified by ACT for such specified component, ACT will make every
effort to obtain the specified components, including buying from "brokerage" at
ACT's expense.
7. WARRANTY
a). ACT warrants that (i) the Products provided under this Agreement will
be free of manufacturing defects for a period of one year from date of shipment,
(ii) the Products will conform to the specifications set forth in the applicable
purchase order, and (iii) will be performed in accordance with IPC (formerly the
Institute for Interconnecting and Packaging Electronic Circuits) standards for a
Class II Factory and will assume responsibility for all process-related defects
and assembly violations,
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including, without limitation, defects due to poor solder quality, PCB
cleanliness, contamination, poor repair practices, or use of parts not listed on
Convergent Networks' Approved Vendor List. ACT will, if permitted to do so, pass
through to Convergent Networks any warranties for components purchased for
Convergent Networks. The warranty period for returned Product shall be the
balance of the original warranty period or ninety (90) days, whichever is
greater. Convergent Networks sole remedy and ACT's sole obligation shall be to
repair or replace (at its option) the defective Product at no additional charge
to Convergent Networks. If a defective Product cannot be repaired or replaced,
ACT shall refund Convergent Networks the amounts paid for such defective
Product. Any Product returned to ACT which, after inspection and test by ACT, is
found to be free of defects shall be subject to a "no Defect Found Charge".
b). This warranty shall not apply to Product(s) that have been subjected
to abuse, misuse, accident, alteration, neglect, operation outside the
parameters or environment identified in Convergent Networks product
specifications, or unauthorized repair, installation or alternations by anyone
other than ACT and Convergent Networks. Additionally, this warranty shall not
apply to printed circuit boards that are made defective or otherwise made
inoperative as a result of improper repair by Convergent Networks.
c). Convergent Networks shall contact ACT for a RMA (Return Material
Authorization) prior to returning any Product for repair. ACT will provide the
RMA within 2 business days (1 day for priority requests) of receipt. Convergent
Networks will forward the defective Product to ACT freight prepaid. ACT will
return the repaired or replaced Product, freight prepaid, to Convergent Networks
as quickly as practical, but no later than 30 days from the date ACT received
the defective Product.
d). If ACT determines the warranted product is unrepairable or ACT no
longer possesses tools and equipment necessary to perform the repairs, ACT shall
refund the Purchase Price in lieu of repair or replacement.
e). THE FOREGOING WARRANTY PROVISIONS SET FORTH ACT'S SOLE WARRANTIES AND
ARE CONVERGENT NETWORK's EXCLUSIVE REMEDIES FOR WARRANTY FOR ANY PRODUCTS
PROVIDED HEREUNDER. ACT HEREBY SPECIFICALLY DISCLAIMS ANY AND ALL OTHER
WARRANTIES WITH RESPECT TO PRODUCTS SUPPLIED HEREUNDER INCLUDING ANY WARRANTY OF
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.
8. FORCE MAJEURE
Neither party shall be considered in default or liable for any delay or
failure to perform under this Agreement due to causes beyond its reasonable
control. If such delay or failure continues for more than thirty (30) days
Convergent Networks and ACT will meet to mutually agree upon the actions to be
taken. If such delay or failure continues to prevent a party from performing
its obligations hereunder for more than ninety (90) days, the other party may
terminate this Agreement and any purchase orders issued hereunder with ten (10)
days written notice to the non-performing party.
9. INSURANCE
a). ACT will maintain adequate insurance to protect from fire, theft and
damage the material inventory to be used for the manufacture of Convergent
Networks Products. ACT shall maintain adequate insurance to protect from fire,
theft and damage any consigned inventory, in-circuit test fixtures, capital
equipment, returned materials and other property of Convergent Networks in the
hands of ACT.
b). Convergent Networks agrees to take all necessary precautions to
prevent injury to any persons (including employees of ACT) or damage to property
(Including ACT's property) during the term of this Agreement and shall defend,
indemnify, and hold ACT, its officers, directors, agents and employees harmless
from and against any and all claims, losses, expenses (including reasonable
attorney's fees), demands, or judgments ("Claims") which result from or arise
out of: (1) the presence of Convergent Networks or equipment or tools used by
Convergent Networks in the performance of this Agreement on the property of ACT;
or (2) the performance by Convergent Networks or its personnel of any effort for
or on behalf of ACT; or (3) the acts, errors, omissions, or negligence of
Convergent Networks or Convergent Networks personnel; or (4) the use by
Convergent Networks of ACT's equipment, tools, or facilities ("Equipment")
whether or not any Claims are based upon the condition of the Equipment of
ACT's, its agent's, or employee's alleged negligence in permitting its use.
Permission by ACT to use the Equipment shall be gratuitous.
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10. TERM AND TERMINATION
(a) Term. The initial term ("Initial Term") of this Agreement shall be one
(1) year commencing as of the Effective Date, unless terminated sooner as
provided in Section 10(b) or 10(c). On the first anniversary of the Effective
Date and each anniversary thereafter, this Agreement shall automatically renew
for an additional one (1) year term (each a "Renewal Term"), unless either party
gives written notice to terminate one hundred and eighty (180) days prior to the
expiration of the Initial Term or any Renewal Term.
(b) Termination for Cause. Either party shall have the right to terminate
this Agreement if: (i) the other materially party breaches any material term of
this Agreement and fails to cure such breach within ninety (90) days after
receipt of written notice of the same; (ii) the other party becomes the subject
of a voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors; or (iii) the other party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
(c) Termination for Convenience. At any time after the expiration of the
Initial Term, either party may terminate this Agreement, with or without cause,
upon one hundred eighty (180) days prior written notice to the other party.
(d) Survival. This Section 10(d) and Sections 7, 11, 15 and 16 shall survive
the termination of this Agreement. In addition where the context of any
provision indicates an intent that it shall survive the term or termination of
this Agreement then it shall survive.
11. OWNERSHIP OF PRODUCTS
Convergent Networks shall have and retain all right, title and interest in
and to all Products manufactured by ACT hereunder. ACT hereby assigns and agrees
to assign to Convergent Networks all of ACT's right, title and interest in and
to the intellectual property rights embodied in such Products including, without
limitation, all patent, copyright and trade secret interests therein. At
Convergent Network's request, ACT shall execute all documents and take all steps
as Convergent Networks may reasonably request in order to more fully effectuate
the foregoing assignment if necessary.
12. CONFIDENTIALITY.
All written information and data exchanged between the parties for the
purpose of enabling ACT to manufacture and deliver Products under this Agreement
that is marked "Confidential" or the like shall be deemed to be "Confidential
Information" or any information disclosed under circumstances that would
reasonably indicate the confidential nature of such information shall also be
deemed Confidential Information. The party which receives such Confidential
Information agrees to safeguard such Confidential Information, to use such
Confidential Information solely as necessary to perform its obligations under
this Agreement, and to disclose it only to its employees with a need to know
such information and not to disclose it directly or indirectly to any third
party without the prior written consent of the disclosing party. Each party
shall have written agreements with its employees that bind its employees to
protect such Confidential Information. Confidential Information disclosed
pursuant to this Agreement shall be maintained confidential during the term of
this Agreement and for a period of five (5) years thereafter. Each party
expressly acknowledges that its breach or threatened breach of this Section will
result in substantial, continuing and irreparable injury to the other party, and
that the other party shall thus be entitled to injunctive or other equitable
relief.
13. AMENDMENTS
This Agreement may be amended only by written consent of both parties.
14. WAIVERS AND CONSENTS
The terms and provisions of this Agreement may be waived, or consent for
the departure therefrom granted, only by written document executed by the party
entitled to the benefits of such terms or
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provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
15. INDEPENDENT CONTRACTOR
Neither party shall, for any purpose, be deemed to be an agent of the other
party and the relationship between the parties shall only be that of independent
contractors. Neither party shall have any right or authority to assume or
create any obligations or to make any representations or warranties on behalf of
any other party, whether express or implied, or to bind the other party in any
respect whatsoever.
16. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
Commonwealth of Massachusetts, excluding its choice of law principles and the UN
Convention on Contracts for the International Sale of Goods.
17. SUCCESSORS, ASSIGNMENT
This Agreements shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and legal
representatives. Neither party shall have the right to assign or otherwise
transfer its rights or obligations under this Agreement except with the prior
written consent of the other party, not to be unreasonably withheld; provided,
however, that either party may, without the prior written consent of the other
party, assign this Agreement to a successor in interest pursuant to a merger or
sale of all or substantially all of the assets or stock of such party.
18. ENTIRE AGREEMENT
This Agreement and any attachments hereto constitutes the entire agreement
between the parties with respect to the transactions contemplated hereby and
supersedes all prior agreements and understandings between the parties relating
to such transactions.
19. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. It shall not be a condition to the effectiveness of this
Agreement that each party shall have executed the same counterpart.
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IN WITNESS WHEREOF, the authorized representatives of the parties have executed
this Agreement under seal as of the date(s) set forth below.
ACT MANUFACTURING, INC. CONVERGENT NETWORKS
By /s/ Fran Burke By /s/ Kenneth MacLure
------------------------- -------------------------
(Signature) (Signature)
Fran Burke Kenneth MacLure
--------------------------- ----------------------------
(Printed Name) (Printed Name)
VP Bus Dev VP Operations
--------------------------- ----------------------------
(Title) (Title)
9/21/00 9/21/00
--------------------------- ----------------------------
(Date) (Date)
List of ACT Services and Deliverables on ATTACHMENT A
List of Convergent Networks Deliverables on ATTACHMENT B
List of products currently covered by the agreement are detailed on
ATTACHMENT C.
List of components with special conditions detailed on ATTACHMENT D.
ATTACHMENTS C AND D to be reviewed and updated quarterly.
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ATTACHMENT A
ACT Services and Deliverables
Procure Raw materials per Convergent Network's Approved Vendor List and Bills of
Material.
Stock Raw Materials on Convergent's behalf internal to ACT, though Distribution
and manage a bonded inventory through Distribution.
Assemble Printed Circuit Boards in compliance to IPC 310 Class II guidelines.
Perform fixtuless testing, in-circuit testing, board-level diagnostics, dynamic
environment stress screening and functional testing, and final system testing
pursuant to the guidelines and released test procedures provided by Convergent
Networks.
Procure all tooling necessary to complete mechanical and electrical Assemblies
that includes but is not limited to wave solder fixtures, press-fit tooling, SMT
(Surface Mount Technology) stencils and all engineering services related to the
development of machine placed programs through Computer Automated Design (CAD)
translation, wave solder and SMT reflow thermal profiles, visual aides, process
documentation and formally adapting Convergent Networks Engineering Change
Orders (ECOs) into ACT's ISO 9000 Process.
Yields for incoming inspection and the first level of test at Convergent
Networks should equal or exceed the guidelines posted in the quarterly report
cards delivered by ACT to Convergent Networks.
Assist Convergent Networks to achieve 100% of the Printed Circuit Boards
assembled by ACT to be manufactured with a level of quality and testing that
would allow them to be stocked directly from ACT.
Provide program mangement for all assemblies in prototype and production to
track timelines of all procurement and process-releated issues.
No more then 1 ACT project manager will be used to manage the new product
introductions and 1 ACT project manager for production.
Track all process-related failures and provide a monthly summary to show where
the "Top Ten" failures are occuring and what steps ACT will take to failures in
the future.
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ATTACHMENT B
Convergent Networks Deliverables
Bill of Material with Reference Designators
AVL Information
Assembly Drawings
Gerber Files
CAD Files
Programs for IC's
Schematics
Test Processes
Deviations/Waivers in Writing
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ATTACHMENT C
List of Convergent Networks products to be manufactured by ACT.
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ATTACHMENT D
List of components with special conditions
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