Document:

exv10w58

Exhibit 10.58

MANUFACTURING AGREEMENT

This manufacturing agreement (the “Agreement”) is made and entered into on August 3, 2006
(‘Effective Date”) by and between Photon Dynamics, Inc. (“PDF), a California corporation, having
its principal office at 5970 Optical Drive, San Jose, California 95138, and Ultra Clean Technology
Systems and Service, Inc. a corporation organized and existing under the laws of the State of
California having its principal office at 150 Independence Drive, Menlo Park, CA 94025 and its
affiliates (Collectively “the “Manufacturer”). PDI and Manufacturer are each individually referred
to herein as the “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, PDI designs and manufactures yield-enhancing test equipment for flat-panel display
manufacturers;

WHEREAS, PDI desires to engage Manufacturer to develop, manufacture, and sell, according to PDI’s
Specifications (defined below), the Product(s) (defined below) to PDI exclusively;

WHEREAS, Manufacturer desires to obtain from PDI a non-exclusive right and license to manufacture
and sell to exclusively to PDI the Product(s); and

WHEREAS, PDI wishes to grant the aforementioned non-exclusive right and license to Manufacturer and
to purchase the Product(s) from Manufacturer.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Parties hereby
agree as follows:

SECTION 1

DEFINITIONS

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

 

 

	1.3	 	“Consigned Materials” shall mean any materials, components, and other supplies necessary
for the manufacture of the Product(s) by Manufacturer pursuant to this Agreement which are
supplied by PDI. Examples of such Consigned Materials are the stage and camera assemblies.
	 
	1.4	 	“Epidemic Failure” shall mean those substantial deviations from the Specifications within the
warranty period which seriously impair the use of the Product(s) existing at the time of
delivery but which are not reasonably discernible at that time and which are evidenced by an
identical, repetitive defect due to the same cause and occurring in the same series of the
Product(s).
	 
	1.5	 	“Hazardous Substances” shall include, but not be limited to, any substances, materials or
wastes that are regulated by any local governmental authority of each State of the United
States or any other country, including China where the Product(s) is manufactured by
Manufacturer and Korea where the product is mainly sold by PDI because of toxic, flammable,
explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human
health or the environment, including, without limitation, above or underground storage tanks,
flammables, explosives, radioactive materials, radon, petroleum and petroleum Product(s),
asbestos, urea formaldehyde, foam insulation, methane, lead-based paint, polychlorinated
biphenyl compounds, hydrocarbons or like substances and their additives or constituents,
pesticides and toxic or hazardous substances or materials of any kind, including, without
limitation, substances now or hereafter defined as “hazardous substances,” “hazardous
materials,” “toxic substances” or “hazardous wastes” in rules and regulations promulgated
pursuant to any applicable federal, state or local law, common law, code, rule, regulation,
order, policy or ordinance, presently in effect or hereafter enacted, promulgated or
implemented, or any other applicable governmental regulation imposing liability or standards
of conduct concerning any hazardous, toxic or dangerous substances, waste or material, now or
hereafter in effect.
	 
	1.6	 	“Intellectual Property” shall mean any idea, concept, know-how, technique, invention,
discovery, improvement, document, product, system, practice, procedure, means, method, design,
device, program, software, drawings and sketches, and trade secrets relating to the design,
development, implementation, use, maintenance and upgrading of the Product(s). Intellectual
Property includes, but is not limited to, subject matter that falls within the definition of
patentable subject matter under the laws of the United States or any other country, including
Korea, or within the definition of copyrightable materials under the laws of the United States
or any other country, including Korea.
	 
	1.7	 	“Manufacturer’s Intellectual Property” shall mean all of Manufacturer’s designs, logos,
technical descriptions, specifications, trade secrets, and product descriptions, regardless of
registration, which are protected by patents, copyrights, trademarks or other proprietary
rights as provided in Exhibit A.

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	1.8	 	“Materials” shall mean raw materials, components (except Consigned Materials), and
other supplies necessary for the manufacture of the Product(s) by Manufacturer pursuant to
this Agreement.
	 
	1.9	 	“Non-Binding Forecasts” means the minimum shipment numbers listed in Exhibit B and used in
conjunction with procedures outlined in Sections 4.3.
	 
	1.10	 	“NRE” means non-recurring engineering funded by PDI.
	 
	1.11	 	“PDI Trademarks” shall mean the trademarks specified by PDI or its Affiliate, as applicable,
that are to be used in connection with the manufacturing and packaging of the Product(s).
	 
	1.12	 	“Product” shall mean the product to be manufactured by Manufacturer under this Agreement in
accordance with the Specifications, as amended from time to time by written agreement or as
otherwise agreed upon in writing by the Parties incuding all updates and enhancements.
	 
	1.13	 	“Project Plan” means the plan identified in Exhibit F, or as agreed to by the Parties from
time to time.
	 
	1.14	 	“Purchase Order” or “Purchase Orders” shall have the meaning provided in Section 4.2.
	 
	1.15	 	“Specifications” shall mean the design and manufacturing specifications of the Product which
are set forth in Exhibit A.
	 
	1.16	 	“Technical Evaluation” shall mean the testing and evaluation of Manufacturer’s test product
for compliance with specification, quality, and suitability in accordance with the process and
dates outlined in the Specifications or Project Plan.

SECTION 2

DEVELOPMENT OF THE PRODUCTS

	2.1	 	Develop Products to Specifications. The Products shall be designed and
developed by Manufacturer in accordance with the agreed-upon Specifications and
Technical Evaluation listed in Exhibit A and the Project Plan described in Exhibit
F.
	 
	2.2	 	Exclusive Rights to NRE and the Products. Manufacturer acknowledges and
hereby agrees that PDI shall solely and exclusively have the rights to the NRE, the
Products and the Intellectual Property in and to the Products. Manufacturer shall
not, without PDI’s prior written consent, sell or otherwise use the NRE and the
Intellectual Property in and to the Products for any other products without the prior
written consent of PDI. Manufacturer hereby agrees to assign and does hereby

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	 	 	expressly assign to PDI all Intellectual Property in and to the NRE and the Products
created after the date hereof unless the Parties agree otherwise in writing prior to the
commencement of the design of such Products. Manufacturer shall assist PDI in every
reasonable way, at PDI’s expense, to secure, perfect, register, maintain, and defend PDI’s
ownership and benefit in and to the NRE and the Products. Manufacturer hereby irrevocably
agrees not to assert against PDI, its Affiliates, direct or indirect customers, assignees
or sublicensees, any claim of Manufacturer’s Intellectual Property affecting the NRE or the
Products. This Section 2.2 shall survive the termination of the Agreement. Except as
permitted herein, Manufacturer shall not reverse engineer any products containing PDI’s
Intellecutal Property.

SECTION 3

MANUFACTURE OF PRODUCTS

	3.1	 	Manufacture and Purchase. Subject to Manufacturer meeting and passing the Technical
Evaluation (Exhibit A) as shown in the Project Plan (Exhibit F), Manufacturer hereby agrees to
manufacture and sell to PDI such quantities of the Product(s) for which PDI issues Purchase
Orders (defined herein) pursuant to this Agreement. Manufacturer shall manufacture the
Product(s) in accordance with the Specifications. Manufacturer further agrees that it shall
not, without PDI’s prior written consent, sell or otherwise use the PDI Intellectual Property
for any other Product(s).
	 
	3.2	 	Support and Training. Manufacturer shall provide PDI employees, consultants or agents
with such training related to the manufacturing, operation and any other technical information
relating to the Product(s) as PDI may reasonably deem necessary to assist PDI in the
integration and assembly of the Product(s) with other components. Without limiting the
foregoing, Manufacturer can provide for each Product a detailed manufacturing process or
instructions at a predetermined cost agreed to by both Parties.
	 
	3.3	 	Compliance with Laws. Manufacturer’s performance under this Agreement shall comply
with all applicable standards, provisions and stipulations of China and the United States
(including federal, state and local) laws, rules, regulations and ordinances applicable to
performance under this Agreement. Manufacturer shall submit to PDI on a timely basis all
information concerning the existence, if any, of Hazardous Substances contained within the
Product(s) in a form and content as required by PDI.
	 
	3.4	 	Changes to Specifications. PDI may from time to time request that modifications,
alterations or changes be made to the design of the Product(s) as reflected in the
Specifications. Such modifications, alterations or changes may originate with PDI or may be
recommended by Manufacturer. Within thirty (30) days following Manufacturer’s receipt of a
written request for modifications, alterations or changes from PDI, Manufacturer shall provide
PDI a binding estimate of the cost of such modifications, alterations or changes and a total
increase or decrease in the

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	 	 	price of the Product(s). If PDI approves the binding estimate, Manufacturer shall make such
modifications, alterations or changes as soon as practicable upon receipt of such written
consent from PDI. Manufacturer shall not make any modifications, alterations or changes to
the Specifications without the prior written consent of PDI.
	 
	3.5	 	Other Changes. Manufacturer shall advise PDI in writing of any material changes to
manufacturing processes, Materials, sources of supply, process chemistries, test procedures,
quality reporting or other major processes, and ensure that any such changes do not compromise
the Specifications, quality, or reliability of Product(s) ordered pursuant to this Agreement.
In the case of changes to Materials or sources of supply, Manufacturer shall make best efforts
to notify PDI at least sixty (60) days prior to the effectiveness of such change; provided,
however, that in any event, the notice shall not occur later than twenty-four (24) hours
following Manufacturer’s determination of the same. If such change concerns any major
components or involves a substantial change, Manufacturer shall notify PDI while the change is
under consideration by Manufacturer. Manufacturer may not make any such changes without prior
written consent from PDI. To the extent the Specifications need to be changed to comply with a
license or to avoid a valid utility patent, design patent, copyright or other intellectual
property right, Manufacturer shall advise PDI in writing of such “Necessary Patent-Related
Changes” including the circumstances giving rise to such changes, and await PDI’s written
consent before proceeding further.
	 
	3.6	 	Subcontracting. Manufacturer may engage subcontractors or vendors to provide
components or subassemblies for the Product(s), provided that Manufacturer provides PDI with
written notice of such subcontractors or vendors at least
twenty-four (24) hours prior to such engagement. Manufacturer shall not engage any
subcontractor to manufacture the Product(s).
	 
	3.7	 	Tooling and Non-Recurring Expenses. PDI shall provide non-Product and
Product-specific tooling at its own expense. All Product-specific tooling and
molds shall be the exclusive personal property of PDI, and Manufacturer hereby
assigns all right, title and interest in same to PDI. In the event of termination, in
accordance with Section 15.2, all tools and molds which are the property of PDI
shall be delivered to PDI at Manufacturer’s sole cost and expense.

SECTION 4

SUPPLY AND ORDER FOR PRODUCTS

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

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	 	 	Materials (i.e. stage, chuck and camera assemblies), (b) arrival dates for Consigned
Materials (i.e. stage and camera assemblies), (c) customer acceptance test procedure dates,
and (d) shipment dates for the Product(s).
	 
	4.2	 	Purchase Orders. PDI shall submit purchase orders (“Purchase Orders”) to Manufacturer
for the Product(s) at least 16 weeks prior to required shipment and will include, at a
minimum, the following information: (a) identification of the Product(s) ordered; (b)
quantity; (c) delivery date; and (d) shipping instructions and shipping address. PDI does not
guarantee any particular sales volume with respect to the Product(s). In the event of any
conflict between the terms and conditions of this Agreement and any Purchase Order, the terms
and conditions of this Agreement shall control.
	 
	4.3	 	Product and Materials Lead Times; Inventory Report.

	 	4.3.1	 	Lead times for Purchase Orders shall be agreed to by the Parties.
Manufacturer shall provide timely written notice to PDI in the event that a change is
necessary to lead time requirements.
	 
	 	4.3.2	 	Manufacturer shall give PDI written notice, from time to time, of any
desired change in the order quantities, order lead time, cancellation lead time or
cancellation terms. Manufacturer shall continue to manufacture under the new order
lead time, cancellation lead time or terms, if and only if, a written agreement is
provided to Manufacturer by PDI. Such written agreement shall also obligate PDI to the
revised cancellation lead time or cancellation terms.
	 
	 	4.3.3	 	If requested by PDI, Manufacturer shall provide PDI with a bi-weekly
inventory report for all finished goods, work in progress, Materials and other
component parts (e.g., Consigned Materials) in its possession. Failure to provide such
report shall relieve PDI from any liability it would otherwise have hereunder for
canceling Purchase Order commitments, failing to issue Purchase Orders consistent with
agreed Non-Binding Forecasts, or otherwise upon termination of this Agreement for any
reason.

	4.4	 	Acceptance of Orders. All Purchase Orders issued in accordance with this
Agreement shall give rise to a binding contract between Manufacturer and PDI for
the sale of the Product(s) ordered subject to and governed by the terms of this
Agreement. Purchase Orders shall become binding on the Parties upon acceptance
thereof by Manufacturer. Manufacturer shall be deemed to have accepted a
Purchase Order if Manufacturer fails to reject the Purchase Order by notifying PDI
in writing within forty-eight (48) hours of its receipt thereof, not including
weekends and the nationally recognized holidays of the United States or the
country of manufacture. PDI may cancel a Purchase Order without penalty or
liability if PDI reasonably determines in its sole and absolute discretion that

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	 	 	delivery to PDI shall be delayed beyond thirty days (30) from the date of the acceptance of
the Purchase Order or Manufacturer is otherwise unable to make delivery in conformance with
the Purchase Order, Specifications, or performance or quality standards.
	 
	4.5	 	Rescheduling of Delivery Dates. PDI may reschedule delivery of units of Product(s) up
to one (1) month after the delivery date specified on a Purchase Order, unless shipment has
already occurred, by sending Manufacturer a written change order or by canceling the old
Purchase Order and sending a new Purchase Order(s). Rescheduling of delivery of Product(s)
beyond this one (1) month limitation shall only be made with the written approval of each of
the Parties. Rescheduling of delivery of Product(s) earlier than the delivery date specified
on a Purchase Order shall only be made with the written approval of each of the Parties.
	 
	4.6	 	Purchase Order Cancellations. If PDI wishes to cancel (as opposed to reschedule a
delivery) a certain quantity of units of Product(s) ordered pursuant to a Purchase Order,
Manufacturer, upon receipt of such written notice of such cancellation, shall immediately stop
work on such units of Product(s) to the extent specified therein. PDI’s liability for a
cancellation shall be limited to the following:

	 	4.6.1	 	Manufacturer shall make its reasonable best effort to manage the disposition
and liability of all industry standard Materials to limit expense or liability to PDI
(i.e., all non-Unique Materials).
	 
	 	4.6.2	 	PDI shall be liable to Manufacturer, if a Purchase Order is cancelled for
the cost of unique materials related to such a Purchase Order at Manufacturer’s cost
and without any overhead or profit markup.

	4.7	 	Shipment. All Product(s) sold by Manufacturer to PDI shall be prepared for
shipment in accordance with PDI’s instructions as set forth in the Purchase Orders.

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

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	 	 	 	under the U.S. Fair Packaging and Labeling Act, U.S. Federal Communication
Commission, U.S. Food and Drug Administration and other applicable government
agencies of the U.S., and other countries, including Korea, of intended
distribution.

	4.8	 	Quality Acceptance.

	 	4.8.1	 	Inspections at Manufacturer’s Facility. PDI shall have the right to
perform vendor qualifications and/or on-site source inspections at Manufacturer’s
manufacturing facilities and Manufacturer shall reasonably cooperate with PDI in such
inspection. In the event that an inspection or test is required to be made by PDI on
Manufacturer’s manufacturing facilities, Manufacturer shall provide PDI’s inspectors
with reasonable facilities and assistance at no additional charge.
	 
	 	4.8.2	 	Epidemic Failure. In the case of an Epidemic Failure of Materials,
Manufacturer shall, within five (5) business days, propose an action plan to fix the
failure of any affected Product(s) and to implement this action plan immediately upon
PDI’s acceptance thereof. If the action plan is not acceptable to PDI, PDI can require
Manufacturer to repair or replace, at Manufacturer’s option, the affected Product(s).
The repair or replacement shall be done at mutually agreed-upon location(s); provided,
however, that costs of repair or replacement, together with the shipping,
transportation and other costs of gathering and redistributing the Product(s), shall
be borne by Manufacturer. In addition to bearing the costs associated therewith, if
requested by PDI, Manufacturer shall support and provide at Manufacturer’s expense a
sufficient number of Product(s) to permit the field exchange or “hot swap” of
Product(s) at customer sites. The Parties agree to make all reasonable efforts to
complete the repair or replacement of all of the affected Product(s) within twenty
(20) business days after written notice of Epidemic Failure by PDI to Manufacturer.
Manufacturer agrees that PDI shall be supported with accelerated shipments of
replacement Product(s) to fulfill PDI’s supply requirements.

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

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	 	 	the Product shipped to replace the Nonconforming Product at the time of shipment of the
replacement product; or (b) credit PDI for the purchase price of the Nonconforming Product
and related shipping charges after receipt of PDI’s debit memorandum related to such
Nonconforming Product. At Manufacturer’s request and expense, PDI shall return all rejected
Product(s) to Manufacturer.

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

	4.10	 	Purchase by PDI’s Authorized Third Parties or Affiliates. Manufacturer hereby agrees
that all of the PDI’s Authorized Third Parties or Affiliates, wherever located, shall be
entitled to make purchases under this Agreement (at the same price and in accordance with same
terms negotiated by PDI, as applicable), and all such purchases shall apply to the purchase
commitments hereunder, if any. With respect to any purchases made by Authorized Third Parties
or Affiliates, the terms and conditions of this Agreement shall govern provided that all
references to “PDI” contained in this Agreement shall refer to the Authorized Third Party or
Affiliate, as applicable.
	 
	4.11	 	Programming, Operating Systems, Software. If applicable, procurement of all computer
programming, operating systems, or other software shall be the responsibility of Manufacturer,
or PDI upon PDI’s written assent thereof. Any restrictions or payment obligations imposed by
the original source on Manufacturer’s or PDI’s use or handling of such programming shall be
approved in writing by PDI. There shall be no payment or reimbursement obligation on PDI’s
part for programming obtained or provided by Manufacturer unless such payments or
reimbursements are approved in writing by PDI which indicates that PDI has accepted such
obligation.

SECTION 5

PRICES AND PAYMENTS

	5.1	 	Prices. The pricing model for all Product(s) sold by Manufacturer to PDI shall
be as set forth in Exhibit B or as otherwise agreed in writing by the Parties from time to
time. Prices may be decreased at any time upon agreement by the Parties. A price increase can
only take effect if Manufacturer gives at least ninety (90) days’ prior written notice of the
effective date of such increase. In no event, however, shall a price increase affect (a) a
Purchase Order accepted by Manufacturer prior to the effective date of such price increase; or
(b) a prior agreement between the Parties concerning Purchase Orders to be placed by PDI
during a period in which prices are to remain firm. All transactions shall be valued in United
States currency and shall be invoiced and payment remitted in the United States currency.

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	5.2	 	Most Favored Nation Requirement. Manufacturer warrants that the prices for the
Product(s) do not, and at all times shall not, exceed Manufacturer’s price to any other
customer for a substantially similar product in substantially similar volumes, and under
commercial terms and conditions similar to those of this Agreement.
	 
	5.3	 	Additional Payments. If additional payments shall be or have been made to
Manufacturer by PDI in connection with this Agreement for items such as assists (e.g.,
tooling, molds, dies, Materials, or components provided for incorporation in or manufacture of
the Product(s)), royalties, packing, selling commissions, or other incidental charges, such
additional value(s) shall be separately itemized and identified on Manufacturer’s commercial
invoice. Manufacturer’s invoices shall not indicate a nominal value for Product(s), but shall
indicate the invoice price charged to PDI, or if shipment is one of multiple shipments
required under a single Purchase Order, the value shall be stated as the actual value of the
Product(s) with respect to each shipment. If Manufacturer ships sample goods to PDI, a fair
market value shall be stated on the commercial invoice for customs purposes.
	 
	5.4	 	Payment Terms. Manufacturer shall invoice PDI for the Purchase Order upon PDI
acceptance of Product(s). PDI shall pay amounts due in each such invoice within thirty
(30) days.
	 
	5.5	 	Taxes. Manufacturer’s prices do not include any goods and services taxes or any
sales, use, excise, or similar taxes unless expressly indicated in writing.
	 
	5.6	 	Right to Make Offset. If Manufacturer’s fails to resolve any invoice or payment
related issues with PDI after 30 days from receipt of a written claim by PDI, PDI may offset
from Manufacturer’s invoice any current or future indebtedness of Manufacturer to PDI.
Manufacturer agrees to not contest PDI’s deduction if Manufacturer fails to send a written
denial thereof, including all supporting documentation, to PDI within sixty (60) days of the
date of deduction (PDI’s check date). Such written denial shall be made by Manufacturer by
submitting notice to PDI under the notice provisions of this Agreement.
	 
	5.7	 	Statement of Account. From time to time upon request by PDI, Manufacturer shall
provide a complete statement of account that shall include, but not be limited to, unpaid
invoices and disputed deductions. Such statement of account shall also disclose all credit
memos issued and outstanding. The statement of account shall be forwarded by electronic mail
in spreadsheet format or by regular mail per PDI’s instructions. Statements for
merchandising/inventory accounts shall be separate from any statement of account for parts
purchased by PDI for Product service and out-of-warranty repairs.
	 
	5.8	 	Debit Balances. If Manufacturer is indebted to PDI but there is no outstanding
balance due to Manufacturer, Manufacturer shall pay the amount due to PDI via check or wire
transfer in full within thirty (30) days of receipt of notification thereof from PDI. If the
amount in question is disputed, the Parties agree to work in

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	 	 	good faith to reconcile the matter so that payment to PDI of any undisputed amount shall be
made within sixty (60) days of PDI’s original notice to Manufacturer. In no event shall PDI
be obligated to take a credit against future purchases.
	 
	5.9	 	Cost Reduction Plans. Manufacturer shall develop a cost reduction plan for all
products based on material and labor cost reductions. Such plans shall be reviewed by both
Parties and mutually agreed upon twice a year, The goal for cost reduction is 5% (five
percent) annually, but Manufacturer does not guarantee that such 5% cost reductions can be
achieved annually.

SECTION 6

WARRANTIES

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

	 	6.1.1	 	Manufacturer has the authority to enter into this Agreement and to
manufacture and sell the Product(s) to PDI and that the persons signing this Agreement
on behalf of Manufacturer are authorized to sign;
	 
	 	6.1.2	 	Manufacturer possesses all necessary permits, licenses, or clearances
required to perform its obligations hereunder, including China and other governmental
approvals required to perform its obligations under this Agreement;
	 
	 	6.1.3	 	the Product(s) shall be free and clear of all liens, charges, encumbrances,
or other restrictions;
	 
	 	6.1.4	 	the Product(s) shall be free from defects in design, manufacture, materials
and workmanship for a period equal to the greater of (i) the warranty period provided
to end-users by PDI, plus one (1) month; or (ii) twelve (12) months from PDI’s resale
to an end-user;
	 
	 	6.1.5	 	the Product(s) shall be fit and safe for the use(s) normally and reasonably
intended;
	 
	 	6.1.6	 	the Product(s) are of merchantable quality and shall perform in conformance
with Specifications (including any identified “Useful Life”) and Manufacturer samples;
	 
	 	6.1.7	 	Manufacturer shall comply with all applicable laws and regulations in
performing its obligations under this Agreement, including but not limited to laws and
regulations pertaining to product design, manufacture, packaging and labeling and, if
applicable, importation and the Foreign Corrupt Practices Act;

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	 	6.1.8	 	the Product(s) and all Materials provided to PDI under this Agreement are
new Product(s) and do not contain anything used, refurbished or reconditioned;
	 
	 	6.1.9	 	all Product(s), unless specifically exempted under the applicable customs
laws and regulations, shall be marked in a conspicuous place as legibly, indelibly,
and permanently as the nature of the article (or container) shall permit, with the
country of origin;
	 
	 	6.1.10	 	the Product(s) are not supplied by the use of forced labor, convict labor or forced
or illegal child labor and mat the Product(s) were not trans-shipped for the purpose
of mislabeling, evading quota or country of origin restrictions or for the purpose of
avoiding compliance with forced labor, convict labor or child labor laws;

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

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

	6.3	 	Warranty Exclusions:

	 	6.3.1	 	MANUFACTURER MAKES NO WARRANTIES, GUARANTEES OR REPRESENTATIONS, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY PRODUCT(S) SOLD TO PDI EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT. ALL OTHER WARRANTIES ARE EXPRESSLY WAIVED AND EXCLUDED, INCLUDING, BUT
NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
	 
	 	6.3.2	 	MANUFACTURER SHALL HAVE NO WARRANTY RESPONSIBILITY FOR CONSIGNED MATERIALS,
BUT MANUFACTURER AGREES TO COOPERATE IN PROCESSING APPLICABLE THIRD-PARTY WARRANTY
CLAIMS AND IN TAKING ADVANTAGE OF REMEDIES, IF ANY, AVAILABLE FROM THE ORIGINAL
SOURCES OF SUCH CONSIGNED MATERIALS.
	 
	 	6.3.3	 	PDI MAKES NO WARRANTIES, GUARANTEES, OR REPRESENTATIONS, EXPRESS OR IMPLIED,
WITH RESPECT TO

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	 	 	 	THE SPECIFICATIONS, AND EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES RELATING TO THE
SPECIFICATIONS OR THE PRODUCT(S) INCLUDING ANY WARRANTY AGAINST INFRINGEMENT.
	 
	 	6.3.4	 	IN NO EVENT SHALL THE PARTIES BE LIABLE FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR PROFITS), PUNITIVE, OR
EXEMPLARY DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
	 
	 	6.3.5	 	EXCEPT FOR ITS OBLIGATIONS UNDER THIS SECTION, AND EXCLUDING ANY THIRD-PARTY
CLAIM OF ANY KIND RELATED TO THIS AGREEMENT, THE PARTIES’ LIABILITY TO EACH OTHER,
WHETHER FOR BREACH OF CONTRACT OR WARRANTY, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE
SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE AGGREGATE OF INVOICED COSTS PAID BY PDI TO
MANUFACTURER FOR ALL PRODUCTS FOR THE IMMEDIATE TWELVE (12) MONTH PERIOD.

SECTION 7

INDEMNIFICATION

	7.1	 	Indemnification by Manufacturer. Manufacturer shall indemnify, defend and hold
harmless PDI, its parent and each of its Affiliates, subsidiaries, officers, directors,
employees, consultants, agents and shareholders from and against and in respect of any and all
demands, claims, actions or causes of action, assessments, losses, damages, liabilities,
interest and penalties, costs and expenses (including, without limitation, reasonable legal
fees and disbursements incurred in connection therewith and in seeking indemnification
therefore, and any amounts or expenses required to be paid or incurred in connection with any
action, suit, proceeding, claim, appeal, demand, assessment or judgment) (“Indemnifiable
Losses”), resulting from, arising out of, or imposed upon or incurred by any person to be
indemnified under this Section 7.1 by reason of (a) any breach of representation, warranty,
covenant or agreement on the part of Manufacturer under this Agreement; (b) acts or omissions
of Manufacturer relating to the Product(s) which includes, but is not limited to, claims that
the Product(s), or use thereof, caused personal injury, death, or real or personal property
damage to the extent not attributable to Consigned Materials or PDI Proprietary
Specifications; (c) a Product recall, whether or not initiated by Manufacturer to the extent
not attributable to Consigned Materials or PDI Proprietary Specifications; (d) an allegation
that any Product constitutes an infringement of any patent or any other intellectual property
right protected under the laws of the United States, any State of the United States, or any
other country, including China, to the extent not attributable to PDI Proprietary
Specifications; (e) the negligence or willful misconduct of Manufacturer; (f) any

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	 	 	retroactive antidumping duties payable by PDI; and (g) acts or omissions that cause
difficulty, delay or inability of PDI to import the Product(s) into the United States or
other country of importation and/or to comply with applicable import regulations; provided
that in no event shall Manufacturer be liable for PDI’s lost profits, consequential,
punitive or exemplary damages.
	 
	7.2	 	Indemnification by PDI. PDI shall indemnify, defend and hold harmless Manufacturer
and each of its Affiliates, subsidiaries, officers, directors, employees, consultants, agents
and shareholders from and against and in respect of any and all Indemnifiable Losses resulting
from, arising out of, or imposed upon or incurred by any person to be indemnified under this
Section 7.2 by reason of (a) any breach of representation, warranty, covenant or agreement on
the part of PDI under this Agreement; or (b) the gross negligence or willful misconduct of
PDI; provided that in no event shall PDI be liable for Manufacturer’s lost profits,
consequential, punitive or exemplary damages.
	 
	7.3	 	Third Party Claims. If a claim by a third party is made against an indemnified Party
and if the indemnified Party intends to seek indemnity with respect thereto under this Section
7, such indemnified Party shall promptly notify the indemnifying Party of such claim;
provided, however, that failure to give timely notice shall not affect the rights of the
indemnified Party so long as the failure to give timely notice does not adversely affect the
indemnifying Party’s ability to defend such claim against a third party. The indemnifying
Party shall be entitled to assume the defense thereof, with counsel selected by the
indemnifying Party and reasonably satisfactory to the indemnified Party. The indemnifying
Party shall have control of the defense of any such action, including any appeals and
negotiations for the settlement or compromise thereof and shall have full authority to enter
into a binding settlement or compromise; provided that, the indemnifying Party shall not enter
into any settlement or compromise which may adversely affect the indemnified Party without the
indemnified Party’s consent, which consent shall not be unreasonably withheld. If the
indemnifying Party assumes the defense of such claim, the indemnifying Party shall not be
responsible for any legal or other expenses subsequently incurred by such indemnified Party in
connection with the defense thereof. The indemnified Party may participate, at its own cost
and expense, in the defense of any such claim; provided that such defense shall be controlled
by the indemnifying Party.
	 
	7.4	 	Cooperation as to Indemnified Liability. Each Party hereto shall cooperate fully with
the other Party with respect to access to books, records, or other documentation within such
Party’s control, if deemed reasonably necessary or appropriate by any Party in the defense of
any claim which may give rise to indemnification hereunder.
	 
	7.5	 	Insurance Requirements.

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	 	7.5.1	 	Manufacturer shall procure and maintain throughout the term of this
Agreement an insurance policy that meets the following requirements:
	 
	 	7.5.2	 	Type of Policy:

	 	7.5.2.1	 	Comprehensive general liability, commercial general liability or product
liability.
	 
	 	7.5.2.2	 	Must be a per-occurrence policy.
	 
	 	7.5.2.3	 	Claims-made policy is not acceptable.
	 
	 	7.5.2.4	 	If Manufacturer shall be entering PDI’s premises, Manufacturer shall procure and
maintain Workers’ Compensation insurance in an amount not less than the statutory
requirements.

	 	7.5.3	 	Named Insured:

	 	7.5.3.1	 	Manufacturer shall be identified as the named insured.

	 	7.5.4	 	Policy of Insurance:

	 	7.5.4.1	 	A copy of an insurance policy shall be submitted to PDI before shipment which is
in compliance with these requirements.
	 
	 	7.5.4.2	 	The policy shall provide that the insurance shall not be cancelled or changed
unless at least thirty (30) days’ prior written notice has been given to PDI.
	 
	 	7.5.4.3	 	Prior to expiration of the insurance policy, an original certificate of
insurance shall be submitted to PDI evidencing the renewal of coverage in
compliance with these requirements.

	 	7.5.5	 	Additional Insureds:

	 	7.5.5.1	 	PDI and its Affiliates shall be added as additional insureds.

	 	7.5.6	 	Limit of Liability:

	 	7.5.6.1	 	U.S. $5,000,000 per occurrence for electronics Product(s) manufacturing
(primary insurance of U.S. $1,000,000 per occurrence plus U.S. $4,000,000 in excess
liability or umbrella coverage is acceptable).

	 	7.5.7	 	Policy Territory and Jurisdiction:

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	 	7.5.7.1	 	Worldwide.

SECTION 8

RETURNS & DEFECTIVE MATERIALS

	8.1	 	General. PDI shall have the right to return at Manufacturer’s expense, and for
full credit or refund of PDI’s cost, any non-consigned Products that (a) are not developed,
manufactured, supplied, packaged, or labeled in accordance with the Specifications and all
applicable laws, rules, regulations and industry standards; (b) are shipped in error or in
non-conformance with PDI’s Purchase Order; (c) have caused injury to person or property; (d)
are damaged; (e) are supplied in breach of Manufacturer’s warranty as provided herein; or (g)
are returnable as a defective Product, subject to the terms of Section 8.2 below.
	 
	8.2	 	Return Procedures. If a Manufacturer Return Authorization (“MRA”) is first required
by either Party prior to PDI’s return of Product(s) to Manufacturer, Manufacturer agrees to
provide a unique MRA number to PDI within forty-eight (48) hours of PDI’s request.
Manufacturer shall allow delivery of the return Product(s) as of the day the MRA is issued to
PDI. If Manufacturer requires that PDI make an appointment to deliver returned Product(s),
such appointment shall be provided by Manufacturer within three (3) days of the carrier’s
expected arrival time. See Exhibit G for MRA procedures.
	 
	8.3	 	Returns; Defective Products. The Parties agree that returns shall be governed by a
“Return” and “Defective Allowance” procedures with respect to the handling and responsibility
of end-user returns and defective Product(s) as specified in Exhibit G. Unless otherwise
agreed to in writing, for a period not to exceed the warranty period specified in Section 8.2
hereof, PDI may return to Manufacturer-any Product(s) either determined by PDI to be defective
or claimed by an end-user to be defective (returns to Manufacturer may therefore include
Product(s) that are not, in fact, defective). PDI may seek credit or exchange for such
returned Product(s) upon mutual agreement that Manufacturer is at fault.
	 
	8.4	 	Replacement Inventory. At the request of PDI or its designated agent, Manufacturer
shall ship parts and assemblies for the Product(s) that are the equivalent in specifications
and quality to the original parts supplied with the Product(s). At the request of PDI,
Manufacturer shall maintain an inventory of general replacement parts or special parts as
forecasted by PDI. During such time, Manufacturer shall supply parts to PDI or its designated
agent at reasonable, competitive rates as may be necessary to perform out-of-warranty repairs.
As required, the Parties will enter into separate agreement(s) covering spare parts and
refurbished assemblies.

SECTION 9

CONSULTING DESIGN AND ENGINEERING SERVICES

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

SECTION 10

INTELLECTUAL PROPERTY; TRADEMARKS

	10.1	 	Intellectual Property. PDI hereby grants to Manufacturer and Manufacturer hereby
accepts, a non-exclusive, non-transferable and royalty free right and license under all of
PDI’s Intellectual Property to make, use and distribute the Products exclusively on behalf of
PDI. It is acknowledged and hereby agreed by the Parties that all rights to sell, price,
market, license, distribute, or manufacture the Products or any Intellectual Property related
thereto (except for manufacturing processes and build procedures developed by Manufacturer) as
between Manufacturer and PDI, is wholly and exclusively owned by PDI. Notwithstanding the
foregoing, PDI acknowledges that the Products are assembled using common industry modular
assembly methods and that PDI has no proprietary rights in such methods and that Manufacturer
may continue to use such methods in constructing other products.
	 
	10.2	 	Use of Trademarks. PDI hereby grants to Manufacturer, and Manufacturer hereby
accepts, a nonexclusive, nontransferable and royalty-free right and license to use PDI’s
trademarks in connection with the manufacturing and packaging of the Products for so long as
the PDI’s trademarks are used by Manufacturer in accordance with PDI’s standards,
specifications and instructions, but in no event beyond the term of this Agreement.
Manufacturer shall acquire no right, title or interest in PDI’s trademarks other than the
foregoing limited license, and Manufacturer shall not use any PDI Trademarks as part of
Manufacturer’s corporate or trade name or on products not specifically authorized by PDI in
writing or permit any third party to do so.
	 
	10.3	 	Termination of Use. Manufacturer acknowledges PDI’s proprietary rights in and to
PDI’s trademarks and Manufacturer hereby waives in favor of PDI all rights to any trademarks,
trade names and logotypes now or hereafter originated by PDI. Manufacturer shall not adopt,
use or register any words, phrases or symbols that are identical to or confusingly similar to
any of PDI’s trademarks or trade names in the United States and internationally. Upon
termination of this Agreement, Manufacturer shall cease and desist from use of PDI’s
trademarks and trade names in any manner.
	 
	10.4	 	Change in Specifications. To the extent the Specifications need to be changed,
altered or modified, as provided in Section 3.5 above, to comply with a license or to

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	 	 	avoid a valid utility patent, design patent, copyright or other Intellectual Property
right, Manufacturer shall advise PDI in writing of such “Necessary Patent-Related Changes”
including the circumstances giving rise to such changes.
	 
	10.5	 	Programming, Operating Systems, Software. If applicable, procurement of all
computer programming, operating systems, or other software shall be the responsibility of
Manufacturer, or PDI upon PDI’s written consent thereof. Restrictions or payment obligations
may be imposed by the original source on Manufacturer’s or PDI’s use or handling of such
programming. There shall be no payment or reimbursement obligation on PDI’s part for
programming obtained or provided by Manufacturer unless such payments or reimbursements are
approved in writing by PDI which indicates that PDI has accepted such obligation.

SECTION 11

ADDENDA: SUPPLY CHAIN SECURITY REQUIREMENTS

	11.1	 	Addenda. PDI and Manufacturer may agree upon certain business terms from time to time
concerning matters such as Product(s), pricing, market, invoice credit terms, and the like.
Such terms shall be contained in one or more written addenda to this Agreement, each of which
shall be considered an addendum hereto and may be identified as Exhibits to this Agreement. In
the event of conflict between business terms of any addendum and this Agreement, the business
terms contained in such addendum shall control.
	 
	11.2	 	Supply Chain Security. PDI supports the U.S. Customs and Border Protection (“CBP”)
Customs-Trade Partnership Against Terrorism, commonly referred to as “C-TPAT” and similar
programs in Korea promulgated by the Korean government. PDI requires foreign suppliers of
imported goods to scrutinize, and, where necessary, develop sufficient security measures
within, their own supply chain. More information about C-TPAT can be found at www.cpb.gov. In
particular, Manufacturer agrees to implement Customs’ Security Recommendations for
manufacturers as set forth as part of the Supplier Compliance Standards attached hereto as
Exhibit H.

SECTION 12

CONFIDENTIALITY

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

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

	 	12.2.1	 	was already in the possession of the Receiving Party prior to its receipt from the
Disclosing Party (provided that the Receiving Party is able to provide the Disclosing
Party with reasonable documentary proof thereof);
	 
	 	12.2.2	 	is or becomes part of the public domain by reason of acts not attributable to the
Receiving Party;
	 
	 	12.2.3	 	is or becomes available to the Receiving Party from a source other than the
Disclosing Party which source, to the best of the Receiving Party’s knowledge, has
rightfully obtained such information and has no obligation of non-disclosure or
confidentiality to the Disclosure Party with respect thereto;
	 
	 	12.2.4	 	is made available on an unrestricted basis by the Disclosing Party to a third party
unaffiliated with the Disclosing Party; and
	 
	 	12.2.5	 	has been or shall be publicly disclosed by reason of legal, accounting or regulatory
requirements beyond the reasonable control, and despite the reasonable efforts of the
Receiving Party.

	12.3	 	Manufacturer Information. Any unpatented knowledge or information
concerning Manufacturer’s manufacturing processes for the Product(s) that
Manufacturer may disclose to PDI or its employees shall, unless specifically agreed
in writing, be deemed to have been disclosed as a part of the consideration for this
Agreement. Manufacturer agrees not to assert any claim against PDI by reason of

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	 	 	any use or alleged use to which any such information or
knowledge may be put by PDI. Manufacturer hereby assigns to PDI all of its right, title and interest in and to any
technology, concepts, data, information or knowledge relating to modifications of, or
enhancements to, the Product(s) or the process by which it is manufactured and assembled
developed by Manufacturer in response to a request by PDI during the term of this
Agreement.
	 
	12.4	 	Privacy. Manufacturer shall respect and preserve the strict confidentiality and
privacy of all personally-identifiable information in respect of any customer,
employee or other identifiable individual related to PDI (“Personal Information”).
Personal Information shall be considered Confidential Information for purposes of
this Section 12. Manufacturer shall comply with, and shall co-operate with and
assist PDI to comply with, all provincial, state, federal and other laws applicable to
the Personal Information as amended from time to time and PDI’s privacy policy.
Manufacturer shall only use the Personal Information for lawful and legitimate
business purposes associated with the performance of Manufacturer’s obligations
under this Agreement or as otherwise consented to in writing and in advance by
PDI. Without limiting the generality of the foregoing, Manufacturer shall:

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

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

SECTION 13

AUDITS; INSPECTIONS

	13.1	 	PDI, or its designated third-party agent, may audit the Manufacturer’s production and
quality records and inspect the Manufacturer’s facilities and procedures. Any audit or
inspection may be conducted at any time at Manufacturer’s facilities, with at least four (4)
week’s notice at PDI’s sole cost. The audit shall not exceed twice per year. Manufacturer
shall provide PDI’s designated audit or inspection team

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	 	 	with access to the relevant Manufacturer’s production and quality records, facilities and
procedures.
	 
	13.2	 	In the event that the audit reveals that Manufacturer is not performing in material
compliance with the terms of this Agreement, then, in addition to any other rights and
remedies PDI shall have under this Agreement and applicable laws, Manufacturer shall reimburse
PDI for the costs of the audit and cure any and all defects within five (5) days of receipt of
notice from PDI.

SECTION 14

ARBITRATION AND GOVERNING LAW

	14.1	 	Disputes. Any controversy or claim arising out of or relating to this Agreement shall
be determined by arbitration administered by JAMS pursuant to its Comprehensive Arbitration
Rules and Procedures (“Rules”). Such arbitration shall be conducted before an arbitral
tribunal consisting of three (3) arbitrators appointed in accordance with the Rules. The
arbitration shall be conducted in the English language. The place of arbitration shall be
Santa Clara County, California, United States of America. Any decision rendered by the
arbitration tribunal shall be final and binding on the Parties, and judgment thereon may be
entered by any court of competent jurisdiction. The Parties expressly agree that the
arbitration tribunal shall be empowered to award and order equitable or injunctive relief with
respect to matters brought before it.
	 
	14.2	 	Governing Law. This Agreement shall be governed by, and interpreted and construed in
accordance with, the laws of the State of California, without reference to principles of
conflicts of laws or to the United Nations Convention on Contracts for the International Sales
of Goods.

SECTION 15

TERM AND TERMINATION

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

	 	15.2.1	 	Either Party may terminate this Agreement at any time by giving notice in
writing to the other Party, which notice shall be effective upon dispatch, should the
other Party cease operations, file a petition of any type as to its bankruptcy, be
declared bankrupt, become insolvent, make an assignment

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	 	 	 	for the benefit of creditors, go into liquidation or receivership, or
otherwise lose legal control of its business.
	 
	 	15.2.2	 	Either Party may terminate this Agreement by giving notice in writing to the other
Party in the event the other Party is in material breach of this Agreement and fails
to cure such breach within fifteen (15) days of receipt of written notice thereof from
the non-breaching Party.
	 
	 	15.2.3	 	PDI may terminate this Agreement in its sole discretion without cause upon
giving sixty (60) days’ advance written notice to Manufacturer.

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

	 	15.3.1	 	Termination of this Agreement shall not release either Party from the
obligation to make payment of all amounts then or thereafter due and payable.
	 
	 	15.3.2	 	The terminating Party shall have the right, at its option, to cancel any or all
Purchase Orders, which provide for delivery after the effective date of termination.
	 
	 	15.3.3	 	Notwithstanding anything to the contrary contained herein, in no event shall either
Party be obligated to issue or accept Purchase Orders during the notice period(s)
specified in this Section 15, except to the extent that the Parties have agreed to
binding forecasts or other written agreement between the Parties.
	 
	 	15.3.4	 	Upon termination of the Agreement by PDI, if Manufacturer has an inventory of the
Product(s) in its possession or control, Manufacturer shall timely inform PDI
regarding the quantity of the Product(s) in its inventory. PDI shall purchase these
Product(s) under the terms of this Agreement. Manufacturer shall not sell the
Product(s) to a third party unless PDI provides its express written consent
authorizing such sale.
	 
	 	15.3.5	 	The expiration or termination of this Agreement shall not terminate vested rights of
either Party from any liabilities or obligations incurred under this Agreement prior
to or which by their nature are intended to survive expiration or termination,
including but not limited to, provisions relating to confidentiality, warranties,
indemnification, returns, and proprietary rights.

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

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SECTION 16

MISCELLANEOUS

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

	 	16.4.1	 	Assignment. Neither Party shall assign or otherwise transfer its rights and
obligations under this Agreement without the prior written consent of the other Party,
except as provided in this Section 16 or in the event that either Party may assign any
or all of its rights and obligations under this Agreement to any successor in interest
of all or substantially all of the business of such Party by merger, operation of law,
assignment, purchase or otherwise or to any of its affiliates. Any prohibited
assignment shall be null and void. All terms and conditions of this Agreement shall be
binding on and inure to the benefit of the successors and permitted assigns of the
Parties.
	 
	 	16.4.2	 	Assignment of Accounts Receivable. If Manufacturer assigns payments to an
assignee/factor, Manufacturer understands and agrees that Manufacturer and the
assignee/factor shall be required to sign PDI’s standard acknowledgment form to assure
PDI that the assignee/factor understands the rights and obligations being assigned,
including the right of PDI to make offsets.

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	 	16.4.3	 	Assignment of Duty Drawback Rights. All drawback of duties and
rights thereto related to import duties paid by Manufacturer or PDI upon
importation of the Product(s) into the customs territory of the United States or
other countries of importation, as applicable, shall accrue to the exclusive
benefit of PDI. Manufacturer agrees to promptly provide PDI with all documents,
records, and other supporting information necessary to obtain any eligible duty
drawback for Product(s) purchased by PDI from Manufacturer under this Agreement.

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

	 	 	 
	Notices to Manufacturer:

	 	Notices to PDI:
	 
	 	 
	Ultra Clean Technology

	 	Photon Dynamics, Inc.
	150 Independence Drive

	 	5970 Optical Drive
	Menlo Park, CA 94025

	 	San Jose, CA 95138
	Attn: CFO

	 	Attn: Vice President Operations
	 
	 	 
	 

	 	Copy to: CFO
	 

	 	Copy to: General Counsel, Legal Dept.

	16.6	 	Entire Agreement. This Agreement, including the exhibits incorporated as an
integral part of this Agreement, constitutes the entire agreement of the Parties with
respect to the subject matter hereof, and supersedes all previous proposals, oral or
written, and all negotiations, conversations or discussions heretofore between the Parties
related to this Agreement. The following exhibits are hereby incorporated into this
Agreement by reference:
	 
	 	 	Exhibit A: Specifications and Technical Evaluation;
	 
	 	 	Exhibit B: Price List and Non-Binding Forecasts;
	 
	 	 	Exhibit C: Not Applicable;
	 
	 	 	Exhibit D: Not Applicable;
	 
	 	 	Exhibit E: Product Acceptance Criteria;

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	 	 	Exhibit F: Project Plan;
	 
	 	 	Exhibit G: Return Material Authorization Procedures; and
	 
	 	 	Exhibit H: Supplier Compliance Standards.
	 
	16.7	 	Amendment. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, canceled or waived, in whole or in part, other than by written amendment signed by
the Parties hereto, except as expressly provided in this Agreement.
	 
	16.8	 	Severability. In the event that any of the terms of this Agreement are in conflict
with any rule of law or statutory provision or otherwise unenforceable under the laws or
regulations of any government or subdivision thereof, such terms shall be deemed stricken from
this Agreement, but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the invalidity or
unenforceability of any such provisions of this Agreement substantially violates, comprises an
integral part of, or is otherwise inseparable from the remainder of this Agreement.
	 
	16.9	 	Counterparts. This Agreement shall be executed in two or more counterparts, and each
such counterpart shall be deemed an original hereof.
	 
	16.10	 	Waiver. No failure by either Party to take any action or assert any right
hereunder shall be deemed to be a waiver of such right in the event of the continuation or
repetition of the circumstances giving rise to such right.
	 
	16.11	 	Draftsmanship. Each of the Parties hereto has been represented by its own counsel.
In the event of a dispute, no provision of this Agreement shall be construed in favor of one
Party and against the other by reason of the draftsmanship of this Agreement.
	 
	16.12	 	Non-Exclusivity. Nothing in the Agreement shall be construed as creating an
exclusive purchase arrangement or requirements contract between PDI and Manufacturer. PDI
shall have the right to obtain similar Product(s) from any other manufacturer.
	 
	16.13	 	Translation. This Agreement is drafted in the English language.

-25-

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first
above written.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PDI:	 	 	 	 	 	MANUFACTURER:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Signature:	 	/s/ Jeff Hawthorne	 	 	 	Signature:	 	/s/ John K. Sexton	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Printed Name:
	 	JEFF HAWTHORNE
	 	 	 	 	 	Printed Name:
	 	JOHN K. SEXTON	 	 
	 

	 	Title:
	 	President & CEO
	 	 	 	 	 	Title:
	 	CHIEF FINANCIAL OFFICER	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Date: 2/1/08	 	 	 	 	 	Date: 1/29/08	 	 	 	 

-26-exv10w2

Exhibit 10.2

SETTLEMENT AGREEMENT AND RELEASE 

     This Separation Agreement and Release (the “Agreement”) is entered into between ZipRealty,
Inc. (the “Company”), on the one hand and Thomas M. Perrault (the “Executive”) on the other hand
with reference to the following facts:

WHEREAS:

     Executive was employed by the Company.

     On or about December 5, 2006 Executive and Company entered into an Employment Agreement.

     On or about December 8, 2006 Executive and Company entered into an Executive Proprietary
Information Agreement (the “Confidentiality Agreement”).

     Company and Executive entered into a Stock Option Agreement for stock granted on or about
January 12, 2007 (the “Stock Option Agreement”), granting Executive the option to purchase shares
of the Company’s common stock (the “Options”) subject to the terms and conditions of the Company’s
1999 Stock Plan (the “1999 Plan”) and 2004 Equity Incentive Plan (the “2004 Plan” and together with
the 1999 Plan, the “Plans”), as applicable, and the Stock Option Agreement.

     Executive’s employment relationship with the Company terminated on or about September 26, 2007
(the “Termination Date”).

COVENANTS

     It therefore is agreed by and between the undersigned as follows:

     1. Each of the undersigned executes and enters into this Agreement in consideration of each
and all of the agreements made and undertaken by each of the undersigned as follows:

	 	a)	 	The Company agrees to pay Employee the lump sum equivalent of 24 weeks
of his base salary at the rate of $3,692 per week, less applicable withholding, in
accordance with the Company’s regular payroll practices. This payment will be made
to Employee within ten (10) business days after the Effective Date of this
Agreement.
	 
	 	b)	 	The Parties agree that for purposes of determining the number of shares
of the Company’s common stock which Executive is entitled to purchase from the
Company, pursuant to the exercise of outstanding options, the Executive will be
considered to have vested only up to the Termination Date. Executive acknowledges
that as of the Termination Date, he will have vested in zero options.

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	 	c)	 	Upon the final date of Executive’s employment with Company, he was paid
all accrued, unused vacation and agrees that by these payments, he received from
Company each and all of the employment benefits, compensation, wages, vacation pay,
and other monies due and owing to him from Company, except as provided herein.
	 
	 	d)	 	Executive’s health insurance benefits ceased on the Termination Date,
subject to Executive’s right to continue his health insurance under COBRA.
Executive’s participation in all other benefits and incidents of employment ceased
on the Termination Date. Executive ceased accruing Executive benefits, including
but not limited to, vacation time and paid time off, as of the Termination Date.
	 
	 	e)	 	Executive shall continue to maintain the confidentiality of all
confidential and proprietary information of the Company and shall continue to
comply with the terms and conditions of the Confidentiality Agreement between
Executive and the Company. Executive has returned all of the Company’s property and
confidential and proprietary information in his possession to the Company. By
signing this Agreement, Executive represents and declares under penalty of perjury
under the laws of the state of California that he has returned all Company
property.

     2. Executive and Company agree that the foregoing consideration represents settlement in full
of all outstanding obligations owed to Executive by the Company and its owners, related entities,
officers, directors, employees, agents, representatives and shareholders (collectively the “Company
Releasees”) and owed to the Company Releasees by the Executive. Executive, on his own behalf, and
on behalf of his respective heirs, family members, executors, agents, assigns (collectively the
“Executive Releasees”), does hereby fully and forever release and discharge the Company Releasees
and Company Releasees do hereby fully and forever release and discharge the Executive Releasees of
and from, and agree not to sue concerning any claim, duty, obligation or cause of action relating
to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that
either Executive Releasees or Company Releasees may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date of this Agreement, including
without limitation:

	 	a)	 	any and all claims relating to or arising from
Executive’s employment relationship;
	 
	 	b)	 	any and all claims relating to, or arising from,
Executive’s right to purchase, or actual purchase of shares of stock of the
Company, including, without limitation, any claims for fraud
misrepresentation, breach of fiduciary duty, breach of duty under
applicable state corporate law, and securities fraud under any state or
federal law;
	 
	 	c)	 	any and all claims under the law of any jurisdiction
including, but not limited to, breach of fiduciary duty, wrongful discharge
of

2

 

	 	 	 	employment, constructive discharge from employment, termination in violation
of public policy, discrimination, harassment, retaliation, breach of
contract, both express and implied, breach of the covenant of good faith and
fair dealing, both express and implied; promissory estoppel, negligent and
intentional infliction of emotional distress, negligent and intentional
misrepresentation, negligent and intentional interference with prospective
economic advantage, unfair business practices, defamation, libel, slander,
negligence, personal injury, fraud, misrepresentation, assault, battery
invasion of privacy, false imprisonment and conversion;
	 
	 	d)	 	any and all claims for violation of any federal, state
or municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the
Fair Labor Standards Act, the Executive Retirement Income Security Act of
1974, the Worker Adjustment Retraining and Notification Act, the Older
Workers Benefit Protection Act; the California Fair Employment and Housing
Act, the California Labor Code;
	 
	 	e)	 	any and all claims for violation of the federal or any
state constitution;
	 
	 	f)	 	any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination;
	 
	 	g)	 	any claim for any loss, cost, damage, or expense
arising out of any dispute over the non-withholding or other tax treatment
of the proceeds received by Executive as a result of this Agreement; and
	 
	 	h)	 	any and all claims for attorneys’ fees and costs.

The Company and Executive agree that the release set forth in this section shall be and remain in
effect in all respects as a complete general release as to the matters released. This release does
not extend to any obligations incurred under this Agreement. Notwithstanding the foregoing, this
Agreement does not waive rights or claims that may arise after the date the Agreement is executed
by Executive and does not restrict or limit Executive’s right to challenge the validity of this
Agreement. Nor does this Agreement waive rights or claims under federal or state law that Executive
cannot waive by private agreement. Additionally, nothing in this Agreement precludes Executive
from filing a charge or complaint with or participating in any investigation or proceeding before
any federal or state agency, including the Equal Employment Opportunity Commission. However, while
Executive may file a charge and participate in any proceeding conducted by a state or federal
agency, by signing this Agreement, Executive waives his right to bring a lawsuit against Releasees
and waives his right to any individual monetary recovery in any action or lawsuit initiated by a
federal or state agency, such as the Equal Employment Opportunity Commission.

3

 

     3. Executive and Company represent that each party is not aware of any claim by him or it
other than the claims that are released by this Agreement. Executive and Company acknowledge that
he/it has been advised by legal counsel and is familiar with the provisions of California Civil
Code Section 1542, which provides as follows

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS/HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM/HER MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.

     Executive and Company, being aware of said code section, agree to expressly waive any rights
he/it may have under the above principal or any statute or common law principals of similar effect.

     4. Executive acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing
and voluntary. Executive and the Company agree that this waiver and release does not apply to any
rights or claims that may arise under the ADEA after the Effective Date of this Agreement.
Executive acknowledges that the consideration given for this waiver and release Agreement is in
addition to anything of value to which Executive was already entitled. Executive further
acknowledges that he has been advised in writing that:

	 	a)	 	he should consult with an attorney prior to executing
this Agreement;
	 
	 	b)	 	he has up to twenty-one (21) days within which to
consider this Agreement;
	 
	 	c)	 	he has seven (7) days following his execution of this
Agreement to revoke the Agreement;
	 
	 	d)	 	this Agreement shall not be effective until the
revocation period has expired; and
	 
	 	e)	 	nothing in this Agreement prevents or precludes
Executive from challenging or seeking a determination in good faith of the
validity of this waiver under the ADEA, nor does it impose any condition
precedent, penalties or costs from doing so, unless specifically authorized
by federal law.

     Each of the undersigned agrees that none of the releases set forth herein releases any claims
arising out of obligations set forth in this Agreement.

     5. This Agreement is effective after it has been signed by both parties and after (8) days
have passed since Executive signed the Agreement (the “Effective Date”).

4

 

     6. The Parties agree that any and all disputes arising out of the terms of this Agreement,
their interpretation, and any of the matters herein released, shall be subject to binding
arbitration in Alameda County, California before the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes of California Code of Civil Procedure. In
the event of any legal action relating to or arising out of this Agreement, the prevailing party
shall be entitled to recover from the losing party its attorneys’ fees and costs incurred in that
action to the extent permissible by law. The parties agree that the prevailing party in any
arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to
enforce the arbitration award. The Parties hereby agree to waive their right to have any dispute
between them resolved in a court of law by a judge or jury. This paragraph will not prevent either
party from seeking injunctive relief (or any other provisional remedy) from any court having
jurisdiction over the Parties and the subject matter of their dispute relating to Executive’s
obligations under this Agreement.

     7. If any provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect other provisions or application of the Agreement which can be given
effect without the invalid provisions or application and to this end the provisions of this
Agreement are declared to be severable.

     8. Executive agrees that the substance of this Agreement or any part thereof is strictly
confidential and will not be disclosed or discussed by Executive without prior written permission
from the Company, to or with any person whomsoever, with the exception only of the Executive’s
immediate family members, attorneys retained by the Executive, accountants, tax consultants, and/or
duly designated taxing authorities of the government of the United States of America and the
government of the State of California, or except pursuant to a subpoena issued by a state or
federal court or agency or as required by the Freedom of Information Act (the “Disclosees”).
Executive further agrees that he will not, without the prior written permission of the other
parties, directly or indirectly, disclose to any person whomsoever, with the sole exception of the
Disclosees, any information regarding the substance of any part of this Agreement. Executive
specifically agrees that, if questioned by any person
whomsoever, other than the Disclosees, concerning the substance of this Agreement and/or
any part of this Agreement, he will respond only that, “We have resolved our differences.”

     9. Executive specifically agrees that each and all of the terms and provisions in paragraph 8
are of the essence of this Agreement and shall be strictly and consistently observed by the parties
for any and all purposes whatsoever and as to any and all third persons whomsoever, with the sole
exception of the Disclosees. Executive further agrees that any disclosures in violation of the
foregoing shall constitute and be treated as a material violation and breach of this Agreement.
Executive understands that in exchange for the payment of the above-mentioned consideration,
Executive agrees to keep confidential and not publicize, or cause to be publicized, or communicate
in any manner, any information whatsoever concerning the final resolution and settlement of this
matter, including the existence of this Agreement, and facts or allegations of the dispute as
described herein, to any person or entity, public, private, governmental, or regulatory, except as
is necessary for tax purposes, and specifically bars, but is not limited to, publication in any
form of radio, television, print media,

5

 

whether newspapers, magazines and/or professional journals, or by any computer network
including, but not limited to, the Internet, World Wide Web (“WWW”), e-mail, public or private chat
rooms or bulletin boards, or similar media, with the understanding that such confidentiality is
bargained for consideration by the Company in the release herein. This Agreement of
confidentiality extends to Executive’s attorneys, heirs, agents, and their representatives.

     10. Executive and Company represent and warrant that henceforth each party will refrain from
making or publishing any derogatory or disparaging remarks or statements, oral or written, to any
third parties about the other party and the Releasees. Executive specifically agrees that the
terms of this paragraph are material and are of the essence of this Agreement and shall be strictly
and consistently observed by the parties.

     11. This Agreement contains the entire agreement of the undersigned with respect to the
matters covered by this Agreement and no promise made by any party or by an officer, attorney, or
agent of any party that is not expressly contained in this Agreement shall be binding or valid.
This Agreement supersedes any prior agreement between the parties with the exception of the
Confidentiality Agreement, the Plans and the Stock Option Agreements. Additionally, any
modification of any provision of this Agreement, to be effective, must be in writing and signed by
both parties.

     12. This Agreement shall be governed by and construed under the laws of the State of
California.

     13. This Agreement may be executed by facsimile and in counterparts, and the counterparts,
taken together, shall constitute the original.

     14. Each of the undersigned executing this Agreement on behalf of a party represents and
warrants that he or she is a duly appointed agent or duly elected officer of the party and is fully
authorized to execute this Agreement on that party’s behalf.

6

 

     15. Each party to this Agreement has consulted with, or had the opportunity to consult with,
legal and tax counsel concerning all paragraphs of this Agreement. Each party has read the
Agreement and has been fully advised by legal counsel with respect to the rights and obligations
under the Agreement, or has had the opportunity to obtain such advice. Each party is fully aware
of the intent and legal effect of the Agreement, and has not been influenced to any extent
whatsoever by any representation or consideration other than as stated herein. After consultation
with and advice from, or the opportunity for consultation with and advice from, legal counsel, each
party voluntarily enters into this Agreement.

	 	 	 	 	 
	 	 	 
	      DATED:  January 23, 2008 	/s/ Thomas M. Perrault
 	 
	 	Thomas M. Perrault 	 
	 	 	 
	 
	      DATED:  January 23, 2008 	ZipRealty, Inc.

 	 
	 	By:  	/s/ J. Patrick Lashinsky
 	 
	 	 	J. Patrick Lashinsky 	 
	 	 	Chief Executive Officer 	 

7

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