EXHIBIT 10.31
PROFESSIONAL SERVICES AGREEMENT
BETWEEN
(HARMONIC LOGO) [f51550f5155000.gif]
AND
(PLEXUS LOGO) [f51550f5155001.gif]

          Harmonic Inc. / Plexus Confidential   Page 1   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

CERTAIN INFORMATION FROM THIS DOCUMENT HAS BEEN REDACTED PURSUANT TO A
CONFIDENTIAL TREATMENT REQUEST BY HARMONIC INC. UNDER 17 C.F.R. §§ 200.80(B)(4),
200.83 AND 240.24B-2 AND SUBMITTED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
(HARMONIC LOGO) [f51550f5155007.gif]
PROFESSIONAL SERVICES AGREEMENT
This Professional Services Agreement (“Agreement”) by and between Plexus
Services Corp., including its subsidiaries and affiliates (“Plexus”), a Nevada
Corporation whose principal place of business is located at 55 Jewelers Park
Drive, Neenah, WI 54957-0156, and Harmonic Inc., including its subsidiaries and
affiliates, (“Harmonic”), a Delaware Corporation whose principal place of
business is located at 549 Baltic Way, Sunnyvale, CA 94089 USA, is entered into
as of September 22, 2003 (“Effective Date”).
WHEREAS, Harmonic desires to purchase custom manufacturing and related services
for certain products consisting of hardware and software components for resale
to its customers; and
WHEREAS, Plexus is in the business of providing manufacturing services that
include the custom manufacture of printed electronic circuit boards, systems and
related services; and
WHEREAS, the parties deem it desirable by means of this Agreement to establish
terms and conditions which shall govern Plexus’s sale and Harmonic’s purchase of
the products and services;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises
herein set forth, the parties hereto mutually agree as follows:
1. Definitions

1.1.   “Annualized Run Rate” shall mean the aggregate price of the previous
quarter’s actual shipments to Harmonic plus current quarter open orders and
forecast, annualized.

1.2.   “Approved Vendor List” (AVL) shall mean the list of suppliers or
component manufacturers approved as sources of supply for each component.

1.3.   “Blanket Purchase Order” — shall mean the written instrument issued by
Harmonic during the Term against which Releases shall be issued, but which in
itself is not a binding commitment to purchase Product, nor sets any date for
delivery;

1.4.   “Custom engineered component” (CEC) shall mean a build to print component
that is built to a specification and only used in Harmonic’s Product.

1.5.   “Finished Goods” a Product which is physically complete, has passed final
test and inspection, and has been transacted and physically moved to the
Finished Goods location.

1.6.   “Minimum Order Quantity (MOQ) List” shall mean a list of parts that have
a minimum order purchase quantity requirement.

1.7.   “Products” shall mean the items consisting of hardware and software
components to be manufactured by Plexus in accordance with Harmonic’s
specifications and delivered to Harmonic as a completed product, including
(i) any successor, follow-up, enhanced, or modified version of these Products,
and (ii) any other goods which the parties agree in writing shall be subject to
this Agreement.

1.8.   “Purchase Order” shall mean the written instrument issued by Harmonic
during the Term which is a binding commitment to purchase specific Products or
services and which establishes dates for delivery;

          Harmonic Inc. / Plexus Confidential   Page 2   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

1.9.   “Release” shall mean any written request issued by Harmonic pursuant to a
Blanket Order by which a purchase commitment is made and the delivery date for
all or part of the Blanket Order is set;   1.10.   “Order” shall mean,
collectively, Purchase Order, Blanket Purchase Order, and Releases.

1.11.   “Services” shall mean the services to be provided by Plexus to Harmonic
including but not limited to, prototype development and manufacturing, test
development, product manufacturing, system assembly, order fulfillment,
and repair.

1.12.   “Specification” shall mean the Harmonic manufacturing specifications
made available to Plexus, including but not limited to bill of materials, test
specifications, and assembly drawings, applicable to each Product as
designated on the Order.

1.13.   “Transition period” shall mean the period of time Harmonic is
transitioning the manufacture of its products to Plexus which shall end the
earlier of: i) June 30, 2004; or ii) when receipts, open orders, and forecast
total at least ten million dollars per quarter.

1.14.   “Work Product” shall mean the Product, any and all recommendations,
findings, reports, designs, drawings, diagrams, plans, specifications, writings
of any nature, photographs, artwork, audio and visual works, computer programs,
inventions, discoveries, and improvements developed, written, made, conceived or
reduced to practice in the course of or arising out of the Services performed by
Plexus for Harmonic under this Agreement.

2.   List of Exhibits. The following exhibits attached hereto are incorporated
and made a part of this Agreement:

  •   Exhibit A – Transition     •   Exhibit B – Pricing     •   Exhibit C –
Scheduling and Flexibility     •   Exhibit D – Material Procurement and
Liability     •   Exhibit B – Fulfillment Services     •   Exhibit F – Quality
Requirements

3.   Scope of Work

3.1.   Plexus shall manufacture a range of products and provide Services on
behalf of Harmonic at the prices incorporated by reference in Exhibit B. Plexus
shall manufacture Products that conform to Harmonic’s Specifications, quality
and other applicable documentation as set forth in this Agreement. Unless
otherwise specified herein, the parties agree that Plexus may provide such
Products and Services from any of its various global facilities.

3.2.   This Agreement is not a requirements contract and does not obligate
Harmonic to purchase any Products. Plexus agrees to assemble, test and sell the
Products exclusively to Harmonic and Harmonic shall purchase Products in
accordance with and only in response to Purchase Orders, Blanket Purchase
Orders, and Releases issued by Harmonic.

3.3.   The parties shall develop a mutually agreed “Service Level Agreement”
(SLA) within ninety (90) days of the Effective Date of this Agreement Such SLA
shall define expected performance levels and establish a framework for
communication between the parties and shall be fully incorporated herein by this
reference. In the event of any conflict between any provision of this Agreement
and any provision in the SLA, the terms and conditions of this Agreement shall
prevail.

4.   Term

4.1.   This Agreement shall commence on the Effective Date and shall continue
for an initial term of thirty-six (36) months and shall automatically renew for
successive twelve (12) month increments, unless terminated earlier as provided
hereunder.

5.   Product Forecast

5.1.   Harmonic shall provide Plexus on a monthly basis, a twelve (12) month
rolling forecast that assumes three (3) months of demand arc covered by Orders
issued by Harmonic. Such forecasts are to be used by Plexus for planning
purposes and do not constitute any obligation by Harmonic to purchase Products,
as the forecasts are estimates based on marketing data, which may be inaccurate
and subject to change according to actual market demand. Notwithstanding the
foregoing, Plexus may make component purchases based on Harmonic’s forecast with
Harmonic’s prior written authorization.

          Harmonic Inc. / Plexus Confidential   Page 3   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

6.   Orders

6.1.   Harmonic may place Orders with Plexus on an as needed basis and such
Orders shall become effective upon acceptance of the Order by Plexus. Orders
shall specify the quantities, prices, revisions, delivery schedules, products,
Specifications, and other applicable information necessary for the transaction.
Plexus shall acknowledge the Orders within two (2) business days of receipt by
facsimile, confirmed email, or mail, provided that the Orders are within the
forecast and flexibility parameters set forth in Exhibit C. Such
acknowledgements will include verified delivery dates and confirmation of any
other applicable Order information requested by Harmonic. If Plexus has any
issues with, or requested modifications to, a Harmonic Order, Plexus and
Harmonic will work together in good faith to resolve such issues expeditiously
and with as little impact to the fulfillment of the Order as possible. This
Agreement becomes the exclusive and binding agreement between the parties for
the purchase of Products and/or Services when an Order is accepted by
acknowledgement and/or commencement of performance by Plexus. Acceptance of an
Order is limited to these terms and conditions and each party expressly rejects
any other terms, conditions or provisions, on either party’s standard forms,
including but not limited to, invoices, acknowledgments, and purchase orders,
unless otherwise agreed in writing by both parties.

6.2.   Orders shall be fulfilled in accordance with Exhibits C and D. Upon
Harmonic’s written request Order fulfillment services will be provided in
accordance with Exhibit E.

7.   Title

7.1.   Except as otherwise provided herein, all shipments of Products hereunder
shall be made, and Products shall be deemed delivered, FCA Boise Idaho
(INCOTERMS 2000), at which point title to Product(s) and risk of loss pass
to Harmonic. In the case of shipments of finished Products from Plexus’ Malaysia
facilities to Harmonic facilities in Sunnyvale, California shipments shall be
made, and Products shall be deemed delivered, DDP destination (INCOTERMS 2000)
at which point risk of loss to the Product will pass to Harmonic (title with
respect to such shipments will pass, however, to Harmonic at the time of
shipment by Plexus). Any finished Products from Malaysia for which Harmonic
requests Plexus to ship to destinations other than Harmonic Sunnyvale,
California, shipments shall be made, and Products shall be deemed delivered, FCA
point of origin (1NCOTERMS 2000), at which point title to Products and risk of
loss pass to Harmonic.

7.2.   If Plexus has held finished Product manufactured in accordance with this
Agreement in Plexus inventory for more than thirty (30) days, Plexus may, unless
otherwise mutually agreed in writing, invoice Harmonic for such Product but will
hold Product within its facilities pending further shipment instructions from
Harmonic (“Fulfillment Inventory”). Plexus will invoice for such Fulfillment
Inventory upon the same being placed in Harmonic’s Finished Goods inventory
location at Plexus, at which time title and risk of loss to such inventory
shall also pass to Harmonic. Plexus will, however, insure such Fulfillment
Inventory held in Plexus’ facilities at the full replacement cost thereof under
the terms and conditions of Plexus’ “all risk” insurance coverage. The prices
for the Fulfillment Inventory shall be the prices set forth in those Harmonic
Orders under which Plexus manufactured such inventory. Harmonic has requested
that Plexus hold such Product following invoicing in order to provide an
inventory management and distribution service to Harmonic. If Plexus holds
Product for more than (90) days after title to the same has transferred to
Harmonic, Plexus will notify Harmonic and ship the Product to Harmonic or its
designated agents, unless otherwise agreed in writing.

8.   Packing and Transportation

8.1.   All Products shall be packaged appropriately for the method of
transportation and in accordance with the Specifications. All Products shall be
shipped in accordance with written shipping instructions provided by Harmonic,
or if no such instructions are provided, by best route and mode of
transportation. Plexus shall be liable for any cost, loss, damage, liability or
excess shipping costs resulting from routing differing from Harmonic’s
instructions. Unless otherwise specified on the Order, for any shipments subject
to FCA terms as specified in Section 7.1, Plexus shall prepay and add to invoice
the cost of freight and any taxes, VAT, duties, customs, or other charges or
fees assessed by any government applicable to the transaction, that would apply
to the requested destination.

8.2.   Each party shall provide reasonable assistance to the other party with
respect to applicable import and export activity necessary for product
shipments. Harmonic further agrees to submit requested export information to
Plexus pursuant to Plexus Guidelines for Harmonic-Driven Export Shipments.

          Harmonic Inc. / Plexus Confidential   Page 4   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

9.   Delivery

The delivery date for Product will be the date set forth in Harmonic Orders
accepted by Plexus. Plexus will deliver Product no sooner than [*] ([*]) days
early and no later than zero (0) days late. Plexus will notify Harmonic as soon
as it becomes aware of any impending late delivery and, if a late delivery is
caused by factors within Plexus reasonable control, Plexus will expedite
shipment and pay any resulting incremental cost in doing so. If Plexus delivers
Product more than fifteen (15) business days late and the lateness is within
Plexus’ reasonable control, such late delivery shall be considered a material
breach of this Agreement by Plexus, and Harmonic, at its option, may reschedule
such late shipment for up to ninety (90) calendar days or cancel all or part of
the applicable Order without any charge, obligation or liability.

10.   Performance Review

10.1.   Harmonic shall review the overall performance of Plexus on a quarterly
basis based on review criteria agreed to by both parties, in the form of a
Quarterly Business Review (QBR). The process shall involve measuring performance
against targets in the areas of quality, delivery, lead-time, customer service,
price, cost reduction, productivity and technology. The intent of this review is
to maintain leading levels of competitiveness and to track the progress toward
meeting the above-mentioned targets and, when needed, implement innovative
processes to help achieve those targets. The process is meant to be one that is
forward-looking and constructive and the result is to mutually benefit both
parties. Additionally, Harmonic may request weekly and monthly meetings or
conference calls to review Plexus performance and address any relevant issues.

10.2.   In order for Harmonic to effectively manage its business, Plexus agrees
to use reasonable commercial efforts to provide to Harmonic timely and accurate
information about Plexus’s operations subject to confidentiality obligations to
third parties.

11.   Pricing

11.1.   Harmonic shall pay for Products in accordance with the cost models as
set forth in Exhibit B. For Services not expressly set forth in Exhibit B, then
prices shall be as mutually agreed in writing.

12.   Payment Terms

12.1.   All payments hereunder by Harmonic to Plexus shall be made in US dollars
net [*] ([*]) days from the date of receipt of an accurate invoice, which shall
be no sooner than the date of delivery of the Products to Harmonic’s designated
location. Plexus’ may submit invoices to Harmonic electronically, via fax or US
mail. Payment of invoices shall not constitute acceptance of Products or
Services and shall be subject to lawful adjustments and offset for failure of
Plexus to meet the requirements of this Agreement.

13.   Quality

13.1.   Plexus shall be ISO 9001:2000 certified at all manufacturing facilities
used for Harmonic Products.

13.2.   Plexus shall manage and administer all regulatory compliance inspections
which take place on Plexus premises, including but not limited to, coordination
and scheduling of UL/TUV factory audit visits, to maintain product
certification. Plexus shall be responsible for coordinating all Product
regulatory corrective action.

13.3.   Plexus shall comply with the requirements of Harmonic CM Quality
Requirements Document, QA0G09, Exhibit F.  Any deviation from Exhibit F shall be
by mutual written agreement.

13.4.   Harmonic is not responsible for costs associated with rework and/or
scrap during the manufacturing process. Exception is if Plexus and Harmonic
mutually agree that the cost is design related, then cost is passed on to
Harmonic. Other exceptional cases will be negotiated in good faith on a
case-by-case basis.

13.5.   Plexus shall perform out of box audit which includes visual as well as
test of the Products on a sampling basis agreed upon by Harmonic at no charge
until agreed upon performance levels are attained.

13.6.   Should Harmonic experience a trend of Product defects upon their arrival
or during their normal operational use, and the root causes have been identified
to be due to Plexus workmanship or component suppliers, -Harmonic may issue a
corrective action request to Plexus for corrective actions. Plexus shall
investigate and provide its preliminary response within five business days and
final response in ten business days with both short term and long term
resolutions.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 5   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

13.7.   The foregoing quality requirements may be amended in writing from time
to time by agreement of the parties without the need to amend this Agreement.

14.   Engineering Changes and Additional Costs

14.1.   Harmonic reserves the right at any time to request that Plexus
incorporate engineering changes (an “ECN”) in the specifications, drawings or
other descriptions to which the Products are to conform, subject to an equitable
and agreeable adjustment in price and/or time of performance and acceptance by
Plexus of such changes. This notification will include documentation of the
change to effectively support Plexus’s investigation of the impact of the
engineering change. Plexus will use commercially reasonable efforts to review
the changes and report any issues to Harmonic within three (3) business days
after receipt of the proposed ECN from Harmonic. If any such change affects the
price, delivery, or quality performance of said Product, Harmonic and Plexus
will mutually review all issues raised by the ECN and agree in writing to
specific resolutions prior to ECN implementation.

14.2.   Harmonic shall not be responsible for any administrative costs
associated with the implementation of ECNs.

14.3.   Plexus shall notify Harmonic of any engineering changes proposed to be
made by Plexus to the Products and shall furnish a written description of the
expected effect of the change of the Products, including effect on price,
performance, reliability and serviceability.

14.4.   Plexus shall make no engineering change, Approved Vendor List change,
process flow changes, test procedure change or discontinue any process step
without Harmonic’s prior written approval.

14.5.   Harmonic agrees to provide written approval or disapproval of any change
in pricing or specifications within [*] ([*]) days of receipt from Plexus unless
regulatory agency approval is a requirement on Harmonic. A formal change order
to existing purchase orders will be furnished to Plexus within fourteen
(14) days of initial approval. If Harmonic fails to respond, such failure shall
not constitute approval to proceed with the change.

14.6.   Any claim by Plexus for a price adjustment resulting from an ECN
requested by Harmonic shall be deemed waived unless notice of a claim is made in
writing within thirty (30) days from ECN approval date.

15.   Repairs and Replacement

15.1.   Plexus shall provide standard turnaround time on repairs of [*] days.
Plexus and Harmonic will, in the SLA or another appropriate written agreement,
mutually agree on the terms and conditions of Plexus providing spare parts and
other support services on an expedited basis for selected Products.

16.   Harmonic Consigned Material

16.1.   From time to time, Harmonic may supply Plexus with or pay Plexus for
certain material, components, inspection tools, inventory or test equipment to
be used solely for the manufacturing and testing of Products (“Consigned
Material”). Title to and right of immediate possession of Consigned Material
shall be and remain in Harmonic at all times and shall be returned to Harmonic
upon request in good and serviceable condition (fair wear and tear excepted).
Harmonic reserves the right to remove Consigned Material from Plexus’ site upon
reasonable notice. Plexus shall bear all risk of loss or damage to Consigned
Material. In the event Consigned Material is lost stolen, damaged, or made unfit
for use, Plexus shall immediately, at Harmonic’s option, either replace such
materials at its own expense or credit Harmonic for the actual purchase price of
such Consigned Materials. Any Consigned Material issued to Plexus by Harmonic
free of charge for incorporation into the Products shall be subject to the
provisions of Section 16.2.

16.2.   Insurance for Consigned Material and Equipment. Upon request, Harmonic
shall provide an estimate of the dollar value of Consigned Material issued to
Plexus and Plexus shall at all times during the term of this Agreement carry and
maintain, at its expense, physical damage insurance providing “all risks”
coverage for Consigned Materials. Such insurance shall be with insurance
companies of recognized responsibility and shall contain endorsements (a) naming
Harmonic (or its successor or assignee, if requested by Harmonic) as loss payee
for physical damage insurance, and (b) providing thirty (30) days’ prior written
notice to Harmonic before coverage lapses or is canceled or materially changed.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 6   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

16.3.   Plexus shall use the Consigned Material in a skillful and proper manner
and comply with all instructions given to Plexus by Harmonic regarding the care
and use of the Consigned Material and shall not use the Consigned Materials for
purposes other than the execution of the Orders. Plexus shall undertake not to
modify, adjust or alter in any way the Consigned Material without Harmonic’s
prior written consent or to remove any marks identifying any article as
Consigned Material or Harmonic property.

16.4.   The maximum acceptable cycle count or physical inventory adjustments on
Harmonic owned or Consigned Materials is [*] ([*]) on value of component
inventory being adjusted. Any adjustments in excess of such percentage will be
borne by Plexus.

16.5.   Plexus shall at all reasonable times and upon reasonable notice permit
Harmonic or its authorized representatives to enter upon its premises for the
purpose of inspecting, audit and removing Consigned Material.

16.6.   Plexus shall maintain and provide upon request a written inventory of
all such Consigned Materials. Unless otherwise agreed, Plexus is responsible for
the general maintenance of Consigned Materials including, but not limited to,
calibration and shall not modify any Consigned Materials without the prior
written permission of Harmonic.

17.   Conveyance of Rights

17.1.   Plexus warrants that it has the right to use any manufacturing process
used by Plexus in connection with the manufacture of Product, other than
manufacturing processes required by Harmonic’s Specifications or developed by
Harmonic, without creating any obligation on the part of Harmonic to pay any
fee, license, penalty or other expense in connection with Harmonic’s use,
reproduction, marketing, licensing or sale of the Work Product or Products,
other than the payments to Plexus as set forth herein.

18.   Test Development and Concurrent Engineering

18.1.   Plexus shall provide to Harmonic a design for manufacturing assessment,
which shall include an assessment of design for test, but will exclude in-depth
schematic and accessibility evaluation process efficiency, at no cost to
Harmonic. At Harmonic’s request, Plexus shall provide up to two (2) Design for
Testability reports each quarter at no additional charge. In addition, Plexus
may be requested to provide test development or concurrent engineering services
for Harmonic.

19.   Title to Work Product

19.1.   Deliverables of any and all Work Product shall be promptly disclosed to
Harmonic and shall become and remain the sole and exclusive property of
Harmonic. Plexus hereby irrevocably transfers and assigns to Harmonic all right,
title and interest in the Work Product, including all rights in any patents,
copyright, trade secrets, inventions, copyrightable materials, or other
intellectual property rights relating to the Work Product. Plexus agrees to
execute any documents, including patent and copyright assignments, take any acts
and otherwise cooperate with Harmonic, at Harmonic’s expense (including the
reasonable time incurred by Plexus employees at their actual hourly wage rate)
but without further compensation to Plexus, in any action Harmonic deems
necessary to secure fully to Harmonic all rights in the Work Product or to
obtain, register, maintain or defend for Harmonic’s benefit any or all of the
intellectual property rights identified above. Harmonic shall have, at all
times, all rights, title and interest in and to all intellectual property
including copyrights related to the Work Product. This shall include any Work
Product with Plexus. Plexus hereby assign all rights, titles, and interest to
any copyrighted Work Product. Notwithstanding the foregoing, Plexus shall own
all intellectual property rights in and to any manufacturing process technology
developed by Plexus in connection with the manufacture of Product for Harmonic
(“Plexus IP”). Plexus hereby grants Harmonic a perpetual, royalty-free,
worldwide, non- exclusive, non-transferable license to the Plexus IP to use,
make, have made, and sell the Product.

20.   Confidential Information

20.1.   The parties hereby acknowledge that in the course of performance of this
Agreement, it will obtain information, including but not limited to, technical
and/or business information describing or related to development or
manufacturing activities of the other party and its products which is a
confidential and proprietary in nature (“Proprietary Information”). At all times
during the term of this Agreement, each party shall hold Proprietary Information
in strict confidence and shall not disclose such Proprietary Information to any
third party without the

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 7   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

    prior written consent of the other party consistent with the Mutual
Non-Disclosure Agreement executed between the parties effective February 24,
2003 and any amendments or extensions thereof, (“NDA”) which is fully
incorporated herein by this reference, and shall apply and survive the
termination or expiration of this Agreement.

20.2.   Products purchased pursuant to Harmonic’s specifications or drawings
shall not be disclosed or quoted for sale to others by Plexus. All
specifications, drawings, samples, or other data furnished by Harmonic shall be
treated as Proprietary Information by Plexus in accordance with the NDA, shall
remain Harmonic’s property and shall be promptly returned to Harmonic upon
request.

20.3.   Neither party may advertise or publish information related to this
Agreement without the other party’s prior written approval.

20.4.   Subject to the terms of the NDA, the proprietary rights of the parties
and confidentiality obligations owed to third parties, Plexus and Harmonic agree
to exchange, at least semi-annually, relevant process development
information and business plans to include market trends, process technologies,
product requirements, new product developments, available capacity and other
information to support technology advancements by both Plexus and Harmonic.

20.5.   Each party acknowledges that the other party shall be entitled to
preliminary injunctive relief in order to enforce the provisions of this
Agreement relating to the confidentiality of its confidential or proprietary
information, in addition to, and not by way of limitation, any other legal or
equitable remedies available to such party.

20.6.   This Agreement is intended to secure to Harmonic Plexus’s assistance and
cooperation. During the term of this Agreement, Plexus shall maintain sufficient
separation between teams of its employees, agents, or contractors who may be
working for competitors of Harmonic to avoid any conflict of interest. Upon
request, Plexus shall demonstrate the adequacy of its precautions to avoid such
conflict of interest. If Harmonic determines at any time during the term of this
Agreement that such a conflict exists, notwithstanding the adequacy of such
precautions taken by Plexus, Harmonic may cancel this Agreement pursuant to the
terms of Section 23 below. Plexus further agrees that it shall not engage
directly or indirectly either for itself, or with or for any other person or
entity in any work or undertaking which shall create any legal impediment
against Plexus’ performance of its obligations under this Agreement and the
rights granted to Harmonic hereunder.

21.   Acceptance and Warranty

21.1.   [*].   21.2.   [*].   21.3.   [*].   21.4.   [*].   21.5.   [*].   21.6.
  [*].   21.7.   [*].   21.8.   [*].   21.9.   [*].   21.10.   [*].   21.11.  
[*].

22.   Disaster Recovery

    In the event of a disaster for over [*] for any non-material related issue
at the Plexus location(s), and Plexus is unable to meet delivery commitments to
the Harmonic, Plexus using its reasonable commercial efforts shall begin

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 8   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

    within [*] days implementing a disaster recovery transition plan to have
products built at another location or equivalent facility. Such plan shall be
approved by Harmonic prior to its implementation. Harmonic shall review and
approve Plexus disaster recovery plan within 30 days of the Effective Date of
this Agreement. Plexus will provide a formal disaster recovery plan and provide
updates at minimum on an annual basis.

23.   Termination

23.1.   If either party materially fails to meet any of the terms and conditions
as stated in either this Agreement or the addenda, Plexus and Harmonic agree to
negotiate in good faith to resolve such default. If the defaulting party fails
to cure such default or submit an acceptable written plan to resolve such
default within thirty (30) days following notice of default, the non-defaulting
party shall have the right to terminate this Agreement by furnishing the
defaulting party with ninety (90) days written notice of termination.

23.2.   This Agreement shall terminate upon written notice should either party;
(i) enter into or file a petition, arraignment or proceeding seeking an order
for relief under the federal bankruptcy laws of its respective jurisdiction and
such petition, arraignment or proceeding is not dismissed within sixty
(60) days; (ii) enter into a receivership of any of its assets; or (iii) enter
into a dissolution or liquidation of its assets or an assignment for the benefit
of its creditors and the same remains undischarged for a period sixty (60) days.

23.3.   The termination or expiration of this Agreement, except in accordance
with Section 24, shall not affect or impair the rights and obligations of either
party that have accrued under this Agreement as of the date of expiration or
termination.

23.4.   Either party may terminate this Agreement, in whole or in part for any
reason upon [*] ([*]) day written notice. Plexus shall give additional notice
equal to the number of days that the longest lead time material exceeds this
notice period.

23.5.   In the event of termination of this Agreement for any reason, at
Harmonic’s option, Plexus shall support Harmonic with Products sufficient to
cover all Harmonic Orders in place at the time of the termination notice and as
may be issued by Harmonic and fulfilled by Plexus prior to the termination date.
As of the termination date, Plexus shall stop work immediately on all affected
Orders and deliver or destroy, at Harmonic’s option, all copies of all materials
containing any Proprietary Materials. In addition, Plexus shall deliver to
Harmonic all other Harmonic Consigned Material, confidential information and
other materials in its possession. Harmonic shall be obligated for all completed
products, work-in-progress, all component material purchased by Plexus in
support of Harmonic’s Orders, all long lead-time material purchased by Plexus to
support Harmonic’s Orders, all non- cancelable/non-returnable inventory, all
minimum buy quantities of inventory, and any other such items resulting from
Services provided herein.

24.   Dispute Resolution

24.1.   In the spirit of continued cooperation, the parties intend to and hereby
establish the following dispute resolution procedure to be utilized in the event
any controversy or dispute should arise out of or concerning the performance of
this Agreement.

24.2.   It is the intent of the parties that any dispute be resolved informally
and promptly through good faith negotiation between Plexus and Harmonic. Either
party may initiate negotiation proceedings by written notice to the other party
setting forth the particulars of the dispute. The parties agree to meet in good
faith to jointly define the scope and a method to remedy the dispute. If these
proceedings are not productive of a resolution within thirty (30) days, then the
parties agree to submit the dispute to binding arbitration as set forth below

24.3.   Any controversy of claim arising out of or relating to this Agreement or
the breach thereof, that cannot be resolved informally as set forth above, shall
be settled by arbitration before three (3) arbitrators in accordance with the
Rules of the American Arbitration Association (“AAA”) then in effect, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction. Within 15 days after the commencement of arbitration, each
party shall select one person to act as arbitrator and the two selected shall
select a third arbitrator within ten (10) days of their appointment. If the
arbitrators selected by the parties are unable or fail to agree upon the third
arbitrator, the third arbitrator shall be selected by the American Arbitration
Association. The place of arbitration shall be San Jose, California. Either
party, before or during any arbitration, may apply to a court having
jurisdiction for a temporary restraining order or preliminary injunction where
such

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 9   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

    relief is necessary to protect its interest pending completion of the
arbitration proceedings. Neither party nor the arbitrators may disclose the
existence or results of any arbitration hereunder without the prior written
consent of both parties.

25.   Limitation of Liability       [*]

26.   Intellectual Property Indemnity

26.1.   [*].   26.2.   [*].   26.3.   [*].   26.4.   [*].

27.   General Indemnity. Each party (the “Indemnifying Party”) shall hold
harmless the other party (the “Indemnified Party”), against [*].

28.   Insurance. Without in any way limiting the obligations set forth in
Sections 27, Plexus shall maintain in full force and effect the following
insurance:

  (a)   Workers’ Compensation Insurance covering Plexus’ full liability under
the Workers’ Compensation Laws of the states in which work is being performed
under this Agreement.     (b)   Bodily Injury Liability Insurance (including
automobile) with limits of at least the sum of [*] for injury to or death of one
person, and at least the sum of [*] for injury to or death of more than
one person in any one occurrence.     (c)   Property Damage Liability Insurance
(including automobile) with limits of at least the sum of [*] for property
damage resulting from each occurrence.     (d)   In lieu of b and c above,
Bodily Injury Liability Insurance (including automobile) and Property Damage
Liability Insurance (including automobile) with a Combined Single Limit of at
least the sum of [*].     (e)   The insurance described in b, c and d above
shall provide contractual liability coverage with respect to the liability
assumed by Plexus under this Agreement and shall:

  (i)   include Harmonic as an Additional Insured, provided that Harmonic’s
rights as an Additional Insured will extend only to liabilities specifically
assumed by Plexus under this Agreement and Harmonic will not pursue insurance
claims directly with Plexus insurance carrier unless (a) Harmonic has requested
that Plexus file a claim (for which Plexus is liable under this Agreement) with
its insurance carrier and Plexus has failed to do so within fifteen (15) days
after receipt of such notice, or (b) Plexus has ceased to do business or
Harmonic has the right to terminate this Agreement under Section 23.2. Plexus
insurance carrier shall have the right to deny any claim submitted by Harmonic
if not in conformity with the above;     (ii)   not be cancelable without thirty
(30) days prior written notice to Harmonic;     (iii)   be primary insurance
and, should Harmonic have other valid insurance, Harmonic’s insurance shall be
excess insurance only; and     (iv)   include a severability of interest clause,

  (f)   At Harmonic’s request, Plexus shall provide Harmonic with proof of
compliance with the insurance provisions of this section. Plexus shall require
its suppliers, if any, who may enter upon Harmonic’s premises to maintain
insurance in accordance with the insurance provisions of this section.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 10   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

29.   General

29.1.   Assignment. Neither party shall delegate, assign or transfer its rights
or obligations under this Agreement, whether in whole or part, without the
written consent of the other party which shall not be unreasonably withheld,
provided, however, either party may assign this Agreement to a third party in
connection with a merger transaction or the sale of all or substantially all of
its assets.

29.2.   Force Majeure. Neither party shall be liable for any failure or delay in
its performance under this Agreement due to acts of God, acts of civil or
military authority, fires, floods, earthquakes, riots, wars or any other cause
beyond the reasonable control of the delayed party provided that the delayed
party: (i) gives the other party prompt written notice of such cause; and
(ii) uses reasonable commercial efforts to remedy such delay in its performance.
In the event that Plexus fails to deliver Products to Harmonic due to such
causes and fails to provide a plan for remedy which is reasonably acceptable to
Harmonic, Harmonic may suspend this Agreement in whole or in part for the
duration of such delaying cause and, at its option, buy the Products from
another source and deduct the quantity so purchased from any unsatisfied Order
to Plexus. In such event Harmonic agrees to make reasonable commercial efforts
to purchase, or cause to be purchased, materials from Plexus for the manufacture
of Products by a third party, if feasible under the circumstances.

29.3.   Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, excluding its choice of law
provisions.

29.4.   Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed the original, but all of which will
constitute but one and the same document.

29.5.   Relationship of the Parties. Nothing contained herein shall be construed
to create an agency, partnership or joint venture between Harmonic and Plexus.
It is further agreed and understood that neither party nor its employees shall
be deemed to be in the employment of the other and shall have no express or
implied right or authority under this Agreement to assume or create any
obligations on behalf of the other party to any contract, agreement
or undertaking with any third party.

29.6.   Modification. No change, modification or revision of this order or this
Agreement shall be effective unless agreed to in writing and signed by each
party’s duly authorized representative.

29.7.   Waiver. Failure of a Party to enforce at any time any of the provisions
hereof shall not be construed to be a waiver of such provisions, nor be deemed a
waiver of any other right hereunder or the right of a Party thereafter
to enforce any such provisions.

29.8.   Severability. If any portion of this Agreement is held invalid, the
parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement, and the parties shall seek in good faith
to agree to substitute for the invalid provision a valid provision that most
closely approximates its terms.

29.9.   Compliance with Laws.

  29.9.1   In the performance hereof, the Parties shall comply with all
applicable laws, rules, regulations, orders, or ordinances of any federal,
state, local or other government agency of the United States or any other
applicable jurisdiction, including but not limited to, procurement of required
permits and/or certificates. Parties shall comply with all applicable federal,
state and/or local laws in any applicable jurisdiction that require products,
materials, services or containers furnished to be constructed, packaged, labeled
or registered in a prescribed manner.     29.9.2   Parties shall comply with all
laws and regulations of the United States, or any other applicable jurisdiction,
concerning importation and exportation of Products. The parties will provide
mutual assistance as required to comply with said laws and regulations.    
29.9.3   Each party (the “Breaching Party”) agrees to indemnify the other Party
for any loss or damage sustained because of the Breaching Party’s noncompliance
with this Section 29.9.

29.10.   Notices. All notices permitted or required hereunder shall be deemed to
have been given (i) three (3) days after being deposited in the U.S. mail, first
class postage prepaid, or (ii) immediately if transmitted by confirmed
facsimile, or (ii) next day if sent by overnight commercial carrier (e.g.
Federal Express) if addressed to the party as follows

          Harmonic Inc. / Plexus Confidential   Page 11   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

         
 
  If to Harmonic:   Harmonic Inc.
 
      549 Baltic Way
 
      Sunnyvale, CA 94089 USA
 
      Attn: Legal Department
 
      Fax: 408-490-6524  
 
  If to Plexus:   Plexus Services Corp.
 
      55 Jewelers Park Drive
 
      Neenah, WI 54957
 
      Attn: General Counsel
 
      Fax: 920-751-3234

29.11.   Survival. The terms and conditions of Sections 1, 17, 19, 20, 21, 23,
24, 25, 26, 29 and any other provisions that would normally be deemed to
survive, shall survive the expiration or termination of this Agreement.

29.12.   Complete Agreement. This Agreement in conjunction with all relevant
Exhibits, constitutes the complete contract between the parties and supersedes
all prior or contemporaneous representations, communications, agreements and
understandings, oral or written, with respect to the subject matter hereof. Each
party represents and agrees that it has not relied on any representation or
warranty other than those contained herein in entering into this Agreement. In
the event of a conflict between this Agreement and the Exhibits attached hereto,
the, terms and conditions of this Agreement shall prevail.

                  Accepted and agreed:            
 
                Plexus:       Harmonic Inc.:
 
               
By:
          By:    
 
               
 
               
Name:
          Name:    
 
               
 
               
Title:
          Title:    
 
               

          Harmonic Inc. / Plexus Confidential   Page 12   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

Exhibit A
Transition

1.   During the Transition Period, the following terms shall apply:

2.   The parties agree that Plexus will lead all transition activities during
the Transition Period.

3.   Plexus shall provide multiple transition teams with on-site resources.
Plexus shall assign sufficient number of transition managers in order to meet
project milestones agreed to by Harmonic and Plexus.

4.   Inventory transfer:

  a.   Plexus will purchase Active Inventory from Harmonic and its
subcontractors at Plexus standard cost, subject to such inventory meeting Plexus
and Harmonic’s reasonable inspection and acceptance criteria, less Plexus’
MOH charges.     b.   Active Inventory is defined as usable and within Harmonic
forecasted demand in next 12 months plus identified end-of-life raw material (up
to [*]). The value of this Active Inventory is estimated to be [*] to [*].
Inventory transfers from Harmonic subcontractors will be sold directly to
Plexus. In the event any conflict arises between Plexus and Harmonic’s
subcontractors, then, Harmonic agrees to take an active role in resolving the
issues.

5.   Inventory Transfer PPV:

      In the event of any price differential between Plexus standard cost and
Harmonic subcontractor cost, Harmonic will settle any disputes with the Harmonic
subcontractor.

6.   Costs associated with transition Non Recurring Engineering shall be borne
as follows:

  a.   Stencils – Plexus     b.   Programming (ALL) – Plexus     c.   SMT
Tooling – Plexus     d.   Jigs/Tools – Plexus     e.   ICT Fixtures – Plexus
covers refurbishment cost and transfer of existing. Harmonic covers new fixture
expense and bring up.     f.   Functional Fixtures – Harmonic     g.   Wave
pallet, PCB Tooling, PCB test, and CEC Tooling – — If new tooling is requested
by Harmonic, Harmonic shall bear all costs. If new tooling is at the initiative
of Plexus and results in a cost reduction, Plexus shall bear all costs, and such
cost reduction shall be passed to Harmonic after Plexus’ recover of
tooling implementation cost and as provided in this Agreement.

7.   Transition Freight

      All costs of pre-carriage, freight, and insurance applicable to the
transition of any material, including but not limited to, components, tools, and
test equipment, from existing subcontractors and Harmonic to designated sites
shall be borne by Plexus. Any VAT, duties, customs, or other charges or fees
assessed by any government applicable to the transition with respect to any
material or components shall be borne by Plexus, and with respect to tools and
test equipment, shall be equally shared between the parties.

8.   Transition Pricing:

  a.   Prices during the Transition Period shall be in accordance with the chart
below.
    b.   Pricing on products quoted during initial quote review are “not to
exceed” quotations.     c.   Transition pricing shall include plan to transition
to Plexus approved vendors with specific timeline identifying date of
implementation of pricing received in original quote. Quoted prices have to take
effect after consumption of transferred inventory and Harmonic approval of new
sources. It is understood that the conversion to Plexus sources need to be
initiated at the start of the transition period to insure that quoted pricing is
realized by Harmonic 90 days after successful product transfer to Plexus or
qualification of new sources by Harmonic, whichever is sooner.     d.   Plexus
shall provide a timeline for move from Boise to low cost manufacturing sites by
specific products

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 13   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

9.   Buffer Inventory — Plexus agrees to hold buffer inventory to cover demand
equal to eighty (80) calendar days forecasted demand, which could be carried up
to one hundred fifty (150) calendar days by Plexus.

10.   Plexus will cover all costs not specifically identified in this Agreement
for transition activities.

11.   Harmonic’s NSG and MV encoder product lines shall be built in Malaysia
unless otherwise agreed in writing. If Plexus chooses to build product (that was
previously designated to be built in a low cost region) in Boise prior to
transfer to low-cost sites, then Plexus shall extend the low cost site pricing
to Harmonic during the time that Product is built at the Boise site.

          Harmonic Inc. / Plexus Confidential   Page 14   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

     
(PLEXUS LOGO) [f51550f5155008.gif]
  Transition Pricing
     Plexus Production Cost Estimator
   

                                                                             
Boise     Penang     San Jose  
MATERIAL
                                                                       
Material
                    [*]                       [*]                       [*]  
Materials Overhead
    [*]               [*]       [*]               [*]       [*]              
[*]  
 
                                                                       
Total Material Cost
                    [*]                       [*]                       [*]  
LABOR
                                                                       
Direct Labor Cost
  Hours     Rate   Total   Hours     Rate     Total   Hours     Rate   Total
Assembly Labor
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
SMT
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
ICT Test
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
Functional Test
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
 
                                                                       
Total Labor Cost
                    [*]                       [*]                       [*]  
 
                                                                       
Packaging
                    [*]                       [*]                       [*]  
 
                                                                       
Subtotal
                    [*]                       [*]                       [*]  
 
                                                                       
Profit margin
    [*]               [*]       [*]               [*]       [*]              
[*]  
 
                                                                       
Total Price
                    [*]                       [*]                       [*]  
 
                                                                       
NRE
                                                                       
 
                    [*]                       [*]                       [*]  
 
                    [*]                       [*]                       [*]  
Plexus Notes and Assumptions:
                                                               
Denotes specific assembly information required
                                                     
1) Pricing markups to be used during transition period:
                                                   
 
          Standard           Total                                        
 
  Annual   Materials           Material                                        
 
  Revenue   Overhead   Profit   Markup                                        
 
            [*]       [*]       [*]       [*]                                  
 
            [*]       [*]       [*]       [*]                                  
 
            [*]       [*]       [*]       [*]                                  

The table above represents an example of the cost estimator that shall be used
to calculate the price by Product. The shaded areas in the cost estimator are
filled in on a product specific basis and the Standard Materials Overhead and
Profit percentages specified in the inset table are fixed and are applied based
on location.
 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 15   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

Exhibit B
Pricing

1.   Pricing model to be utilized after the Transition Period for this Agreement
shall be in accordance with the chart below. After the Transition Period,
forecasted run rate will be reviewed each quarter and pricing will be adjusted
forward accordingly. Upon completion of transition, profit will be reduced by
one-half of one percent (0.50%) at the corresponding run rate.

2.   The mark-up charged by Plexus to Harmonic for components with purchase
prices of [*] will be assessed a total mark-up of [*] and no other adders or
mark-ups shall apply to these components. Components consigned by Harmonic to
Plexus for integration into purchased assemblies shall be charged [*]. Such
charges shall be submitted to Harmonic no later than the next calendar month
after usage.

3.   Establishment of product costs to be based on a “Best of BOM’s approach”,
utilizing the best available price for all components during the Transition
Period and thereafter.

4.   Every occurrence of a negative Purchase Price Variance (PPV) shall be
adjusted at the end of the quarter and netted against positive PPV with respect
to such calendar quarter under the following conditions:

  a)   Market shift; or     b)   Demand increase or decrease outside the
flexibility parameters outlined in Exhibit C.

    After such quarterly netting, Plexus shall invoice Harmonic for negative PPV
charges only if such variance exceeds [*] per component. All negative PPV
charges greater than [*], unless otherwise agreed in writing, will be supported
by Plexus with written justification and Harmonic’s approval prior to
expenditure.

5.   Plexus will be responsible for driving a collaborative cost reduction at a
rate that averages [*]. Plexus will recommend cost savings initiatives and
monitor progress to targets. Plexus and Harmonic shall also provide cost
reduction initiatives at a minimum quarterly, and agree on action plans based on
benefits, and return on investment consideration.

6.   Plexus and Harmonic will meet every three (3) months during the term of
this Agreement to review pricing and determine whether any price increase or
decrease is required. Any change in price shall apply only to shipments by
Plexus at a mutually agreed to date. A risk liability program to measure
performance on risk liability shall also be reviewed. This program shall include
product overall component and production lead-time reduction reviews.

7.   Plexus shall make no change in manufacturing location without Harmonic’s
prior written approval. Plexus will bear all costs associated with transferring
production between sites when Plexus directs the move. Transition costs
associated with moves requested by Harmonic for cost reduction purposes will be
borne by Harmonic and 100% of cost reduction savings goes to Harmonic, unless
the parties agree to equally share transition costs then Section 9 below applies
to any cost savings after Plexus recovers its share of the transition costs.

8.   If a cost reduction is initiated and obtained by Harmonic, such cost
reduction will be passed on to Harmonic entirely at the next pricing review
and/or for the next Order.

9.   If a cost reduction is initiated and obtained by Plexus, Plexus will be
entitled to retain [*] of such cost savings for the quarter following the next
pricing review at which time [*] will be passed on to Harmonic.

10.   On the day new pricing is implemented, Plexus will also write-down or
write-up, as applicable, existing raw materials, work-in-process and finished
goods inventory held by it to reflect the new agreed to pricing and invoice or
credit Harmonic for the same, as applicable.

11.   Plexus shall, on a quarterly basis, provide a written overview of the
commodities and trends represented in Harmonic’s products which will be the
basis for a quarterly commodity management review. Upon Harmonic’s request,
Plexus shall provide access to Plexus’s commodity management quarterly reports,
updated supplier lists, and specific commodity plans for the next period.

12.   Plexus shall provide Harmonic with the following deliverables for each
request for quotation requested by Harmonic: a bill of materials detailing
procurement source and the proposed cost of each component on said bills of
materials (costed BOM). Costed BOMs shall also include designations for custom
engineered components, lead-times, and minimum order quantities where
applicable, which will be the basis for determining total liabilities to
Harmonic. Long-lead time items and non-cancelable/non-returnable should also be
identified.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 16   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

13.   Quote lead-time on production assemblies will be [*] ([*]) weeks. Rough
order of magnitude (ROM) quotes, detailing a “not to exceed” price will be
presented on new product introductions (NPI) within [*] of receipt of bill of
materials, with the complete package to be presented within one week after BOM
release to Plexus.

14.   Plexus warrants that prices offered to Harmonic during the term of this
Agreement are based on the lowest costs offered to any of Plexus’s customers for
the same or substantially similar materials or services sold or in any way made
available to any other purchaser.

15.   Non-recurring Engineering charges will be invoiced by Plexus and paid by
Harmonic at Plexus actual cost plus the then current MOH percentage.

16.   Upon request, parties shall mutually agree to a special pricing model to
be extended on a case by case basis in order to support a specific product
proposal, such as a multi-year agreement.

17.   Harmonic Cost Model: Annual revenue pricing is to be reflected [*] for the
respective [*]. If change to [*] is greater than [*] then the parties will
mutually agree to revise the cost model.

18.   The prices set forth herein include all applicable taxes, including but
not limited to VAT, duties, customs, and other charges or fees assessed by any
government, excepting sales tax, and such prices shall not be subject to change
as a result of any change in Seller’s tax liabilities. All such taxes and
charges shall be stated separately on Seller’s invoice.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 17   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

(PLEXUS LOGO) [f51550f5155008.gif]
     Plexus Production Cost Estimator

                                                                             
Boise     Penang     San Jose  
MATERIAL
                                                                       
Material
                    [*]                       [*]                       [*]  
Materials Overhead
    [*]               [*]       [*]               [*]       [*]              
[*]  
 
                                                                       
Total Material Cost
                    [*]                       [*]                       [*]  
 
                                                                       
LABOR
                                                                       
Direct Labor Cost
  Hours     Rate   Total   Hours     Rate   Total   Hours     Rate   Total
Assembly Labor
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
SMT
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
ICT Test
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
Functional Test
    [*]       [*]       [*]       [*]       [*]       [*]       [*]       [*]  
    [*]  
 
                                                                       
Total Labor Cost
                    [*]                       [*]                       [*]  
 
                                                                       
Packaging
                    [*]                       [*]                       [*]  
 
                                                                       
Subtotal
                    [*]                       [*]                       [*]  
 
                                                                       
Profit margin
    [*]               [*]       [*]               [*]       [*]              
[*]  
 
                                                                       
Total Price
                    [*]                       [*]                       [*]  
 
                                                                       
NRE
                                                                       
 
                    [*]                       [*]                       [*]  
 
                    [*]                       [*]                       [*]  

                                                                         
Plexus Notes and Assumptions:
                                                             
Denotes specific assembly information required
                                     
1) $10M quarterly run rate qualifies for the $50M pricing level.
                                         
2) Tiered Markups:
                                                                       
 
          Standard           Total                                        
 
  Annual   Materials           Material                                        
 
  Revenue   Overhead   Profit   Markup                                        
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
                                                                       
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
                                                                       
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 
 
    [*]       [*]       [*]       [*]       [*]                                
 

    The table above represents an example of the cost estimator that shall be
used to calculate the price by Product. The shaded areas in the cost estimator
are filled in on a product specific basis and the Standard Materials Overhead
and Profit percentages specified in the inset table are fixed and are applied
based on annual revenue and location.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

          Harmonic Inc. / Plexus Confidential   Page 18   Harmonic-Plexus PSA 17
September 03

 

--------------------------------------------------------------------------------

 

Exhibit C
Scheduling and Flexibility

1.   Harmonic may cancel Orders, or portions of Orders, by written notice with
no liability if cancelled at least [*] ([*]) days prior to delivery date except
for components on the LLT List and agreed upon MOQ List. Harmonic may cancel
Orders within less than [*] ([*]) days of delivery date subject only to material
liabilities as defined in Exhibit D.   2.   Harmonic may place an Order, or any
portion of an Order, on hold by written notice to Plexus which shall take effect
immediately upon receipt. Orders placed on hold will be rescheduled in
accordance with the order flexibility parameters set forth below.   3.   Upon
written notification of an Order cancellation, Plexus shall undertake reasonable
commercial efforts to cancel all applicable component purchase orders and reduce
component inventory through return for credit programs or allocate components
for alternate programs if applicable, in addition, Plexus shall exercise
reasonable commercial efforts to reduce the value of cancellation charges
incurred.   4.   Product lead-time after receipt of order is [*] ([*]) weeks on
forecasted product.   5.   Upon learning of any potential delivery delays,
Plexus will notify Harmonic as to the cause and extent of such delay.   6.  
Harmonic may reschedule Product delivery for Orders within the following
Flexibility Parameters:

Harmonic may push out up to one month’s supply of Product delivery (based on
then current Harmonic Orders) for up to [*] days from originally scheduled
delivery date.

         
[*]
  -   Days  
[*]
[*]
[*]
  -
-
-   Single Product
Total Demand
Deferral time limit
 
       
[*]
  -   Days  
[*]
[*]
[*]
  -
-
-   Single Product
Total Demand
Deferral time limit
 
       
[*]
  -   Days  
[*]
[*]
[*]
  -
-
-   Single Product
Total Demand
Deferral time limit

Notwithstanding the foregoing, if mutually agreed, Plexus shall make
commercially reasonable efforts to pull in Product delivery schedules in excess
of the percentages indicated above to the extent reasonably requested by
Harmonic.
 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 19

--------------------------------------------------------------------------------

 

Exhibit D
Material Procurement and Liability

1.   Harmonic will be liable only for custom engineered components (CEC), long
lead items, non-cancelable/non-returnable, and mutually agreed upon minimum
order quantity items reporting to assemblies on Orders only. For items with
lead-times greater than [*] ([*]) days, Plexus will provide an itemized list
(“LLT list”) of these items and will submit to Harmonic for approval and any
additional changes will be approved on an as needed basis. Harmonic also agrees
to assume material liability for safety stock items or other materials which
both parties agree to purchase from time to time.   2.   Harmonic assumes no
material liability for components purchased outside of Order demand and/or
outside lead-time indicated above (within commercial reasonableness) unless
otherwise specified in writing.   3.   It is the intent of both parties to work
cooperatively to establish Plexus agreements with component suppliers which will
enable delivery flexibility.   4.   Plexus has agreed to hold end-of life
(EOL) components for Harmonic up to a value of [*] for [*] after notification of
EOL at no cost to Harmonic.   5.   End-of-life variances shall not exceed [*]
([*]) of the material value identified on written end of life notice. Plexus is
responsible for maintaining a balanced inventory position on CEC devices.   6.  
For the purposes of this Exhibit D, (i) Obsolete Inventory shall mean those
components in inventory or on order that no longer appear on a Harmonic bill of
materials or which appear on a Harmonic bill of materials for a Product that has
no Order or forecast demand; (ii)Inactive Inventory shall mean those components
in inventory or on order that are on the bill of material for an Product that
has current Order or forecast demand, but which demand will not consume such
components; and (iii)Excess Inventory shall mean those components in inventory
or on order that are projected to be consumed by a Harmonic Order or forecasted
demand, but not within the next one hundred twenty (120) calendar days.   7.  
Plexus agrees to carry Inactive and Excess Inventory at no more than [*] ([*])
of Plexus’ latest fiscal quarterly revenue with Harmonic. Included in the [*]
([*]) calculation are the End of Life components identified in Section 4 above.
When reviewed monthly, if the [*] ([*]) threshold is exceeded, Plexus shall
allow ninety (90) additional calendar days for the amount in excess of the [*]
([*]) threshold to be consumed. If the amount is not consumed in such ninety
(90) calendar days, Harmonic shall pay Plexus a monthly carrying charge of [*]
([*]) on the amount over the [*] ([*]) for a period not to exceed an additional
ninety (90) calendar days. If at the end of that time the Inactive and Excess
Inventory is still not consumed, Harmonic shall pay Plexus a cash deposit for
the amount in excess of the [*] ([*]) plus MOH. Obsolete Inventory shall be
identified by Plexus and reported to Harmonic on a monthly basis. Harmonic shall
make reasonable commercial efforts to review such report and buy from Plexus any
Obsolete Inventory within ten (10) business days, but in no event later than
twenty (20) business days of receipt of such report. Plexus shall make
reasonable commercial efforts to consume or sell off commercial Obsolete,
Inactive or Excess components on behalf of Harmonic unless otherwise notified in
writing by Harmonic.

 

*   Information redacted pursuant to a confidential treatment request by
Harmonic Inc. under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2 and
submitted separately with the Securities and Exchange Commission.

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 20

--------------------------------------------------------------------------------

 

Exhibit E
Fulfillment Services

1.   Fulfillment Services requested by Harmonic shall to be provided by Plexus
shall be in accordance with the following:   2.   Storage of completed shippable
Product for thirty (30) calendar days;   3.   Distribution of Product per
Harmonic’s instructions (any export activity shall be mutually agreed by the
parties prior to shipment);   4.   Plexus shall provide and Harmonic shall
purchase sufficient warehousing space to store an inventory of finished Products
(the “Finished Goods Inventory”).   5.   Harmonic shall provide to Plexus in
writing on a monthly basis a report specifying the required levels of Finished
Goods Inventory to be maintained on Plexus’ premises (the “Finished Goods
Authorization Schedule”).   6.   Harmonic shall have the right to audit the
actual quantities of Products in Finished Goods Inventory during normal Plexus
business hours upon forty-eight (48) hours prior written notice. In the event
that the actual Finished Goods Inventory is less than Harmonic’s accounting
records, the difference shall be manufactured and delivered to Harmonic by
Plexus within two weeks at no cost to Harmonic. Plexus shall have the right to
verify Harmonic’s accounting records and Harmonic shall make reasonable
disclosures to Plexus in order to affect said audit.   7.   Fulfillment services
are independent of and separate from any manufacturing services which Plexus may
provide.   8.   Plexus shall package, label, and ship the Products from Finished
Goods Inventory on a first-in first-out basis to Harmonic’s customers in
quantities specified in weekly Releases provided to Plexus by Harmonic and in
accordance with Harmonic’s written instructions.   9.   Plexus shall provide a
bill of lading and packing slip for each shipment pick-up.

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 21

--------------------------------------------------------------------------------

 

Exhibit F
Harmonic Quality Specifications
TABLE OF CONTENTS

          PARAGRAPH   TOPIC   PAGE 1.0  
Purpose
  2 2.0  
Scope
  2 3.0  
References
  2 4.0  
Procedure
  3 4.1  
NPI Support
  3 4.2  
Quality Planning
  4 4.3  
Quality Data Management
  4 4.4  
Agency and Industry Approvals
  4 4.5  
Process Development and Qualification (Assembly, Inspection and Test)
  5 4.6  
Product Identification and Traceability
  5 4.7  
Workmanship Standard
  5 4.8  
Training and Certification
  6 4.9  
Equipment Maintenance, Schedule and Calibration Compliance
  6 4.10  
First Article
  6 4.11  
Out of Box Audit
  7 4.12  
ESS/Burn-In
  7 4.13  
On-Going Reliability Test
  7 4.14  
RMA Repair (Customer Returns)
  7 4.15  
Harmonic Audits
  7 4.16  
ESD Compliance
  7 4.17  
Supplier Management
  8 4.18  
Source Inspection
  8 4.19  
Meetings
  8 4.20  
Disaster Recovery Plan
  8 4.21  
Restrictions
  9

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 22

--------------------------------------------------------------------------------

 

1.0 PURPOSE:

1.1   To establish a procedure that defines the Quality Requirements for
Contract Manufacturer (CM) that provides products to Harmonic. The Contract
Manufacturer referred in this procedure is specific to the Electronic
Manufacturer Services (EMS) whose products include the Printed Circuit Board
Assemblies (PCBA) and Box-Builds.   1.2   To inform the Contract Manufacturer
(CM) that they should demonstrate and/or provide evidences to ensure that the
Quality Requirements will be met during the manufacturing/production of Harmonic
products. This document could be used to create the Quality Plan for Harmonic
Products. These evidences should include but not limited to the following:

  1.2.1   QA Manual     1.2.2   Quality System     1.2.3   Quality Plan    
1.2.4   Manufacturing/Production Process Procedures and Flow Chart     1.2.5  
“Quality” Process Flow-Chart. (QA Inspection Gates/Stations)     1.2.6  
Preventive and Corrective Action Request System (Supplier, Internal and Customer
Corrective Action System)     1.2.7   Internal Audit Process Procedure     1.2.8
  Electrical / Functional Test Plan.     1.2.9   IQA Inspection Process (Turn
Key Parts)     1.2.10   Discrepant Material Reporting (DMR) and Material Review
Board (MRB)     1.2.11   SPC and other Quality Data Reporting System     1.2.12
  Finished Product First Article (FA) / FQA Inspection Procedure

2.0 SCOPE:
The purpose of this document is to fulfill the Harmonic Quality Requirements for
Contract Manufacturer, specifically the Electronic Manufacturer Services; and to
guide the Contract Manufacturer to be compliant to the Harmonic Quality
Requirements.
3.0 REFERENCES:

3.1   Industry Standards

                 
 
    3.1.1     IPC-A-610, Latest Rev.   Acceptability of Electronic Assemblies  
 
    3.1.2     IPC-A-600, Latest Rev.   Acceptability of Printed Boards  
 
    3.1.3     ANSI/J-STD-001, Latest Rev.   Requirement for Soldered Electrical
and Electronic Assemblies  
 
    3.1.4     ANSl/J-STD-002, Latest Rev.   Solderability Tests for Component
Leads, Terminations, Lugs, Terminals and Wires  
 
    3.1.5     ANSI/J-STD-003, Latest Rev.   Solderability Tests for Printed
Boards

3.2   Harmonic Procedures (Latest Revisions)

                 
 
    3.2.1     QA0201   Quality Policy Manual  
 
    3.2.2     QA0601   AVL Procedure  
 
    3.2.3     QA0604   First Article Procedure  
 
    3.2.4     QA0908   Workmanship Standard Procedure
 
               
 
    3.2.5     QA0910   Cosmetic Inspection Standard Procedure  
 
    3.2.6     QA1001   Supplier Product Assurance Procedure  
 
    3.2.7     QA1011F   QA Source Inspection Report  
 
    3.2.8     MA1502   Handling, Storage, Packaging and Preservation Policy  
 
    3.2.9     SP250-0051167-1   Serialization and date of manufacture labeling
requirement

4.0 PROCEDURE:

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 23

--------------------------------------------------------------------------------

 

The Contract Manufacturer’s response to the Harmonic Quality Requirement should
include, but not limited to, the paragraphs stated below. The Contract
Manufacturer should demonstrate and provide evidences that will ensure that the
manufacturing/production will consistently meet the Harmonic Quality
Requirements in these areas.

4.1   NPI SUPPORT:

  4.1.1   General:

  4.1.1.1   Set-up communication center via focal points (single point of
contact for Harmonic Inc. and Contract Manufacturer) for Purchasing, Production
and Quality issues and resolution, respectively.     4.1.1.2   CM shall review
drawing package from Harmonic prior to release to production.     4.1.1.3   CM
shall establish a robust ECN process to ensure effective implementation of the
ECN’s.     4.1.1.4   CM develops an internal MPI to implement assembly processes
and control processes such as Rework Instructions, Revision Change, Revision
Control, SBR, others.

  4.1.2   Prototype Builds: It is preferred that the CM support build of new
products. The CM will:

  4.1.2.1   Participate in the Design Reviews upon request from Harmonic.    
4.1.2.2   Will perform DFX reviews and submit the reports to Harmonic
immediately after the Protobuild.

  4.1.3   Pilot / Production NPI Builds:

  4.1.3.1   CM shall work with Harmonic Team to transition the product from
Proto to Pilot/production build according to the Manufacturing Engineering’s NPI
Plan.     4.1.3.2   CM shall work with Harmonic Quality/Manufacturing
Engineering to set-up manufacturing routing for new products.     4.1.3.3   CM
shall establish all applicable processes outlined below on this document.

  4.1.4   Component Engineering Support: CM shall provide Harmonic with
Component Engineering support on turnkey parts on an on-going basis. The support
activities will include:

  4.1.4.1   Identification of alternative sources or components for better
quality, availability of cost     4.1.4.2   Notification of Harmonic
representatives on device end of life notices. A documented process is required.
    4.1.4.3   Advance notification of process, specification, part number change
or components.     4.1.4.4   Obtain samples of alternate components for
qualification.     4.1.4.5   Conduct qualification (visual, electrical,
functional tests) of alternate components and report result to Harmonic.

4.2   QUALITY PLANNING:

  4.2.1   CM shall develop process specific Quality Plan for all Harmonic
products.     4.2.2   The Quality Plan is composed of activities required of the
Contract Manufacturer (CM) to ensure and to consistently meet both their
internal and Customer Quality Requirements (Harmonic). As a minimum, the CM’s
Quality Plan should include:

  4.2.2.1   A closed-loop process diagram     4.2.2.2   Audit and inspection
points throughout the manufacturing / test processes.     4.2.2.3   Methodology
and sampling techniques for audit or inspection     4.2.2.4   Acceptance or
rejection criteria     4.2.2.5   Process Audit 4.2.2.6 Quality Data collection
and other QR requirements     4.2.2.7   Control and feedback mechanism.    
4.2.2.8   Preventive and Corrective Action System.

  4.2.3   Harmonic will review and provide comments on CEM’s process and quality
documentation.

4.3   QUALITY DATA MANAGEMENT:

  4.3.1   All Quality Data on the products shall be shared with Harmonic.    
4.3.2   Harmonic and the CM shall meet periodically, preferably weekly, to
review quality data and discussed action item as needed. CM shall submit a
regular Quality Summary Report to Harmonic for review and for data analysis. The
reports shall include, but not limited to, the following information:

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 24

--------------------------------------------------------------------------------

 

  4.3.2.1   CM shall collect data on all critical processes. As a minimum, CM is
required to collect data for the following process steps:

      4.3.2.1.1 Incoming Inspection         4.3.2.1.2 Post solder re-flow
(before touch-up)         4.3.2.1.3 Post wave soldering (before touch-up)      
  4.3.2.1.4 BGA X-ray and AOI         4.3.2.1.5 In-circuit test or other product
specific test(s) (if applicable)         4.3.2.1.6 Pre-ESS/Burn-in functional
test (if applicable)         4.3.2.1.7 ESS/Burn-in test (if applicable)        
4.3.2.1.8 Post ESS/Burn-in functional test (if applicable)         4.3.2.1.9
Hi-pot Test (if applicable)         4.3.2.1.10 Final Inspection (FQA)        
4.3.2.1.11 Out-of-Box Audit (OBA)         4.3.2.1.12 Harmonic source/in-house
inspection result         4.3.2.1.13 RMA repair data

  4.3.2.2   Test yield by product and by process     4.3.2.3   Defect Pareto by
product and by process     4.3.2.4   Pareto for top 5 defects on the high
failure products.     4.3.2.5   Root cause analysis and corrective action on top
3 high failure products     4.3.2.6   Test throughput yield by product    
4.3.2.7   Weekly overall test throughput yield.

4.4   AGENCY AND INDUSTRY APPROVALS/CERTIFICATIONS:

  4.4.1   The Quality System of the CM is required to be compliant to the ISO
standard.     4.4.2   Minimum certification requirement is lSO-9002.     4.4.3  
CM manufacturing processes shall comply with the related, UL or other industry
standards.     4.4.4   CM will provide Harmonic with proof of Agency and
Industry certification(s) and/or approval(s).     4.4.5   Upon selection, CM
will be added to Harmonic AVL on specified approved products.     4.4.6   CM
shall develop and implement a control process for all regulated components (such
as safety and critical components).     4.4.7   Harmonic or agencies will
periodically audit CM process for compliance.

4.5   PROCESS DEVELOPMENT AND QUALIFICATION (ASSEMBLY, INSPECTION AND TEST)

The CM shall develop detailed product specific process instruction for
individual Harmonic product. Harmonic will review and approve the process
instructions prior to start of production. Process instruction shall include as
a minimum:

  4.5.1   Process Development

  4.5.1.1   Detailed process steps     4.5.1.2   Associated tools/equipment    
4.5.1.3   Critical process parameters and machine settings     4.5.1.4  
Identification of direct/indirect materials     4.5.1.5   Handling of
non-conformities     4.5.1.6   Product handling precaution and training
requirement     4.5.1.7   Data collection     4.5.1.8   Escalation process

  4.5.2   Process Qualification:

  4.5.2.1   Harmonic may select to conduct process qualification on all new
builds.     4.5.2.2   Qualification lot quantity will be in the range of 10 to
100 units depending on the type of product. Qualification quantity will be
defined in the PO.     4.5.2.3   CM shall develop a complete set of
documentation prior to start of qualification. The documentation includes:

  4.5.2.3.1   Quality Plan     4.5.2.3.2   Process Instruction     4.5.2.3.3  
Critical Process Goal Target

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 25

--------------------------------------------------------------------------------

 

  4.5.2.3.4   Training and Certification record

  4.5.2.4   CM shall run the qualification lot in presence of Harmonic
representative and complete the qualification lot in agreed upon time frame.    
4.5.2.5   Harmonic will conclude the qualification run upon completion. If CM
fails to achieve the predetermined process goals, a re-qualification is
required.     4.5.2.6   Re-qualification can only be started after necessary
adjustment, correction or improvement is made.

4.6   PRODUCT IDENTIFICATION AND TRACEABILITY: (MARKING/LABELING AND
SERIALIZATION)

Harmonic Inc. product lines may have common Part Numbers across product lines.
It is, therefore, necessary to distinguish carefully which product is being
built to avoid confusion.

  4.6.1   Configuration Control Plan will be necessary. (Part No., Revision,
Serialization, Date of Manufacture/Lot Date Code)     4.6.2   Product
identification should be in accordance with Harmonic Document No. SP250-0051167,
Latest Rev. -Intelligent Date of Manufacture (DoM)     4.6.3   In cases where
there are mother-daughter boards, serialization of the assemblies should be
linked and tracked.     4.6.4   There should be Record Retention and Retrieval
System. This includes:

  4.6.4.1   All inspection and test results are captured based on the serial
numbers.     4.6.4.2   All rework, repair, and upgrade data are captured based
on the serial numbers     4.6.4.3   In cases of Drop-ship, serial numbers are
traceable to Harmonic customer name and Sales Order Numbers.

4.7   WORKMANSHIP STANDARD:

  4.7.1   Components shall meet manufacturer’s requirements     4.7.2   Bare
PCBs shall meet IPC-A-600, Class II (latest revision)     4.7.3   PCBAs shall
meet IPC-A-610, Class II (latest revision)     4.7.4   Finished goods shall meet
Harmonic product specific Manufacturing Instruction (Ml) and Test Instruction
(TI).     4.7.5   Finished goods shall meet Harmonic Cosmetic requirement —
Harmonic: QA0910.

4.8   TRAINING AND CERTIFICATION:

  4.8.1   CM shall only have trained and certified operators performing
assembly, tests, inspection and packing of Harmonic products.     4.8.2   CM
should maintain Training Records and Certifications in all areas/stages of
production.     4.8.3   Training matrix for the personnel should be posted and
available to Harmonic personnel upon request.

4.9   EQUIPMENT MAINTENANCE, SCHEDULE AND CALIBRATION COMPLIANCE

  4.9.1   Calibration:

Supplier must plan ahead with calibration process to avoid line shutdowns.

  4.9.1.1   Consigned Equipment:

  4.9.1.1.1   The CM is expected to assume responsibility for calibration of
Harmonic consigned test equipment.     4.9.1.1.2   The CM shall inform Harmonic
of any “Out of Tolerance” calibration immediately so that a pertinent analysis
can be done to assess the impact on products shipped to Harmonic and/or its
customers

  4.9.1.2   CM Equipment:

  4.9.1.2.1   Provide Preventative Schedule and Records for all equipment used
in production as requested.     4.9.1.2.2   Calibration and Recall List Records
    4.9.1.2.3   Certification and Maintenance Records

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 26

--------------------------------------------------------------------------------

 

  4.9.2   Preventive Maintenance:

  4.9.2.1   Based on mutually agreed terms and conditions, the CM is expected to
assume the responsibility for performing preventive maintenance (PM) on the
equipment used to test Harmonic products.     4.9.2.2   Harmonic is responsible
for the cost and replacement of parts/systems if due to the normal usage for
test.

4.10   First Article Process/Procedure:

  4.10.1   CM is required to submit a detailed and itemized First Article Report
with the First Article Unit to Harmonic.     4.10.2   CM should not proceed with
mass production until receiving approval of the First Article from Harmonic.    
4.10.3   If CM chooses to proceed with mass production without gaining approval
of the First Article, CM will bear the responsibility for any consequences.    
4.10.4   First Article include:

  4.10.4.1   Product built by CM for the first time (new product),     4.10.4.2
  ECN validation     4.10.4.3   Build Re-start (> 3 months of no production),  
  4.10.4.4   Process validation and/or major process change     4.10.4.5  
Fabricated components such as Cable Assemblies, PCB, Plastics, Sheet Metals,
Power Supplies, Programmable Device

    4.10.5 First Article Inspection Result

  4.10.5.1   CM shall document and maintain the First Article inspection result
for future tracking.     4.10.5.2   CM shall provide the First Article Report
along with the unit(s) to Harmonic.

4.11   Out-of-Box Audit (OBA):

  4.11.1   CM shall establish an independent out-of-box audit for ALL
sub-assemblies and finished goods that shipped to Harmonic or Harmonic customers
    4.11.2   CM shall use a standard based sampling inspection plan for
out-of-box audit. Audit should include both visual inspection and electrical
acceptance tests, where applicable. Acceptance limit, C, shall always be zero.  
  4.11.3   Weekly OBA report shall be reviewed with Harmonic as part of the
weekly Quality reviews.

4.12   ESS/BURN-IN:

  4.12.1   It is preferred for the CM to provide box build product
accommodations such as hot room or chamber for ESS/Burn-in for Harmonic
products.     4.12.2 The ESS/Burn-in parameters will be set by Harmonic.    
4.12.3 The ESS/Burn-in criteria will be developed by Harmonic.

4.13   ON-GOING RELIABILITY TEST:

  4.13.1   Based on mutual agreement, CM shall support Harmonic with box build
products on-going reliability test (ORT) process for mean time between failure
(MTBF) demonstration of mature products     4.13.2   Harmonic Reliability
Engineering will set up the specific ORT, coordinate failure analysis, and
analyze/report the data.     4.13.3   ORT monitoring is done by CM     4.13.4  
CM shall provide failure analysis support on units that failed reliability
testing. If failure is CM related, a formal corrective action report will be
submitted to Harmonic.

4.14   RMA REPAIR: (CUSTOMER RETURNS)

Harmonic requires RMA repair capability at the CM’s. Based on mutual agreement:

  4.14.1   CM will process all Harmonic customer returned products for repair
and upgrade.     4.14.2   CM shall develop an RMA process to inspect, re-test
and repair/upgrade the returned products     4.14.3   CM shall get access to
Vantive Database to enter RMA Repair Data on to capture product specific return
rate, inspection/test/repair data for all returns. All data should be entered in
the Vantive Database in real time basis.     4.14.4   CM shall submit RMA
Summary Report along with root cause analysis and corrective action to Harmonic
on a regular basis

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 27

--------------------------------------------------------------------------------

 

  4.14.5   CM shall complete the analysis and repair of the returns within two
weeks or on a mutually agreed time frame.

4.15   HARMONIC AUDITS:

  4.15.1   Harmonic conducts scheduled and UN-announced CM audits and visits.  
  4.15.2   Harmonic audits can be process, process capability and quality
systems audits.     4.15.3   Harmonic shall set-up audits with corresponding CM
representatives (ME, QE, Production Engineers).     4.15.4   CM to provide and
make available internal data and Audit Plan for Quality and Process compliance  
  4.15.5   CM to establish streamlined, easy access to and availability of
Records/SPC data during

4.16   ESD COMPLIANCE:

CM shall have the following:

  4.16.1   ESD Procedure     4.16.2   ESD Inspection Log     4.16.3   Area and
Station Audit Tag/Certification     4.16.4   Employee Records Training and
Certification

4.17   SUPPLIER MANAGEMENT: SUPPLIER QUALIFICATION, PERFORMANCE MEASUREMENT AND
AUDIT PLAN

  4.17.1   Supplier should develop performance measurement process for sub-tier
suppliers.     4.17.2   CM shall have or develop the following Supplier
Management procedures:

  4.17.2.1   Supplier Qualification Process/Procedure     4.17.2.2   Supplier
Audits     4.17.2.3   Supplier Rating System Procedure     4.17.2.4   Supplier
Performance Data     4.17.2.5   Supplier Disqualification

  4.17.3   The CM supplier performance measurement criteria shall include, as a
minimum:

  4.17.3.1   Quality     4.17.3.2   Technical capability     4.17.3.3   Delivery
    4.17.3.4   Cost     4.17.3.5   Responsiveness

  4.17.4   CM shall provide on an agreed upon frequency the relevant supplier
performance metrics to Harmonic for review.

4.18   SOURCE INSPECTION:

  4.18.1   Source Inspection may be performed at the Supplier site at Harmonic
discretion.     4.18.2   CM is required to provide adequate space for the
Harmonic Source Inspector to conduct the inspection.     4.18.3   Mutually
agreed goals will be set for the source inspection.     4.18.4   Sampling Plan
is in accordance with Single Sampling Plan for Normal Inspection (Reference:
Mil-Std-105E, Tables I and
II — A) : Level II, 2.5% AQL with an option to perform 100% inspection.    
4.18.5   If CM fails to achieve the source inspection target for 3 consecutive
months, Harmonic will resume source inspection effort at CM’s cost.

4.19   MEETINGS:

  4.19.1   CM shall attend scheduled Quality Meetings with Harmonic.     4.19.2
  Meeting schedules/frequency will be established between CM and Harmonic
representatives.     4.19.3   Attendants from CM shall include but not limited
to the following:

  4.19.3.1   Program Manager     4.19.3.2   Process Engineer/ Manager    
4.19.3.3   Quality Engineer/ Manager     4.19.3.4   Production Supervisor /
Manager

  4.19.4   CM shall prepare and publish meeting agenda and minutes.

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 28

--------------------------------------------------------------------------------

 

4.20   DISASTER RECOVERY PLAN:

  4.20.1   CM shall have a Disaster Recovery Plan

4.21   RESTRICTIONS:

  4.21.1   CM shall not transfer Harmonic product to other manufacturing
location(s) without written approval from Harmonic.     4.21.2   CM shall not
sub-contract any portion of the manufacturing, test, and inspection without
written approval from Harmonic.     4.21.3   CM must purchase parts to
Harmonic’s approved AVL with no exceptions allowed. AVL additions must be
formally approved by Harmonic by a Harmonic MCO before use is authorized.    
4.21.4   CM shall obtain written authorization from Harmonic for any major
process changes. Such changes include:

  4.21.4.1   Elimination of any of the required manufacturing, test, and
inspection process steps.     4.21.4.2   Changes in ISO, BABT, UL or other
agency approval.     4.21.4.3   Changes in manufacturing, test, and inspection
process flow.     4.21.4.4   Parts and components changes (BOM changes)

  Harmonic Inc. / Plexus Confidential   Harmonic-Plexus PSA 17 September 03

Page 29