MANUFACTURING SERVICES AGREEMENT

EXHIBIT 10.1


MANUFACTURING SERVICES AGREEMENT BETWEEN
JABIL CIRCUIT, INC. AND SKYE INTERNATIONAL, INC.


CONFIDENTIAL


JABIL CIRCUIT


MANUFACTURING SERVICES AGREEMENT


BETWEEN


JABIL CIRCUIT, INC.


AND


SKYE INTERNATIONAL, INC.


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INDEX


SECTION 1 DEFINITIONS...................................................PAGE 1


SECTION 2 LIST OF SCHEDULES.............................................PAGE 4


SECTION 3 BUILD SCHEDULE FORECASTS......................................PAGE 4


SECTION 4 MANUFACTURING SERVICES........................................PAGE 4


4.1 Testing.
4.2 Packaging and Shipping.
4.3 Items to be Supplied by SKYE.
4.4 Items to be Supplied by Jabil.
4.5 SKYE Inspection.
4.6 Materials Procurement.
4.7 Equitable Adjustment.


SECTION 5 WARRANTY & RMA PROCEDURE......................................PAGE 5


5.1 Jabil Warranty.
5.2 Repair or Replacement of Defective Product.
5.3 Limitation of Warranty.
5.4 ECO Upgrade.


SECTION 6 LIMITATION OF DAMAGES.........................................PAGE 6


SECTION 7 DELIVERY, RISK OF LOSS AND PAYMENT TERMS......................PAGE 7


7.1 Payment.
7.2 Taxes.


SECTION 8 IMPORT AND EXPORT.............................................PAGE 7


8.1 Responsibilities, Licenses, Approvals and Authorizations.
8.2 Export Control Assumptions and Notice.


SECTION 9 DESIGN SERVICES...............................................PAGE 8


SECTION 10 CHANGE ORDERS, RESCHEDULING AND CANCELLATION..................PAGE 8


10.1 Changes to Manufacturing Services, Packaging and
Shipping Specifications and Test Procedures.
10.2 Production Increases.
10.3 Product Configuration Changes and Engineering Changes.
10.4 Treatment of Obsolete/End-of-Life Material.
10.5 Rescheduled Delivery and Cancellation of Orders.


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10.6 Termination Charges.
10.7 Duty to Mitigate Costs.


SECTION 11 TERM.........................................................PAGE 10


SECTION 12 TERMINATION..................................................PAGE 10


12.1 Termination for Convenience.
12.2 Termination for Cause.
12.3 Termination for Bankruptcy/Insolvency.
12.4 Termination Consequences.


SECTION 13 CONFIDENTIALITY..............................................PAGE 11


13.1 Confidentiality Obligations.
13.2 Employees, Agents and Representatives.
13.3 Term and Enforcement.
13.4 Return of Proprietary Information and Technology.


SECTION 14 INTELLECTUAL PROPERTY RIGHTS; ASSIGNMENT.....................PAGE 12


14.1 Jabil Existing Intellectual Property.
14.2 Jabil Created Intellectual Property.


SECTION 15 MANUFACTURING RIGHTS.........................................PAGE 12


SECTION 16 COMPANY WARRANTY AND INDEMNIFICATION.........................PAGE 13


SECTION 17 RELATIONSHIP OF PARTIES......................................PAGE 13


SECTION 18 INSURANCE....................................................PAGE 13


SECTION 19 PUBLICITY....................................................PAGE 13


SECTION 20 FORCE MAJEURE................................................PAGE 13


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SECTION 21 MISCELLANEOUS................................................PAGE 14


21.1 Notices.
21.2 Attorney's Fees and Costs.
21.3 Amendment.
21.4 Partial Invalidity.
21.5 Monies.
21.6 Entire Agreement.
21.7 Binding Effect.
21.8 Waiver.
21.9 Captions.
21.10 Construction.
21.11 Section References.
21.12 Business Day.
21.13 Dispute Resolution.
21.14 Other Documents.
21.15 Counterparts.
21.16 Governing Law and Jurisdiction
21.17 Federal Regulations.


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MANUFACTURING SERVICES AGREEMENT


This Manufacturing Agreement ("Agreement") is entered into by and between Jabil Circuit, Inc., a Delaware corporation ("Jabil"), having offices at 10560 Dr. M.L. King Jr. Street North St. Petersburg, Florida 33716, on behalf of Jabil and its Subsidiaries, and Skye International, Inc., a Nevada corporation ("SKYE"), having its principal place of business at 7150 West Erie Street Chandler, AZ 85226-2424. Jabil and SKYE are referred to herein as "Party" or "Parties".


RECITALS


A. Jabil is in the business of designing, developing, manufacturing, testing, configuring, assembling, packaging and shipping electronic assemblies and systems.


B. SKYE is in the business of designing, developing, distributing, marketing and selling products containing electronic and mechanical assemblies and systems.


C. Whereas, the Parties desire that Jabil manufacture, test, configure, assemble, package and/or ship certain electronic and mechanical assemblies and systems pursuant to the terms and conditions set forth in this Agreement.


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


TERMS 1 DEFINITIONS. In addition to terms defined elsewhere in this Agreement, the capitalized terms set forth below shall have the following meaning:


1.1 "ADDITIONAL SERVICES" means services such as, design for manufacturability, manufacturing design test support, computer assisted design for manufacturability, test development services, volume production and advanced packaging technologies all as specified and approved by SKYE and agreed to by Jabil.


1.2 "AFFILIATE" means with respect to a Person, any other Person which directly or indirectly controls, or is controlled by, or is under common control with, the specified Person or an officer, director or 10% or more shareholder of the specified Person. For purposes of the preceding sentence, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, or direct or indirect ownership (beneficially or of record) of, or direct or indirect power to vote, 5% or more of the outstanding shares of any class of capital stock of such Person (or in the case of a Person that is not a corporation, 5% or more of any class of equity interest).


1.3 "APPROVED MANUFACTURERS LIST" OR "AML" shall mean the manufacturers designated, specified and/or approved by SKYE.


1.4 "BUILD SCHEDULE" means a manufacturing schedule (or order) provided to Jabil by SKYE in writing which specifies the Product to be manufactured, including the quantity of each Product, its description and part number, agreed pricing, shipping instructions and requested delivery date.


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1.5 "BUILD SCHEDULE FORECAST" means the monthly forecast provided to Jabil by SKYE, in writing, of quantity requirements of each Product that SKYE anticipates requiring during the next twelve (12) month period.


1.6 "COMMERCIALLY REASONABLE EFFORTS" means those efforts that would be deemed both commercially practicable and reasonably financially prudent after having taken into account all relevant commercial considerations. "Relevant commercial considerations" shall be deemed to include, without limitation (1) all pertinent facts and circumstances (2) financial costs (3) resource availability and impact (4) probability of success; and (5) other commercial practicalities.


1.7 "COMPONENTS SUPPLIED BY SKYE" means those components or materials that SKYE provides, directly or indirectly, to Jabil to be incorporated into the Product.


1.8 "EDI" shall mean electronic data interchange available for certain communications as determined by Jabil.


1.9 "EFFECTIVE DATE" shall mean the date upon which the terms and conditions of this Agreement shall become effective by and between the Parties. The Parties have agreed that the Effective Date of this Agreement shall be the 30th day of January, 2006.


1.10 "E&O INVENTORY" means materials and components and any work-in-process (WIP) or finished Product incorporating materials and/or components that fall under the category of either Excess Inventory or Obsolete Materials (as defined herein) purchased or on order by Jabil based on a Build Schedule Forecast, Build Schedule, or other written instruction by SKYE to Jabil.


1.11 "EXCESS INVENTORY" means materials and components in Jabil inventory that are in excess of current SKYE demand purchased or on order by Jabil based on a Build Schedule Forecast, Build Schedule, or other written instruction by SKYE to Jabil.


1.12 "FEE AND PRICE SCHEDULE" shall mean the prices and fees set forth Schedule 1, or as specified in Jabil quotations to SKYE or as otherwise agreed in writing between the parties.


1.13 "FOB" shall mean the shipper must at its own expense and risk transport the goods to the place of destination.


1.14 "INCLUDING" shall be defined to have the meaning "including, without limitation."


1.15 "IN WRITING" shall mean written documents, EDI with phone confirmation, verified faxes and successfully transmitted e-mails.


1.16 "JABIL CIRCUIT, INC." AND "JABIL" shall be defined to include any Jabil Subsidiary.


1.17 "JABIL CREATED INTELLECTUAL PROPERTY" means any discoveries, inventions, technical information, procedures, manufacturing or other processes, software, firmware, technology, know-how or other intellectual property rights created, developed or reduced to practice by or for Jabil in (i) preparing any Product provided pursuant to this Agreement, or (ii) which is otherwise embodied within the Manufacturing Services or any other work provided pursuant to this Agreement.


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1.18 "JABIL EXISTING INTELLECTUAL PROPERTY" means any discoveries, inventions, technical information, procedures, manufacturing or other processes, software, firmware, technology, know-how or other intellectual property rights owned or developed by Jabil outside of this Agreement or known by Jabil prior to the execution of this Agreement that are used by Jabil in creating, or are embodied within, any Product, the Manufacturing Services or other work performed under this Agreement.


1.19 "JABIL INTELLECTUAL PROPERTY" shall mean both Jabil Created Intellectual Property and Jabil Existing Intellectual Property, collectively.


1.20 "JABIL MANUFACTURING PROCESS" means Jabil's process employed to manufacture, test, configure and assemble Product manufactured for SKYE pursuant to the terms of this Agreement.


1.21 "LEAD-TIME" means the minimum amount of time in advance of shipment that Jabil must receive a Build Schedule in order to deliver Product by the requested delivery date.


1.22 "LOANED EQUIPMENT" means capital equipment (including tools) which is loaned to Jabil by or on behalf of SKYE to be used by Jabil to perform the Manufacturing Services and includes all equipment, tools and fixtures purchased specifically for SKYE, by Jabil, to perform the Manufacturing Services and that are paid for in full by SKYE.


1.23 "MANUFACTURING SERVICES" means the services performed by Jabil hereunder which shall include but not be limited to manufacturing, testing, configuring, assembling, packaging and/or shipping of the Product, including any Additional Services, all in accordance with the Specifications.


1.24 "NRE COSTS" shall consist of expenses incurred by Jabil under this Agreement, including design engineering services, testing, fixturing and tooling and other out-of-pocket costs.


1.25 "OBSOLETE MATERIALS" mean materials and components in Jabil inventory that no longer appear on a SKYE bill of materials (BOM), or which appear on a SKYE BOM of a Product that no longer has demand as indicated by a Build Schedule, Build Schedule Forecast, or BOM purchased or on order by Jabil based on a Build Schedule Forecast, Build Schedule, or other written instruction by SKYE to Jabil.


1.26 "PACKAGING AND SHIPPING SPECIFICATIONS" shall mean packaging and shipping specifications set forth in Schedule 1 and otherwise supplied and/or approved by SKYE.


1.27 "PERSON" means any corporation, business entity, natural person, firm, joint venture, limited or general partnership, limited liability entity, limited liability partnership, trust, unincorporated organization, association, government, or any department or agency of any government.


1.28 "PRODUCT(S)" means the product(s) manufactured and assembled by Jabil on behalf of SKYE under this Agreement as identified in Schedule 1 (or any subsequent Schedule 1 prepared for any product to be manufactured hereunder) or in mutually agreed Build Schedules, including any updates, renewals, modifications or amendments thereto.


1.29 "PROPRIETARY INFORMATION AND TECHNOLOGY" means software, firmware, hardware, technology and know-how and other proprietary information or intellectual property embodied therein that is known, owned or licensed by and proprietary to either Party and not generally available to the public, including plans, analyses, trade secrets, patent rights, copyrights, trademarks, inventions, fees and pricing information,


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operating procedures, procedure manuals, processes, methods, computer applications, programs and designs, and any processed or collected data. The failure to label any of the foregoing as "confidential" or "proprietary" shall not mean it is not Proprietary Information and Technology.


1.30 "PURCHASING STANDARD COST" OR "PSC" means Jabil's internal purchasing cost breakdown utilized to develop the materials and components pricing in its enterprise resource planning (ERP).


1.31 "SPECIFICATIONS" means the technical specifications for manufacturing set forth in Schedule 1 and otherwise supplied and/or approved by SKYE. Specifications may be amended from time to time by amendments in the form of written engineering change orders agreed to by the Parties.


1.32 "SOW" shall mean the statement of work for each Product set forth in any Schedule 1 as amended in writing from time to time upon mutual agreement of the Parties.


1.33 "SUBSIDIARY(IES)" means any corporation, partnership, joint venture, limited liability entity, trust, association or other business entity of which a Party or one or more of its Subsidiaries, owns or controls more than 50% of the voting power for the election of directors, managers, partners, trustees or similar parties.


1.34 "SUPPLIER PURCHASE REQUIREMENTS" means a minimum order quantity, lead time or automated pick and place efficiency form factor requirement imposed on Jabil by a supplier.


1.35 "TEST PROCEDURES" shall mean testing specifications, standards, procedures and parameters set forth in Schedule 1 and otherwise supplied and/or approved by SKYE.


1.36 "UNIQUE COMPONENTS" means those non-standard components or materials procured exclusively for incorporation into the Product.


2 LIST OF SCHEDULE(S). This Agreement includes the following Schedule(s) for each Product to be manufactured hereunder, which are hereby incorporated herein and made a part of this Agreement:


Schedule 1 - Statement of Work.


3 BUILD SCHEDULE FORECASTS. Within ten (10) business days following the execution of this Agreement, SKYE shall provide Jabil with a Build Schedule Forecast. The Build Schedule Forecast shall be updated by SKYE, in writing, on at least a monthly basis and will, along with mutually agreed Build Schedules, form the basis for Jabil's material commitments, subject to any Supplier Purchase Requirements. Jabil and SKYE may review Supplier Purchase Requirements and applicable Lead-times during quarterly meetings. Any rescheduling of a Build Schedule (order) shall be subject to the terms set forth in Section 10.5.


4 MANUFACTURING SERVICES. Jabil will manufacture the Product in accordance with the Specifications and any applicable Build Schedules. Jabil will reply to each proposed Build Schedule that is submitted in accordance with the terms of this Agreement by notifying SKYE of its acceptance or rejection within three (3) business days of receipt of any proposed Build Schedule. In the event of Jabil's rejection of a proposed Build Schedule, Jabil's notice of rejection will specify the basis for such rejection. When requested by SKYE, and subject to appropriate fee and cost adjustments, Jabil will provide Additional Services for existing or future Product manufactured by Jabil.


4.1 TESTING. Jabil will test the Product in accordance with the Test Procedures provided by SKYE.


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4.2 PACKAGING AND SHIPPING. Jabil will package and ship the Product in accordance with Packaging and Shipping Specifications provided by SKYE.


4.3 ITEMS TO BE SUPPLIED BY SKYE. SKYE shall supply to Jabil, according to the terms and conditions specified herein, SKYE Proprietary Information and Technology and, if applicable, the Loaned Equipment, Components Supplied by SKYE and Unique Components necessary for Jabil to perform the Manufacturing Services. SKYE will also provide to Jabil all Specifications, Test Procedures, Packaging and Shipping Specifications, Product design drawings, approved vendor listings, material component descriptions (including approved substitutions), manufacturing process requirements, and any other specifications necessary for Jabil to perform the Manufacturing Services. SKYE shall be solely responsible for the sufficiency and adequacy of the Specifications, Packaging and Shipping Specifications and Test Procedures, and shall hold Jabil harmless for any claims arising therefrom. SKYE shall be solely responsible for delay in delivery, defects and enforcement of warranties related to the Loaned Equipment, Components Supplied by SKYE and Unique Components and shall hold Jabil harmless for any claim arising therefrom.


4.4 ITEMS TO BE SUPPLIED BY JABIL. Jabil will employ the Jabil Manufacturing Process, any required manufacturing technology, manufacturing capacity, labor, transportation logistics, systems and facilities necessary for Jabil to perform the Manufacturing Services.


4.5 SKYE INSPECTION. SKYE shall have the right, upon reasonable advance notice, during normal business hours and at its expense to inspect, review, monitor and oversee the Manufacturing Services, provided that such inspection shall not disrupt Jabil's normal business operations. SKYE shall cause each of its employees, agents and representatives who have access to Jabil's facilities, to maintain, preserve and protect all Proprietary Information and Technology of Jabil and the confidential or proprietary information and technology of Jabil's other customers.


4.6 MATERIALS PROCUREMENT. Jabil will use Commercially Reasonable Efforts to procure components, per the Approved Manufacturers List provided by SKYE necessary to fulfill mutually agreed upon Build Schedules. SKYE shall be responsible for the performance of such manufacturers.


4.7 EQUITABLE ADJUSTMENT. In the event Jabil's cost of performance significantly changes due to causes beyond its reasonable control, Jabil shall be entitled to an equitable adjustment to price and/or schedule on any open Build Schedules. Jabil shall be entitled to suspend performance until such adjustments are negotiated by the parties in good faith and implemented through written change orders. Upon request, Jabil shall provide to SKYE reasonably detailed supporting documentation for the equitable adjustment it seeks.


5 WARRANTY & RMA PROCEDURE.


5.1 JABIL WARRANTY. Jabil warrants (i) that it will manufacture the Product in accordance with IPC-A-610 Class 2 workmanship standard, and (ii) that at the time of manufacture, the Product will conform, in all material respects, to the Specifications. The above warranty shall remain in effect for a period of one year from the date any Product is initially delivered to SKYE or to SKYE's designated carrier ("Warranty Period"). This warranty is extended to, and may only be enforced by, SKYE.


5.2 REPAIR OR REPLACEMENT OF DEFECTIVE PRODUCT. In accordance with Jabil's standard return material authorization process and procedure ("RMA"), Jabil will either repair, replace or issue credit, in its sole discretion, any Product that contains a defect caused by a breach of the warranty set forth in this Section 5 provided that the Product is received within ninety (90) days following the end of any applicable Warranty Period ("RMA


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Product"). If SKYE desires to return a Product based on a claim of breach of the warranty set forth in this Section 5, SKYE shall request an RMA number from Jabil. SKYE shall then consign the alleged defective Product, FOB Jabil's designated repair facility, and specify the Jabil ...