EXHIBIT 10.1

 

Confidential Treatment Requested as to certain information contained in this
Exhibit and filed separately with the Securities and Exchange Commission.

 

CONTRACT MANUFACTURING AGREEMENT

 

by and between

 

PERFECT GALAXY INTERNATIONAL LIMITED

 

and

 

SATCON TECHNOLOGY CORPORATION

 

Dated:  February 6, 2012

 

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TABLE OF CONTENTS

 

 

Page

 

 

RECITALS

2

 

 

ARTICLE I DEFINITIONS

2

 

 

ARTICLE II SCOPE OF AGREEMENT

6

 

 

ARTICLE III MANUFACTURING AND ASSEMBLY OF PRODUCTS

6

 

 

ARTICLE IV PRODUCT PRICES

11

 

 

ARTICLE V PURCHASE OF PRODUCTS

15

 

 

ARTICLE VI DELIVERY AND SHIPMENT

18

 

 

ARTICLE VII WARRANTIES AND REMEDIES

20

 

 

ARTICLE VIII ADDITIONAL COVENANTS

22

 

 

ARTICLE IX INTELLECTUAL PROPERTY

23

 

 

ARTICLE X TERM AND TERMINATION

25

 

 

ARTICLE XI CONFIDENTIALITY

26

 

 

ARTICLE XII INDEMNIFICATION

27

 

 

ARTICLE XIII GENERAL TERMS

29

 

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CONTRACT MANUFACTURING AGREEMENT

 

This Contract Manufacturing Agreement (this “Agreement”), is made and entered
into as of February 6, 2012 (the “Effective Date”), by and between Perfect
Galaxy International Limited, a company registered under the laws of the British
Virgin Islands, having a principal mailing address at 4/F., Block C, Sea View
Estate, 2 — 8 Watson Road, North Point, Hong Kong SAR, (hereinafter referred to
as “Perfect Galaxy”) and Satcon Technology Corporation, a company registered
under the laws of the state of Delaware of the United States of America, having
a principal place of business at 25 Drydock Avenue, Boston, MA 02210, U.S.A.
(“Satcon”).  Perfect Galaxy and Satcon are sometimes hereinafter referred to
collectively as the “Parties” or individually as a “Party.”

 

RECITALS

 

WHEREAS, Perfect Galaxy is in the business of contract manufacturing;

 

WHEREAS, Satcon possesses the right to certain designs, data, ideas, and
processes in connection with Products (as defined herein);

 

WHEREAS, the Parties are in possession of information regarding their respective
supply chains and would like to share such information with the other Party for
their mutual benefit; and

 

WHEREAS, Satcon desires to contract Perfect Galaxy to manufacture Products for
Satcon and its Affiliates and Perfect Galaxy desires to manufacture and supply
such Products for Satcon and its Affiliates pursuant to the terms and conditions
of this Agreement.

 

WHEREAS, the Parties executed a Manufacturing and Purchase Agreement dated
December 18, 2008 and a Renewal Agreement dated October, 2011 to extend such
Manufacturing and Purchase Agreement to December 17, 2012 (collectively, the
“Previous Agreement”).

 

WHEREAS, the Parties desire to execute a new contract manufacturing agreement to
amend, restate and replace the Previous Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises, covenants and
obligations contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:

 

ARTICLE I
DEFINITIONS

 

Certain capitalized terms used in this Agreement shall have the specific
meanings set forth below:

 

Affiliate.  The term “Affiliate” means all entities of a Party that control, are
controlled by, or are under common control with, that Party.  An entity
“controls” another entity when it

 

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owns more than fifty percent of the voting stock or other ownership interest of
that entity or has the ability to direct its management.

 

Approved Facility.  The term “Approved Facility” means the facilities of Perfect
Galaxy located in Shenzhen, P.R.C. or any additional Perfect Galaxy facilities
or the facilities of an Perfect Galaxy Affiliate approved in writing by Satcon
for the manufacturing of Products under this Agreement.

 

AVL.  The term “AVL” means a listing of vendors, in addition to part
descriptions and part numbers, approved by Satcon for the manufacturing of
Products.

 

Business Day.  The term “Business Day” means any day other than Saturday, Sunday
or a day on which banks in the U.S., P.R.C. or the Hong Kong SAR are authorized
or required by law or other governmental action to close.

 

Change in Control.  The term “Change in Control” means (i) a sale or other
assignment of all or substantially all of the assets or a merger or
consolidation with or into any other party by which the shareholders immediately
prior to the transaction or series of related transactions cease to own a
majority of the voting interests of the surviving or acquiring party following
the transaction or series of related transactions; or (ii) any issuance of new
securities and/or secondary sale of securities pursuant to which a party becomes
the beneficial owner of a majority of the voting power of the outstanding equity
securities.

 

Confidential Information.  The term “Confidential Information” means any
confidential information of a Person relating to any designs, know-how,
inventions, technical data, ideas, uses, processes, methods, formulae,
compositions, compounds, manuals, instructions specifications, research and
development activities, work in process, any information owned, licensed or used
by a Party or any scientific, engineering, manufacturing, marketing, business
plan, financial or personnel matter relating to such Person, its present or
future products, sales, suppliers, customers, employees, investors or business,
whether in oral, written, graphic or electronic form (which is marked
confidential or acknowledged as being confidential prior to disclosure).  If the
Confidential Information is disclosed orally or visually, it shall be identified
as such at the time of disclosure and confirmed in writing by the disclosing
Person within thirty (30) calendar days of disclosure.  Notwithstanding the
foregoing, confidential Information shall also include any other information in
oral, written, graphic or electronic form, which given the circumstances
surrounding such disclosure a reasonable person would considered confidential.

 

Consigned Inventory.  The term “Consigned Inventory” means any parts,
components, Semi Assemblies and Products that are in the custody of Perfect
Galaxy but to which Satcon has full title and ownership.

 

End of Life Products.  The term “End of Life Products” means any Products,
including its components and Sub Assemblies incorporated into the Products that
will no longer be available for purchase under this Agreement.  Components that
will no longer be available for purchase shall be referred to as “End of Life
Components”.

 

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Engineering Change Order.  The term “Engineering Change Order” means an
engineering change order submitted by Satcon to Perfect Galaxy for the purpose
of making an engineering change to the Products under this Agreement.

 

Epidemic Warranty Conditions.  The term “Epidemic Warranty Conditions” shall
mean those conditions listed in Schedule 2 attached hereto.

 

Perfect Galaxy Technology Rights.  The term “Perfect Galaxy Technology Rights”
means any Perfect Galaxy Intellectual Property Rights, Perfect Galaxy’s
manufacturing processes and such production designs not acquired by Satcon
pursuant to this Agreement and any rights licensed to Perfect Galaxy by any
other Person (other than Satcon) to use any Intellectual Property of such
Person.

 

Forecast.  The term “Forecast” means an up to nine (9) months rolling forecast
estimating the amount of the Products that anticipates purchasing per month, as
issued by Satcon once a month.

 

Intellectual Property Rights.  The term “Intellectual Property Rights” means all
trademarks, service marks, trade dress, logos, copyrights, rights of authorship,
inventions, patents, rights of inventorship, moral rights, rights of publicity
and privacy, trade secrets, rights under unfair competition and unfair trade
practices laws, and all other intellectual and industrial property rights
related thereto, worldwide.

 

MW.  The abbreviation “MW” means megawatts.

 

NRE.  The term “NRE” means any non-recurring engineering, design, documentation,
supplier and part qualification, training, scheduling, and other relevant
charges incurred by Perfect Galaxy in connection with the development,
preparation for manufacturing or modification of a part or Product to achieve
certain specifications or characteristics, as requested by Satcon from time to
time.  The Parties agree and acknowledge that Perfect Galaxy’s labor cost for
factory assembly and test overhead items such as supervision, supply chain
management and logistics, shall not be included in the NRE.

 

Person.  The term “Person” means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.

 

P.R.C.  The term “P.R.C.” means the People’s Republic of China, and for purpose
of this Agreement, does not include the Hong Kong or Macau Special
Administrative Regions of the People’s Republic of China.

 

Product(s).  The term “Product(s)” means those certain products and their
components and Sub Assemblies, as agreed by the Parties from time to time, to be
manufactured by Perfect Galaxy in accordance with a Production Design, pursuant
to Purchase Orders issued by Satcon from time to time under this Agreement.

 

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Product Engineering.  The term “Product Engineering” means any research,
development and engineering conducted by Perfect Galaxy, whether or not at the
request of Satcon, to substantially improve or modify the Production Design of
any Product.

 

Product Engineering Results.  The term “Product Engineering Results” means the
results of Perfect Galaxy’s Product Engineering rendered in a written format,
including, without limitation, the NRE and the Production BOM for such Product.

 

Product Prices.  The term “Product Prices” means the prices of Products
determined in accordance with the Pricing and Rates mutually agreed to
quarterly.

 

Production BOM.  The term “Production BOM” means a Bill of Materials provided to
Perfect Galaxy from Satcon, which lists all components necessary to manufacture
a Product

 

Production Design.  The term “Production Design” means product design
information provided to Perfect Galaxy in order to allow Perfect Galaxy to
manufacture a Product, as amended, modified, supplemented or restated from time
to time in accordance herewith, that is approved by Satcon for manufacturing. 
As used herein, Production Design includes, without limitation, product design
schematics, Specifications and Production BOM.

 

Purchase Order.  The term “Purchase Order” means an order for Products or
components, which shall specify at least the following, for Products or
components:  (i) model number; (ii) quantity; (iii) Purchase Order Delivery
Date; (iv) unitary prices, and (v) other order terms and conditions mutually
agreed upon by the Parties.  Purchase Orders may additionally identify the
specific Product configuration and other matters specific to each separate sale
by Satcon or its Affiliate to a customer.  If the terms and conditions of a
Purchase Order conflict with this Agreement, this Agreement will control as to
the conflicting term(s) unless the conflicting terms have been mutually agreed
upon by the Parties.  If the terms and conditions of a Purchase Order add to
this Agreement, the applicable Purchase Order, if accepted by Perfect Galaxy,
will control as to the additional term(s).

 

Purchase Order Delivery Date.  The term “Purchase Order Delivery Date” means the
delivery date(s) specified by Satcon in any Purchase Order.

 

Quarterly Business Review.  The term “Quarterly Business Review” means the
quarterly business review meetings between Satcon and Perfect Galaxy held within
fifteen (15) days after the beginning of each quarter during the Term.  The
venue of the Quarterly Business Review shall be agreed upon by the Parties from
time to time

 

RMB.  The term “RMB” means the lawful currency of the PRC.

 

Satcon Technology Rights.  The term “Satcon Technology Rights” means any
(i) Satcon Intellectual Property and (ii) any rights licensed to Satcon by any
other Person to use any Intellectual Property of such Person.

 

Specifications.  The term “Specifications” means a detailed listing of the
components, functionality, features, physical specifications and performance,
security and standard compliance information, available support, ordering and
pricing procedures and/or information

 

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and acceptance criteria for each Product, including, without limitation, the
Production Design for such Product.

 

Statement of Work.  The term “Statement of Work” means a written statement from
Satcon to Perfect Galaxy requesting Perfect Galaxy’s Product Engineering
services and setting forth certain objectives, improvements, changes or
modifications to a Production Design or Product.

 

Sub Assemblies.  The term “Sub Assemblies” means combinations of parts and labor
into a semi finished goods, which can then be combined into a final Product.

 

U.S.  The term “U.S.” means the United States of America.

 

US$.  The term “US$” means the lawful currency of the U.S.

 

ARTICLE II
SCOPE OF AGREEMENT

 

2.1                               Scope.  Perfect Galaxy shall, at Satcon’s
request, (a) manufacture and supply Products, 2.1.1. provide Product Engineering
services, and (c) assist Satcon with the development and management of a common
supply chain, under which Satcon may purchase directly from the suppliers that
Perfect Galaxy solely develops or helps Satcon develop.  Perfect Galaxy shall
disclose to Satcon information in connection with the pricing for contract
manufacturing and supply chain services, including, but not limited to, various
costs and each component of manufacturing value add, the names and addresses of
Perfect Galaxy’s suppliers and vendors, and information regarding best business
practices at the locations where Perfect Galaxy and its Affiliates conduct
business.

 

ARTICLE III
MANUFACTURING AND ASSEMBLY OF PRODUCTS

 

3.1                               Delivery of a Production Design.  Satcon shall
deliver a Production Design to Perfect Galaxy and Perfect Galaxy shall notify
Satcon within twenty (20) Business Days of receipt of such Production Design
whether Perfect Galaxy is capable of manufacturing a product in accordance with
such Production Design and whether Perfect Galaxy agrees to manufacture such
product.  Any rejection of a Production Design by Perfect Galaxy shall include
an explanation of the basis for the rejection; provided that Perfect Galaxy may
not reject any version of a Production Design for a Product which Perfect Galaxy
has previously manufactured for Satcon unless (i) the Production Design utilizes
parts, components or subassemblies no longer available, (ii) a third party has
asserted that the Production Design conflicts with or infringes on its
intellectual property rights, or (iii) some other cause beyond the reasonable
control of Perfect Galaxy makes the use of that Production Design commercially
impractical, or (iv) the Parties cannot agree to Purchase Price and/or NRE
despite of the Parties’ good faith discussions.

 

3.2                               Development Phase.

 

3.2.1                        Product Engineering.

 

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(a)                                  Satcon may request the Product Engineering
services of Perfect Galaxy by submitting to Perfect Galaxy a Statement of Work
for the development of a new Product or the modification of a Production
Design.  Within fifteen (15) Business Days of Perfect Galaxy’s receipt of such
Statement of Work, Perfect Galaxy shall provide Satcon with a statement of NRE
with detailed information on each component of the NRE for such Product
Engineering services.  Satcon shall notify Perfect Galaxy whether it agrees to
the amount of the NRE and the right, title and interest which it shall own in
and to the results of such Product Engineering set forth in the Statement of
Work within ten (10) Business Days of Satcon’s receipt of Perfect Galaxy’s NRE
statement.

 

(b)                                 Satcon shall have the right, title and
interest in and to the tangible deliverable results of any Product Engineering
upon payment for such Product Engineering; provided, that Satcon’s rights to any
Intellectual Property Rights arising from such Product Engineering shall be in
accordance with the terms and conditions set forth in Section 9.1 hereof, and
Satcon shall not receive any Intellectual Property Rights in the Perfect Galaxy
Technology Rights including by way of illustration and not of limitation,
Perfect Galaxy’s manufacturing processes, background materials and intellectual
property not related to or developed for Satcon.

 

3.2.2                        Production Design.  At the conclusion of any
Product Engineering, Perfect Galaxy shall deliver to Satcon within ten (10)
Business Days the Product Engineering Results, if any.  Satcon, in its
reasonable discretion, may accept or reject the Product Engineering Results, if
any, within five (5) Business Days after receipt of Perfect Galaxy’s Product
Engineering Results.  Upon receipt of authorization to undertake a Production
Engineering, Perfect Galaxy shall provide Satcon with the Production Engineering
Results and Production BOM for such Product according to milestones agreed upon
in the applicable SOW, and a datasheet for such Product, which datasheet shall
include, among other things, the Specifications, Product plans, sketches and the
entire documentation required for manufacturing such Product with the same
features, capabilities and performance.

 

3.2.3                        Change to the Products.  Perfect Galaxy shall not
make any changes to the Products or changes to the processes, Production BOM,
materials, Production Design, tools, or locations used to manufacture, assemble,
or package the Products without Satcon’s prior written approval in the form of
an Engineering Change Order.  Perfect Galaxy shall provide Satcon with prior
written notice of any intent to make any change covered by this Paragraph and
request Satcon’s approval.  Perfect Galaxy shall provide Satcon with a minimum
of one (1) month notice prior to any intended change to:  (i) the Production
Engineering, content, form, fit, or function of any Products; or (ii) the
location of manufacture, assembly, or packaging of the Products.  Any deviation
from the Production Design, including, without limitation, product design
schematics, Specifications and Production BOM shall be tracked and approved
prior to shipment through Satcon’s deviation approval process.

 

Satcon may request changes to the Products by issuing an Engineering Change
Order to Perfect Galaxy from time to time.  Prior to Satcon’s approval of an
Engineering Change Order, Satcon will notify Perfect Galaxy in writing of the
contemplated Engineering Change Order, and Perfect Galaxy will notify Satcon in
writing of the amount and cost of inventory which will be rendered excess and
obsolete by the Engineering Change Order.  Subject to this Paragraph 3.2.3,
Perfect Galaxy shall immediately implement the changes and all applicable

 

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Purchase Orders will be deemed amended to incorporate the changes.  Upon receipt
of an Engineering Change Order from Satcon, Perfect Galaxy shall acknowledge
such receipt within two (2) Business Days and, within five (5) Business Days,
shall provide a written report detailing Perfect Galaxy’s responsive action to
such Engineering Change Order including, without limitation, Perfect Galaxy’s
proposed implementation plan, and any pricing or scheduling impact on
outstanding Purchase Orders or Forecasts.  Perfect Galaxy agrees to make
commercially reasonable efforts to comply with Satcon’s requested changes.  If
the changes result in a significant change to Perfect Galaxy’s cost or in the
time for performance or exposes Perfect Galaxy to the risk a third party will
assert a violation of its intellectual property rights, however, Perfect Galaxy
shall advise Satcon in writing with details of the change to the cost or time or
the risk of adverse claims by a third party, and Perfect Galaxy shall not
implement the changes until Satcon gives Perfect Galaxy written authorization to
do so.  Changes to the Products are a normal occurrence of continuous
improvements, and as such, Perfect Galaxy shall not charge any additional
expense to Satcon related to overhead in processing the changes.  If the changes
covered by the Engineering Change Order are implemented, Satcon shall promptly
reimburse Perfect Galaxy for the cost of inventory which is rendered excess and
obsolete by such Engineering Change Order, and the obligation to make such
reimbursement shall be acknowledged and confirmed by Satcon in the Engineering
Change Order.  The Engineering Change Order shall specify the disposition of the
excess and obsolete inventory.

 

3.2.4                        Evaluation and Upgrades of Products.  Perfect
Galaxy shall share suggestions for improvement of Production Designs and/or
Products that arise from time to time.

 

3.2.5                        Certification.  Perfect Galaxy shall obtain an
initial UL certification for the Approved Facility.  All costs arising and
relating to obtaining the initial UL certification for the Approved Facility
shall be borne by Perfect Galaxy.  Satcon shall bear all expenses arising and
related to the Approved Facility’s UL re-certification should re-certification
be necessary and caused by a Satcon initiated change in Production Design.

 

3.3                               Production Phase.

 

3.3.1                        Manufacturing of Products.

 

(a)                                  Perfect Galaxy shall manufacture and sell
to Satcon Products ordered by Satcon pursuant to Purchase Orders submitted by
Satcon to Perfect Galaxy in accordance with Article V hereof.  Further, Perfect
Galaxy shall manufacture and deliver such Products to Satcon on or prior to the
Purchase Order Delivery Date in accordance with Article VI hereof.

 

(b)                                 Perfect Galaxy shall manufacture and
assemble the Products in strict compliance with the Production Design and
Specifications for such Product at the Approved Facility.

 

(c)                                  Perfect Galaxy agrees that all parts and
components used to manufacture the Products shall be sourced from vendors
contained in the AVL to be provided by Satcon.  Parts and components from
vendors not contained in the AVL shall not be used without

 

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Satcon’s prior written approval, which shall include signatures from Satcon’s
supply chain, engineering, and quality assurance at a minimum.

 

(d)                                 Perfect Galaxy agrees to maintain a vendor
management quality program that manages vendors not contained in the AVL
(Example — distributor of off the shelf components) which actively provide
approved materials (as defined by Satcon officially released documentation) for
manufacturing the Products for Satcon.  The vendor management quality program
shall includes, without limitation, annual validation of quality management
system, communication of critical parts or characteristics, development and or
implementation of process control plans at vendors for critical parts or
characteristics, first article inspection, on-going inspection, management on
non-conforming material, initiating and management of vendor corrective actions,
maintenance of quality, delivery, lead time, cost, and continual improvement
metrics as part of vendor performance management, and periodic reviews and
feedback to vendors driving continual improvement.

 

(e)                                  Perfect Galaxy agrees that no independent
contractors or subcontractors shall be used to manufacture the Products without
Satcon’s prior written approval.

 

(f)                                    Perfect Galaxy shall have the right to
use its Affiliates for manufacturing the Products, with written notice and
subject to the Approved Facility definition above.

 

(g)                                 Perfect Galaxy agrees to permit Satcon to
audit its manufacturing process at the Approved Facility upon five (5) business
days advance notice to Perfect Galaxy, and shall provide such assistance which
is reasonably necessary for Satcon to evaluate the quality of the Products.  All
Satcon personnel shall comply with Perfect Galaxy’s reasonable requirements
while at the Approved Facility.

 

3.4                               Quality.  Perfect Galaxy covenants that it
shall manufacture and assemble all Products from entirely new materials, free
from any counterfeit parts, materials or components, in accordance with the
Specifications.  If the Specifications require so, Perfect Galaxy must use
materials certified by UL, CSA, CE or other governing agency certifications as
required.  Perfect Galaxy further covenants to perform all manufacturing,
testing and other quality assurance procedures according to the ISO 9001:2008
Standards.  Perfect Galaxy shall serialize the Products and provide lot or
serial number information for critical materials, components and Sub Assemblies
that comprise each particular Product.  This information shall be recorded and
stored in a manner as to be easily searchable and retrievable without
degradation of quality over time.  Perfect Galaxy shall make available to Satcon
production quality and supplier quality information in regular monthly intervals
and any other time upon two business (2) days prior written notice.  Perfect
Galaxy shall designate an individual as a Quality Representative to be
responsible for Satcon’s quality inquires and communications.  If deemed
necessary by both Perfect Galaxy and Satcon, Perfect Galaxy shall send
appropriate employees for quality trainings at Satcon’s location during normal
business hours.  Perfect Galaxy shall bear all travel and accommodation costs
and expenses for such employees attending the trainings unless otherwise agreed
in writing by the Parties.

 

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3.4.1                        Quality Control.  All Products shall be
manufactured and packaged in accordance with the Specifications (packaging
procedure — ES00001).  Perfect Galaxy shall at all times maintain quality
assurance processes capable of audit by Satcon and sufficient to ensure
compliance with the intent of the actual requirements listed within said
Specifications.  Perfect Galaxy agrees to utilize only components and materials
obtained in accordance with the AVL for manufacture of the Products, and to
ensure that such components and materials comply with all applicable
specifications of Satcon.

 

3.4.2                        Inspection Criteria.  Perfect Galaxy shall utilize
Satcon developed workmanship criteria (communicated in the form of
specifications or standards referenced on engineering drawings, work
instructions, test procedures, or through an industry recognized workmanship
standard).  Where a conflict exists among such criteria, the Satcon developed
specifications and standards shall supersede the industry recognized workmanship
standard.  Satcon shall work with Perfect Galaxy to develop a mutually agreed
workmanship standards specific to the processes utilized to manufacture the
Products, which shall be the primary reference for the workmanship inspection
criteria.

 

3.4.3                        Quality Improvement.  Perfect Galaxy agrees to
participate in such continual improvements plans and programs as may be
implemented from time to time between Satcon and Perfect Galaxy.  As part of its
participation in Satcon’s quality improvement programs, Perfect Galaxy agrees
that it will, without limitation and to the extent applicable and reasonable:

 

(a)                                  Lead Quarterly Business Review programs
with the top 15~20% qualified vendors Satcon identifies as well as corrective
actions if such vendors score less than 95% in Satcon’s rating system.

 

(b)                                 Allow for inspection and audit of Perfect
Galaxy’s facilities and operations when requested by Satcon;

 

(c)                                  Respond to Satcon’s corrective action
requests within five (5) Business Days or sooner if requested by Satcon and
agreed to by Perfect Galaxy;

 

(d)                                 Provide failure analysis on the Products as
requested by Satcon including a response in the 8D format as specified by
Satcon;

 

(e)                                  Cooperate in identifying the source of
non-conformances and implementation of corrective actions;

 

(f)                                    Lead initiatives which require
engineering involvement with vendors which supply parts and components to
Perfect Galaxy for manufacturing the Products; and

 

(g)                                 Maintain quality and efficiency metrics in
the manufacturing and test areas of the Approved Facility and report on progress
towards targets at least once a month.  Detailed root cause analysis and
corrective actions will be reviewed quarterly.  Satcon will assign personnel to
monitor and facilitate Perfect Galaxy’s understanding of Satcon’s quality
requirements.  In order to promote cooperative resolution of any disputes
arising under this

 

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Section 3.4, the Parties agree to exhaust the issue escalation hierarchy of
Schedule 5 before seeking other relief or remedies under this Agreement.

 

3.4.4                        Quality Reporting.  Perfect Galaxy shall provide
monthly reports to Satcon of Perfect Galaxy’s process quality performance,
including the Product yields, defect pareto, root cause, and proposed corrective
actions (the agreed format is Trend-Pareto-Action (TPA) charts for each
location).  In the event that corrective action is deemed necessary by either
Party in order for Perfect Galaxy to comply with Satcon’s quality or
on-time-delivery requirements, Perfect Galaxy shall use its best efforts to
furnish a quality improvement plan promptly to Satcon detailing the steps
necessary to meet Satcon’s stated goals.

 

3.5                               Consignment of Equipment and Materials. 
Certain equipment and tooling, which is required for manufacturing the Products
will be consigned by Satcon to Perfect Galaxy for use (the “Satcon Tooling”) at
no expense to Perfect Galaxy.  The Satcon Tooling and all drawings, plans,
specifications, or other materials furnished by Satcon to Perfect Galaxy
relating to Satcon Tooling shall be and remain the property of Satcon, and shall
be used by Perfect Galaxy only for the purposes of effectuating Perfect Galaxy’s
performance of this Agreement.  Satcon tooling shall be returned to Satcon at
Satcon’s expense, upon request, to a destination specified by Satcon, in
operative condition, except for normal wear and tear.

 

ARTICLE IV
PRODUCT PRICES

 

4.1                               Payment and Pricing.

 

4.1.1                        Product Prices.  The Product Prices shall be
determined by the Pricing and Rates as set forth in section 4.2.1.  Product
Prices are FCA (INCOTERMS 2010) Hong Kong SAR unless otherwise provided by a
Purchase Order.

 

4.1.2                        Payment.  Perfect Galaxy shall invoice Satcon or
its Affiliate placing the Purchase Order for all Products manufactured under
this Agreement at or after the time that such Products are placed with the
forwarder for shipment or the Purchase Order Delivery Date, whichever is later. 
All invoices shall be due and payable sixty (60) days after Perfect Galaxy
delivers the Products to the forwarder in Hong Kong and sends the invoices.  In
the event of nonpayment pursuant to the terms herein, Perfect Galaxy, after
providing thirty (30) days written notice to Satcon or its applicable Affiliate,
shall be entitled to full payment of all amounts due, together with one percent
(1%) per month interest thereon up to a cap of twelve percent (12%) of the
amounts.

 

4.1.3                        Currency.  All payments and quotations for
materials under this Agreement shall be made in lawful currency of the U.S.

 

4.1.4                        Taxes.  Satcon or its Affiliate will be responsible
for and only for any and all sales, use, VAT, or similar taxes, or any other
such assessment however designated imposed on sales of the Products incurred
after the Products are delivered by Perfect Galaxy to the freight forwarder in
Hong Kong (FCA Hong Kong SAR).  Perfect Galaxy shall separately state on each
applicable invoice (and not include them in the Product Prices), any export
duties or sales, use,

 

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VAT, excise or similar tax.  Perfect Galaxy shall not charge taxes if Satcon is
exempt from such taxes and furnishes Perfect Galaxy with a certificate of
exemption in a form reasonably acceptable to Perfect Galaxy.  The Parties will
pay for applicable income taxes on their own.

 

4.1.5                        Price Adjustment for Exchange Rate.  At each
Quarterly Business Review, subject to the Parties’ written agreement, value add
adjustments shall be made if the foreign exchange rate between RMB and USD has
fluctuated by more than five percent (5%) in the preceding twelve (12) months,
using an initial baseline exchange rate as of the Effective Date.

 

4.1.6                        NRE.  The Parties shall mutually agree in writing
reasonable NRE charges incurred by Perfect Galaxy.  Satcon will reimburse
Perfect Galaxy for such charges within sixty (60) day after the invoice date.

 

4.2                               Price Adjustments.

 

4.2.1                        Product price will be determined based on the
actual materials cost to Perfect Galaxy with a value add multiplier that
consists of predefined rates for labor, overhead, and profit.  Satcon and
Perfect Galaxy have jointly agree on the value add multiplier at the effective
date of this agreement as well as the scale for reduced rates to account for
volume increases, both of which are reflected in the chart set forth below in
this Section 4.2.1.  Once it is determined in accordance with the Pricing and
Rates, the Value add multiplier shall not be increased for the first twelve (12)
months of this agreement, unless the Parties agree upon in writing adjustments
at the Quarterly Business Review, provided that such increases shall only be
effective on Purchase Orders issued after such adjustments.  The Parties shall
not agree upon a value add increase that takes effect sooner than twelve (12)
months after the date the then-current rate was set.  The currently agreed value
add multiplier will be derived from the following table:

 

Quarterly Material Consumption Cost (US$ ***)

 

<***

 

<***

 

<***

 

<***

 

<***

 

>***

VA% Multiplier

 

***

 

***

 

***

 

***

 

***

 

***

 

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

*** Represents text omitted pursuant to a request for confidential treatment. 
The omitted material has been filed separately with the Securities and Exchange
Commission.

 

12

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

 

NOTE:                   If the Quarterly Material Consumption Cost is between
US$ *** and US$ ***, the value add multiplier shall be determined based on a
linear interpolation between the dollar thresholds in the table above.  For
example, if the Quarterly Material Consumption Cost is US$ ***, the value add
multiplier would be ***

 

4.2.2                        Perfect Galaxy shall provide Satcon with an updated
BOM with costs for each material, component and Sub Assemblies for each Product
in an electronic format at least quarterly or in exceptional circumstances,
within three (3) business days after any request by Satcon.

 

4.2.3                        During the Term, the Parties shall meet within
fifteen (15) days after the beginning of each quarter to review, among other
things, the Product Prices (the “Quarterly

 

4.2.4                        Business Review”).  At the Quarterly Business
Review, subject to the Parties’ agreement, price adjustments shall be made for:

 

(i)                                     Extraordinary circumstances beyond the
control of Perfect Galaxy, as indicated in Article 4.2.1 hereinabove

 

(ii)                                  Cost Reduction Program as provided in
Paragraph 4.2.5 herein.

 

(iii)                               Volume increases resulting in a lower value
add multiplier calculation.

 

4.2.5                        Cost Reduction Program.

 

(i)                                     By entering into this Agreement and the
arrangements contemplated herein, the parties agree to the below targeted annual
cost reductions.

 

Year

 

targeted average cost
reduction

 

Targeted average product cost
reduction

 

1

 

***

 

***

 

2

 

***

 

***

 

3

 

***

 

***

 

4

 

***

 

***

 

5

 

***

 

***

 

 

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

*** Represents text omitted pursuant to a request for confidential treatment. 
The omitted material has been filed separately with the Securities and Exchange
Commission.

 

13

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

 

Cost reduction is measured against the baseline PO Price set forth at the
beginning of the contract and reset every year.

 

(ii)                                  The Parties shall formally develop a cost
reduction plan to explore and effect cost reductions in each aspect of the
manufacture and supply of the Products including, but not limited to, supply
chain, local sourcing, labor efficiency, design improvements, freight,
packaging, logistics, quality and business processes (“Cost Reduction
Program”).  Satcon will receive *** benefit of a Cost Reduction Program
immediately after the existing inventory and relevant supplier liability of the
relevant Products is exhausted and any of Perfect Galaxy’s additional costs
incurred by the Cost Reduction Program are recovered.

 

 

Satcon’s deliverables in the Cost Reduction Program are the following:

 

·                  review and approve cost reduction projects;

 

·                  assign resources to support each initiative;

 

·                  approve preliminary information on vendor capability;

 

·                  provide written qualification requirements; and

 

·                  approve ECO qualification results.

 

(iii)                               Notwithstanding anything to the contrary
contained herein, any adjustments to the Product Costs under this
Paragraph 4.2.5 shall not be effective unless they are agreed upon by the
Parties in writing at the Quarterly Business Review.  The new Product Cost shall
include without limitation the applicable and corresponding cost reductions in
material overhead, direct labor and profit.

 

In the event that Satcon negotiates for purchase of a component material from a
vendor of such material on terms more favorable than those available to Perfect
Galaxy, Perfect Galaxy agrees to purchase such components from said vendor on
Satcon’s negotiated terms, provided that the Parties agree that Perfect Galaxy’s
obligations under this Agreement are not otherwise impaired, to the extent that
such vendor agrees that the existing materials purchase agreement between
Perfect Galaxy and such vendor applies to such purchase.

 

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

*** Represents text omitted pursuant to a request for confidential treatment. 
The omitted material has been filed separately with the Securities and Exchange
Commission.

 

14

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

 

ARTICLE V
PURCHASE OF PRODUCTS

 

5.1                               Purchase Order.  Subject to the terms and
conditions of this Agreement, Perfect Galaxy agrees to offer for sale to Satcon
during the Term of this Agreement, those Products specified in each Purchase
Order submitted by Satcon to Perfect Galaxy.  Purchase Orders must be placed
either be in writing (fax or registered mail) or electronically via a system
generated format.  No verbal communication or simple, plain text email will be
accepted as a binding Purchase Order.  All Purchase Orders, whether accepted,
conditionally accepted, or not accepted, shall be acknowledged by Perfect Galaxy
within two (2) Business Days of receipt.

 

5.1.1                        Purchase Order Confirmation.  Perfect Galaxy shall
promptly notify Satcon in writing (a “Purchase Order Confirmation”) but in any
event within two (2) Business Days of receipt of a Purchase Order, whether it
accepts or rejects such Purchase Order.  Any rejection of a Purchase Order by
Perfect Galaxy shall include an explanation of the basis for the rejection.  If,
for any reason, Perfect Galaxy fails to deliver a Purchase Order Confirmation to
Satcon within the timeframe specified above, Perfect Galaxy shall be deemed to
automatically accept such Purchase Order.

 

5.1.2                        Rejection of a Purchase Order.  A Purchase Order
may only be rejected if:

 

(a)                                  The Purchase Order, as defined herein, does
not contain all required information;

 

(b)                                 The Product set forth in the Purchase Order
does not comply with the terms and conditions hereof;

 

(c)                                  Any Product Prices, fees, costs or expenses
not contested by Satcon in good faith are due and payable by Satcon to Perfect
Galaxy and such Product Prices, fees, costs or expenses exceeds Satcon’s credit
limit as established by Perfect Galaxy and published to Satcon, if any or have
remained outstanding for more than sixty (60) days;

 

(d)                                 The Purchase Order contains terms that
conflict with or add to the terms of this Agreement that are not mutually agreed
upon;

 

(e)                                  The Product set forth in the Purchase Order
has a Production Design or Specifications different from previously provided
Product;

 

(f)                                    The Production Design requires the use of
parts, components or sub assemblies that are no longer in production or
otherwise available;

 

(g)                                 A third party has asserted that the
Production Design conflicts with or infringes on its intellectual property
rights; or

 

(h)                                 Some other cause beyond the reasonable
control of Perfect Galaxy makes the use of that Production Design specified in
the Purchase Order commercially impractical.

 

15

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

 

5.2                               Forecasts.

 

5.2.1                        Once every month, Satcon will provide Perfect
Galaxy with a six (6) month weekly rolling Forecast of Products to be
purchased.  Additionally, Satcon will provide Perfect Galaxy with market and
macroeconomic trends for up to an additional six (6) months solely intended to
assist Perfect Galaxy in planning its capacity levels.  As changes may occur
more frequently than once a month, Satcon and Perfect Galaxy will joint chair a
weekly supply/demand meeting to review net changes in the Forecast and changes
in delivery requirements and commitments.

 

5.2.2                        The Forecasts submitted by Satcon to Perfect Galaxy
are non-binding and solely intended to assist Perfect Galaxy in ensuring that it
has the ability to meet the Purchase Orders quantities that may be submitted by
Satcon.  This Forecast will also serve as the guideline for setting stocking
levels of Critical Component Inventory.  The delivered Forecasts shall not be
modified without the parties’ consent.

 

5.2.3                        Unless Perfect Galaxy notifies Satcon in writing
within five (5) calendar days after receipt of a Forecast that it will not be
able to supply the quantity of Products specified in a Forecast, Perfect Galaxy
shall use its best efforts to provide the quantity of Products specified in such
Forecast upon receipt of corresponding Purchase Orders from Satcon.

 

5.3                               Inventory and Cancellation of Purchase Orders.

 

5.3.1                        Material Inventory Management.  Perfect Galaxy
shall purchase parts to manufacture the Products according to the quantity and
delivery schedules set forth in the Forecasts and the Purchase Orders during the
Term of this Agreement.  Only with Satcon’s prior written consent, Perfect
Galaxy may purchase parts in excess of Purchase Order requirements, such as long
lead time components or components which can be purchased in volume at a lower
price (“Long Lead Time Materials”).  All parts will be consumed on a first-in,
first-out basis (i.e. the oldest parts will be completed first and applied to
fulfill the quantity requested in the next scheduled delivery of the Products). 
Fluctuations upward in the Forecasts will be applied to offset fluctuations
downward in the Forecasts.  Satcon and Perfect Galaxy shall jointly review
changes in supply/demand weekly.

 

5.3.2                        Forecast responsibility.  On a quarterly basis
Perfect Galaxy shall provide Satcon a list of any material that is excess
inventory because Satcon failed to fulfill a Forecast, and the most recent
Forecast does not show such excess material inventory will be used in the next
six (6) months.  Perfect Galaxy shall also provide Satcon evidence and history
of materials purchased for purposes of fulfilling a Forecast at the request of
Satcon.  So long as Perfect Galaxy is not in breach of its obligations, Satcon
shall, at its own option, either (a) reimburse Perfect Galaxy for Perfect
Galaxy’s carrying costs in the amount of one percent (1%) per month of the
verified cost of the excess materials inventory not projected to be used in the
next six (6) months under the current Forecast, or (b) purchase from Perfect
Galaxy the excess materials inventory not projected to be used in the next six
(6) months under the current Forecast, at Perfect Galaxy’s cost, to the extent
that Perfect Galaxy complies with the material inventory management as described
in Paragraph 5.3.1 herein, provided:  i) Perfect Galaxy’s order was reasonably
necessary to support the unfulfilled Forecast; and ii) Perfect Galaxy uses

 

16

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

 

best efforts to mitigate Satcon’s liability including but not limited to
attempting to cancel or return its orders for a refund, and using the material
or work-in-progress in question for other products.  If any material remains
excess inventory because Satcon failed to fulfill Forecasts for more than twelve
(12) months, and Perfect Galaxy complied with the material inventory management
as described in Paragraph 5.3.1 herein and clauses i) and ii) of the preceding
sentence, then Satcon shall, at Perfect Galaxy’s request, immediately purchase
from Perfect Galaxy such excess materials inventory at Perfect Galaxy’s cost,
provided:  i) Perfect Galaxy’s order was reasonably necessary to support the
unfulfilled Forecast; and ii) Perfect Galaxy uses best efforts to mitigate
Satcon’s liability including but not limited to attempting to cancel or return
its orders for a refund, and using the material or work-in-progress in question
for other products.  For any such excess inventory so purchased by Satcon under
this Paragraph 5.3.2, Satcon shall issue and Perfect Galaxy shall accept a
purchase order for such inventory at Perfect Galaxy’s actual purchase cost and
subject to the terms and conditions otherwise governing Satcon’s Purchase Orders
under this Agreement.  Satcon may, at its sole option, elect to forego receipt
of excess inventory materials by authorizing Perfect Galaxy in writing to
dispose of such materials.

 

5.3.3                        Critical Component Inventory.  Perfect Galaxy shall
maintain at all times during the Term of this Agreement an inventory of specific
component materials as set forth in Schedule 5 (“Critical Component Inventory”),
as it may be amended from time to time by mutual agreement of the Parties.
 Critical Component Inventory shall be maintained by Perfect Galaxy on a
first-in, first-out basis and continually maintained and replenished as needed
in support of Satcon’s Forecasts.  Perfect Galaxy shall provide a quarterly
aging report of Critical Component Inventory by part number, and shall permit
Satcon reasonable access to Perfect Galaxy’s facilities in order to audit and
inspect periodically Perfect Galaxy’s maintenance of such inventory.  Perfect
Galaxy will recommend stocking levels to Satcon in writing at least once per
quarter.  Satcon shall be liable for materials purchased to support agreed upon
safety stock, buffer stock, and volume purchase buys.  Such inventory will be
excluded from excess inventory calculations.  These levels shall be reviewed by
both Parties monthly and re-set if necessary.

 

5.3.4                        Efforts; Inventory Reporting.  Perfect Galaxy will
use its best efforts to keep obsolete and excess inventory as low as possible in
light of Perfect Galaxy’s obligations under this Agreement.  On at least a
quarterly basis, Perfect Galaxy shall provide to Satcon a report of any obsolete
or excess inventory held by Perfect Galaxy.  The report will contain at a
minimum the part number, quantity on hand, inventory age, quantity on order,
Perfect Galaxy’s cost and, if component inventory, the Products for which the
component was procured, the forecasted amount(s) of such Products or component,
and any relevant information related to the reason for obsolescence.  In
connection with its report, Perfect Galaxy shall further detail the efforts
Perfect Galaxy has made or intends to make to mitigate any quantities of
obsolete or excess inventory held by Perfect Galaxy, including but not limited
to (a) utilizing the subject materials for other products or activities within
Perfect Galaxy’s operations; (b) issuing cancellation notices on outstanding
material orders with Perfect Galaxy’s suppliers; and (c) returning such
materials for credit to Perfect Galaxy’s suppliers.

 

5.3.5                        Obsolete Inventory.  Satcon shall reimburse Perfect
Galaxy, at Perfect Galaxy’s verified costs, those parts purchased by Perfect
Galaxy for purposes of fulfilling a Forecast or Purchase Order which are at the
material’s end of life cycle and unfit for

 

17

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

 

incorporation into Products or any other products for other customers (“Obsolete
Inventory”).  Satcon reimbursement of Obsolete Inventory shall be due and
payable sixty (60) days after receipt of notice that materials have become
Obsolete Inventory, provided that Perfect Galaxy can provide Satcon evidence and
history of the initial purchase of the Obsolete Inventory.

 

5.3.6                        Cancelled Purchase Orders.  Notwithstanding any
other provisions herein, Satcon shall in no event be liable for purchase of any
quantity of Products in excess of Purchase Orders generated.  In the event that
Satcon cancels a Purchase Order, Satcon’s sole liability will be for the
purchase costs of parts, work-in-progress, and finished goods that Perfect
Galaxy has ordered or completed to support the cancelled Purchase Order to the
extent that Perfect Galaxy complies with the material inventory management as
described in Section 5.3 herein, provided:  i) Perfect Galaxy’s work or order
was reasonably necessary to support the cancelled Purchase Order or the order
for the Long Lead Time Materials was approved by Satcon in writing; and
ii) Perfect Galaxy uses best efforts to mitigate Satcon’s liability, including,
but not limited to attempting to cancel or return its orders for a refund, and
using the parts, work-in-progress and finished goods in question for other
products.

 

ARTICLE VI
DELIVERY AND SHIPMENT

 

6.1                               Production Lead Times.  Perfect Galaxy’s
delivery commitments and pricing under this Agreement are based upon Perfect
Galaxy’s ability to supply Products to Satcon within lead times as agreed to by
the Parties.  Production Lead times shall be initially set at two (2) weeks and
to be reviewed and adjusted, if necessary, by the Parties on a quarterly basis. 
Lead times shall only be valid if the amount of Products purchased by Satcon, as
evidenced in the Purchase Order, is no greater than the Applicable Forecast.  If
Satcon submits a Purchase Order for an amount of Products greater than the
applicable Forecast, Perfect Galaxy shall use best efforts to commit to Satcon’s
requested lead times.

 

Satcon and Perfect Galaxy shall conduct a monthly forecast review in order to
assess the sufficiency of Perfect Galaxy’s labor capacity, equipment capacity,
and raw materials positioning, both short and long term.  Perfect Galaxy shall
in turn provide a consolidated forecast of component materials used in Perfect
Galaxy’s manufacture of the Products to all appropriate suppliers of Perfect
Galaxy within five (5) Business Days of receipt of the Forecast from Satcon.

 

Manufacturing Factory Capacity Model

 

No. Of Weeks

 

< 2

 

< 4

 

< 8

 

< 12

 

< 16

 

< 20

 

< 26

 

Capacity +/-

 

 

 

30

%

50

%

100

%

125

%

150

%

200

%

 

Perfect Galaxy shall maintain a ramp readiness plan.  The ramp readiness plan
must address staffing, training, equipment, and materials readiness to increase
its existing capacity to incremental levels.  This plan is to be reviewed by
both Parties at least once a quarter.

 

6.2                               Delivery.  Perfect Galaxy represents and
warrants that it shall deliver the Products to Satcon’s freight forwarder in the
Hong Kong Special Administrative Region on or within three (3) calendar days
prior to the applicable Purchase Order Delivery Date unless otherwise

 

18

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

 

agreed upon in writing by the Parties.  If Perfect Galaxy is unable to deliver
such Products on or within (3) calendar days on such Purchase Order Delivery
Date, Perfect Galaxy shall immediately notify Satcon in writing of the reason
for the delay or premature delivery and the date by which such Products will be
or was delivered, as the case may be.

 

6.2.1                        Late or Premature Delivery.  If Perfect Galaxy
fails to deliver Products by the applicable Purchase Order Delivery Date in any
Purchase Order, Perfect Galaxy shall use its best efforts to deliver the delayed
Products so that the delayed Products are delivered as soon as practicable.  If
Perfect Galaxy is unable to deliver the delayed Products within five (5) days of
the applicable Purchase Order Delivery Date, Perfect Galaxy shall provide a
rescheduled delivery date.  If the Products are delayed more than fourteen (14)
calendar days from the Purchase Order Delivery Date, Perfect Galaxy shall use
expedited delivery at its own cost.  Thereafter, Satcon may immediately cancel,
without liability, all Purchase Orders or portions of Purchase Orders for
Products delayed more than thirty (30) days from the Purchase Order Delivery
Date.  For Products delayed more than thirty (30) days that Satcon continues to
require Perfect Galaxy to provide, Perfect Galaxy shall use best efforts to
expedite delayed Products and shall pay all expediting costs.  If Perfect Galaxy
delivers Products prior to seven (7) calendar days from the applicable Purchase
Order Delivery Date, Perfect Galaxy shall reimburse Satcon for all verified
storage, rescheduling, and related out-of-pocket expenses incurred by Satcon as
a result of the Perfect Galaxy’s premature delivery.

 

6.3                               Reschedule Delivery.  Satcon may, without
liability to Perfect Galaxy, reschedule delivery of (a) all or any part of a
Purchase Order no later than sixty (60) days prior to the original Purchase
Order Delivery Date for once, or (b) up to 50% of a Purchase Order between the
thirty-first (31st) day and the sixtieth (60th) day prior to the original
Purchase Order Delivery Date for once.  Satcon shall not reschedule a Purchase
Order within thirty (30) days prior to the Purchase Order Delivery Date.

 

6.4                               Delivery Performance Guarantees with Satcon’s
customers.  In the event that Satcon agrees to provide delivery performance
guarantees to its customers, Satcon will advise Perfect Galaxy of the agreement
and the Parties will negotiate to whether Perfect Galaxy will agree to share the
potential exposures and the associated costs.

 

6.5                               Packaging.  All Products ordered by Satcon
shall be packed for shipment and storage in a manner designated by Satcon no
later than in the Purchase Order for the Product.  Perfect Galaxy shall apply
notices, in a form previously approved in writing by Satcon, to any Products
that it manufactures or has manufactured on behalf of Satcon and all packaging
materials relating thereto.

 

All Products shall be shipped including a packing list (the “Packing List”),
complying with international standards for such documents.  The Packing List
shall be delivered inside an external easy-access pouch, safely attached to the
shipping box.  Every shipment shall be packaged according to international
standards and generally accepted methods and practices used in the electronics
industry.

 

6.6                               Certificates of Origin.  Upon Satcon’s
request, Perfect Galaxy shall, at its own cost, provide Satcon with certificates
of origin with each shipment of the Products.  Perfect

 

19

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

 

Galaxy will also assist and maintain the proper country of origin for all
components used in the manufacturing of the product.

 

6.7                               Passing of Title and Risk of Loss.  Title and
risk of loss to the Products shall pass to Satcon at the time that such Products
are placed with the freight forwarder in the Hong Kong Special Administrative
Region for shipment.

 

6.8                               Acceptance.  All Products are subject to
Satcon’s inspection and test at Satcon’s premises before acceptance.  Products
not rejected by written notification to Perfect Galaxy within forty-five (45)
days of receipt (“Rejected Products”) shall be deemed to have been accepted.  If
rejected, Satcon shall promptly generate a non-conforming material report
(NCR).  Upon acceptance of the disposition of the NCR from Perfect Galaxy,
Satcon shall promptly return Rejected Products to Perfect Galaxy.  Perfect
Galaxy shall bear the risk of loss for Rejected Products during shipment, shall
reimburse Satcon for any costs of transportation incurred by Satcon in
connection with the return to Perfect Galaxy of Rejected Products, and shall
prepay expedited transportation back to Satcon.  Alternatively, Satcon may elect
to accept the nonconforming Products in exchange for a credit, in an amount not
to exceed ten percent (10%) of the Purchase Price for the nonconforming Products
plus the cost of the materials which need to be replaced, against the Perfect
Galaxy invoice amount as may be agreed upon in writing by Satcon and Perfect
Galaxy.

 

ARTICLE VII
WARRANTIES AND REMEDIES

 

7.1                               Warranties.

 

7.1.1                        Satcon represents and warrants that:  (i) Satcon
has no knowledge of and that there are no unresolved claims, demands, or pending
litigation alleging that the Products infringe, or misappropriate any
Intellectual Property Rights of any third party, (ii) Satcon has obtained all
necessary rights under any Intellectual Property Rights of third parties
necessary (A) to permit Perfect Galaxy to manufacture Products pursuant to the
Production Design and (B) for the sale, use, or other distribution of the
Products supplied to Satcon under this Agreement, and (iii) the Products
delivered under this Agreement do not infringe or misappropriate any
Intellectual Property Rights of any third party.

 

7.1.2                        For a period of sixteen (16) months from the
respective delivery date of each Product, Perfect Galaxy expressly warrants that
all Products are free from defects in workmanship, and materials manufactured by
Perfect Galaxy and its affiliates and conform to the Specifications requested by
Satcon.  The Product Engineering Results provided by Perfect Galaxy shall be
made with commercially reasonable degree of care.  Perfect Galaxy represents
that it shall maintain reasonable traceability of materials used in Products. 
All warranties survive any inspection, acceptance, payment, or resale by
Satcon.  For the avoidance of doubts, Perfect Galaxy shall not liable for
defects arising from Production Design, unauthorized repair, misuse, alteration
or modification of the Products by Satcon or a third party.

 

7.1.3                        Satcon represents and warrants that the Production
Design complies with all applicable laws, regulations and ordinances of any
government, agency or public authority

 

20

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

 

having jurisdiction over the manufacture and delivery of Products in the country
where the Approved Facility is located and where the Products will be sold or
used.

 

7.1.4                        Perfect Galaxy warrants that the Products provided
under this Agreement are wholly new and contain new components and parts
throughout.  Perfect Galaxy further warrants that it has good and warrantable
title to the Products, free and clear of any liens, encumbrances, or other
restrictions on use or distribution.

 

7.1.5                        Perfect Galaxy agrees that its representations and
warranties are reaffirmed with each shipment or delivery of Products.

 

7.1.6                        Perfect Galaxy shall pass through all warranties
provided by any of the suppliers, vendors and manufacturers of parts, components
and Sub Assemblies that it purchases to manufacture the Products.  Perfect
Galaxy shall use reasonable commercial efforts to negotiate at least a five
(5) year transferrable warranties on critical components, such as transformers
and reactors contained within the Products.  Where Satcon incurs labor and
material costs to repair or replace any defective materials, components and Sub
Assemblies, Perfect Galaxy shall assist Satcon in recovering such costs from the
vendors, suppliers or manufacturers under the applicable warranties, if any.

 

7.1.7                        THE FOREGOING WARRANTIES ARE EXCLUSIVE AND GIVEN
AND ACCEPTED IN LIEU OF ALL OTHER WARRANTIES OF PERFECT GALAXY WITH RESPECT TO
THE PRODUCTS, WRITTEN OR ORAL, EXPRESSED OR IMPLIED.  ALL OTHER WARRANTIES OF
PERFECT GALAXY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY DISCLAIMED.

 

7.2                               Remedies.

 

7.2.1                        If Perfect Galaxy delivers Products that fail to
comply with the warranties in this Agreement, or which experience an Epidemic
Warranty Condition (“Affected Products”), whether or not apparent upon
inspection, Perfect Galaxy shall promptly and at its sole expense, at Satcon’s
option:  (i) repair or replace the Affected Products and (ii) pay to Satcon all
costs of repairing or replacing Products that incorporate or are otherwise
impacted by the Affected Products, including, but not limited to actual and
reasonable materials costs, logistics expenses and labor charges on an hourly
basis.  The hourly labor rates referred to in clause (ii) of the preceding
sentence shall be mutually agreed upon at the first quarterly business meeting
between the Parties, and the costs referred to in such clause (ii) for a given
Product shall not exceed the cost of that Product.  THE FOREGOING REMEDIES ARE
THE EXCLUSIVE REMEDIES PERFECT GALAXY PROVIDES IN THIS AGREEMENT UNLESS
EXPRESSLY INDICATED OTHERWISE IN THIS AGREEMENT.

 

7.2.2                        In addition to the other rights and remedies
provided in this Agreement, if at any time one or more of the Products
experiences an Epidemic Warranty Condition, Satcon shall have the right to
immediately suspend all Purchase Orders and/or Forecasts, and Perfect Galaxy, at
its sole expense, shall take immediate remedial action for affected and
potentially affected Products, according to a corrective action plan approved by
Satcon.  If within a

 

21

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

 

reasonable time mutually agreed upon by the Parties, Perfect Galaxy has not
remedied the Epidemic Warranty Condition, Satcon may reschedule or cancel all
Purchase Orders and/or Forecasts for the affected Products without liability of
any kind, including but not limited to liability for raw materials, inventory,
work-in-process, or finished goods Perfect Galaxy may have on-hand for the
Purchase Orders or the Forecast.

 

ARTICLE VIII
ADDITIONAL COVENANTS

 

8.1                               Most Favored Customer.

 

8.1.1                        Perfect Galaxy agrees to treat Satcon at least as
well as its most favored customers.  Perfect Galaxy agrees that the prices,
warranties, benefits and other material terms being provided hereunder and to be
provided hereafter are and shall be equivalent to or better than the terms being
offered by Perfect Galaxy to its current and future customers; provided,
however, Perfect Galaxy may offer other customers volume discounts in accordance
with the volume discounts offered to Satcon.  This obligation requires Perfect
Galaxy to provide Satcon with at least pari passu treatment with other customers
(i) as to quantity of Products made available to Satcon in a shortage situation
and (ii) as to the Purchase Order Delivery Dates for Purchase Orders.

 

8.1.2                        If Perfect Galaxy enters into an agreement with any
other customer under circumstances substantially similar (as described above) to
that of Satcon and if Perfect Galaxy provides such other customer with more
favorable terms, then this Agreement shall be deemed appropriately amended to
provide such terms to Satcon.  Perfect Galaxy shall promptly provide notice
thereof to Satcon and shall provide to Satcon refund or credits, if any, in an
amount equal to the difference between the lower prices charged to other
customer and the amount paid by Satcon from the date the lower prices went into
effect with the other customers.

 

8.2                               Interference with Employees.  Neither any
Party nor any of its Affiliates shall during the Term and for a period of twelve
(12) months thereafter, without the prior written approval of another Party,
directly or indirectly, for itself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement for personal services with any employee or former
employee of such other Party or any of its Affiliates.  Each Party shall provide
the other with a list of its affiliates to which this covenant shall apply. 
Notwithstanding the previous sentence, a general solicitation not specifically
targeted at the other Party’s employees shall not be a breach of this Paragraph.

 

8.3                               Exclusivity and Non-compete.

 

8.3.1                        The Parties agree to work on a non-exclusive basis,
meaning that both Satcon and Perfect Galaxy may work with other contract
manufacturers or customers without restrictions.  Notwithstanding the foregoing,
during the term of this Agreement, Perfect Galaxy and its Affiliates shall not
engage or participate in the design, development, manufacture, contract
manufacture, marketing or sale of any photovoltaic inverters manufactured for
Satcon for or to any Satcon competitors as detailed and updated from time to
time in Satcon’s public filings with the US Securities and Exchange Commission.

 

22

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8.3.2                        During the Term and for a period of two (2) years
thereafter, unless otherwise expressly provided for herein, neither Perfect
Galaxy nor any of its Affiliates may directly or indirectly engage, in any
business which involves the product categories and related services described in
the Paragraph immediately below (the “Restricted Business”), including without
limitation design, development, utilizing, manufacturing, marketing, sales or
distribution of any products within the scope of the Restricted Business.

 

Restricted Business:  photovoltaic inverters including subassemblies that
Perfect Galaxy manufactures for and supplies to Satcon under this Agreement from
time to time.

 

Notwithstanding anything herein to the contrary, if Satcon terminates this
Agreement without cause pursuant to Section 10.3.1(a) herein, this Section 8.3
shall be modified to allow Perfect Galaxy to engage in photovoltaic inverter
contract manufacturing activities twelve (12) months after the effective date of
such termination.

 

8.4                               Compliance with Laws.  Each Product shall be
manufactured in accordance with all applicable laws, regulations and ordinances
of any government, agency or public authority having jurisdiction over the
manufacture and delivery of Products in the country where the Approved Facility
is located.  The Production Designs supplied by Satcon shall comply with all
applicable laws, regulations and ordinances of any government, agency or public
authority having jurisdiction over the Products.  Perfect Galaxy shall provide,
upon request, photocopies of all documents evincing Perfect Galaxy’s compliance
with this Paragraph 8.4, including, but not limited to the building ownership
certificate(s) of the Approved Facility and the updated business license
reflecting Perfect Galaxy’s legal capacity to manufacture Products.

 

8.5                               End of Life Products.  Before Perfect Galaxy
stops offering any Products for sale to or for Satcon for any reason (“End of
Life Products”), Perfect Galaxy shall give Satcon a minimum of twelve (12)
months prior written notice (“End of Life Period”).  During the End of Life
Period, Satcon will a) provide Perfect Galaxy with a forecast of anticipated
demand for the End of Life Products during the End of Life Period; and/or b) may
continue to place Purchase Orders for the End of Life Products, with deliveries
not to exceed the End of Life Period.  Perfect Galaxy shall make reasonable
efforts to make available spare parts for a period of twelve (12) months after
notice of discontinuance of an End of Life Product.  At the expiration of the
twelve (12) month period, Satcon shall pay Perfect Galaxy full price for the End
of Life Products and either (i) request Perfect Galaxy to retain possession of
those End of Life Products for which Perfect Galaxy shall be paid an additional
amount equal to one percent (1%) per month as a storage fee or (ii) direct
Perfect Galaxy to deliver the End of Life Products to Satcon’s freight forwarder
in Hong Kong Special Administrative Region.

 

ARTICLE IX
INTELLECTUAL PROPERTY

 

9.1                               Intellectual Property Rights.

 

9.1.1                        Without prejudice to its rights under applicable
law, each Party agrees and acknowledges that as among the Parties, the other
Party is the owner of all right, title and interest in and to their own
Intellectual Property Rights as of the Effective Date and that no Party shall

 

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obtain any ownership interest in any of the other Party’s Intellectual Property
Rights, or any license of such rights, except, with respect to Perfect Galaxy,
the right to manufacture Products pursuant to this Agreement, the right to
disclose information to suppliers and vendors for the purpose of purchasing
parts components, sub assemblies and spares.

 

9.1.2                        If at any time during the Term any Party is aware
that any infringement of or act of unfair competition with respect to any of the
Satcon Technology Rights or Perfect Galaxy Technology Rights is occurring or
legal action has been taken, then it shall promptly (i) notify the other Party,
(ii) identify (if known) the infringer and any other person responsible,
(iii) to the extent known, the infringement or acts of unfair competition
complained of and (iv) furnish the information which alerted it to such
infringement or acts.

 

9.1.3                        License of Satcon Technology Rights and Perfect
Galaxy Intellectual Property Rights.

 

(a)                                  Satcon hereby grants to Perfect Galaxy (and
each Affiliate that operates an Approved Facility) in respect of each Product
manufactured by Perfect Galaxy for Satcon a non-exclusive, worldwide license of
the Satcon Technology Rights to the extent, and for the period of time, required
for Perfect Galaxy to perform its obligations under this Agreement, including
the manufacturing of Products and their repair and replacement.

 

(b)                                 Perfect Galaxy hereby grants a perpetual,
non-exclusive, worldwide license of the Perfect Galaxy Intellectual Property
Rights to Satcon in respect of each Product manufactured by Perfect Galaxy for
Satcon to the extent required by Satcon to sell, service and repair (but not
refurbish or manufacture) the Products.

 

(c)                                  Perfect Galaxy hereby grants a perpetual,
non-exclusive, worldwide license of the Perfect Galaxy Intellectual Property
Rights to the users of the Products to the extent required to use, service,
repair (but not refurbish or manufacture) and resell the Products manufactured
by Perfect Galaxy.

 

9.1.4                        Product Ownership.

 

(a)                                  Each Party acknowledges and agrees that any
Intellectual Property Rights owned by any Party prior to the Effective Date,
including, without limitation, Intellectual Property Rights related to any
Product that was developed prior to the Effective Date, is the sole and
exclusive Intellectual Property Right of each respective Party and the other
Party will not, at any time, deliberately act in a manner so as to infringe on
such Intellectual Property Rights.

 

(b)                                 Perfect Galaxy hereby acknowledges and
agrees that Satcon shall exclusively own all right, title and interest in and to
any Product Engineering or Intellectual Property Rights arising from Product
Engineering, whether or not such Product Engineering was initiated at the
request of Satcon through a Statement of Work, to the extent that Satcon has
paid NRE for such Product Engineering.

 

(c)                                  Perfect Galaxy shall have the rights to
sell Products to parties other than Satcon under the provisions of
Paragraph 10.5.

 

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ARTICLE X
TERM AND TERMINATION

 

10.1                        Term.

 

(a)                                  This Agreement shall commence on the
Effective Date and shall continue for five (5) years unless earlier terminated
pursuant to Paragraph 10.3 (the “Term”).  The Term shall also include any
renewal term pursuant to Paragraph 10.2 hereof.

 

10.2                        Renewal Term.  The Parties may mutually agree to
renew this Agreement for additional one (1) year terms prior to the lapse of the
initial Term, and thereafter, prior to the lapse of the then-current one
(1) year renewal term.

 

10.3                        Termination.

 

10.3.1                  This Agreement will terminate in the event of any of the
following:

 

(a)                                  Upon one hundred eighty (180) calendar days
after Perfect Galaxy or Satcon, in its sole discretion, gives the other Party
written notice.  Upon the notification from Perfect Galaxy, Perfect Galaxy
agrees to a transition schedule that may extend beyond the one hundred eighty
(180) days but shall not exceed two hundred seventy (270) days;

 

(b)                                 Immediately upon the written agreement of
the Parties to terminate this Agreement;

 

(c)                                  Within 60 days upon Satcon’s written notice
in the event of an Epidemic Warranty Condition in which Perfect Galaxy does not
make commercially reasonable efforts to remedy and contain the Condition.

 

(d)                                 If Satcon or Perfect Galaxy is in material
or persistent breach of any provisions of this Agreement and such breach, if
capable of remedy, has not been remedied within forty-five (45) days after
receipt by the other Party of notice of such breach; or

 

(e)                                  Any proceeding shall be instituted by or
against any Party seeking to adjudicate it a bankrupt or an insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it)
that is being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of ninety (90) days or any of
the actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or any Party shall take any corporate action to authorize
any of the actions set forth above in this subsection.

 

10.4                        Effect of Termination.  Upon the earlier of
expiration or termination of this Agreement (i) Perfect Galaxy shall no longer
be authorized to utilize any Satcon license

 

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previously utilized in connection with this Agreement except in connection with
Perfect Galaxy’s obligation to provide end of life support under Paragraph 8.5,
(ii) each Party shall return to the other Party all copies of the Confidential
Information previously disclosed by the other Party and no Party nor its
Affiliates shall thereafter retain copies, transcriptions or summaries of any
portion of the foregoing, (iii) Satcon shall immediately pay all outstanding
invoices to Perfect Galaxy and all other amounts payable by Satcon to Perfect
Galaxy under this Agreement (the “Satcon Obligations”), (iv) upon receipt of
payment or a mutually agreed upon payment plan for all of the Satcon
Obligations, Perfect Galaxy shall deliver and return to Satcon all Consigned
Inventory and all Tooling in its possession and (v) the Parties shall remain
liable for each of their respective liabilities hereunder that accrued prior to
the date of termination and for obligations hereunder that survive termination. 
Upon the earlier of expiration or termination of this Agreement and the payment
of all Satcon Obligations, Perfect Galaxy shall ensure that Satcon shall have
the right to enter into the premises where any Consigned Inventory and Tooling
is located and the right to remove same without impediment.

 

10.5                        Perfect Galaxy’s Right to Sell Products in the Event
of Satcon’s Breach.  Without limiting Perfect Galaxy’s remedies for breach under
applicable law, Perfect Galaxy shall have the right to sell Products, parts,
components, and Sub Assemblies then in its possession or on order if Satcon
fails to cure a breach under this Agreement and Perfect Galaxy terminates this
Agreement under 10.3.1(d).  Satcon hereby grants Perfect Galaxy a nonexclusive,
worldwide license to make, have made, use, distribute, sell, offer to sell, have
sold, supply and otherwise commercialize the Products, parts, components, and
Sub Assemblies that are then in Perfect Galaxy inventory or on order in the
event that Perfect Galaxy terminates this Agreement for Satcon’s breach pursuant
to Paragraph 10.3.1(d).

 

10.6                        Satcon’s Right to Set Off in the Event of Perfect
Galaxy’s Breach.  Without limiting Satcon’s remedies for breach under applicable
law, if Satcon terminates the Agreement pursuant to either
Paragraph 10.3.1(c) or Paragraph 10.3.1(d) herein and such termination is held
to be legitimate in an arbitration conducted pursuant to Paragraph 13.13 herein,
Satcon may set off any obligations, payments, claims and liabilities due from
Perfect Galaxy and/or its Affiliates to Satcon and/or its Affiliates under this
Agreement against all and any amounts due from Satcon and/or its Affiliates to
Perfect Galaxy under this Agreement.  In addition, if this Agreement terminates
as a result of a breach by Perfect Galaxy in such a manner that Satcon is not
provided with the termination period set forth in Section 10.1(a) hereof,
Perfect Galaxy shall reimburse Satcon for all costs and expenses reasonably
incurred moving to a new contract manufacturing facility.

 

ARTICLE XI
CONFIDENTIALITY

 

11.1                        Disclosure of Confidential Information.  Each Party
may disclose to the other Party, from time to time during the Term, Confidential
Information pursuant to the terms of this Agreement.  All such Confidential
Information disclosed to the receiving Party during the Term is and shall remain
the disclosing Party’s sole property and the disclosing Party shall retain all
Intellectual Property Rights thereto.

 

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11.2                        Confidentiality.

 

11.2.1                  Each Party shall (i) treat any other Party’s
Confidential Information as confidential and shall not directly or indirectly,
use, divulge, publish or otherwise disclose or allow to be disclosed any aspect
of such other Party’s Confidential Information, except with such other Party’s
prior written consent and as specifically permitted by this Agreement and
(ii) refrain from any action or conduct which could reasonably be expected to
compromise the confidentiality or proprietary nature of such other Party’s
Confidential Information.  Upon the written request of a Party, the other Party
shall immediately return to the requesting Party all originals and/or copies of
any Confidential Information in the possession of such other Party.

 

11.2.2                  The Parties shall take all appropriate reasonable
measures to prevent the unauthorized disclosure of the other Party’s
Confidential Information exercising at least such care as it takes in respect of
its own Confidential Information, but in no event less than due care.

 

11.3                        Information Not Deemed Confidential Information. 
The obligations and restrictions set forth in this shall not apply to any
Confidential Information that falls within any of the exceptions set forth
below, so long as a Party produces credible written evidence that the alleged
Confidential Information:

 

(a)                                  is or has become part of the public domain
without breach of this Agreement by the Party claiming this exception;

 

(b)                                 was independently developed by or for a
Party completely apart from the disclosures hereunder;

 

(c)                                  was received from a third party who
lawfully acquires such information without restriction, and without breach of
this Agreement the Party claiming this exception;

 

(d)                                 was required to be disclosed by any
securities exchange or regulatory or governmental body to which that party is
subject or submits, wherever situated, (only to the extent so required) whether
or not the requirement for information has the force of law;

 

(e)                                  was disclosed only to its professional
advisers, auditors or bankers, contractors and Affiliates necessary for the
performance of this Agreement;

 

(f)                                    was in a Party’s possession prior to the
disclosure by the other Party; and/or

 

(g)                                 is released pursuant to a binding court
order or government regulation, provided that the Party delivers a copy of such
order or action to the other Party and cooperates with the other Party if it
elects to contest such disclosure.

 

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ARTICLE XII
INDEMNIFICATION

 

12.1                        Indemnification Obligation.

 

(a)                                  Each Party shall fully defend, indemnify,
and hold harmless the other Party, their Affiliates, and their officers,
directors, employees, contractors, agents, attorneys, and insurers (“Indemnified
Parties”) against any and all claims, damages, costs, expenses (including,
without limitation, court costs and attorneys’ fees), suits, losses, or
liabilities (“Claims”) (i) of an Indemnified Party arising out of a breach of
the indemnifying Party’s obligations under this Agreement, or (ii) or of third
parties for any death, injury, or tangible property damage caused by or arising
from negligent acts or omissions of the indemnifying Party, its Affiliates, and
their officers, directors, employees, contractors, subcontractors,
representatives, or agents (“Indemnifying Parties”) arising from or connected
with the performance of this Agreement.  The Indemnifying Parties shall
reimburse the Indemnified Parties for all losses, costs, and expenses the
Indemnified Parties incur as a result of such Claims, including court costs and
attorneys’ fees.  To receive the foregoing indemnities, the Party seeking
indemnification must promptly notify the other in writing of a Claim and provide
reasonable cooperation and full authority to defend or settle the Claim.  No
party will have any obligation to indemnify the other under any settlement made
without its written consent.

 

(b)                                 Satcon shall fully defend, indemnify, and
hold harmless Perfect Galaxy, its Affiliates, and its and their officers,
directors, employees, contractors, agents, attorneys, and insurers against any
and all Claims of third parties for any death, injury, tangible property damage,
or infringement of Intellectual Property Rights caused by or arising from all
Specifications, Production Design and requirements established by Satcon for the
Products.

 

(c)                                  Perfect Galaxy shall fully defend,
indemnify, and hold harmless Satcon, its Affiliates, and its and their officers,
directors, employees, contractors, agents, attorneys, and insurers against any
and all Claims of third parties for any death, injury, or tangible property
damage caused by or arising from Product Engineering provided by Perfect Galaxy
and manufacturing and workmanship defects attributable to Perfect Galaxy.

 

12.2                        Insurance.  Perfect Galaxy shall maintain in full
force and effect policies of (i) worker’s compensation or employers’ liability
insurance as required by national or local law within statutory limits, and
(ii) property insurance, with reputable and financially secure insurance
carriers in an amount which is customarily carried by companies manufacturing
electronic equipment with the same volume as Perfect Galaxy.  The applicable
insurance policy will be endorsed to provide that the insurance company will
endeavor to provide at least thirty (30) days prior notice of cancellation to
Satcon.  Upon request by Satcon, Perfect Galaxy will provide to Satcon copies of
said policies of insurance.

 

12.3                        Limitation of Liability.  NOTWITHSTANDING ANYTHING
IN THIS AGREEMENT TO THE CONTRARY, NO PARTY SHALL BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, WHETHER FORESEEABLE OR
NOT, THAT ARE IN ANY WAY RELATED TO THIS AGREEMENT.  FURTHER, THE MAXIMUM
LIABILITY OF PERFECT GALAXY UNDER THIS AGREEMENT FOR ANY REASON SHALL NOT EXCEED
FIVE MILLION US DOLLARS (US$5,000,000) IN THE AGGREGATE, AND THE MAXIMUM
LIABILITY OF PERFECT GALAXY FOR ANY PARTICULAR PRODUCT SHALL NOT EXCEED THE
PURCHASE PRICE FOR THAT PRODUCT.

 

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ARTICLE XIII
GENERAL TERMS

 

13.1                        Relationship of Parties.  Notwithstanding anything
herein to the contrary, the relationship between Satcon and Perfect Galaxy is
that of independent contractors.  No Party is the agent or legal representative
of the other Party and no Party has the right or authority to bind the other
Party in any manner.  This Agreement creates no relationship as partners or a
joint venture, and creates no pooling arrangement.

 

13.2                        Assignment; Transfer.  No Party may can assign or
transfer its rights and obligations under this Agreement without the prior
written consent of the other Party, except that Satcon may assign and transfer
its rights and obligations in entirety to an entity wholly owned by Satcon to be
incorporated after the Effective Date upon submitting a written notice to
Perfect Galaxy.

 

13.3                        Governing Law.  The laws of the state of California
disregarding its conflict of laws provisions, exclusively govern this Agreement,
all transactions and conduct related to this Agreement, and all disputes and
causes of action between the Parties (in contract, warranty, tort, strict
liability, by statute, regulation, or otherwise).  The Parties specifically
disclaim application of the United Nations Convention on Contracts for the
International Sale of Goods.

 

13.4                        Counterparts.  This Agreement may be executed in
several counterparts that together shall be originals and constitute one and the
same instrument.

 

13.5                        Waiver; Remedies Cumulative.  The failure of any
Party to enforce any of its rights hereunder or at law shall not be deemed a
waiver or a continuing waiver of any of its rights or remedies against another
Party, unless such waiver is in writing and signed by the Party to be charged. 
All rights and remedies conferred herein shall be cumulative and in addition to
all of the rights and remedies available to each Party at law, equity or
otherwise.

 

13.6                        Severability.  If any provision of this Agreement,
or part thereof, is declared by a court of competent jurisdiction to be invalid,
void or unenforceable, each and every other provision, or part thereof, shall
nevertheless continue in full force and effect.

 

13.7                        Attorney’s Fees.  In the event a dispute arises
regarding this Agreement, the prevailing Party shall be entitled to its
reasonable attorney’s fees and expenses incurred in addition to any other relief
to which it is entitled.

 

13.8                        Notice.  All notices, requests or other
communications under this Agreement shall be in writing, and shall be sent to
the designated representatives of the Parties at the addresses set forth below,
and shall be deemed to have been duly given on the date of service if sent by
facsimile (provided a hard copy is sent in one of the manners specified herein),
or on the fourth (4th) day following service if sent by air courier service with
written confirmation of delivery, or ten (10) calendar days after mailing if
sent by first class, registered or certified mail, return receipt requested. 
Each Party is required to notify the other Party in the above manner of any
change of address.

 

If to Satcon:

 

25 Drydock Avenue, Boston, MA 02210, U.S.

 

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Facsimile: +1 617 8972401

Attention: Steve Rhoades, CEO

 

 

 

If to Perfect Galaxy

 

Block C, 4/F., Sea View Estate, 2 – 8 Watson Road,

North Point, Hong Kong SAR

Attention: Y.C.Yu, VP of Operations

 

Any notice given under this Agreement outside business hours in the place to
which it is addressed shall be deemed not to have been given until the start of
the next period of business hours in such place.

 

13.9                        Further Assurances.  The Parties agree to execute
such additional documents and perform such acts as are reasonably necessary to
effectuate the intent of this Agreement.

 

13.10                 Entire Agreement.  This Agreement constitutes the entire
agreement between the Parties regarding the subject matter hereof, and
supersedes all prior or contemporaneous understandings or agreements regarding
the subject matter hereof, whether oral or written.  This Agreement shall be
modified or amended only by a written instrument executed by both Satcon and
Perfect Galaxy.

 

13.11                 Authority.  The parties executing this Agreement on behalf
of Satcon and Perfect Galaxy represent and warrant that they have the authority
from their respective governing bodies to enter into this Agreement and to bind
their respective companies to all the terms and conditions of this Agreement.

 

13.12                 Captions.  The captions of the Articles and Paragraphs in
this Agreement are for convenience only and shall not be used to interpret the
provisions of this Agreement.

 

13.13                 Arbitration.  In the case of any disputes, controversies,
claims or differences which may arise among the Parties, out of or in relation
to or in connection with this Agreement, or for the breach thereof, the Parties
agree to good faith negotiation or mediation of any such dispute.  In the event
such dispute is not resolved, such dispute shall be referred to and settled by
arbitration (without being submitted to any court), except as otherwise
expressly provided herein.  The arbitration shall take place in Los Angeles of
California, in accordance with the rules of procedure of the American
Arbitration Association applying the substantive laws of the State of
California.  The award rendered shall be final and binding upon the Parties
hereto, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.  In the event of arbitration, the panel shall consist of
three (3) arbitrators, one (1) of whom shall be chosen by Satcon, one (1) of
whom shall be chosen by Perfect Galaxy and/or Perfect Galaxy, and one (1) of
whom shall be chosen by the two (2) arbitrators chosen by Satcon and Perfect
Galaxy and/or Perfect Galaxy.

 

13.14                 Upon the effectiveness of this Agreement, the Previous
Agreement is hereby amended, restated and replaced by this Agreement regarding
the subject matter hereof.

 

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IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed
this Agreement on the dates set forth below to be effective as of the date first
set forth above.

 

 

SATCON TECHNOLOGY CORPORATION

 

 

 

 

 

By:

/s/ Charles S. Rhoades

 

 

 

 

Name: Charles S. Rhoades

 

 

 

 

Title: Chief Executive Officer

 

 

 

 

PERFECT GALAXY INTERNATIONAL LIMITED

 

 

 

 

 

 

 

By:

/s/ Zhou Gengshen

 

 

 

 

Name: Zhou Gengshen

 

 

 

Title:

 

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SCHEDULE 1

 

EPIDEMIC WARRANTY CONDITIONS

 

An Epidemic Warranty Condition of Products exists when a failure of Products to
comply with the warranty in Paragraph 7.1.2 causes a significant percentage of
Products to fail in Satcon’s application within sixteen (16) months after their
delivery and more Products have the potential to fail within sixteen (16) months
after their delivery due to the same defect.  The aforementioned percentage
measures the actual failures of Products within some population of Products that
share a common production characteristic or event related to the defect such as
time of manufacture (same lot, batch or version), or that contain an identical
suspect element or have undergone a unique suspect process that could have
produced the defect (“Population”), and that can be directly attributed to the
manufacturing process.  A calculation resulting in an annual failure rate of
over five percent (5%) in the Population of Products (where the Population is
contains one hundred (100) or more units that are under warranty as provided in
this Agreement, or the failure of five (5) units (where the Population contains
fewer than 100 units) that are under warranty as provided in this Agreement, is
deemed Epidemic.

 

In the event of such Epidemic Conditions, Perfect Galaxy agrees to expedite the
replacement or repair of all Product in the Population, immediately remedy the
root cause of the defect and pay all reasonable costs associated with any
remedial action.  Reasonable costs will include, but are not limited to, the
cost to repair or replace the Products, expedited air freight and shipping
charges, and direct costs incurred by Satcon or Satcon’s agents to remove and
replace the nonconforming products.

 

In addition to other remedies provided in any other provision of this Agreement,
if Satcon notifies Perfect Galaxy that any Product shows evidence of an Epidemic
Warranty Condition and Perfect Galaxy confirms the existence of such Epidemic
Warranty Condition, Perfect Galaxy shall use reasonable commercial efforts to
prepare and propose a corrective action plan (“CAP”) with respect to such
Product within five (5) business days of said confirmation, addressing
implementation and procedure milestones for remedying such Epidemic Warranty
Condition(s).

 

Satcon shall make available in a timely manner samples of the Products
evidencing an Epidemic Warranty Condition.

 

Epidemic failure excludes:  Product failures directly due to action(s) that
voids the Product warranty under this Agreement, non-conformities expressly
approved by Satcon, and failures occurring in the Population outside of the
warranty period in this Agreement.

 

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EXHIBIT A

 

Consignment Agreement

 

This Consignment Agreement (this “Consignment Agreement”), is made and entered
into as of February 6, 2012 (the “Effective Date”), by and between Perfect
Galaxy International Limited, a company registered under the laws of the British
Virgin Islands, having a principal mailing address at 4/F., Sea View Estate, 2-8
Watson Road, North Point, Hong Kong SAR (hereinafter referred to as “Consignee”)
and Satcon Technology Corporation, a company registered under the laws of the
state of Delaware of the United States of America, having a principal place of
business at 25 Drydock Avenue, Boston, MA 02210, U.S.A. (hereinafter referred to
as “Consignor”).  Each Consignor and Consignee shall be referred to as a “Party”
and collectively, the “Parties,” under this Consignment Agreement.

 

1                                         Consignment.  Consignor shall furnish
on consignment in the custody of the Consignee, certain equipment, tooling, and
other materials to be used for manufacturing Products (as defined in Contract
Manufacturing Agreement between the Parties, dated July 15, 2011 (the
“Manufacturing Agreement”) as listed in Exhibit 1 attached, which may be amended
by the Parties in writing from time to time (the “Consigned Equipment”).  The
Consigned Equipment will be shipped to Consignee at its facility in Shenzhen,
P.R.C. (the “Facility”) at Consignor’s costs and expenses in operative status
and at no other locations unless and until Consignor agrees otherwise in
writing.  Consignee shall use the Consigned Equipment only for the purposes of
manufacturing Products and providing other services for Consignor under the
Manufacturing Agreement.  A duly authorized representative of Consignor shall
have access at all reasonable times, and with three (3) business days prior
notice, to the Facility to inspect the status and/or use of the Consigned
Equipment.

 

2                                         Ownership.  Consignor shall at all
times retain ownership and title of the Consigned Equipment.  Consignee shall
give Consignor an immediate notice in the event that any of the Consigned
Equipment is levied upon or is about to become liable or is threatened with
seizure, and Consignee shall indemnify Consignor against all loss and damages
caused by such action.

 

3                                         Risk of Loss.  Consignee shall bear
all risks of loss, including, but not limited to, theft, destruction or damage
from fire or other natural causes, of the Consigned Equipment while it is in its
possession.  Consignee shall maintain insurance with respect to the Consigned
Equipment against all risks of loss, in an amount equal to the full replacement
cost of the Consigned Equipment in Consignee’s possession.  At Consignor’s
request, Consignee shall furnish to Consignor certificates of insurance
reflecting the foregoing coverage.

 

4                                        Charges and Expenses.  Consignee does
not need to pay any charges to Consignor for using the Consigned Equipment in
accordance with the terms and conditions provided herein.  Consignee shall be
responsible for all expenses of storing, handling and using the Consigned
Equipment once it arrives at the Facility.

 

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5                                         Duration of Agreement and
Termination.  This Consignment Agreement shall take effect on the date hereof
and terminates upon the termination or expiration of the Manufacturing
Agreement.  Upon termination of this Consignment Agreement, Consignee shall
immediately return to Consignor all Consigned Equipment in operative status,
normal tear and wear expected, at Consignee’s expense.  During the term of this
Consignment Agreement, Consignor may recall any or all of the Consigned
Equipment upon ten (10) days written notice to Consignee.  Consignee shall be
relieved from any obligation to accept any Purchase Order or to conduct
Production Engineering activities to the extent that such Consigned Equipment is
required in manufacturing or engineering of Products.

 

6                                         No Liability.  Consignor shall not be
responsible or liable for any loss, damage or injury to the property or the body
of Consignee, its Affiliates (as defined in the Manufacturing Agreement), or
their agents, employees, suppliers, or anyone directly or indirectly employed by
Consignee in connection with using any of the Consigned Equipment.  Consignee is
encouraged to obtain appropriate insurance against such risk of loss.

 

7                                         Maintenance, Operation and Upgrade. 
Consignee shall not remove, alter, disfigure or cover up any numbering,
lettering, or insignia displayed upon the Consigned Equipment, and shall see
that the Consigned Equipment is not subjected to careless, unusually or
needlessly rough usage; and Consignee shall at its own expense maintain the
Consigned Equipment, unless Consignee reasonably considers that third party
maintenance is required, which shall be at Consignor’s costs and expenses, and
its appurtenances in good repair and operative condition, and return it in such
condition to Consignor, ordinary wear and tear resulting from proper use thereof
alone expected.  Consignee shall be responsible for, at its own cost, all
necessary upgrades of the Consigned Equipment, unless Consignee reasonably
considers that third party upgrade is required, which shall be at Consignor’s
costs and expenses.

 

8                                         Repairs.  Consignee shall be
responsible for the expense of all repairs while the Consigned Equipment is in
the possession of Consignee, unless Consignee reasonably considers that third
party repair, including labor, material, parts and other items, is required,
which shall be at Consignor’s costs and expenses.

 

9                                        Operator.  Unless otherwise mutually
agreed in writing, Consignee shall supply and pay all operators on the Consigned
Equipment during the term of this Consignment Agreement.  All operators shall be
competent.

 

10                                  Separation.  Consignee shall keep the
Consigned Equipment reasonably segregated from Consignee’s own tooling,
equipment and other materials, shall keep the Consigned Equipment identifiable
as having been consigned to Consignee pursuant to the provisions of this
Consignment Agreement, and shall maintain accurate records of all uses of the
Consigned Equipment.

 

11                                  DISCLAIMER OF WARRANTIES.  CONSIGNOR, BEING
NEITHER THE MANUFACTURER, NOR A SUPPLIER, NOR A DEALER IN THE CONSIGNED
EQUIPMENT, MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY

 

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MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE CONDITION OF THE CONSIGNED
EQUIPMENT, ITS MERCHANTABILITY, ITS DESIGN, ITS CAPACITY, ITS PERFORMANCE, ITS
MATERIAL, ITS WORKMANSHIP, ITS FITNESS FOR ANY PARTICULAR PURPOSE, OR THAT IT
WILL MEET THE REQUIREMENTS OF ANY LAWS, RULES, SPECIFICATIONS, OR CONTRACTS
WHICH PROVIDE FOR SPECIFIC APPARATUS OR SPECIAL METHODS.  CONSIGNOR FURTHER
DISCLAIMS ANY LIABILITY WHATSOEVER FOR LOSS, DAMAGE, OR INJURY TO CONSIGNEE OR
THIRD PARTIES AS A RESULT OF ANY DEFECTS, LATENT OR OTHERWISE, IN THE CONSIGNED
EQUIPMENT.  CONSIGNOR SHALL NOT BE LIABLE IN ANY EVENT TO CONSIGNEE FOR ANY
LOSS, DELAY, OR DAMAGE OF ANY KIND OR CHARACTER RESULTING FROM DEFECTS IN, OR
INEFFICIENCY OF, THE CONSIGNED EQUIPMENT HEREBY OR ACCIDENTAL BREAKAGE THEREOF. 
CONSIGNEE SHALL NOT BE LIABLE IN ANY EVENT TO CONSIGNEE FOR ANY LOSS, DELAY OR
DAMAGE OF ANY KIND OR CHARACTER RESULTING FROM DEFECTS IN, OR INEFFICIENCY OF,
THE CONSIGNED EQUIPMENT HEREBY OR ACCIDENTAL BREAKAGE THEREOF, UNLESS TO THE
EXTENT THAT SUCH LOSS, DELAY OR DAMAGE IS CAUSED BY CONSIGNEE’S ACTIONS OR
OMISSIONS.

 

12                                  Indemnity.  Consignee shall indemnify
Consignor against, and hold Consignor harmless from, any and all liability for
injury, disability and death of workmen and other persons caused by the
operation, use, control, handling, or transportation of the Consigned Equipment
during the term of this Consignment Agreement.  Consignee shall indemnify
Consignor, and hold Consignor harmless from all loss and damage to the Consigned
Equipment while it is in the possession of Consignee.

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, Consignor and Consignee have executed this Consignment
Agreement as a sealed instrument as of the date first written above.

 

Consignee:

Perfect Galaxy International Limited

 

 

 

 

 

 

 

By:

 

 

 

 

 

Title:

 

 

 

 

Consignor:

Satcon Technology Corporation

 

 

 

 

 

 

 

By:

 

 

 

 

 

Title:

 

 

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