Exhibit 10.6


 


CONFIDENTIAL TREATMENT
REQUESTED.  CONFIDENTIAL

PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED

AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION


 


EQUIPMENT
PURCHASE AND SUPPLY AGREEMENT


 


1.                                       PARTIES


 


This Equipment
Purchase and Supply Agreement (“Agreement”) is entered into by Deposition
Sciences, Inc. (“DSI”), an Ohio corporation with its principal place of
business at 3300 Coffey Lane, Santa Rosa, CA 95403, and Fiberstars, Inc.,
a California corporation (“FIBERSTARS”) with its principal place of business at
32000 Aurora Road, Solon, OH 44139.


 


2.                                       RECITALS


 


2.1                                 FIBERSTARS.  FIBERSTARS is in the business of supplying
fiber optic lighting systems to industry and end users.  FIBERSTARS is engaged in developing and
marketing the CPC reflector, as described in the attached Exhibit A, which
is used in the Fiberstars EFO fiber optic lighting systems.


 


2.2                                 DSI.  DSI has experience in and is in the business
of providing optical thin film coatings, specifically, the deposition of
optical thin films by low pressure chemical vapor deposition.


 


2.3                                 Purpose.  FIBERSTARS and DSI desire to enter into a
mutually beneficial commercial relationship through the purchase of the MACHINE
by FIBERSTARS and the engagement of DSI to produce Coated CPCs using the
MACHINE.


 


3.                                       DEFINITIONS


 


3.1                                 Coated
CPC.  “Coated CPC” shall mean a CPC
on which a Coating has been applied.


 


3.2                                 Coating.  “Coating” shall mean a mutually agreed
multilayer coating system deposited on the surface(s) of agreed substrata using
DSI’s low pressure chemical vapor deposition (“LPCVD”) process, the purpose of
which is to maximize the visual reflectance from this surface of the substrata.


 


3.3                                 Coating
Specifications.  “Coating
Specifications” shall mean the materials and physical properties of the Coating
as set forth on the attached Exhibit A. 
Modifications or additions to such Coating shall require the mutual
agreement of the parties as reflected in an amendment to this Agreement.


 


3.4                                 CPC.  “CPC” shall mean a quartz compound parabolic
reflector substrate, or other mutually agreed substrata, as described in the
attached Exhibit B and supplied by FIBERSTARS.  Modifications or additions to such
description shall require the mutual agreement of the parties as reflected in
an amendment to this Agreement.


 


September 19 Final


 


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3.5                                 DSI
Technology.  “DSI Technology” shall
mean all tangible and intangible know-how, trade secrets, inventions (patented
and unpatented), data, and other information relating to the design,
fabrication, assembly, and operation of the MACHINE and the processes employed
on the MACHINE by DSI to apply the Coating on CPCs.


 


3.6                                 Equipment.  The various items of component equipment
supplied by third party vendors which DSI has incorporated into the MACHINE and
which may hereafter be added to or incorporated into the MACHINE will be
collectively referred to as the “EQUIPMENT.” 
The term MACHINE will be inclusive of all EQUIPMENT.


 


3.7                              Machine.  “MACHINE” shall mean DSI’s LPCVD Machine 104
that DSI is presently using to apply Coatings for FIBERSTARS, as more
particularly described in Exhibit C, and purchased from DSI by FIBERSTARS
pursuant to this Agreement.


 


3.8                                 Technical
Documentation.  Engineering drawings,
technical manuals and other technical documents describing the operation and
maintenance of the MACHINE, sufficient for reasonably trained and qualified
FIBERSTARS’ personnel to properly and effectively operate and maintain the
MACHINE without the assistance of DSI, will be collectively referred to as the “TECHNICAL
DOCUMENTATION.”


 


3.9                                 Technical
Training.  Training on the use of the
MACHINE to apply Coatings on CPCs will be referred to as the “TECHNICAL
TRAINING.”


 


3.10                           Technical
Services.  Technical guidance
available to FIBERSTARS from DSI during the installation, trial operations and
testing of the MACHINE at a FIBERSTARS facility, as well as other engineering
services, will be collectively referred to as the “TECHNICAL SERVICES.”


 


4.                                      PURCHASE
AND SALE OF THE MACHINE


 


4.1                                 Machine.  DSI hereby agrees to sell, and, subject to
inspection and acceptance as provided in Section 5.1, FIBERSTARS hereby
agrees to purchase the MACHINE, subject to the terms and conditions of this
Agreement.  The MACHINE is being sold in
an “as is” condition, without any warranty, express or implied, except as
provided in Paragraph 7.2.


 


(a)  Technical Documentation.  At the time the MACHINE is delivered to
FIBERSTARS’ facility, and FIBERSTARS has paid DSI the license fee if required
by Paragraph 9.3, below, FIBERSTARS may order the TECHNICAL DOCUMENTATION from
DSI, and DSI will provide it, at DSI’s then prevailing hourly rates and
reimbursable expense policies, with the total price thereof not to exceed ***
($***) Dollars.  FIBERSTARS shall treat
the TECHNICAL DOCUMENTATION as “DSI Confidential Information”, as such term is
defined in Paragraph 10, and shall restrict its disclosure to third parties in
the manner required by Paragraph 10.


 










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The TECHNICAL
DOCUMENTATION shall set forth information regarding the DSI PROCESS.  The TECHNICAL DOCUMENTATION shall be prepared
in the English language and shall refer to the English measurement system
normally used by DSI.  The following
number of sets shall be provided:


 


(i)                  drawings
and diagrams, as applicable – two sets.


(ii)               textual
documentation, as applicable – two sets.


(iii)            One electronic copy of
the TECHNICAL DOCUMENTATION, prepared using MicroSoft Word and other mutually
agreeable and commercially available software.


 


DSI shall
deliver to Licensee the TECHNICAL DOCUMENTATION at least fifteen (15) days
prior to delivery of MACHINE 104 under this Agreement.  Licensee shall inspect the TECHNICAL DOCUMENTATION
for completeness within fifty (50) days after the date of its receipt, and
promptly will advise DSI if Licensee discovers that it is not complete.  Notwithstanding the foregoing, if errors, in
the Technical Documentation are discovered, DSI promptly will correct them, and
DSI also will provide up to *** hours of TECHNICAL SERVICES via telephone,
without charge and designed to overcome any such inaccuracy so that the period
during which Licensee’s use of the Machine is adversely affected by any such inaccuracy
is a short as possible.  If Licensee
requests that DSI provide on-site TECHNICAL SERVICES to make the machine
operational, DSI will provide such TECHNICAL SERVICES at its standard hourly
rates, plus actual, reasonable travel and living expenses.  DSI will discount the first $*** of such
Technical Services by ***%.


 


(b)                                 Technical
Training.  At the time the MACHINE is
delivered to a FIBERSTARS’ facility, and FIBERSTARS has paid DSI the applicable
license fee if required by Paragraph 9.3, below, DSI will provide, without
additional charge, up to sixty (60) hours of TECHNICAL TRAINING to FIBERSTARS’
personnel.  FIBERSTARS may also retain
the services of DSI at DSI’s then prevailing hourly rates and reimbursable
expense policies to provide, and DSI will provide, additional TECHNICAL
TRAINING to FIBERSTARS’ personnel.


 


(c)                                  Technical
Services.  At the time the MACHINE is
delivered to FIBERSTARS’ facility, and FIBERSTARS has paid DSI the license fee
if required by Paragraph 9.3, below, FIBERSTARS may retain the services of DSI,
at DSI’s then prevailing hourly rates and reimbursable expense policies, to
provide TECHNICAL SERVICES to FIBERSTARS.


 


4.2                                 Site
Preparation.  The proper and timely
construction of the installation site for the MACHINE at FIBERSTARS’ facility
and the process support services (infrastructure for water, power, etc.) shall
be the responsibility of FIBERSTARS and shall conform to the written site and
infrastructure requirements provided by DSI. 
Within thirty (30) days following its receipt of Fiberstars’ written
request, DSI will deliver to FIBERSTARS, in writing, the site and
infrastructure requirements.  In the
event FIBERSTARS retains the services of DSI to provide TECHNICAL SERVICES to
install the MACHINE at FIBERSTARS’ facility, DSI shall review FIBERSTARS’
installation site to ensure full compliance with such requirements prior to the
installation.


 










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4.3                                 Modification
of Terms.  No addition to or
modification of the terms and conditions of the purchase and sale of the
MACHINE, whether contained in a purchase order or otherwise, shall be binding
upon either party unless specifically agreed to by both parties, in writing.


 


4.4                                 Purchase
Price.  The purchase price for the
MACHINE and a schedule of payments of the purchase price are set forth in Exhibit D.


 


4.5                                 Form of
Payment.  All payments to be made by
FIBERSTARS to DSI for the purchase of the MACHINE shall be made by wire
transfer in U.S. Dollars through DSI’s bank, as described in written
instructions provided by DSI.


 


4.6                                 Sale
of the Machine by FIBERSTARS.  During
the first ten (10) years following the date of this Agreement, (the “Restricted
Sale Period”) if FIBERSTARS receives a bonafide third party offer to purchase
the MACHINE from a DSI Competitor (as defined in the License), FIBERSTARS shall
have the right to sell the MACHINE, and to transfer or sublicense the License
to such third party only upon compliance with the following:


 


(i)                                     FIBERSTARS
will provide a written notice of the proposed transaction to DSI, including
identifying the proposed purchaser and the agreed price;


 


(ii)                                  The
proposed sale must provide for the delivery of the MACHINE to such third party
on a date not less than ten (10) months from the date a copy of such offer
is delivered to DSI;


 


(iii)                               DSI
will provide a written notice to FIBERSTARS, either exercising or rejecting
this right of first refusal, not less than 45 days after the notice of the
foregoing third party purchase offer is delivered to DSI; and


 


(iv)                              If
DSI exercises this right of first refusal, DSI shall purchase the MACHINE from
FIBERSTARS, at a price equal to the lesser of (A) the price offered by
such third party and (B) the sum of the net book value of the MACHINE and
the License, as reflected in FIBERSTARs’ accounting records, determined and
payable as of the date of the proposed sale.


 


After the
Restricted Sale Period has expired, FIBERSTARS may sell the MACHINE and transfer
the License, without restriction.


 


5                                          BAILMENT
OF THE MACHINE


 


5.1                                 Bailment.


 


(a)                                  Not
less than thirty days prior to consummation of the Offering (see Section 9.1
below), Fiberstars will inspect the Machine and its operation to assure that
the Machine is in good working order, including observing a Coating run.  Within five (5) business days following
such inspection, Fiberstars will notify DSI of the results of such inspection
and, if


 


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Fiberstars
determines that the Machine is in good working order, Fiberstars will accept
the Machine in writing.  If Fiberstars
determines that the Machine is not in good working order (consistent with the
performance of the Machine during 90 days immediately preceding the inspection),
DSI shall have thirty days to repair the Machine and, upon its receipt of
written notice from DSI that the Machine is in good working order and ready for
re-inspection, Fiberstars shall have fifteen (15) days to re-inspect the
Machine.  If the inspection reveals that
the Machine is still not in good working order, Fiberstars may terminate this
Agreement and the License Agreement without further liability.


 


(b)                                 On
and after the sale date of the MACHINE to FIBERSTARS, DSI agrees to take
possession of the MACHINE at its Santa Rosa facility and use the MACHINE for
the purpose of applying Coatings on CPCs and other agreed substrata, if any,
for the Term of this Agreement, or until the bailment is terminated by
FIBERSTARS, whichever first occurs.    Title
to the MACHINE shall remain vested in FIBERSTARS during the period of this
bailment.  FIBERSTARS shall have the
right to inspect the MACHINE during DSI’s normal business hours upon delivery
of reasonable prior notice.  DSI shall
not acquire by this Agreement any right, title or interest, legal or equitable,
in the MACHINE except for what is granted under the terms of this Agreement.


 


5.2                                 Operational
Costs.  During the period of
bailment, DSI shall maintain the Machine in good working order, and DSI shall
pay all costs associated with the ownership, use, maintenance and repair of the
MACHINE, including but not limited the replacement of parts, components and
EQUIPMENT as required.  FIBERSTARS shall
procure and maintain insurance to insure the MACHINE at its purchase price for
loss or damage occasioned by fire, theft, negligence or vandalism while the
MACHINE is in possession of DSI.  DSI
shall, at its cost, maintain the MACHINE in good condition and in accordance
with DSI’s standard practices and shall deliver the MACHINE to FIBERSTARS at
FIBERSTARS’ expense at the termination of the bailment in such condition,
normal wear and tear excepted.


 


5.3                                 Other
Uses of the MACHINE by DSI


 


(a)                                  DSI
shall have the right, at no cost (except as provided in Paragraph 5.3(a)(i) below),
to use the MACHINE for its own account and for the account of DSI’s other
customers (the “DSI Use”) for periods of time determined in accordance with the
provisions of this Paragraph 5.3.  A
total of twenty-two (22) shifts during each calendar month (or a prorata
portion thereof for a partial month), on the basis of a two (2) shift per
day, five (5) day per week schedule, shall be available on the MACHINE to
manufacture Coated CPCs for FIBERSTARS (the “FIBERSTARS Use”), with one (1) shift
defined as an eight (8) hour DSI work day. 
The remaining balance of shifts in each calendar month shall be
available for DSI Use, inclusive of additional shifts of MACHINE operation
beyond two (2) shifts per day, five (5) days per week as may be
initiated by DSI in its sole discretion, and shifts allocated to FIBERSTARS Use
but reallocated to DSI Use pursuant to Subparagraphs 5.3(a)(i) and
(a)(ii).


 


(i)                                     If
in any calendar month during the first sixty (60) months of the Term the
manufacture of Coated CPCs pursuant to accepted Purchase Orders can be


 


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completed in
less than twenty-two (22) shifts, the remaining number of shifts shall be
available for DSI Use.  If in any
calendar month during 2006, the FIBERSTARS Use exceeds twenty-two (22) shifts,
the number of shifts of FIBERSTARS Use in excess of twenty-two (22) shifts
shall be carried over to the following calendar month and made available for
DSI Use.  In consideration of the
allocation to DSI Use of any such unused shifts, DSI shall pay to FIBERSTARS
Five Thousand Dollars ($5,000) per month for the first twelve (12) months of
the Term.


 


(ii)                                  DSI
may commence the DSI Use of the MACHINE at any time that all pending, approved
Purchase Orders for Coated CPCs have been completed, or at any time after the
MACHINE has been idle for eight (8) or more consecutive hours during the
course of DSI’s normal day and normal swing shift operations for reasons caused
by FIBERSTARS; provided, however, notwithstanding the commencement of DSI Use
in any month, DSI shall take such steps as may be necessary to assure that not
less than twenty-two (22) shifts remain available for the fulfillment of
Purchase Orders from Fiberstars for delivery of Coated CPCs during each of the
succeeding months.  FIBERSTARS may
further delay DSI’s use of the MACHINE up to two additional shifts by agreeing
to pay DSI five hundred dollars ($500) per shift.  Otherwise, DSI and FIBERSTARS shall negotiate
in good faith the dates of commencement and termination of the DSI Use of the
MACHINE in light of FIBERSTARS’ delivery schedule(s) and the understanding that
seven (7) calendar days will be required to re-establish the process of
applying Coatings on the MACHINE.


 


(b)                                 Subject
to compliance with the provisions of Paragraph 5.3(a), above, DSI may not use
the MACHINE for more than two hundred sixty-four (264) shifts (based upon a
manufacturing operation of two (2) shifts per day, five (5) working
days per week) measured on an annual basis and without the right to carry over
to the succeeding year any unused shifts. Any additional shifts of MACHINE
operation initiated by DSI shall be allocated to DSI Use.  DSI shall maintain a usage log for the
MACHINE, and these logs will be available for FIBERSTARS’ review during regular
business hours.  In the event DSI’s
customer for whose benefit the MACHINE is to be used is a classified government
entity or agency or the identity of such customer is protected under a written
Nondisclosure Agreement, FIBERSTARS agrees that any information of a classified
or protected nature shall be deleted from the log prior to disclosure and/or
transfer to FIBERSTARS.


 


5.4                                 Damage
to the MACHINE.  FIBERSTARS shall
maintain insurance covering loss or destruction or damage to the MACHINE.  DSI shall use the proceeds of such insurance
if delivered to DSI by FIBERSTARS to repair, renovate or replace the MACHINE,
as directed by FIBERSTARS.  Any deficiency in the amount of insurance
proceeds to accomplish any such action shall be paid by FIBERSTARS.  Notwithstanding the foregoing, if the Machine
is damaged or destroyed in whole or in part as a result of the negligence or
intentional misconduct of DSI, its employees, invitees, agents or contractors,
DSI shall be liable to Fiberstars in an amount equal to the cost of repairing
or replacing such damage or destruction.


 


5.5                                 Termination
of Bailment.  At the time that the
MACHINE is no longer required to manufacture the Coating, and FIBERSTARS has no
other need for the MACHINE, 


 


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DSI shall have
the following rights to purchase the MACHINE: (i) a right of first refusal
to purchase the MACHINE at the price set forth in a bona fide, arms length
purchase offer from a third party, which offer must provide for the delivery of
the MACHINE to such third party on a date not less than ten (10) months
from the date a copy of such offer is delivered to DSI; or (ii) in the
absence of any such third party offer, the right to purchase the MACHINE at its
then depreciated book value as reflected in FIBERSTARS’ accounting
records.  In connection with the
foregoing right of first refusal, DSI will provide a written notice to
FIBERSTARS, either exercising or rejecting such right of first refusal, not
less than 45 days after the notice of the foregoing third party purchase offer
is delivered to DSI.  If neither a third
party offer is delivered to DSI nor a written notice of DSI’s exercise of its
purchase option is delivered to FIBERSTARS within thirty (30) days after the
last of FIBERSTARS’ purchase order has been filled, DSI shall ship the MACHINE,
at FIBERSTARS’ cost, to a location designated by FIBERSTARS, and shall provide
the TECHNICAL TRAINING and, to the extent purchased by FIBERSTARS, the
TECHNICAL DOCUMENTATION and the TECHNICAL SERVICES.


 


6.                                       PURCHASE
OF COATINGS


 


6.1                                 Purchase
and Sale.  Pursuant to the terms and
conditions of this Agreement, DSI agrees to provide, and FIBERSTARS agrees to
purchase, the materials and labor to apply Coatings on CPCs to produce Coated
CPCs that are ordered by FIBERSTARS during the Term of this Agreement.  The unit prices for the first five (5) years
of the Term are set forth in Exhibit E Other Coated   products that may be required by FIBERSTARS
during the Term may be added by an amendment to this Agreement.  All unit prices shall be exclusive of taxes,
duties, tariffs, freight charges, and in transit insurance, the payment of
which shall be the responsibility of FIBERSTARS.


 


6.2                                 Unit
Prices.  The range of anticipated
annual volumes and corresponding unit prices for minimum quantity orders of ***
(***) or more Coated CPCs are set forth in Exhibit E.  The unit price for a Coating after the five (5) year
anniversary of this Agreement shall be negotiated and agreed to by the parties.  The
parties further agree to negotiate in good faith the unit price for a Coating
for annual quantities below *** (***) or greater than *** (***), and for order
quantities less than *** (***) Coated CPCs; provided that no minimum annual
quantity shall apply during the period ending December 31, 2006.


 


6.3                                 Purchase
Orders.  FIBERSTARS shall initiate
each order for Coated CPCs by the delivery to DSI of a written purchase order
(the “Purchase Order”), setting forth the quantity to be ordered, the
applicable unit price, and requested delivery date(s).  Acceptable delivery dates are a function of
order quantities and shall be by mutual agreement, negotiated in good faith;
provided, however, that each Purchase Order must be received by DSI at least
thirty (30) days prior to the earliest
of the requested delivery dates.  DSI
shall commence delivery of the Coated CPCs within thirty (30) days after its
acceptance of each Purchase Order, and will complete and deliver Coated CPCs in
the volumes and at the times agreed to by the parties.


 


6.4                                 Acceptance
of Orders.  Each Purchase Order shall
be deemed to be an offer by FIBERSTARS to purchase from DSI the materials and
services to apply the Coating on CPCs provided by FIBERSTARS pursuant to the
terms of this Agreement, to the exclusion of any


 










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additional or
contrary terms set forth in the form of Purchase Order or any other document
submitted by FIBERSTARS, and shall be subject to acceptance in writing by DSI
within five (5) business days following its receipt by DSI.  If DSI does not respond to the Purchase Order
within the required time, it shall be deemed to be accepted.  If Fiberstars requests delivery dates not
earlier than the end of the calendar month following the month of the Purchase
Order, and if Fiberstars complies with the other applicable provisions of this
Agreement (including timely delivery of appropriate supplies of uncoated CPCs,
DSI will accept such Purchase Orders within five (5) days following
receipt thereof.  All Purchase Orders
shall include a certification by FIBERSTARS that the CPCs have been cleaned in
accordance with the FIBERSTARS’ procedure attached here to as Exhibit  H.


 


6.5                                 FIBERSTARS
Supplied Substrates.  Not less than
eighteen (18) calendar days prior
to the earliest of the requested delivery dates in a Purchase Order, FIBERSTARS
will deliver to DSI a quantity of unCoated CPCs equal to the scheduled delivery
quantity of Coated CPCs, plus a mutually agreed upon yield loss overage, to be
determined as follows.  The initial yield
loss overage percentage shall be 50%.  In
January and July of each calendar year during the term of this
Agreement, the parties will review the actual yield statistics for the prior
six months and will set the yield loss overage for the ensuing six months as a
percentage equal to the lesser of the actual yield loss overage percentage in
the preceding six-month period or 50%. 
DSI will perform an incoming inspection on a sample of CPCs delivered by
FIBERSTARS for coating, with the sample size and sampling plan to be determined
by DSI.  If the delivered CPCs fail the
incoming inspection, DSI will promptly notify FIBERSTARS in writing, describing
in reasonable detail the results of such inspection.  In such event, and at Fiberstars’ request,
DSI will provide ultrasonic cleaning of such unCoated CPCs at the rates
reflected in Exhibit G, subject to a non-recurring tooling charge
reflected in Exhibit G.  The
obligation of DSI to meet its delivery commitments will be subject to and
conditioned upon the timely receipt from FIBERSTARS and acceptance at DSI’s
incoming inspection of the required quantity of unCoated CPCs, cleaned in
accordance with FIBERSTARS’ procedure specified above, (or, if applicable,
cleaned by DSI) and meeting the physical characteristics described in the
attached Exhibit A.  FIBERSTARS
shall bear all risk of loss and damage to such CPCs furnished for coating prior
to their receipt by DSI.  Thereafter, DSI
shall bear all risk of loss and damage to such CPCs while in DSI’s possession.


 


6.6                                 Delivery.  All deliveries of the Coated CPCs shall be in
FIBERSTARS’ original packaging and shall be FOB DSI’s shipping dock.  Title to the
Coatings and all risk of damage to or loss of the Coated CPCs shall pass to
FIBERSTARS upon delivery of the Coated CPCs to the carrier designated by
FIBERSTARS. All in-transit insurance premiums, freight charges and other
expenses of delivery shall be at FIBERSTARS’ expense.    Acceptance of the Coated CPCs by FIBERSTARS
shall occur within thirty (30) days after delivery to FIBERSTARS.  Failure to inspect and reject nonconforming
items shall be deemed acceptance by FIBERSTARS with full responsibility for
payment.


 


6.7                                 Payment.  DSI will issue to FIBERSTARS an invoice for
the Coated CPCs upon their delivery to a carrier designated by FIBERSTARS for
immediate shipment to FIBERSTARS. 
FIBERSTARS will pay invoices prepared and delivered in accordance with
this


 


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Agreement
within forty-five (45) days following receipt thereof.  If FIBERSTARS has a good faith dispute
concerning any portion of an invoice from DSI, FIBERSTARS will, within such
forty-five (45) day period, pay the undisputed portion, deliver a written
notice to DSI describing in reasonable detail the reasons why the invoice is
disputed, and may withhold the disputed portion pending resolution of the
dispute in accordance with the provisions of Paragraph 11.9, below.  If undisputed amounts are paid when due, DSI
agrees that it may not withhold performance of any of its obligations under
this Agreement.  If an undisputed amount or
any disputed amount that is later determined to have been payable is not
paid when due, DSI will provide a written notice thereof to Fiberstars, and
Fiberstars will pay such amount within twenty (20) additional days following
receipt of such notice.  Any such amounts
that are not paid within the foregoing timeframe shall be “Delinquent”.  Delinquent amounts shall incur a late charge
of one and one half percent (11⁄2%) per month. If any amount is Delinquent, that
shall be deemed a breach of a material provision of this Agreement and may be
grounds for termination pursuant to Paragraph 9.2(b).  In addition, if amounts disputed by
FIBERSTARS and withheld are later determined to have been payable to DSI,
FIBERSTARS also will pay interest to DSI on such amounts at a rate equal to the
Prime Rate (as published in the Wall Street Journal) plus 2.0% per annum.


 


6.8                                 Coating
Process.  DSI will maintain a
manufacturing process in the MACHINE for the deposition of Coatings on CPCs
that is equivalent to or of a higher quality than the manufacturing process
currently used by DSI to produce Coatings for FIBERSTARS.  Personnel assigned to manufacture the Coated
CPCs will be fully trained and qualified to operate the MACHINE and produce the
Coated CPCs in compliance with such process. 
Should FIBERSTARS decide to fund research and development for
improvements to such process, the details of such funding, the scope of the
research and development, the procedures by which any modifications are to be
incorporated into the process utilized for the manufacture of Coatings under
this Agreement, and the ownership of such improvements shall all be documented
in a separate agreement between FIBERSTARS and DSI.  Without the prior written consent of
FIBERSTARS, DSI will not alter the process temperature or the precursor flow
rate or the diluent flow rate by more than fifteen percent (15%), the processes
for precleaning and post-annealing, and the method for metering precursors.  All other process changes for
manufacturing the Coated CPCs may be made at the discretion of DSI without the
consent of FIBERSTARS.


 


6.9                                 Quality
Assurance.  DSI shall perform quality
assurance tests and inspections as it deems reasonably necessary to screen
Coated CPCs prior to shipment.  Records
of relevant manufacturing parameters and quality assurance data on a run-by-run
basis will be made available to FIBERSTARS upon request.


 


6.10                           Specification
Changes.  FIBERSTARS and DSI
anticipate that it may be desirable during the term of this Agreement to amend
the specifications of the Coatings.  Such
amendments to the specifications shall be made by mutual agreement of DSI and
FIBERSTARS.  FIBERSTARS shall issue
engineering change orders to document such mutually agreed amendments, and such
change orders shall be included in Exhibit A by amendment to this
Agreement.  If such specification changes
require or allow a change in pricing, such pricing changes shall be by mutual
agreement and shall be reflected in a revision to Exhibit E pursuant


 


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to an
amendment to this Agreement.


 


6.11                           Forecasts.  At least quarterly, FIBERSTARS shall provide
DSI with a three (3) month forecast and a twelve (12) month rolling
forecast of the quantities of the Coated CPCs that FIBERSTARS expects to order
during the period covered by such forecasts.


 


7.                                       REPRESENTATIONS
AND WARRANTIES


 


7.1                                 Intellectual
Property Representation.   Each of
the parties represents and warrants to the other that: (i) it owns all
right, title and interest in its technology, which as to FIBERSTARS constitutes
the specifications and uses of the Coatings and the Coated CPCs, and as to DSI
constitutes the MACHINE and the process and manufacturing technologies to apply
Coatings using the MACHINE; (ii) its technology does not infringe or
constitute a misappropriation of any intellectual property rights of any third
party; and (iii) it has not entered into any agreement inconsistent with
this Agreement or has not otherwise granted to any third party any rights
inconsistent with the rights granted to the other party under this
Agreement.  No rights to technology or
proprietary data are created or transferred by this Agreement.  DSI’s current technology, processes,
equipment (other than the EQUIPMENT), procedures and technology it may develop
during the term of this Agreement that is not the result of a joint development
effort with FIBERSTARS, remain the exclusive property of DSI.


 


7.2                                 DSI
Warranties.


 


(a)                                  DSI
represents and warrants that it is the owner of the MACHINE and the related
TECHNICAL DOCUMENTATION free and clear of any and all liens, claims and
encumbrances of any kind.


 


(b)                                 DSI
warrants to FIBERSTARS for a period of twelve (12) months from the date of
shipment that the Coated CPCs supplied by DSI under this Agreement shall
conform to their applicable specifications and shall be free of all liens,
security interests and other claims of third parties.


 


DSI MAKES NO OTHER EXPRESS OR IMPLIED
WARRANTIES INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY SET
FORTH IN THE FOREGOING WARRANTIES.  IN NO
EVENT SHALL DSI BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING
OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE COATED CPCs
DELIVERED HEREUNDER.


 


(c)                                  All
Coated CPCs which FIBERSTARS considers defective shall be returned to DSI’s
plant, transportation costs prepaid by FIBERSTARS.  The risk of loss of the Coated CPCs shipped
to DSI on a warranty claim will be borne by FIBERSTARS.  If Coated CPCs have been returned without
cause and are still serviceable, FIBERSTARS will be notified and the Coated
CPCs returned at FIBERSTARS’ expense. 
DSI shall bear the cost of testing and examination, if any, with respect
to Coated CPCs so returned.  DSI’s sole
and exclusive liability and FIBERSTARS’ sole and exclusive remedy with respect
to warranty claims


 


10





















 


for defective Coated CPCs under
this Agreement shall be, at DSI’s election, the repair or replacement of any
nonconforming Coatings, or a credit to FIBERSTARS’ account.  These remedies are available only if DSI is
notified in writing by Buyer within the warranty period of the discovery of
nonconformities, and such nonconformities actually exist and persons not
authorized by DSI have not (a) repaired, worked on, or altered the Coated
CPCs in a manner that degrades or damages the stability, reliability, or proper
operation of such Coated CPCs or (b) misused or negligently handled such
Coated CPCs.


 


7.3                                 Indemnification.  Each party shall indemnify and hold harmless
the other party, and its officers, directors, shareholders, employees and
agents, from and against all claims, damages, losses, liabilities, suits and
expenses (including reasonable attorneys’ fees) arising out of or by reason of
any breach by such party of any of the intellectual property representations
made by it in Paragraph 7.1.


 


8.                                       RIGHTS
TO INTELLECTUAL PROPERTY


 


8.1                                 Existing
Intellectual Property.  Patents of
any country assigned or issued to either party, which patents claim inventions
developed prior to the Effective Date, and inventions, patentable and
unpatentable, that were developed by either party prior to the Effective Date,
the subjects of which are necessary for the manufacture of Coatings, shall
remain the property of the originating party.


 


8.2                                 New
Intellectual Property.  Unless otherwise
expressly set forth in this Agreement, all intellectual property and all
patents throughout the world resulting from the work performed by DSI during
the course of manufacturing the Coated CPCs pursuant to the provisions of Section 6
shall be owned by DSI.  However,
ownership of intellectual property resulting from research and development
separately funded by FIBERSTARS pursuant to Paragraph 6.9 shall be determined
in accordance with the provisions of the separate agreement for such work.


 


8.3                                 Jointly
Developed Intellectual Property.  All
technical information, including know-how, developed jointly by employees of
both parties as a result of the performance of their respective obligations
pursuant to this Agreement and necessary for the manufacture of the Coating
shall be jointly owned by both parties.


 


9.                                       TERM
AND TERMINATION


 


9.1                                 Term.  The term of this Agreement (the “Term”) shall
commence, if at all, upon the date of consummation of the Offering, as such
term is defined in the Master Services Agreement dated September 19, 2005,
between FIBERSTARS and ADLT (the “Effective Date”) and shall remain in effect
until terminated by the written consent of both parties, by FIBERSTARS upon the
delivery to DSI of a ten (10) month prior written notice, by DSI upon the
delivery to FIBERSTARS of a nine (9) month prior written notice, or by
either party pursuant to Paragraph 9.2.


 


9.2                                 Termination
for Cause.  This Agreement may
be earlier terminated in accordance with the following provisions: 


 


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(a)                                  Either party
may terminate this Agreement at any time by the delivery of a written notice to
the other party, which notice shall be effective upon receipt, if the other
party files a petition for any type of bankruptcy, becomes insolvent, makes an
assignment for the benefit of creditors, goes into liquidation, or becomes the
subject of a receivership.


 


(b)                                 Either party
may terminate this Agreement by the delivery of written notice to the other
party, which notice shall be effective upon receipt, in the event the other
party is in breach of a material provision of this Agreement and has failed to
cure such breach within sixty (60) days after the date such notice of breach is
received; provided, however, that if the nature of the breach is such that it
cannot reasonably be cured within such sixty (60) day period, the breaching
Party shall not be deemed in breach if it commences the cure within such sixty
(60) day period and thereafter diligently prosecutes the cure to completion.  The breach of a material provision of this
Agreement shall include, but not be limited to: (i) late or nonpayment of
amounts under a DSI invoice not subject to a timely dispute; and (ii) a
breach of the confidentiality provisions of Paragraph 10.


 


9.3                                 Consequences
of Termination.  Upon the expiration
or earlier termination of this Agreement, all Purchase Orders then accepted by
DSI shall be completed through the delivery of the ordered Coated CPCs and the
payment of DSI’s invoices.  All technical
information, including but not limited to know-how, provided by one party to
the other during the term of this Agreement shall be returned at the request of
the party who provided such information.


 


In the event
of the unilateral termination of this Agreement by FIBERSTARS under the
provisions of 9.2(a), or in the event of termination by DSI under the
provisions of Paragraphs 9.2(a) or 9.2(b), or in the event of termination
by FIBERSTARS under the provisions of Paragraph 9.1, where DSI and the trustee
in bankruptcy, if any, do not reject the Agreement under Section 365(n) of
the Bankruptcy Act and DSI, the trustee in bankruptcy and any successor to DSI
agree to fully perform DSI’s obligations under the Agreement (“Bankruptcy
Conditions”), and upon receipt by DSI from FIBERSTARS of a licensee fee in the
amount of *** Dollars ($***), DSI will grant to FIBERSTARS a limited license to
the DSI Technology, as set forth in Exhibit F of this Agreement, and DSI
will transfer the MACHINE to a facility specified by FIBERSTARS at FIBERSTARS’
expense.  In the event of the unilateral
termination by DSI under the provision of Paragraph 9.1, DSI shall grant such
limited license to FIBERSTARS upon receipt by DSI from FIBERSTARS of a license
fee in the amount of *** Dollars ($***).  In the event of termination by FIBERSTARS
pursuant to Paragraph 9.2(b), or if FIBERSTARS terminates the Agreement under
the provisions of Paragraph 9.2(a) and all of the Bankruptcy Conditions
are not fully satisfied, such limited license shall be granted to FIBERSTARS
without the payment of a license fee.


 


10.                                 CONFIDENTIALITY


 


During the
term of this Agreement it is anticipated that each party will be exposed to
proprietary information and intellectual property concerning the other party’s
business, products, technology, customers, marketing and sales plans, and
related information that is of substantial


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


12





















 


value to the
party owning it, which value would be impaired if such information were
disclosed to others.  This information is
referred to as “Confidential Information.” 
“Confidential Information of FIBERSTARS” includes, but are not limited
to, marketing plans, product designs, and specifications of CPCs and Coatings
as set forth in Exhibits A and B.  “Confidential
Information of DSI” includes, but are not limited to, information concerning
the MACHINE as set forth in Exhibit C, marketing and sales plans, coating
designs, machine designs, and technology, processes and tooling for the
manufacture of Coatings.


 


For a period
of five (5) years following the termination of this Agreement, each party
agrees not to disclose or otherwise make the other party’s Confidential
Information available to third parties or to make any use of such Confidential
Information except as contemplated in this Agreement.  Each party further agrees to restrict access
to the other party’s Confidential Information to employees who have a need to
know in order to fulfill the provisions of this Agreement and who have signed
confidentiality agreements with their employer. 
Each party shall give notice to the other party of information disclosed
to such other party which the disclosing party deems Confidential Information
as follows: all written confidential information shall be labeled as such; all
verbal Confidential Information shall be reduced to writing and sent to the
receiving party within thirty (30) days after the verbal disclosure. If either
party is in doubt as to whether or not certain information is confidential, it
shall request and receive written clarification from the other party before
disclosing such information.


 


Each party
will treat and safeguard the Confidential Information received from the other
party, whether verbally or in writing (provided that it is properly identified
as such as provided above), in the same manner as the receiving party
safeguards its own Confidential Information but in no event using less than
reasonable efforts to safeguard such Confidential Information from
disclosure.  The restrictions against
disclosure or unauthorized use of Confidential Information shall not apply to:


 


(a)                                  Information
which, through no breach of the receiving party’s obligations hereunder, is in
the public domain, revealed in published technical articles or other printed
publications, or inherently revealed by products on the market, the sale of
which is not a violation of the terms of this Agreement or subsequent
production contracts or purchase orders;


 


(b)                                 Information
already known to the receiving Party prior to the date of this Agreement and
not subject to any similar obligation of the receiving party in any other
agreement with the disclosing party, as shown by documentary materials;


 


(c)                                  Information
which is or becomes rightfully available to the receiving party from a source
other than the disclosing party, which has no confidentiality obligation to the
disclosing party in respect thereto;


 


(d)                                 Information
the receiving party is obligated to produce as a result of a court order; and


 


(e)                                  Information
which, by prior agreement, the disclosing party agrees may be disclosed.


 


13





















 


If the
receiving party intends to rely upon any of the foregoing exceptions in order
to disclose or use Confidential Information for purposes other than those
identified in this Agreement, the receiving party agrees to discuss the basis
for such reliance with the disclosing party prior to any disclosure or use.


 


At the request
of the disclosing party, the receiving party shall return to the disclosing
party all writing and documents containing Confidential Information that are in
the possession of the receiving party, except for one copy retained for
archival purposes.  At such time, the
receiving party also will make reasonable efforts to locate and destroy
electronic copies of such Confidential Information, except that one electronic
copy also may be retained for archival purposes.


 


11.                                 MISCELLANEOUS


 


11.1                           Force
Majeure.  If the performance of this
Agreement by either party should be prevented, delayed, restricted, or
interfered with by any man-made or natural catastrophe, including but not
limited to strikes or other labor disturbances (not including strikes or labor
disturbances involving the employees of the party seeking to rely on this
provision to excuse non-performance), embargoes, fire, explosion, acts of war,
unforeseeable government action or inaction, the unavailability of materials
supplied by third parties, or any other circumstance outside the control of the
parties, then the party so affected shall, upon giving prompt notice of the
same, be excused from such performance to the extent of such prevention, delay,
restriction, or interference provided that the party so affected shall use its
best efforts to avoid or remove such causes of nonperformance and promptly
resume performance hereunder when such causes have been removed.  Upon such circumstances arising, the parties
shall promptly consult as to what (if any) modifications to the terms of the
Agreement may be required to arrive at an equitable solution; and, if such
nonperformance appears likely to continue for an extended period of time and
the affected party’s nonperformance appears likely to cause serious hardship to
the other party, such party may terminate this Agreement by giving thirty (30)
days written notice to the other party.


 


11.2                           Assignment.  Neither Party shall have the right to assign
or otherwise transfer its rights and obligations under this Agreement except
with the prior written consent of the other Party; provided, however, that a
successor in interest by merger, by operation of law, assignment, purchase or
otherwise of the entire business of either Party shall acquire all rights and
obligations of such Party. Any prohibited assignment shall be null and
void.  Provided that DSI obtains the prior written consent of FIBERSTARS, (i) DSI shall have the right to assign this Agreement
and to relocate the MACHINE to an entity in India formed under the laws of
India that is owned and controlled by DSI and/or ADLT; and (ii) DSI shall
have the right to assign this Agreement and to relocate the MACHINE to an
entity in India formed under the laws of India that is a joint venture among
DSI and/or ADLT and a third party.  In either case, this Agreement will not be
terminated, DSI shall remain fully liable to FIBERSTARS for the timely and
proper performance of the Agreement by such assignee, and the license fee
referred to in Paragraph 9.3(a) will not be payable by FIBERSTARS. If FIBERSTARS
unreasonably withholds its consent to either assignment described in (i) or
(ii), and DSI terminates this Agreement under Paragraph 9.1, a license fee in
the amount of *** Dollars ($***) will be payable by FIBERSTARS.


 










*** CONFIDENTIAL
MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


14





















 


11.3                           Applicable
law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio,
excluding its laws relating to the conflict of laws and the choice of laws.


 


11.4                           Notice.  Any notice required to be given under this
Agreement shall be in writing and may be served either by personal delivery,
telex, facsimile transmission, telegram, certified or registered air mail
(return receipt requested and postage prepaid) or express delivery service
addressed to the parties respectively at the following addresses.


 


DSI or ADLT:


 


Deposition
Sciences, Inc


3300 Coffey
Lane


Santa Rosa, CA
95403


Attention:  Eric Krisl, Vice President


Fax:  (707) 573-6748


 


FIBERSTARS:


 


Fiberstars, Inc.


32000 Aurora
Road


Solon, OH  44139


Attention:
Roger Buelow, Chief Technology Officer


Fax:  (440) 519-1038


 


or such other
address, facsimile, or telex number as the parties may later designate by
written notice to each other.  All
notices delivered in accordance with this Paragraph 8.4 shall be effective as
of the date of receipt by the notified party.


 


11.5                           Modifications.  This Agreement may not be amended,
supplemented, released, discharged, abandoned, changed, or modified in any
manner, orally or otherwise, except by an instrument in writing of concurrent
or subsequent date signed by a duly authorized representative of each of the
parties.


 


11.6                           Entire
Agreement.  The terms and provisions
set forth in this Agreement constitute the entire and only agreement between
FIBERSTARS and DSI with respect to this subject matter, and cancel all
preexisting agreements, contracts or understandings between them in respect to
the same.  Headings used in this
Agreement are only for convenience and are not to be used in the interpretation
of this Agreement.


 


11.7                           Severability.  If any provision of this Agreement, or the
application thereof to any person or circumstance should, for any reason and to
any extent, be invalid, unenforceable or illegal, the remainder of this
Agreement and the application of such provisions to other persons or
circumstances shall not be effected thereby, but rather shall be enforced to
the greatest extent permitted by law, and a rapid remedy sought for the
provision found to be at fault.


 


15





















 


11.8                            No
Partnership.  This Agreement does not
create a relationship of joint venture, employment, partnership, or agency
between FIBERSTARS and DSI.


 


11.9                           Dispute
Resolution.  In the event a dispute,
claim or controversy arises between the parties relating to the validity,
interpretation, performance, termination or breach of this Agreement
(collectively, the “Dispute”) the parties agree to hold a meeting, attended by
individuals with decision-making authority regarding the Dispute, to attempt in
good faith to negotiate a resolution of the Dispute prior to pursuing other
available remedies.  If within thirty
(30) days after such meeting, the parties have not succeeded in negotiating a
resolution of the Dispute, the Dispute shall be resolved through final and
binding arbitration at the request of either party.


 


The
arbitration shall be conducted by a single arbitrator in the City of Santa
Rosa, California, in accordance with the laws of the State of California, and
the then-current commercial arbitration rules and supplementary procedures
for commercial arbitration of the American Arbitration Association (“AAA”).  The arbitrator shall be selected by the
mutual agreement of the parties, or failing such agreement, shall be selected
according to the relevant AAA rules.  The
parties shall bear the costs of such arbitrator equally.


 


The prevailing
party (as determined in accordance with California civil Code Section 1717)
in any such arbitration or in any judicial enforcement or review proceeding
shall be entitled to its reasonable attorneys fees and costs in addition to any
other amount of recovery ordered by such arbitrator or court. Either party may
cause judgment to be entered upon such award in any court of competent
jurisdiction.  The duty of the parties to
arbitrate any Dispute relating to the interpretation or performance of this
Agreement or the grounds for any termination thereof shall survive expiration
of this Agreement for any reason.


 


11.10                      Counterparts.  This Agreement may be executed in two or more
counterparts in the English language, and each such counterpart shall be deemed
an original.


 


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


 


11.12                     Attorneys’ Fees.  In the event that any action or proceeding is
brought to enforce or interpret any term, covenant or condition of this
Agreement or to collect damages due to a breach of this Agreement, the
prevailing Party in such action or proceeding (whether after trial or appeal)
shall be entitled to recover from the Party not prevailing its expenses
incurred in such action or proceeding, including reasonable attorneys’ fees and
all allowable costs.


 


16





















 


1.13                           Headings.  The section and paragraph headings used
in this Agreement are for convenience only. They shall not be used to define,
limit or interpret this Agreement.


 


 




	
  Deposition
  Sciences, Inc.

  	
  Fiberstars, Inc.

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
  By

  	
  /s/ John M. Davenport

  	
   

  
	
   

  	
   

  
	
  Title

  	
  President

  	
   

  	
  Title

  	
  CEO

  	
   

  
	
   

  	
   

  
	
  Date: September 19,
  2005

  	
  Date: September 19,
  2005

  
								






 


17





















 


EXHIBIT A


COATING
SPECIFICATIONS


 


The following is a temporary
specification, it will be changed through mutual agreement between DSI and
Fiberstars.  A change will occur within
the first six months in order to make the specification easier for DSI
Operations to test against.


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


18





















 


EXHIBIT B


 


CPC SPECIFICATIONS


 


Part # &
Description


***


 


All part numbers may be revised as Fiberstars
updates part numbers in course of normal documentation control procedures


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


19





















 


EXHIBIT C


 


LPCVD Machine 104


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


20





















 


EXHIBIT D


 


MACHINE SALE PRICE AND PAYMENT TERMS


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


21





















 


EXHIBIT E


 


UNIT PRICES
FOR COATED CPCS


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


22





















 


EXHIBIT F


 


LICENSE
AGREEMENT


 


23





















 


EXHIBIT G


 


ULTRASONIC
CLEANING RATES


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


24





















 


EXHIBIT H


 


FIBERSTARS
SUBSTRATE CLEANING PROCEDURE


 


CPC SUBSTRATE PROCESSING


 


***


 


 










***
CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.


 


25