Exhibit 10.57
MANUFACTURING AGREEMENT
This manufacturing agreement (the “Agreement”) is made and entered into on
April 11, 2008 (‘Effective Date”) by and between Photon Dynamics, Inc. (“PDI”),
a Delaware corporation, having its principal office at 5970 Optical Drive, San
Jose, California 95138, and C SUN Manufacturing LTD, a corporation organized and
existing under the laws of Taiwan having its principal office at 2-1, kung 8 Rd,
2nd industrial Park, Lin Kou, Taipei, Taiwan and its affiliates (Collectively
“the “Manufacturer”). PDI and Manufacturer are each individually referred to
herein as the “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, PDI designs and manufactures yield-enhancing test and repair equipment
for flat-panel display manufacturers;
WHEREAS, PDI desires to engage Manufacturer to develop, manufacture, and sell,
according to PDI’s Specifications (defined below), the Product(s) (defined
below) to PDI exclusively;
WHEREAS, Manufacturer desires to obtain from PDI a non-exclusive right and
license to manufacture and sell to exclusively to PDI the Product(s); and
WHEREAS, PDI wishes to grant the aforementioned non-exclusive right and license
to Manufacturer and to purchase the Product(s) from Manufacturer.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
Parties hereby agree as follows:
SECTION 1
DEFINITIONS

1.1   “Affiliate” shall mean with respect to either Party, any other party
directly or indirectly controlling, controlled by, or under common control with
such Party. For purposes of this definition, “control” when used with respect to
either Party, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Party,
whether through the ownership of voting securities, by contract or otherwise.
The terms “controlling” and “controlled” as used herein have meanings
correlative to the foregoing.   1.2   “Authorized Third Party” any PDI-approved
third party that desires to purchase Product(s) or Materials and whose
credit-worthiness is reasonably acceptable to Manufacturer.   1.3   “Consigned
Materials” shall mean any materials, components, and other supplies necessary
for the manufacture of the Product(s) by Manufacturer pursuant to this Agreement
which are supplied by PDI pursuant to that certain consignment

 

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

 

    agreement between the parties dated April 11, 2008.   1   “End of Life”
shall mean that a period endingn on the fifth anniversary from the date the last
item is purchased by PDI.   1.4   “Epidemic Failure” shall mean those
substantial deviations from the Specifications within the warranty period which
seriously impair the use of the Product(s) existing at the time of delivery but
which are not reasonably discernible at that time and which are evidenced by an
identical, repetitive defect due to the same cause and occurring in the same
series of the Product(s).   1.5   “Hazardous Substances” shall include, but not
be limited to, any substances, materials or wastes that are regulated by any
local governmental authority of each State of the United States or any other
country, including Taiwan China and Korea where the Product(s) is manufactured
by Manufacturer or Sold because of toxic, flammable, explosive, corrosive,
reactive, radioactive or other properties that may be hazardous to human health
or the environment, including, without limitation, above or underground storage
tanks, flammables, explosives, radioactive materials, radon, petroleum and
petroleum Product(s), asbestos, urea formaldehyde, foam insulation, methane,
lead-based paint, polychlorinated biphenyl compounds, hydrocarbons or like
substances and their additives or constituents, pesticides and toxic or
hazardous substances or materials of any kind, including, without limitation,
substances now or hereafter defined as “hazardous substances,” “hazardous
materials,” “toxic substances” or “hazardous wastes” in rules and regulations
promulgated pursuant to any applicable federal, state or local law, common law,
code, rule, regulation, order, policy or ordinance, presently in effect or
hereafter enacted, promulgated or implemented, or any other applicable
governmental regulation imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous substances, waste or material, now or
hereafter in effect.   1.6   “Intellectual Property” shall mean any idea,
concept, know-how, technique, invention, discovery, improvement, document,
product, system, practice, procedure, means, method, design, device, program,
software, drawings and sketches, and trade secrets relating to the design,
development, implementation, use, maintenance and upgrading of the Product(s).
Intellectual Property includes, but is not limited to, subject matter that falls
within the definition of patentable subject matter under the laws of the United
States or any other country, or within the definition of copyrightable materials
under the laws of the United States or any other country   1.7   “IP Licenses”
shall mean permission granted to Manufacturer by third parties that claim a
proprietary right in any utility patent, design patent, copyright or other
intellectual property right in the Product(s) or the method of manufacturing the
Product(s) to use, sell, modify, and copy the same.

-2-

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

 

1.8   “Manufacturer’s Intellectual Property” shall mean all of Manufacturer’s
designs, logos, technical descriptions, specifications, trade secrets, and
product descriptions, regardless of registration, which are protected by
patents, copyrights, trademarks or other proprietary rights as provided in
Exhibit *.   1.9   “Materials” shall mean raw materials, components (except
Consigned Materials), and other supplies necessary for the manufacture of the
Product(s) by Manufacturer pursuant to this Agreement.   1.10   “Non-Binding
Forecasts” means the minimum shipment numbers listed in Exhibit B and used in
conjunction with procedures outlined in Sections 4.3.   1.11   “PDI Intellectual
Property and Patents” shall mean all of PDT’s designs, logos, technical
descriptions, product descriptions, or other proprietary rights, regardless of
registration, which are protected by patents, copyrights, trademarks or other
proprietary rights provided in Exhibit *.   1.12   “PDI Trademarks” shall mean
the trademarks specified by PDI or its Affiliate, as applicable, that are to be
used in connection with the manufacturing and packaging of the Product(s).  
1.13   “Product” shall mean the Product, all related Software Programs and
Intellectual Property, and Materials to be manufactured by Manufacturer under
this Agreement, in accordance with the Specifications, as amended from time to
time by written agreement or as otherwise agreed upon in writing by the Parties.
The “Products” shall include any updates to or enhancements of the Product.  
1.14   “Project” or “Projects” means the Project or Projects and related plans
as identified in Section 9.3, or as agreed to by the Parties from time to time.
  1.15   “Project Manager” means that certain manager referenced in Section 9.2
and identified in Exhibit C.   1.16   “Purchase Order” or “Purchase Orders”
shall have the meaning provided in Section 4.2.   1.17   “Software Programs”
means firmware embedded in the Product(s).   1.18   “Specifications” shall mean
the Product and design and manufacturing specifications which are set forth in
Exhibit D.   1.19   “Technical Evaluation” shall mean the testing and evaluation
of Manufacturer’s test product for compliance with specification, quality, and
suitability in accordance with the process and dates outlined in the
Specifications or Project Plan.   1.20   “Warranty Period” shall mean sixteen
(16) months after shipment to PDI’s

-3-

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

 

end-user.
SECTION 2
DEVELOPMENT OF THE PRODUCTS

2.1   Develop Products to Specifications. The Products shall be designed and
developed by Manufacturer in accordance with the agreed-upon Specifications
listed in Exhibit A, the Project Plans and in accordance with Technical
Evaluation document (Exhibit *)   2.2   Exclusive Rights to NRE and the
Products. Manufacturer acknowledges and hereby agrees that PDI shall solely and
exclusively have the rights to the NRE, the Products and the Intellectual
Property in and to the Products. Manufacturer shall not, without PDI’s prior
written consent, sell or otherwise use the NRE and the Intellectual Property in
and to the Products for any other products without the prior written consent of
PDI. Manufacturer hereby agrees to assign and does hereby expressly assign to
PDI all Intellectual Property in and to the NRE and the Products unless the
Parties agree otherwise in writing prior to the commencement of the design of
such Products. Manufacturer shall assist PDI in every reasonable way, at PDI’s
expense, to secure, perfect, register, maintain, and defend for PDI’s ownership
and benefit in and to the NRE and the Products. Manufacturer hereby irrevocably
agrees not to assert against PDI, its Affiliates, direct or indirect customers,
assignees or sublicensees, any claim of intellectual property rights of
Manufacturer affecting the NRE or the Products. This Section 2.2 shall survive
the termination of the Agreement. Manufacturer shall not reverse engineer any
products of intellecutal property provided by PDI.

SECTION 3
MANUFACTURE OF PRODUCTS

3.1   Manufacture and Purchase. Subject to Manufacturer meeting and passing the
Technical Evaluation Exhibit *as shown in the Project Plan Exhibit B,
Manufacturer hereby agrees to manufacture and sell to PDI such quantities of the
Product(s) for which PDI issues Purchase Orders (defined herein) pursuant to
this Agreement. Manufacturer shall manufacture the Product(s) in accordance with
the Specifications. Manufacturer further agrees that it shall not, without PDI’s
prior written consent, sell or otherwise use the PDI Intellectual Property for
any other Product(s).

3.2   Support and Training. Manufacturer shall provide PDI employees,
consultants or agents with such training related to the manufacturing, operation
and any other technical information relating to the Product(s) as PDI may
reasonably deem

-4-

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

 

    necessary to assist PDI in the integration and assembly of the Product(s)
with other components. Without limiting the foregoing, Manufacturer can provide
for each Product a detailed manufacturing process or instructions at a
predetermined cost agreed to by both Parties. Manufacturer is willing to provide
field support upon PDI’s request, subject to agreed cost.   3.3   Compliance
with Laws. Manufacturer’s performance under this Agreement shall comply with all
applicable standards, provisions and stipulations of Taiwan and the United
States (including federal, state and local) laws, rules, regulations and
ordinances applicable to performance under this Agreement. Manufacturer shall
submit to PDI on a timely basis all information concerning the existence, if
any, of Hazardous Substances contained within the Product(s) in a form and
content as required by PDI.   3.4   Changes to Specifications. PDI may from time
to time request that modifications, alterations or changes be made to the design
of the Product(s) as reflected in the Specifications. Such modifications,
alterations or changes may originate with PDI or may be recommended by
Manufacturer. Within thirty (30) days following Manufacturer’s receipt of a
written request for modifications, alterations or changes from PDI, Manufacturer
shall provide PDI a binding estimate of the cost of such modifications,
alterations or changes and a total increase or decrease in the price of the
Product(s). If PDI approves the binding estimate, Manufacturer shall make such
modifications, alterations or changes as soon as practicable upon receipt of
such written consent from PDI. Manufacturer shall not make any modifications,
alterations or changes to the Specifications without the prior written consent
of PDI.   3.5   Other Changes. Manufacturer shall advise PDI in writing of any
material changes to manufacturing processes, Materials, sources of supply,
process chemistries, test procedures, quality reporting or other major
processes, and ensure that any such changes do not compromise the
Specifications, quality, or reliability of Product(s) ordered pursuant to this
Agreement. In the case of changes to Materials or sources of supply,
Manufacturer shall make best efforts to notify PDI at least sixty (60) days
prior to the effectiveness of such change; provided, however, that in any event,
the notice shall not occur later than twenty-four (24) hours following
Manufacturer’s determination of the same. If such change concerns any major
components or involves a substantial change, Manufacturer shall notify PDI while
the change is under consideration by Manufacturer. Manufacturer may not make any
such changes without prior written consent from PDI. To the extent the
Specifications need to be changed to comply with a license or to avoid a valid
utility patent, design patent, copyright or other intellectual property right,
Manufacturer shall advise PDI in writing of such “Necessary Patent-Related
Changes” including the circumstances giving rise to such changes, and await
PDI’s written consent before proceeding further.   3.6   Subcontracting.
Manufacturer may engage subcontractors or vendors to provide components or
subassemblies for the Product(s), provided that Manufacturer

-5-

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

 

    provides PDI with written notice of such subcontractors or vendors at least
twenty-four (24) hours prior to such engagement. Manufacturer shall not engage
any subcontractor to manufacture the Product(s) without PDI’s consent.   3.7  
Tooling and Non-Recurring Expenses. If PDI provides non-Product and
Product-specific tooling at its own expense, all Product-specific tooling and
molds shall be the exclusive personal property of PDI, and Manufacturer hereby
assigns all right, title and interest in same to PDI. In the event of
termination, in accordance with Section 15.2, all tools and molds which are the
property of PDI shall be delivered to PDI at Manufacturer’s sole cost and
expense.

SECTION 4
SUPPLY AND ORDER FOR PRODUCTS

4.1   Forecasts. PDI shall use reasonable efforts to provide Manufacturer with
reasonable estimates of its forecast of anticipated orders for the Product(s) on
a monthly basis showing monthly quantities for a maximum of 12 months. Forecast
information shall be non-binding, for planning purposes only, and shall not
represent PDI’s commitment to purchase any or all units, except as otherwise
specifically agreed in writing by PDI.

PDI will also provide Manufacturer with a master schedule showing (a) type
information for Materials and Consigned Materials (i.e. stage, lens and laser
payload assemblies), (b) arrival dates for Consigned Materials (i.e. stage and
payload assemblies), (c) customer acceptance test procedure dates, and
(d) shipment dates for the Product(s).   4.2   Purchase Orders. PDI shall submit
purchase orders (“Purchase Orders”) to Manufacturer for the Product(s) at least
14 weeks prior to required shipment and will include, at a minimum, the
following information: (a) identification of the Product(s) ordered; (b)
quantity; (c) delivery date; and (d) shipping instructions and shipping address.
PDI does not guarantee any particular sales volume with respect to the
Product(s). In the event of any conflict between the terms and conditions of
this Agreement and any Purchase Order, the terms and conditions of this
Agreement shall control.   4.3   Product and Materials Lead Times; Inventory
Report.

  4.3.1   Lead times for Purchase Orders shall be agreed to by the Parties.
Manufacturer shall provide timely written notice to PDI in the event that a
change is necessary to lead time requirements.     4.3.2   Manufacturer shall
give PDI written notice, from time to time, of any desired change in the order
quantities, order lead time, cancellation lead time or cancellation terms.
Manufacturer shall continue to manufacture under the new order lead time,
cancellation lead time or terms, if and only if, a written agreement is provided
to Manufacturer by PDI. Such written

-6-

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

 

      agreement shall also obligate PDI to the revised cancellation lead time or
cancellation terms.     4.3.3   If requested by PDI, Manufacturer shall provide
PDI with a bi-weekly inventory report for all finished goods, work in progress,
Materials and other component parts (e.g., Consigned Materials) in its
possession. Failure to provide such report shall relieve PDI from any liability
it would otherwise have hereunder for canceling Purchase Order commitments,
failing to issue Purchase Orders consistent with agreed Non-Binding Forecasts,
or otherwise upon termination of this Agreement for any reason.

4.4   Acceptance of Orders. All Purchase Orders issued in accordance with this
Agreement shall give rise to a binding contract between Manufacturer and PDI for
the sale of the Product(s) ordered subject to and governed by the terms of this
Agreement. Purchase Orders shall become binding on the Parties upon acceptance
thereof by Manufacturer. Manufacturer shall be deemed to have accepted a
Purchase Order if Manufacturer fails to reject the Purchase Order by notifying
PDI in writing within forty-eight (48) hours of its receipt thereof, not
including weekends and the nationally recognized holidays of the United States
or the country of manufacture. PDI may cancel a Purchase Order without penalty
or liability if PDI reasonably determines in its sole and absolute discretion
that delivery to PDI shall be delayed beyond thirty days (30) from the date of
the acceptance of the Purchase Order or Manufacturer is otherwise unable to make
delivery in conformance with the Purchase Order, Specifications, or performance
or quality standards.   4.5   Rescheduling of Delivery Dates. PDI may reschedule
delivery of units of Product(s) up to one (1) month after the delivery date
specified on a Purchase Order, unless shipment has already occurred, by sending
Manufacturer a written change order or by canceling the old Purchase Order and
sending a new Purchase Order(s). Rescheduling of delivery of Product(s) beyond
this one (1) month limitation shall only be made with the written approval of
each of the Parties. Rescheduling of delivery of Product(s) earlier than the
delivery date specified on a Purchase Order shall only be made with the written
approval of each of the Parties.   4.6   Purchase Order Cancellations. If PDI
wishes to cancel (as opposed to reschedule a delivery) a certain quantity of
units of Product(s) ordered pursuant to a Purchase Order, Manufacturer, upon
receipt of such written notice of such cancellation, shall immediately stop work
on such units of Product(s) to the extent specified therein. PDI’s liability for
a cancellation shall be limited to the following:

4.6.1 Manufacturer shall make its reasonable best effort to manage the
disposition and liability of all industry standard Materials to limit expense or
liability to PDI (i.e., all non-Unique Materials).
4.6.2 PDI shall be liable to Manufacturer if a Purchase Order is cancelled-for
the

-7-

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

 

    cost of unique materials related to such a Purchase Order at Manufacturer’s
cost and without any overhead or profit markup.   4.7   Shipment. All Product(s)
sold by Manufacturer to PDI shall be prepared for shipment in accordance with
PDI’s instructions as set forth in the Purchase Orders.

  4.7.1   Time is of the Essence. TIME IS OF THE ESSENCE OF THIS AGREEMENT WITH
RESPECT TO THE SPECIFIED DELIVERY DATES.     4.7.2   Risk of Loss. PDI assumes
all risk of loss and damage upon Manufacturer’s shipment of the Product(s) to
PDI or its designated carrier or agent.     4.7.3   Packaging and Labeling.
Manufacturer shall package and label the Product(s) and prepare the Product(s)
for shipment in accordance with all applicable laws, regulations and industry
standards in the countries of manufacture and distribution. Such laws, rules and
industry standards include, but are not limited to, the laws, rules and industry
standards of country of origin designation and include the rules and regulations
promulgated by the government of taiwan, the U.S. Customs and Border Protection,
the U.S. Department of Homeland Security, all requirements under the U.S. Fair
Packaging and Labeling Act, U.S. Federal Communication Commission, U.S. Food and
Drug Administration and other applicable government agencies of the U.S., and
other countries, including Korea, of intended distribution.

4.8 Quality Acceptance.

  4.8.1   Inspections at Manufacturer’s Facility. PDI shall have the right to
perform vendor qualifications and/or on-site source inspections at
Manufacturer’s manufacturing facilities and Manufacturer shall reasonably
cooperate with PDI in such inspection. In the event that an inspection or test
is required to be made by PDI on Manufacturer’s manufacturing facilities,
Manufacturer shall provide PDI’s inspectors with reasonable facilities and
assistance at no additional charge.     4.8.2   Epidemic Failure. In the case of
an Epidemic Failure of Materials, Manufacturer shall, within five (5) business
days, propose an action plan to fix the failure of any affected Product(s) and
to implement this action plan immediately upon PDI’s acceptance thereof. If the
action plan is not acceptable to PDI, PDI can require Manufacturer to repair or
replace, at Manufacturer’s option, the affected Product(s). The repair or
replacement shall be done at mutually agreed-upon location(s); provided,
however, that costs of repair or replacement, together with the shipping,
transportation

-8-

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

 

and other costs of gathering and redistributing the Product(s), shall be borne
by Manufacturer. In addition to bearing the costs associated therewith, if
requested by PDI, Manufacturer shall support and provide at Manufacturer’s
expense a sufficient number of parts[cl] to permit the field exchange or “hot
swap” of Product(s) at customer sites. The Parties agree to make all reasonable
efforts to complete the repair or replacement of all of the affected Product(s)
within twenty (20) business days after written notice of Epidemic Failure by PDI
to Manufacturer. Manufacturer agrees that PDI shall be supported with
accelerated shipments of replacement Product(s) to fulfill PDI’s supply
requirements.

4.9   Inspection and Acceptance. PDI or a PDI representative shall conduct any
incoming inspection tests on the Product(s) prior to authorizing shipment from
Manufacturer’s facility. Such inspection shall occur no later than 48 hours from
the time Manufacturer declares the product complete and ready for inspection.
PDI shall have the right to reject any Product that does not meet the
Specifications (“Nonconforming Product”) and shall provide Manufacturer with
information as to the reason for the rejection of the Nonconforming Product. At
PDI’s option, Manufacturer shall either (a) promptly replace the Nonconforming
Product without additional cost to PDI, permit PDI to issue a debit memorandum
to Manufacturer for the purchase price of the Nonconforming Product, and shall
re-invoice PDI for the Product shipped to replace the Nonconforming Product at
the time of shipment of the replacement product; or (b) credit PDI for the
purchase price of the Nonconforming Product and related shipping charges after
receipt of PDI’s debit memorandum related to such Nonconforming Product. At
Manufacturer’s request and expense, PDI shall return all rejected Product(s) to
Manufacturer.

  4.9.1   Upon inspection and acceptance by PDI, products shipped by Manufacture
from Manufacturer’s facility will become responsibility of PDI for loss, damage,
or any quality issues.

4.10   Purchase by PDI’s Authorized Third Parties or Affiliates. Manufacturer
hereby agrees that all of the PDI’s Authorized Third Parties or Affiliates,
wherever located, shall be entitled to make purchases under this Agreement (at
the same price and in accordance with same terms negotiated by PDI, as
applicable), and all such purchases shall apply to the purchase commitments
hereunder, if any. With respect to any purchases made by Authorized Third
Parties or Affiliates, the terms and conditions of this Agreement shall govern
provided that all references to “PDI” contained in this Agreement shall refer to
the Authorized Third Party or Affiliate, as applicable.   4.11   Programming,
Operating Systems, Software. If applicable, procurement of all computer
programming, operating systems, or other software shall be the responsibility of
Manufacturer. Including any third party software embeded in the and part of
Product. Any restrictions or payment obligations imposed by the

-9-

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

 

original source on Manufacturer’s or PDI’s use or handling of such programming
shall be approved in writing by PDI. There shall be no payment or reimbursement
obligation on PDI’s part for programming obtained or provided by Manufacturer
unless such payments or reimbursements are approved in writing by PDI which
indicates that PDI has accepted such obligation.
SECTION 5
PRICES AND PAYMENTS
Prices. The pricing model for all Product(s) sold by Manufacturer to PDI shall
be as set forth in Exhibit B or as otherwise agreed in writing by the Parties
from time to time. Prices may be decreased at any time upon agreement by the
Parties. A price increase can only take effect if Manufacturer gives at least
ninety (90) days’ prior written notice of the effective date of such increase.
In no event, however, shall a price increase affect (a) a Purchase Order
accepted by Manufacturer prior to the effective date of such price increase; or
(b) a prior agreement between the Parties concerning Purchase Orders to be
placed by PDI during a period in which prices are to remain firm. All
transactions shall be valued and paid in United States currency and shall be
invoiced and payment remitted in the United States.

5.1   Most Favored Nation Requirement. Manufacturer warrants that the prices for
the Product(s) do not, and at all times shall not, exceed Manufacturer’s price
to any other customer for a substantially similar product in substantially
similar volumes, and under commercial terms and conditions similar to those of
this Agreement.   5.2   Additional Payments. If additional payments shall be or
have been made to Manufacturer by PDI in connection with this Agreement for
items such as assists (e.g., tooling, molds, dies, Materials, or components
provided for incorporation in or manufacture of the Product(s)), royalties,
packing, selling commissions, or other incidental charges, such additional
value(s) shall be separately itemized and identified on Manufacturer’s
commercial invoice. Manufacturer’s invoices shall not indicate a nominal value
for Product(s), but shall indicate the invoice price charged to PDI, or if
shipment is one of multiple shipments required under a single Purchase Order,
the value shall be stated as the actual value of the Product(s) with respect to
each shipment. If Manufacturer ships sample goods to PDI, a fair market value
shall be stated on the commercial invoice for customs purposes.   5.3   Payment
Terms. Manufacturer shall invoice PDI for the Purchase Order upon PDI acceptance
of Product(s). PDI shall pay amounts due in each such invoice within thirty (30)
days.   5.4   Taxes. Manufacturer’s prices do not include any goods and services
taxes or any sales, use, excise, or similar taxes unless expressly indicated in
writing.   5.5   Right to Make Offset. If Manufacturer’s fails to resolve any
invoice or payment related issues with PDI after 30 days from receipt of a
written claim by PDI, PDI

-10-

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

 

may offset from Manufacturer’s invoice any current or future indebtedness of
Manufacturer to PDI. Manufacturer agrees to not contest PDI’s deduction if
Manufacturer fails to send a written denial thereof, including all supporting
documentation, to PDI within sixty (60) days of the date of deduction (PDI’s
check date). Such written denial shall be made by Manufacturer by submitting
notice to PDI under the notice provisions of this Agreement.

5.6   Statement of Account. From time to time upon request by PDI, Manufacturer
shall provide a complete statement of account that shall include, but not be
limited to, unpaid invoices and disputed deductions. Such statement of account
shall also disclose all credit memos issued and outstanding. The statement of
account shall be forwarded by electronic mail in spreadsheet format or by
regular mail per PDI’s instructions. Statements for merchandising/inventory
accounts shall be separate from any statement of account for parts purchased by
PDI for Product service and out-of-warranty repairs.

5.7   Debit Balances. If Manufacturer is indebted to PDI but there is no
outstanding balance due to Manufacturer, Manufacturer shall pay the amount due
to PDI via check or wire transfer in full within thirty (30) days of receipt of
notification thereof from PDI. If the amount in question is disputed, the
Parties agree to work in good faith to reconcile the matter so that payment to
PDI of any undisputed amount shall be made within sixty (60) days of PDI’s
original notice to Manufacturer. In no event shall PDI be obligated to take a
credit against future purchases.

5.8   Cost Reduction Plans. Manufacturer shall develop a cost reduction plan for
all products based on material and labor cost reductions. Such plans shall be
reviewed by both Parties and mutually agreed upon twice a year, The goal for
cost reduction is 5% (five percent) annually, but Manufacturer does not
guarantee that such 5% cost reductions can be achieved annually.

SECTION 6
WARRANTIES

6.1   Representations and Warranties of Manufacturer. Manufacturer represents
and warrants to PDI as follows:

  6.1.1   Manufacturer has the authority to enter into this Agreement and to
manufacture and sell the Product(s) to PDI and that the persons signing this
Agreement on behalf of Manufacturer are authorized to sign;     6.1.2  
Manufacturer possesses all necessary permits, licenses, or clearances required
to perform its obligations hereunder, including Taiwan and other governmental
approvals required to perform its obligations under this Agreement;     6.1.3  
the Product(s) shall be free and clear of all liens, charges, encumbrances, or

-11-

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

 

      other restrictions;

  6.1.4   the Product(s) shall be free from defects in design manufacture,
materials and workmanship for a period equal to the lesser of (i) the warranty
period provided to end-users by PDI, plus one (4) month; or (ii) maximum
warranty not to exceed twenty-four (24) months from agreed upon PO shipment
date.     6.1.5   the Product(s) shall be fit and safe for the use(s) normally
and reasonably intended;     6.1.6   the Product(s) are of merchantable quality
and shall perform in conformance with Specifications (including any identified
“Useful Life”) and Manufacturer samples;     6.1.7   Manufacturer shall comply
with all applicable laws and regulations in performing its obligations under
this Agreement, including but not limited to laws and regulations pertaining to
product design, manufacture, packaging and labeling and, if applicable,
importation and the Foreign Corrupt Practices Act;     6.1.8   the Product(s)
and all Materials provided to PDI under this Agreement are new Product(s) and do
not contain anything used, refurbished or reconditioned;     6.1.9   all
Product(s), unless specifically exempted under the applicable customs laws and
regulations, shall be marked in a conspicuous place as legibly, indelibly, and
permanently as the nature of the article (or container) shall permit, with the
country of origin;     6.1.10   the Product(s) are not supplied by the use of
forced labor, convict labor or forced or illegal child labor and that the
Product(s) were not trans-shipped for the purpose of mislabeling, evading quota
or country of origin restrictions or for the purpose of avoiding compliance with
forced labor, convict labor or child labor laws;

6.2   Representations and Warranties of PDI. PDI represents and warrants to
Manufacturer as follows:

  6.2.1   the Specifications and other intellectual property provided by PDI to
manufacturer do not infringe the intellectual property rights of any third
party, including without limitation, any utility patent, design patent, trade
secret or other intellectual or proprietary rights; and     6.2.2   that the
persons signing this Agreement on behalf of PDI are authorized to sign on its
behalf.

-12-

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

 

6.3   Warranty Exclusions:

  6.3.1   MANUFACTURER MAKES NO WARRANTIES, GUARANTEES OR REPRESENTATIONS,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY PRODUCT(S) SOLD TO PDI EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT. ALL OTHER WARRANTIES ARE EXPRESSLY WAIVED
AND EXCLUDED, INCLUDING, BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.     6.3.2   MANUFACTURER
SHALL HAVE NO WARRANTY RESPONSIBILITY FOR CONSIGNED MATERIALS, BUT MANUFACTURER
AGREES TO COOPERATE IN PROCESSING APPLICABLE THIRD-PARTY WARRANTY CLAIMS AND IN
TAKING ADVANTAGE OF REMEDIES, IF ANY, AVAILABLE FROM THE ORIGINAL SOURCES OF
SUCH CONSIGNED MATERIALS.     6.3.3   PDI MAKES NO WARRANTIES, GUARANTEES, OR
REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE SPECIFICATIONS, AND
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES RELATING TO THE SPECIFICATIONS OR THE
PRODUCT(S) INCLUDING ANY WARRANTY AGAINST INFRINGEMENT.     6.3.4   IN NO EVENT
SHALL THE PARTIES BE LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL (INCLUDING,
WITHOUT LIMITATION, LOST REVENUES OR PROFITS), PUNITIVE, OR EXEMPLARY DAMAGES,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

    EXCEPT FOR ITS OBLIGATIONS UNDER THIS SECTION, AND EXCLUDING ANY THIRD-PARTY
CLAIM OF ANY KIND RELATED TO THIS AGREEMENT, THE PARTIES’ LIABILITY TO EACH
OTHER, WHETHER FOR BREACH OF CONTRACT OR WARRANTY, STRICT LIABILITY, NEGLIGENCE
OR OTHERWISE SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE AGGREGATE OF INVOICED
COSTS PAID BY PDI TO MANUFACTURER FOR ALL PRODUCTS FOR THE IMMEDIATE TWELVE
(12) MONTH PERIOD.

SECTION 7
INDEMNIFICATION

7.1   Indemnification by Manufacturer. Manufacturer shall indemnify, defend and
hold harmless PDI, its parent and each of its Affiliates, subsidiaries,
officers, directors, employees, consultants, agents and shareholders from and
against and in

-13-

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

 

    respect of any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, interest and penalties, costs and
expenses (including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith and in seeking indemnification therefore, and
any amounts or expenses required to be paid or incurred in connection with any
action, suit, proceeding, claim, appeal, demand, assessment or judgment)
(“Indemnifiable Losses”), resulting from, arising out of, or imposed upon or
incurred by any person to be indemnified under this Section 7.1 by reason of
(a) any breach of representation, warranty, covenant or agreement on the part of
Manufacturer under this Agreement; (b) acts or omissions of Manufacturer
relating to the Product(s) which includes, but is not limited to, claims that
the Product(s), or use thereof, caused personal injury, death, or real or
personal property damage to the extent not attributable to Consigned Materials
or PDI Proprietary Specifications; (c) a Product recall, whether or not
initiated by Manufacturer to the extent not attributable to Consigned Materials
or PDI Proprietary Specifications; (d) an allegation that any Product
constitutes an infringement of any patent or any other intellectual property
right protected under the laws of the United States, any State of the United
States, or any other country, including Taiwan, to the extent not attributable
to PDI Proprietary Specifications; (e) the negligence or willful misconduct of
Manufacturer; (f) any retroactive antidumping duties payable by PDI; and
(g) acts or omissions that cause difficulty, delay or inability of PDI to import
the Product(s) into the United States or other country of importation and/or to
comply with applicable import regulations; provided that in no event shall
Manufacturer be liable for PDI’s lost profits, consequential, punitive or
exemplary damages.   7.2   Indemnification by PDI. PDI shall indemnify, defend
and hold harmless Manufacturer and each of its Affiliates, subsidiaries,
officers, directors, employees, consultants, agents and shareholders from and
against and in respect of any and all Indemnifiable Losses resulting from,
arising out of, or imposed upon or incurred by any person to be indemnified
under this Section 7.2 by reason of (a) any breach of representation, warranty,
covenant or agreement on the part of PDI under this Agreement; or (b) the gross
negligence or willful misconduct of PDI; provided that in no event shall PDI be
liable for Manufacturer’s lost profits, consequential, punitive or exemplary
damages.   7.3   Third Party Claims. If a claim by a third party is made against
an indemnified Party and if the indemnified Party intends to seek indemnity with
respect thereto under this Section 7, such indemnified Party shall promptly
notify the indemnifying Party of such claim; provided, however, that failure to
give timely notice shall not affect the rights of the indemnified Party so long
as the failure to give timely notice does not adversely affect the indemnifying
Party’s ability to defend such claim against a third party. The indemnifying
Party shall be entitled to assume the defense thereof, with counsel selected by
the indemnifying Party and reasonably satisfactory to the indemnified Party. The
indemnifying Party shall have control of the defense of any such action,
including any appeals and negotiations for the settlement or compromise thereof
and shall have full authority

-14-

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

 

    to enter into a binding settlement or compromise; provided that, the
indemnifying Party shall not enter into any settlement or compromise which may
adversely affect the indemnified Party without the indemnified Party’s consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
assumes the defense of such claim, the indemnifying Party shall not be
responsible for any legal or other expenses subsequently incurred by such
indemnified Party in connection with the defense thereof. The indemnified Party
may participate, at its own cost and expense, in the defense of any such claim;
provided that such defense shall be controlled by the indemnifying Party.   7.4
  Cooperation as to Indemnified Liability. Each Party hereto shall cooperate
fully with the other Party with respect to access to books, records, or other
documentation within such Party’s control, if deemed reasonably necessary or
appropriate by any Party in the defense of any claim which may give rise to
indemnification hereunder.

SECTION 8
RETURNS & DEFECTIVE MATERIALS

8.1   General. PDI shall have the right to return at Manufacturer’s expense, and
for full credit or refund of PDI’s cost, any Products other than provided in
8.1.1 that (a) are not developed, manufactured, supplied, packaged, or labeled
in accordance with the Specifications and all applicable laws, rules,
regulations and industry standards; (b) are shipped in error or in
non-conformance with PDI’s Purchase Order; (c) have caused injury to person or
property; (d) are damaged; (e) are supplied in breach of Manufacturer’s warranty
as provided herein; or (g) are returnable as a defective Product, subject to the
terms of Section 8.2 below.     8.1.1 Consigned Materials. Consigned Materials
shall not be capable of being returned for credit. Any Consigned Materials which
are damaged after acceptance by Manufcaturer and before acceptance by PDI in the
finished product shall the repsonsibility of the Manufacturer   8.2   Return
Procedures. If a Manufacturer Return Authorization (“MRA”) is first required by
either Party prior to PDI’s return of Product(s) to Manufacturer, Manufacturer
agrees to provide a unique MRA number to PDI within forty-eight (48) hours of
PDI’s request. Manufacturer shall allow delivery of the return Product(s) as of
the day the MRA is issued to PDI. If Manufacturer requires that PDI make an
appointment to deliver returned Product(s), such appointment shall be provided
by Manufacturer within three (3) days of the carrier’s expected arrival time.
See Exhibit G for MRA procedures.   8.3   Returns; Defective Products. The
Parties agree that returns shall be governed by a “Return” and “Defective
Allowance” procedures with respect to the handling and responsibility of
end-user returns and defective Product(s) as specified in Exhibit G.

-15-

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

 

8.4   Return. Unless otherwise agreed to in writing, for a period not to exceed
the warranty period specified in Section 8.2 hereof, PDI may return to
Manufacturer any Product(s) either determined by PDI to be defective or claimed
by an end-user to be defective (returns to Manufacturer may therefore include
Product(s) that are not, in fact, defective). PDI may seek credit or exchange
for such returned Product(s) upon mutual agreement that Manufacturer is at
fault.   8.5   At the request of PDI or its designated agent, Manufacturer shall
ship parts and assemblies for the Product(s) that are the equivalent in
specifications and quality to the original parts supplied with the Product(s).
At the request of PDI, Manufacturer shall maintain an inventory of general
replacement parts or special parts as forecasted by PDI. During such time,
Manufacturer shall supply parts to PDI or its designated agent at reasonable,
competitive rates as may be necessary to perform out-of-warranty repairs for
systems deemed not “End of Life”. As required, the Parties will enter into
separate agreement(s) covering spare parts and refurbished assemblies.

SECTION 9
CONSULTING DESIGN AND ENGINEERING SERVICES
PDI may engage Manufacturer to render consulting, design or engineering services
in connection with Product(s) to be manufactured hereunder. In the event that
PDI desires to engage Manufacturer to render such services, the Parties shall
execute a Project Plan which shall include a description of the services to be
rendered, any milestones or delivery dates, payment terms or other terms
relevant to such engagement. To the extent the results of Manufacturer’s
performance of such services may constitute “work made for hire” for PDI under
the USA Copyright Revision Act of 1976, as amended from time to time, then such
work shall be considered “work made for hire” by the Parties.
SECTION 10
ADDENDA: SUPPLY CHAIN SECURITY REQUIREMENTS

10.1   Addenda. PDI and Manufacturer may agree upon certain business terms from
time to time concerning matters such as Product(s), pricing, market, invoice
credit terms, and the like. Such terms shall be contained in one or more written
addenda to this Agreement, each of which shall be considered an addendum hereto
and may be identified as Exhibits to this Agreement. In the event of conflict
between business terms of any addendum and this Agreement, the business terms
contained in such addendum shall control.   10.2   Supply Chain Security. PDI
supports the U.S. Customs and Border Protection (“CBP”) Customs-Trade
Partnership Against Terrorism, commonly referred to as “C-TPAT” and similar
programs in Taiwan promulgated by the Taiwan

-16-

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

 

    government. PDI requires foreign suppliers of imported goods to scrutinize,
and, where necessary, develop sufficient security measures within, their own
supply chain. More information about C-TPAT can be found at www.cpb.gov. In
particular, Manufacturer agrees to implement Customs’ Security Recommendations
for manufacturers as set forth as part of the Supplier Compliance Standards
attached hereto as Exhibit H.

SECTION 11
INTELLECTUAL PROPERTY; TRADEMARKS

11.1   Intellectual Property. It is acknowledged and hereby agreed by the
Parties that all rights to sell, price, market, license, distribute, or
manufacture the Products or any Intellectual Property related thereto remain, as
between Manufacturer and PDI, wholly and exclusively owned by PDI.
Notwithstanding the foregoing, PDI acknowledges that the Products are assembled
using common industry modular assembly methods and that PDI has no proprietary
rights in such methods and that Manufacturer may continue to use such methods in
constructing other products.   11.2   Use of Trademarks. PDI hereby grants to
Manufacturer, and Manufacturer hereby accepts, a nonexclusive, nontransferable
and royalty-free right and license to use PDI’s trademarks in connection with
the manufacturing and packaging of the Products for so long as the PDI’s
trademarks are used by Manufacturer in accordance with PDI’s standards,
specifications and instructions, but in no event beyond the term of this
Agreement. Manufacturer shall acquire no right, title or interest in PDI’s
trademarks other than the foregoing limited license, and Manufacturer shall not
use any PDI Trademarks as part of Manufacturer’s corporate or trade name or on
products not specifically authorized by PDI in writing or permit any third party
to do so.   11.3   Termination of Use. Manufacturer acknowledges PDI’s
proprietary rights in and to PDI’s trademarks and Manufacturer hereby waives in
favor of PDI ail rights to any trademarks, trade names and logotypes now or
hereafter originated by PDI. Manufacturer shall not adopt, use or register any
words, phrases or symbols that are identical to or confusingly similar to any of
PDI’s trademarks or trade names in the United States and internationally. Upon
termination of this Agreement, Manufacturer shall cease and desist from use of
PDI’s trademarks and trade names in any manner.   11.4   Change in
Specifications. To the extent the Specifications need to be changed, altered or
modified, as provided in Section 3.5 above, to comply with a license or to avoid
a valid utility patent, design patent, copyright or other intellectual property
right, Manufacturer shall advise PDI in writing of such “Necessary
Patent-Related Changes” including the circumstances giving rise to such changes.
  11.5   Programming, Operating Systems, Software. If applicable, procurement of
all

-17-

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

 

    computer programming, operating systems, or other software shall be the
responsibility of Manufacturer, or PDI upon PDI’s written consent thereof.
Restrictions or payment obligations may be imposed by the original source on
Manufacturer’s or PDI’s use or handling of such programming. There shall be no
payment or reimbursement obligation on PDI’s part for programming obtained or
provided by Manufacturer unless such payments or reimbursements are approved in
writing by PDI which indicates that PDI has accepted such obligation.

SECTION 12
CONFIDENTIALITY

12.1   Confidentiality. Each Party agrees, during the term of this Agreement and
for a period of three (3) years thereafter, it shall not use any Confidential
Information (as defined below) for any purpose other than as permitted or
required for performance by such Party under this Agreement, nor shall it
disclose or provide any Confidential Information to any third party. Each Party
shall take all necessary measures to prevent any such disclosure by its
employees, agents, contractors or consultants. Upon request of the other Party
or upon termination of this Agreement, each Party shall return all such
Confidential Information to the other Party.

12.2   Confidential Information. This Agreement and any information marked as
confidential or, regardless of form (written/electronic/oral) or marking, is of
the nature that a reasonable person would understand its owner would not want it
disclosed to the public shall be considered to be Confidential Information.
Further, Confidential Information shall also include (a) any document or data
transaction between the Parties; (b) matters of a technical nature such as trade
secret processes or devices, know-how, data, formulas, inventions (whether or
not patentable or copyrighted), specifications and characteristics of Product(s)
or services planned or being developed, and research subjects, methods and
results; (c) matters of a business nature such as information about costs,
profits, pricing, policies, markets, sales, PDI’s customers (e.g., names and
addresses), Product plans, and marketing concepts, plans or strategies;
(d) matters relating to project initiatives and designs; (e) matters of a human
resources nature such as employment policies and practices, personnel
information, including individual names, addresses, and telephone numbers,
compensation, and employee benefits; and (f) other information of a similar
nature not generally disclosed to the public. Confidential Information shall not
include information that:

  12.2.1   was already in the possession of the Receiving Party prior to its
receipt from the Disclosing Party (provided that the Receiving Party is able to
provide the Disclosing Party with reasonable documentary proof thereof);    
12.2.2   is or becomes part of the public domain by reason of acts not
attributable to the Receiving Party;

-18-

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

 

  12.2.3   is or becomes available to the Receiving Party from a source other
than the Disclosing Party which source, to the best of the Receiving Party’s
knowledge, has rightfully obtained such information and has no obligation of
non-disclosure or confidentiality to the Disclosure Party with respect thereto;
    12.2.4   is made available on an unrestricted basis by the Disclosing Party
to a third party unaffiliated with the Disclosing Party; and     12.2.5   has
been or shall be publicly disclosed by reason of legal, accounting or regulatory
requirements beyond the reasonable control, and despite the reasonable efforts
of the Receiving Party.

12.3   Manufacturer Information. Any unpatented knowledge or information
concerning Manufacturer’s manufacturing processes for the Product(s) that
Manufacturer may disclose to PDI or its employees shall, unless specifically
agreed in writing, be deemed to have been disclosed as a part of the
consideration for this Agreement. Manufacturer agrees not to assert any claim
against PDI by reason of any use or alleged use to which any such information or
knowledge may be put by PDI. Manufacturer hereby assigns to PDI all of its
right, title and interest in and to any technology, concepts, data, information
or knowledge relating to modifications of, or enhancements to, the Product(s) or
the process by which it is manufactured and assembled developed by Manufacturer
in response to a request by PDI during the term of this Agreement.   12.4  
Privacy. Manufacturer shall respect and preserve the strict confidentiality and
privacy of all personally-identifiable information in respect of any customer,
employee or other identifiable individual related to PDI (“Personal
Information”). Personal Information shall be considered Confidential Information
for purposes of this Section 12. Manufacturer shall comply with, and shall
co-operate with and assist PDI to comply with, all provincial, state, federal
and other laws applicable to the Personal Information as amended from time to
time and PDI’s privacy policy. Manufacturer shall only use the Personal
Information for lawful and legitimate business purposes associated with the
performance of Manufacturer’s obligations under this Agreement or as otherwise
consented to in writing and in advance by PDI. Without limiting the generality
of the foregoing, Manufacturer shall:

12.4.1 not sell, trade, lend or otherwise voluntarily disclose any Personal
Information to any entity other than PDI; and
12.4.2 establish and maintain adequate security safeguards to ensure that
Personal Information is not vulnerable to unauthorized access and use and is not
disclosed or used in a manner contrary to this Agreement or applicable law.

12.5   PDI may immediately terminate, cancel and revoke Manufacturer’s right to
use any

-19-

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

 

or all of the Personal Information at any time and for any reason in PDI’s sole
discretion, with or without cause, and without any liability to Manufacturer or
any other person whatsoever, by giving notice of that cancellation to
Manufacturer. Upon receipt of such notice, Manufacturer shall immediately cease
use of the Personal Information, and shall comply with any request by PDI to
transfer the Personal Information to PDI or a third party designated by PDI and
thereafter permanently delete and destroy any or all of the Personal Information
and certify through a notary public that the Personal Information has been
permanently deleted and destroyed.
SECTION 13
AUDITS: INSPECTIONS

13.1   PDI, or its designated third-party agent, may audit the Manufacturer’s
production and quality records and inspect the Manufacturer’s facilities and
procedures. Any audit or inspection may be conducted at any time at
Manufacturer’s facilities, with at least four (4) week’s notice at PDI’s sole
cost. The audit shall not exceed twice per year. Manufacturer shall provide
PDI’s designated audit or inspection team with access to the relevant
Manufacturer’s production and quality records, facilities and procedures.   13.2
  In the event that the audit reveals that Manufacturer is not performing in
material compliance with the terms of this Agreement, then, in addition to any
other rights and remedies PDI shall have under this Agreement and applicable
laws, Manufacturer shall reimburse PDI for the costs of the audit and cure any
and all defects within five (5) days of receipt of notice from PDI.

SECTION 14
ARBITRATION AND GOVERNING LAW

14.1   Disputes. Any controversy or claim arising out of or relating to this
Agreement shall be determined by arbitration administered by HKIAC in accordance
with HKIAC Procedures for Arbitration in force at the date of this contract
including such additions to the UNCITRAL Arbitration Rules as are therein
contained (“Rules”). Such arbitration shall be conducted before an arbitral
tribunal consisting of three (3) arbitrators appointed in accordance with the
Rules. The arbitration shall be conducted in the English language. The place of
arbitration shall be Hong Kong International Arbitrations Center(“HKIAC”). Any
decision rendered by the arbitration tribunal shall be final and binding on the
Parties, and judgment thereon may be entered by any court of competent
jurisdiction. The Parties expressly agree that the arbitration tribunal shall be
empowered to award and order equitable or injunctive relief with respect to
matters brought before it.   14.2   Governing Law. This Agreement shall be
governed by, and interpreted and construed in accordance with, the laws of the
State of California, without reference

-20-

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

 

    to principles of conflicts of laws or to the United Nations Convention on
Contracts for the International Sales of Goods.

SECTION 15
TERM AND TERMINATION

15.1   Term. This Agreement shall take effect as of the date first mentioned
above and shall continue in force for a period of three (3) years from that
date. Thereafter, the Agreement shall automatically renew on an annual basis
unless either Party provides written notice to the other of its intent not to
renew at least ninety (90) days prior to the end of the then current term.  
15.2   Termination. Notwithstanding the provisions of Section 15.1, this
Agreement may be terminated in accordance with the following provisions:

  15.2.1   Either Party may terminate this Agreement at any time by giving
notice in writing to the other Party, which notice shall be effective reciept,
should the other Party cease operations, file a petition of any type as to its
bankruptcy, be declared bankrupt, become insolvent, make an assignment for the
benefit of creditors, go into liquidation or receivership, or otherwise lose
legal control of its business.     15.2.2   Either Party may terminate this
Agreement by giving notice in writing to the other Party in the event the other
Party is in material breach of this Agreement and fails to cure such breach
within fifteen (15) days of receipt of written notice thereof from the
non-breaching Party.     15.2.3   PDI may terminate this Agreement in its sole
discretion without cause upon giving sixty (60) days’ advance written notice to
Manufacturer.

15.3   Rights and Obligations on Termination. In the event of termination of
this Agreement for any reason, the Parties shall have the following rights and
obligations:

  15.3.1   Termination of this Agreement shall not release either Party from the
obligation to make payment of all amounts then or thereafter due and payable.  
  15.3.2   The terminating Party shall have the right, at its option, to cancel
any or all Purchase Orders, which provide for delivery after the effective date
of termination.     15.3.3   Notwithstanding anything to the contrary contained
herein, in no event shall either Party be obligated to issue or accept Purchase
Orders during the notice period(s) specified in this Section 15, except to the
extent that the Parties have agreed to binding forecasts or other written
agreement between

-21-

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

 

          the Parties.

  15.3.4   Upon termination of the Agreement by PDI, if Manufacturer has an
inventory of the Product(s) in its possession or control, Manufacturer shall
timely inform PDI regarding the quantity of the Product(s) in its inventory. PDI
shall purchase these Product(s) under the terms of this Agreement. Manufacturer
shall not sell the Product(s) to a third party unless PDI provides its express
written consent authorizing such sale.     15.3.5   The expiration or
termination of this Agreement shall not terminate vested rights of either Party
from any liabilities or obligations incurred under this Agreement prior to or
which by their nature are intended to survive expiration or termination,
including but not limited to, provisions relating to confidentiality,
warranties, indemnification, returns, and proprietary rights.

15.4   No Renewal, Extension or Waiver. Acceptance of the Product(s) by PDI
after the date of termination of this Agreement shall not be construed as a
renewal or extension hereof, or as a waiver of termination by PDI.

SECTION 16
MISCELLANEOUS

16.1   Regulatory Approvals. The Parties shall cooperate with each other in
obtaining all regulatory approvals necessary for the importation of the
Product(s) in the country of destination.   16.2   Force Majeure. Neither Party
shall be liable for any direct, indirect, special, incidental or consequential
damages arising out of total or partial failure to perform hereunder, or delay
in such performance, by reason of acts of God, wars, acts of a public enemy,
acts of the governments of any state or political subdivision or any department
or regulatory agency thereof or entity created thereby (whether or not valid),
quotas, embargoes, acts of any person engaged in subversive activity or
sabotage, riots, fires, floods, explosions, or other catastrophes, epidemics or
quarantine restrictions, strikes, lockouts or other labor stoppages, slowdowns
or disputes. If a force majeure event shall prevent timely delivery of
Product(s), then PDI may, without liability to Manufacturer, by written notice
cancel its Purchase Order for the delayed Product(s).   16.3   Relationship.
This Agreement does not make either Party the employee, agent or legal
representative of the other for any purpose whatsoever. Neither Party is granted
any right or authority to assume or to create any obligation or responsibility,
express or implied, on behalf of or in the name of the other Party. In
fulfilling its obligations pursuant to this Agreement, each Party shall be
acting as an independent contractor.

-22-

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

 

16.4   Assignment.

  16.4.1   Assignment. Neither Party shall assign or otherwise transfer its
rights and obligations under this Agreement without the prior written consent of
the other Party, except as provided in this Section 16 or in the event that
either Party may assign any or all of its rights and obligations under this
Agreement to any successor in interest of all or substantially all of the
business of such Party by merger, operation of law, assignment, purchase or
otherwise or to any of its affiliates. Any prohibited assignment shall be null
and void. All terms and conditions of this Agreement shall be binding on and
inure to the benefit of the successors and permitted assigns of the Parties.    
16.4.2   Assignment of Accounts Receivable. If Manufacturer assigns payments to
an assignee/factor, Manufacturer understands and agrees that Manufacturer and
the assignee/factor shall be required to sign PDI’s standard acknowledgment form
to assure PDI that the assignee/factor understands the rights and obligations
being assigned, including the right of PDI to make offsets.     16.4.3  
Assignment of Duty Drawback Rights. All drawback of duties and rights thereto
related to import duties paid by Manufacturer or PDI upon importation of the
Product(s) into the customs territory of the United States or other countries of
importation, as applicable, shall accrue to the exclusive benefit of PDI.
Manufacturer agrees to promptly provide PDI with all documents, records, and
other supporting information necessary to obtain any eligible duty drawback for
Product(s) purchased by PDI from Manufacturer under this Agreement.

16.5   Notices. All notices, requests, demands and other communications that are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if hand-delivered or by a nationally recognized
overnight courier service, receipt confirmed. In the case of notices courier
service, notices shall be deemed effective upon the date of receipt. Notices
shall be addressed to the Parties as set forth below, unless either Party
notifies the other of a change of address, in which case the latest noticed
address shall be used.

      Notices to Manufacturer:   Notices to PDI:
 
   
C SUN Manufacturing LTD
  Photon Dynamics, Inc.
2-l, Kung 8 Rd,
  5970 Optical Drive
2nd Industrial Park, Lin Kou,
  San Jose, CA 95138
Taipei, Taiwan
   
Attn: General Manager
  Attn: Vice President Operations
 
   
Copy to: President
  Copy to: CFO

-23-

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

 

      Notices to Manufacturer:   Notices to PDI:
Copy to: CFO
  Copy to: General Counsel, Legal Dept.

16.6   Entire Agreement. This Agreement, including the exhibits incorporated as
an integral part of this Agreement, constitutes the entire agreement of the
Parties with respect to the subject matter hereof, and supersedes all previous
proposals, oral or written, and all negotiations, conversations or discussions
heretofore between the Parties related to this Agreement. The following exhibits
are hereby incorporated into this Agreement by reference:

Exhibit A: Specifications and Technical Evaluation
Exhibit B: Price List and Non-Binding Forecasts;
Exhibit C:
Exhibit D:
Exhibit E: Product Acceptance Criteria
Exhibit F: Project Plan;
Exhibit G: Return Material Authorization Procedures; and
Exhibit H: Supplier Compliance Standards.

16.7   Amendment. This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, other
than by written amendment signed by the Parties hereto, except as expressly
provided in this Agreement.   16.8   Severability. In the event that any of the
terms of this Agreement are in conflict with any rule of law or statutory
provision or otherwise unenforceable under the laws or regulations of any
government or subdivision thereof, such terms shall be deemed stricken from this
Agreement, but such invalidity or unenforceability shall not invalidate any of
the other terms of this Agreement and this Agreement shall continue in force,
unless the invalidity or unenforceability of any such provisions of this
Agreement substantially violates, comprises an integral part of, or is otherwise
inseparable from the remainder of this Agreement.   16.9   Counterparts. This
Agreement shall be executed in two or more counterparts, and each such
counterpart shall be deemed an original hereof.   16.10   Waiver. No failure by
either Party to take any action or assert any right hereunder shall be deemed to
be a waiver of such right in the event of the continuation or repetition of the
circumstances giving rise to such right.

-24-

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

 

16.10   Waiver. No failure by either Party to take any action or assert any
right hereunder shall be deemed to be a waiver of such right in the event of the
continuation or repetition of the circumstances giving rise to such right.

16.11   Draftsmanship. Each of the Parties hereto has been represented by its
own counsel. In the event of a dispute, no provision of this Agreement shall be
construed in favor of one Party and against the other by reason of the
draftsmanship of this Agreement.

16.12   Non-Compete. Manufacturer agrees not to compete with PDI for the Product
worldwide in the LCD Repair Market hereunder the cooperation of this Agreement.

16.13   Non-Exclusivity. Nothing in the Agreement shall be construed as creating
an exclusive purchase arrangement or requirements contract between PDI and
Manufacturer. PDI shall have the right to obtain similar Product(s) from any
other manufacturer.

 16.14  Translation. This Agreement is drafted in the English language.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the date first above written.

                                  PDI:               MANUFACTURER:   Signature:
  /s/ JAY CHO       Signature:   /s/ Stone Shi        
Printed Name: JAY CHO
              Printed Name: Stone Shi         Title:  VP/GM, LCD Business Group
              Title:  GM / HSP Branch         Date:  4/11/08              
Date:  04/11/2008