Exhibit 10.42

[Confidential treatment has been requested as to portions marked “[***]”
pursuant to a request for confidential treatment previously filed with the
Securities and Exchange Commission. Omitted portions have been filed separately
with the Securities and Exchange Commission.]

SUPPLY AGREEMENT

This Supply Agreement (“Agreement”) is made and entered into and effective as of
October 31, 2005 (the “Effective Date”) by and between Digirad Corporation, a
Delaware corporation (“Digirad”), and QuickSil Inc., a California corporation
(“QuickSil”).

WHEREAS, on or about June 28, 1999, QuickSil and Digirad entered into a
Development and Supply Agreement under which QuickSil has supplied [***] for
Digirad’s nuclear gamma cameras; and

WHEREAS, the parties wish to continue their relationship under the terms and
conditions of this Agreement, and intend this Agreement to supersede the 1999
Development and Supply Agreement and all other agreements between them.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:

 

1. DEFINITIONS.

 

  (a) “Product(s)” shall mean a [***] manufactured by QuickSil hereunder in
accordance with the terms and conditions of this Agreement.

 

  (b) “Performance Specifications and Acceptance Criteria” shall mean the
performance specifications and acceptance criteria for the Products set forth in
Exhibit A attached hereto and incorporated herein by reference.

 

  (c) “Product Quantity” shall mean the number of tested [***] that meet the
Performance Specifications and Acceptance Criteria.

 

2. SUPPLY OF PRODUCTS.

 

  (a) Supply of Products. Pursuant to the terms and during the Term of this
Agreement, QuickSil shall manufacture and supply Products to Digirad and Digirad
shall purchase from QuickSil such Products in the Product Quantity requested by
Digirad in accordance with the provisions of this Agreement. Digirad reserves
the right to purchase Products from manufacturers other than QuickSil.

 

  (b) Product Performance Specifications and Acceptance Criteria. QuickSil shall
test all Products to be delivered to Digirad for compliance with the Performance
Specifications and Acceptance Criteria set forth in Exhibit A, and shall deliver
to Digirad only Products that meet the Performance Specifications and Acceptance
Criteria.

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  (c) Product Non-Conformance. If Digirad determines that any shipment of
Products from QuickSil does not conform to the Performance Specifications and
Acceptance Criteria applicable at its plant as specified in Exhibit A, Digirad
shall give QuickSil notice thereof (including a sample from such shipment and
copies of the results of any testing supporting Digirad’s determination) within
[***] after receipt thereof, in the case of non-conformities that may be
ascertained by the exercise of reasonable diligence (which shall not include
laboratory testing or other chemical analysis), and within [***] days after
discovery thereof, in the case of other non-conformities. If QuickSil confirms
such non-conformity, it shall promptly so notify Digirad in writing thereof. If
QuickSil does not confirm such non-conformity, it shall promptly so notify
Digirad in writing thereof, and the parties shall promptly submit the disputed
shipment for testing to an independent testing laboratory or other independent
third party expert whose decision shall be mutually binding on the parties. The
expenses of such testing or other investigation shall be borne by QuickSil if
the non-conformity is confirmed, and otherwise by Digirad.

If any Products delivered by QuickSil hereunder do not conform to the
Performance Specifications and Acceptance Criteria for any reason, QuickSil
shall [***]. In addition, at Digirad’s option and sole discretion, (i) [***]
(ii) [***].

 

  (d) Forecasts and Purchase Orders. Digirad shall notify QuickSil on a [***]
basis of its projected requirements for Product Quantity for [***]. [***]. On a
quarterly basis, Digirad will submit a purchase order [***].

 

  (e) Delivery of Product. QuickSil shall provide Digirad with expected order
lead-times for the Products, and Digirad shall place purchase orders for the
Products with delivery due dates consistent with QuickSil’s quoted order
lead-times. Unless specifically accepted by Digirad, in no case shall QuickSil’s
lead-time quotations to Digirad [***]. QuickSil will make reasonable efforts to
deliver Products [***]. All costs of manufacturing Products to meet delivery due
dates on Digirad purchase orders placed within the QuickSil order lead-times
shall be the responsibility [***].

 

  (f) Supply of [***]. Digirad shall supply to QuickSil the [***].

 

  (g) Conformance to Specifications and Laws. All Products supplied or delivered
to Digirad under this Agreement shall be in compliance with (i) the Performance
Specifications and Acceptance Criteria, (ii) all proper and accurate marking and
label requirements under applicable laws, regulations and statutes; and
(iii) all federal, state and local laws, rules and regulations.

 

  (h) Title, Risk of Loss and Damage. Title and risk of loss shall pass to
Digirad [***].

 

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  (i) Price. Prices for products are detailed on Exhibit B attached hereto and
shall remain firm for [***] after the Effective Date. [***].

 

  (j) Payment for Products. QuickSil shall invoice Digirad for Digirad’s
purchases at the time of each shipment. Such invoices shall be payable [***]
from shipment of Products to Digirad.

 

  (k) Technology Transfer. In the event that either (i) QuickSil has an
insolvency event (as defined in 6(b)(ii) below), (ii) QuickSil fails to produce
the number of Products ordered by Digirad and meeting the Performance
Specifications and Acceptance Criteria for more than sixty days (60) in any
calendar year, or (iii) QuickSil is acquired by or merged into any company that,
as determined by Digirad in good faith, competes with Digirad in the nuclear
medicine imaging market, then Digirad shall receive a royalty-free,
non-exclusive license to all of the technology used in the Products and all
necessary information, data, know how, procedures, schematics, and
specifications needed to produce the Products. The parties will take all actions
and make all necessary assignment to facilitate such transfer of rights and
information.

 

  (l) Manufacturing Changes. QuickSil shall make appropriate changes to the
manufacturing process or manufacturing location with advance written
notification of such changes to Digirad and Digirad’s consent thereto, which
shall not be unreasonably withheld.

 

  (m) Reliability. QuickSil warrants and represents that all Products shipped to
Digirad will comply with the Performance Specifications and Acceptance Criteria.

 

3. OWNERSHIP.

 

  (a) [***].

 

  (b) [***].

 

  (c) QuickSil hereby grants Digirad a royalty free, non-exclusive,
non-transferable license [***] and any improvements or modifications for
internal use only and expressly limited to the specific application field of
building [***] for use with Digirad’s nuclear gamma cameras. This license shall
be limited to the Term of this Agreement, in accordance with paragraphs 4 (a), 6
(b), and 6 (c). Except for the license so granted, QuickSil expressly retains
for all purposes all rights to the [***] utilized [***], and QuickSil expressly
retains the rights (including all patent rights, copyrights, trade secrets
rights and other intellectual property rights) to the [***].

 

  (d) [***].

 

4. EXCLUSIVITY.

 

  (a) Noncompete. Digirad will have exclusive rights to [***] in the [***]. The
period of exclusivity shall initially run from [***].

 

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5. CONFIDENTIALITY.

In order to aid in the fulfillment of the goals of the contract, both Digirad
and QuickSil are conveying to each other and will in the future convey
proprietary corporate information which each party has a significant interest in
keeping protected and confidential. As a result, Digirad and QuickSil agree
that:

 

  (a) The information furnished by one patty shall not be used by the other
party for any purpose, except to fulfill the obligations to the other party
under this Agreement and such information will be kept confidential by the
receiving party and shall not be disclosed to any third party; provided,
however, that any such information may be disclosed to a receiving party’s
affiliates, officers and employees who need to know such information for the
purpose of fulfilling the obligations hereunder. The one exception to this
requirement is defined in Section 4(b), in which Digirad and QuickSil will
disclose process technology to a second source [***].

 

  (b) The term “information” as used in the here above paragraphs and the
nondisclosure obligations contained in this Agreement do not include information
which:

 

  i. is or becomes generally available to the public, other than as a result of
a disclosure by a defaulting party;

 

  ii. was known by the other party prior to its disclosure by one party;

 

  iii. becomes available to a party on a non-confidential basis from a source
other than the other party provided that such source is not bound by a
confidentiality agreement with the other party;

 

  iv. is in the public domain;

 

  v. is developed independently, as evidenced by appropriate documentation, by
employees or agents or subcontractors of the receiving party who have not had
access to the information;

 

  vi. is or becomes available to the receiving party by casual observance or
analysis of products in the market; or

 

  vii. is disclosed pursuant to judicial order, a lawful requirement of
governmental agency; or by operation of law, but then only to the extent so
ordered; in such case the receiving party will use its best efforts to timely
advise the disclosing party prior to disclosure and allow the disclosing party
an opportunity to obtain protections preventing the disclosure of the
information.

 

  (c) Information shall remain the exclusive property of the disclosing party.
No license whatsoever is implied from this Agreement except the licenses
expressly set forth above.

 

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  (d) All information disclosed by either party to the other party shall be
deemed to be confidential unless it is disclosed in written form and stamped by
the disclosing party with the words “Non-Confidential Information” or the like
at the time of disclosure.

 

  (e) Each party commits to immediately return all Information received from the
other party and to destroy or erase any and all copies it may have, either at
any time upon simple request or upon termination or expiration of the business
relationship between the parties.

 

  (f) The confidentiality and non-use obligations contained in this Agreement
shall survive for [***] from the date information is disclosed under this
Agreement.

 

6. TERM AND TERMINATION.

 

  (a) Term. Unless terminated early as described in this Section 6(b), this
Agreement shall terminate on [***]. Thereafter, this Agreement shall [***].

 

  (b) Early Termination. This Agreement may be terminated at any time upon the
occurrence of any of the following events:

 

  i. Default. [***] following written notice by the performing party to the
other party in the event that the other party breaches any material provision of
this Agreement and has not cured such breach within such[***] notice period.

 

  ii. Insolvency. Immediately upon written notice by either party to the other
party upon (i) the insolvency of the other party, or the appointment of a
receiver by the other party, or for all or any substantial part of its
properties, provided that such receiver is not discharged [***] of his
appointment; (ii) the adjudication of the other party as a bankrupt; (iii) the
admission by the other party in writing of its inability to pay its debts as
they become due; (iv) the execution by the other party of an assignment for the
benefit of its creditors; or (v) the filing by the other party of a petition to
be adjudged a bankrupt, or a petition or answer admitting the material
allegations of a petition filed against the other party in any bankruptcy
proceeding, or the act of the other party in instituting or voluntarily being or
becoming a party to any other judicial proceeding intended to effect a discharge
of the debts of the other party, in whole or in part (an “Insolvency Event”).

 

  iii. Acquisition. In the event that QuickSil is acquired by or merged into
another entity or that more than fifty percent of its voting stock is acquired
through one or a series of transactions, then QuickSil must give notice to
Digirad of the completion of such event. If QuickSil is acquired by or merged
into an entity that Digirad, in good faith, determines competes with Digirad in
the nuclear medicine imaging market, Digirad shall have the right to terminate
this Agreement at anytime during the 90 day period immediately following its
receipt of such notice. In the event Digirad terminates this Agreement pursuant
to the preceding sentence, Digirad shall retain [***].

 

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  (c) Survival. Termination under this Agreement shall not relieve any party of
its obligations or liability for breaches of this Agreement incurred prior to or
in connection with termination.

 

7. INDEMNIFICATION.

 

  (a) Indemnification by QuickSil. QuickSil will indemnify and hold Digirad
harmless against any and all liability, damage, loss, cost or expense (including
reasonable attorney fees) (collectively, “Liabilities”) resulting from any third
party claims made or suits brought against Digirad (excluding incidental or
consequential damages suffered or incurred by Digirad directly as opposed to
incidental or consequential damages suffered or incurred by third parties who
are, in turn, seeking the same from Digirad, which shall be covered by the
indemnity set forth herein) which arise from QuickSil’s breach of its
obligations hereunder, or QuickSil’s gross negligence or willful misconduct,
except to the extent caused by Digirad’s gross negligence, willful misconduct or
breach of Digirad’s obligations hereunder.

 

  (b) Indemnification by Digirad. Digirad will indemnify and hold QuickSil
harmless against any and all liability, damage, loss, cost or expense (including
reasonable attorney fees) (collectively, “Liabilities”) resulting from any third
party claims made or suits brought against QuickSil (excluding incidental or
consequential damages suffered or incurred by QuickSil directly as opposed to
incidental or consequential damages suffered or incurred by third parties who
are, in turn, seeking the same from QuickSil, which shall be covered by the
indemnity set forth herein) which arise from Digirad’s breach of its obligations
hereunder, or Digirad’s gross negligence or willful misconduct, except to the
extent caused by QuickSil’s gross negligence, willful misconduct or breach of
QuickSil’s obligations hereunder.

 

  (c) Costs of Indemnification. If either party expects to seek indemnification
from the other under Sections 7(a) or 7(b) it shall promptly give notice to the
other party of any such claim or suit threatened, made or filed against it which
forms the basis for such claim of indemnification and shall cooperate fully with
the other party in the defense of all such claims or suits. No settlement or
compromise shall be binding on a party hereto without its prior written consent.

 

8. GENERAL PROVISIONS.

 

  (a) Notices. Any notices permitted or required by this Agreement shall be sent
by certified or registered mail and shall be effective when received if sent and
addressed as follows or to such other address as, may be designated by a party
in writing:

 

If to QuickSil:

Attention:

  

[***]

[***]

  

If to Digirad:

Attention:

  

Digirad, Inc., 13950 Stowe Drive, Poway, CA 92064-8803

President, Fax Number: (858) 726-1700

  

 

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  (b) Entire Agreement; Amendment; Consents. The parties hereto acknowledge that
this Agreement sets forth the entire agreement and understanding of the parties
and supersedes all prior written or oral agreements or understandings with
respect to the subject matter hereof. No modification or amendment of any of the
terms of this Agreement, or any amendments thereto, shall be deemed to be valid
unless in writing and signed by all the parries hereto. No course of dealing or
usage of trade shall be used to modify the terms and conditions herein. All
orders placed under the terms and conditions of any previous contract will be
administered under the terms of the contract until all outstanding purchase
orders issued under that contract are resolved.

 

  (c) Waiver. No waiver by either party of any default, right or remedy shall be
effective unless in writing, nor shall any such waiver operate as a waiver of
any other or the same default, right or remedy on a future occasion.

 

  (d) Assignment. This Agreement shall be binding upon and inure to the benefit
of the successors or permitted assigns of each of the parties and may not be
assigned or transferred by QuickSil without the prior written consent of
Digirad, which consent will not be unreasonably withheld.

 

  (e) No Third-Party Rights. No provision of this Agreement shall be deemed or
construed in any way to result in the creation of any rights or obligations in
any other individual, group, entity or organization not a party to this
Agreement.

 

  (f) Further Assurance. Each party hereby agrees to duly execute and deliver,
or cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things, including, without limitation,
the filing of such additional assignments, agreements, documents and
instruments, that may be necessary or as the other party hereto may at any time
and from time to time reasonably request in connection with this Agreement.

 

  (g) Force Majeure Events. Failure of any party to perform its obligations
under this Agreement shall not subject such party to any liability to the other
if such failure is caused by acts such as but not limited to acts of God, fire,
explosion, flood, drought, war, riot, sabotage, embargo, strikes, compliance
with any order or regulation of any government entity acting with color of right
promulgated after the Effective Date hereof. Upon occurrence of an event of
force majeure, the party affected shall promptly notify the other in writing,
setting forth the details of the occurrence, and making every attempt to resume
the performance of its obligations as soon as practicable after the force
majeure event ceases.

 

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  (h) Attorneys’ Fees. Each party shall bear its own attorney’s fees for the
negotiation, execution and performance of this Agreement. In the event it
becomes necessary for either party (or any of its affiliates) to institute any
action at law or in equity (or in arbitration pursuant to the requirements of
this Agreement) against the other party to enforce its rights hereunder, the
prevailing party shall be entitled to recover from the non-prevailing party
reasonable attorneys’ fees, court costs and expenses relating to such action.

 

  (i) Arbitration. The parties hereby agree that the proper venue and forum for
all disputes arising out of or related to this Agreement is binding arbitration
before a neutral arbitrator mutually acceptable to both parties and such
arbitration to be conducted in San Diego, California, pursuant to the rules of
the American Arbitration Association.

 

  (j) Governing Law. The validity, interpretation and effect of this Agreement
shall be governed by and construed under the laws of the State of California
without regard to principles of conflict of laws.

 

  (k) Severability. If any term or provision of this Agreement shall violate any
applicable statute, ordinance or rule of law in any jurisdiction in which it is
used or otherwise be unenforceable, such provision shall be ineffective to the
extent of such violation without invalidating any other provision hereof.

 

  (l) Headings, Exhibits. The headings used in this Agreement are for
convenience only and are not a part of this Agreement. All exhibits references
herein are hereby made a part of this Agreement.

 

  (m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same original.

 

  (n) Relationship of Parties. The relationship of the parties under this
Agreement is that of independent contractors. Nothing contained in this
Agreement is intended or is to be construed so as to constitute the parties as
partners, joint venturers, or any party as an agent or employee of the other. No
party has any express or implied right under this Agreement to assume or create
any obligation on behalf of or in the name of any other party, or to bind any
other party to any contracts, agreement or undertaking with any third party, and
no conduct of the parties shall be deemed to infer such right.

IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
executed by their duly-authorized representatives effective as of the date and
year set forth above.

 

QUICKSIL, INC.   DIGIRAD CORPORATION

By:

 

 

 

By:

 

 

 

[***]

   

Gary Burbach

Its

 

President and CEO

 

Its

 

President & CEO

 

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EXHIBIT A

Test Level [***]

This test is conducted after [***]

Test Level [***]

This test is conducted after [***]

Test Limits:

All test limits are specified at [***]

[***]

[***]

Test Conditions:

All tests are tested under the following conditions: [***]

[***]

[***]

[***]

 

[***]

 

[***]

[***]

  [***]     

[***]

 

[***]

 

[***]

 

[***]

[***]

 

[***]

 

[***]

 

[***]

 

[***]

[***]

 

[***]

 

[***]

 

[***]

 

[***]

                      

[***]

 

[***]

      

[***]

                           

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[***] Acceptance Criteria:

[***].

 

A-1

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EXHIBIT B

[***] Pricing

 

[***] Volume:

  

[***] Product Price

  

[***] Product Price

<

     

[***]

   [***]    [***]

[***]

   [***]    [***]

Pricing [***] as stated above is contingent on [***] testing at Digirad’s plant
yielding results of at least [***].

 

B-1