Design & Manufacturing Services Agrmnt - BTWN Inventec Enterprise System Corp.

Exhibit 10.42

Design & Manufacturing Services Agreement

DESIGN & MANUFACTURING SERVICES AGREEMENT This Design & Manufacturing Services Agreement (" Agreement" ) is entered into as of this 15 day of February, 2008 (" Effective Date" ) between Inventec Enterprise System Corporation (" Vendor" ), a Taiwan corporation having its principal place of business at No 3, Gongye 1st Road, Taoyuan County 324, Pingjhen City, , Taiwan, R.O.C., and Blue Coat Systems, Inc., a Delaware corporation having its principal place of business at 420 North Mary Avenue, Sunnyvale, CA 94085 (" Blue Coat" ).

RECITALS

WHEREAS, Blue Coat desires that Vendor perform certain design and manufacturing services, including purchasing, assembly and manufacture, testing and delivery of the products defined in Product Design Document(s);

WHEREAS, the parties desire to define the general terms and conditions governing Vendor' s manufacture and delivery of such products, all as further set forth in this Agreement; and

WHEREAS, Blue Coat intends to work with Vendor to design, manufacture and fulfill products under the " Ruby" project.

NOW THEREFORE, in consideration of the mutual covenants, promises and undertakings set forth herein, and for other good and valuable consideration, Blue Coat and the Vendor agree as follows: 1. DEFINITIONS

1.1 " Affiliate" shall mean (a) any company owned or controlled to the extent of at least fifty percent (50%) of its issued and voting capital by a party to this Agreement and any other company so owned or controlled (directly or indirectly) by any such company or the owner of any such company, or (b) any partnership, joint venture or other entity directly or indirectly controlled by, controlling, or under common control of, to the extent of fifty percent (50%) or more of voting power (or otherwise having power to control its general activities), a party to this Agreement.

1.2 " Blue Coat Consigned Items" shall mean, collectively, the Blue Coat Equipment and Blue Coat Material.

1.3 " Blue Coat Equipment" shall mean the test equipment, fixtures, ovens, appurtenances, test hardware and software, and any other items provided or to be provided by Blue Coat to Vendor, as listed in the applicable Product Information Document. 1.4 " Blue Coat Material" shall mean any Components or materials that are used to manufacture a Product that are provided by Blue Coat to Vendor irrespective of any payment by Vendor for such Components or materials.

1.5 " Blue Coat Requirements Document" shall mean Blue Coat' s requirements document associated with a Product as amended in writing pursuant to the terms of this Agreement.

1.6 " Components" shall mean the component parts that make up a finished Product.

1.7 " Component Cost" shall mean the cost paid by Vendor for a Component.


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1.8 " Component Lead Time" shall mean the minimum amount of time necessary to purchase a Component in order to meet the current Forecast. Product Lead Times may be specified in a Product Information Document.

1.9 " Customer" shall mean an end user of a Product or a channel partner or service provider of Blue Coat.

1.10 " Design Services" shall mean printed circuit board design, printed circuit board assembly design, mechanical design, firmware design, electrical design, system or sub-system design, component engineering or other design services as specified in a Statement of Work.

1.11 " DVT Prototype" shall mean the design validation testing prototype and associated test completion documents to be completed and delivered to Blue Coat by Vendor after Blue Coat' s acceptance of the EVT Prototype.

1.12 " EVT Prototype" shall mean the engineering verification testing prototype and associated test completion documents to be completed and delivered to Blue Coat by Vendor after Blue Coat' s acceptance of the Product Specifications.

1.13 " Excess Components" shall mean a Unique and Special Component on hand at Vendor' s site that is in excess of the amount needed for the current Forecast; provided, however, that such Component was purchased by Vendor in order to meet a previous Forecast. A Component shall not be an " Excess Component" if it was purchased outside of the Component Lead Time necessary to meet the Forecast in effect at the time of purchase.

1.14 " Final Deliverable" shall mean the Deliverable that is delivered to Blue Coat by Vendor after Blue Coat' s acceptance of the PVT Prototype and completion of first article inspections of a Product by Blue Coat . The Final Deliverable shall be the Product to be manufactured under the Manufacturing Services Agreement.

1.15 " Forecast" shall have the definition set forth in Section 7.4.

1.16 " Long Lead Time Component" shall mean a Component that has a lead time greater than the associated Product Lead Time.

1.17 " Min/Max Components" shall mean the Components necessary to build the minimum and maximum levels of Product inventory required by Blue Coat, as specified in a Product Information Document.

1.18 " MOQ Components" shall mean the Components purchased by Vendor pursuant to minimum order requirements from Supplier as approved by Vendor in writing and specified in a Product Information Document. 1.19 " NCNR Components" shall mean non-cancelable and non-returnable Components purchased by Vendor as agreed to in writing by Blue Coat and specified in a Product Information Document.

1.20 " Obsolete Component" shall mean a Unique and Special Component that will no longer be utilized in the manufacture of a Product. A Component shall not be an " Obsolete Component" if it was purchased outside of the Component Lead Time necessary to meet the Forecast in effect at the time of purchase.

1.21 " Product Lead Time" shall mean the pre-determined amount of time that is agreed by the parties and set forth in a Product Information Document.


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1.22 " Product" shall mean the product set forth in a Product Information Document.

1.23 " Product Design Document" shall mean the document that contains the information and details set forth in Exhibit A and other information related to the manufacture and ownership of a Product (as updated by the parties from time to time). Without limiting the foregoing, a Product Design Document shall contain the following items: (a) Bill of Materials, (b) identification of Unique Components, (c) Product Specifications, (d) identification of any Tooling and Blue Coat Equipment necessary or useful to the manufacture of the Product, (e) ownership of any Tooling and Blue Coat Equipment, (d) Test Plan, (f) the approved vendor list (AVL) and (g) any associated diagrams, drawings, data, formulas, processes, procedures and other documentation related or necessary to the manufacture of the Product.

1.24 " Product Information Document" shall mean a document that contains the associated Product Design Document and any other information and detail related to the manufacture, sale and cost of a Product substantially in the form set forth in Exhibit B.

1.25 " Product Specifications" shall mean the technical and functional specifications for a Product as outlined in the Product Design Document (as may be amended by the parties in writing pursuant to the terms of this Agreement).

1.26 " PVT Prototype" shall mean the production validation testing prototype and associated test completion documents to be completed and delivered to Blue Coat by Vendor after acceptance by Blue Coat of the DVT Prototype.

1.27 " Slow Moving Inventory" shall mean a Unique Component that has been on hand at Vendor' s site for more than six (6) months provided such Component was not purchased outside of the Component Lead Time necessary to meet the Forecast in effect at the time of purchase.

1.28 " Special Components" shall mean NCNR Components, MOQ Components, Long Lead Time Components and Min/Max Components for a particular Product.

1.29 " Statement of Work" shall mean the written statement of work for each Product or design project that contains (at a minimum) the information set forth in Exhibit C (as amended in writing from time to time upon mutual agreement of the parties).

1.30 " Supplier" shall mean a third party supplier of Components, Blue Coat Equipment, Blue Coat Materials or Tooling. 1.31 " Test Plan" shall mean the specifications for testing a Product that are defined by Vendor and approved by Blue Coat for each Product.

1.32 " Transformation Cost" shall mean the cost incurred in manufacturing a Product other than Component Costs as specified in a Product Information Document. Transformation Costs shall include, but not be limited to, labor costs, logistics costs, profit and other overhead costs.

1.33 " Total Product Cost" shall mean the Component Costs plus the Transformation Costs, as specified in a Product Information Document. 1.34 " Tooling" shall mean the tooling, equipment or other materials used in the manufacture of a Product that are supplied by a third party and are paid for by Blue Coat in accordance with the terms of this Agreement.


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1.35 " Unique Components" shall mean finished goods, work in process, or Components that are specific and unique to a Product and that is not sold by a Supplier in the ordinary course of business to any party (other than Blue Coat) as specified in a Product Information Document. 2. PROCESS

2.1 Blue Coat Requirements Document. Blue Coat shall be responsible for the definition of the Product and delivery of the Blue Coat Requirements Document.

2.2 Proposal . Upon receipt of the Blue Coat Requirements Document, Vendor shall provide a proposal to Blue Coat outlining the estimated costs, delivery dates, schedules and Deliverables associated with such Product defined in the Blue Coat Requirements Document. If agreed upon by Blue Coat, the parties shall execute a Statement of Work that embodies the terms such proposal.

2.3 Design Services . Vendor shall perform the Design Services as outlined in a Statement of Work and the Blue Coat Requirements Document. This shall include, but not be limited to completion and acceptance (as defined in Section 3) of each of the following Deliverables: Product Specifications, Test Plan, EVT Prototype, DVT Prototype, PVT Prototype, Final Deliverable and the Product Design Document. If the terms of a Product Design Document and this Agreement shall conflict in any way, the terms of the Agreement shall prevail.

2.4 Testing. Vendor shall perform Product testing in accordance with the Test Plan.

3. ACCEPTANCE. When Vendor has completed a Deliverable, Vendor will deliver it to Blue Coat. Blue Coat will accept or reject a Deliverable within thirty (30) days after delivery (unless another time period is specified in a Statement of Work). If Blue Coat rejects a Deliverable, Vendor will use best commercial efforts to promptly correct the failures properly specified in the rejection notice (at no additional cost to Blue Coat) within ten (10) days. When it believes that it has made the necessary corrections, Vendor will again deliver the Deliverable to Blue Coat and the acceptance/rejection/correction provisions above shall be reapplied until the Deliverable is accepted; provided, however, that upon the second or any subsequent rejection, Blue Coat may terminate this Agreement by ten (10) days notice unless the Deliverable is accepted during the notice period.

4. MANUFACTURE AND SALE OF PRODUCTS. Upon the completion and agreement of a Product Information Document, Vendor agrees that it will manufacture and sell to Blue Coat the Product(s) in accordance with the associated Product Specifications and other terms set forth in this Agreement and the associated Product Information Document. Affiliates will also be able to purchase Products pursuant to the terms of this Agreement provided that Blue Coat warrants that any and all obligations and debts of the Affiliates will be discharged in a timely fashion. Blue Coat and the Affiliates agree that they shall be jointly and severally liable to Vendor for all damages and losses arising out of delays or failures to perform under this Agreement.

5. ENGINEERING CHANGE ORDERS

5.1 Blue Coat Proposed Changes. Blue Coat may change the Product or Product Information Document at any time. Such changes may include, but are not limited to, changes to applicable drawings, designs or specifications; required method of shipment or packing; or place of delivery. In the event that Blue Coat elects to make a change, Blue Coat shall issue an engineering change order in writing to Vendor specifying the change (" Blue Coat ECO" ). For standard Blue Coat ECOs, Vendor shall provide a written acknowledgement within one (1) day of receipt of the Blue Coat ECO, and include a proposed schedule to implement such change, an estimate of the cost to implement such change (if applicable) and the costs associated with any Components that may become Obsolete Components as a consequence of the change (the " Acknowledgement" ). Blue Coat shall review such proposed schedule and estimates and either accept or reject


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the Acknowledgement. If Blue Coat accepts the Acknowledgement, Blue Coat shall pay Vendor the amounts specified in the Acknowledgement in accordance with the terms agreed to by the parties. Notwithstanding the above, with the exception of approved Unique Components and Special Components, Blue Coat shall not be responsible for reimbursing Vendor for Obsolete Components that were purchased outside of the Product Lead Time necessary to meet the Forecast in effect at the time of the Blue Coat ECO (defined below).

5.2 Vendor Proposed Changes.

5.2.1 General Restrictions. Subject to the terms of this Section, Vendor may not (a) relocate any part of the facility in which Product(s) are manufactured; (b) make any change to Product Specifications or the manufacturing procedures or quality assurance processes associated with Product(s); or (c) change any other Blue Coat requirements related to a Product, including without limitation the manufacturing or supply of a Product (each of (a), (b) and (c) shall be considered an " Engineering Change" ). 5.2.2 Change Procedure. Where Vendor wishes to implement an Engineering Change, Vendor shall issue an engineering change order in writing to Blue Coat specifying the change (" Vendor ECO" ). The Vendor ECO shall include, without limitation, sufficient details regarding the nature of the proposed Engineering Change, the reason for the proposed change, details regarding its implementation, the impact of the change (including but not limited to scheduling and costs), and the proposed implementation date of the Engineering Change. Promptly after issuing the foregoing Vendor ECO, Vendor shall, at a mutually agreed upon cost, provide Blue Coat with sufficient evaluation samples of the affected Product (after having incorporated the Engineering Change) and other information requested by Blue Coat to enable Blue Coat to evaluate the Engineering Change. Blue Coat may, acting in its sole discretion, reject any Engineering Change and shall notify Vendor in writing of such rejection within thirty (30) days from its receipt of such Product samples and other information. While Blue Coat is considering an Engineering Change or if Blue Coat rejects an Engineering Change, Vendor shall continue to perform the Design Services and manufacture and supply such Product, in accordance with the terms of this Agreement, without the Engineering Change. Where Blue Coat provides its written approval of the Engineering Change, Vendor shall implement the change on a mutually agreed schedule and cost.

6. SUBCONTRACTORS. The parties acknowledge that the obligations set forth in this Agreement must be performed by Vendor except when Vendor provides prior written notification to Blue Coat. Vendor shall be responsible for the activities of Subcontractors. Blue Coat will not be responsible for payment or other obligations to any Subcontractors.

7. PURCHASE ORDERS 7.1 Purchase Orders . Blue Coat purchase orders may be issued in writing, by mail or facsimile, or by electronic means as the parties may from time to time agree. Blue Coat' s purchase orders for Products shall include the following:

(a) Identification of Products ordered by Blue Coat part number and descriptions;

(b) Quantity to be purchased;

(c) Price of Products ordered; (d) Date the Product is to be delivered to Blue Coat or its designated forwarder in accordance with F.C.A. term (INCOTERMS 2000) (" Delivery Date" );

(e) Shipping destination; and (f) Labeling instructions.


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7.2 Controlling Terms. All purchase orders and invoices under this Agreement shall be subject only to the terms and conditions hereof. In the event the terms of any such purchase order, confirmation or similar document conflicts with or are additional to the terms of this Agreement, the terms of this Agreement alone shall apply and shall govern regardless of execution of such document by one or both parties. Any other Vendor terms and conditions shall not apply to this Agreement or the purchase orders. 7.3 Purchase Order Process . All purchase orders received by Vendor shall be deemed accepted by Vendor unless Vendor notifies Blue Coat within ten (10) business minutes of receipt that such purchase order is not in compliance with the terms of this Agreement. If Vendor has any reason to believe it will not meet the required shipment date, it shall notify Blue Coat within one (1) business hour provided Blue Coat has submitted a purchase order quantity is consistent with the current Forecast. Blue Coat shall have the ability to track the status of any purchase order online using a Vendor maintained web site. Vendor shall provide Blue Coat with an electronic shipping notification within ten (10) minutes after a Product has shipped. Invoicing will be daily with all relevant and accurate tracking numbers and freight charges included with the invoice. Vendor shall include any information pertaining to the shipping of a Product as reasonably requested by Blue Coat.

7.4 Forecasts . Before the beginning of each month, Blue Coat shall provide a non-binding, rolling twelve (12) month forecast and a binding four (4) week forecast setting forth Blue Coat' s demand for Product (" Forecast" ). 7.5 Cancellation of Purchase Orders. Subject to Blue Coat' s liability for Special Components and Unique Components as set forth in Section 12, Blue Coat may provide Vendor with a cancellation notice at any time. Vendor shall, upon receipt of such notice, stop work on such units of Products to the extent specified therein. 7.6 Special Orders . Upon written request from Blue Coat, Vendor shall use its best commercial efforts to fulfill order for Products in excess of that set forth in Blue Coat' s Forecast. Blue Coat may, at its option, submit purchase orders requesting immediate shipment (as early as same day shipment) (" Rush Orders" ). Vendor shall use its best efforts to fill Rush Orders.

8. DELIVERY TERMS

8.1 Packaging . Vendor shall package and label Product(s) in accordance with the packaging and shipping specifications specified in a Product Specifications. Vendor shall not mark or label a Product except as set forth in the associated Product Specifications. Vendor shall be responsible for any loss or damage to Products due to Vendor' s failure to preserve, package or handle a Product in accordance with Blue Coat' s packaging and shipping specifications. Vendor will bear all risk of loss, damage or destruction to the ordered Products until delivery to a carrier specified by Blue Coat in writing.

8.2 Shipping . Vendor shall tender Product(s) F.C.A. Vendor' s premises (INCOTERMS 2000). Vendor shall ship Product(s) to the designated forwarder who will ship to the location set forth in the purchase order. For the avoidance of doubt, Vendor shall perform direct fulfillment of most purchase orders. In case Vendor is requested to ship Product(s) to the location set forth in the purchase order, the associated freight charges will be invoiced by Vendor to Blue Coat on the invoice associated with such purchase order. Title and risk of loss of the Product(s) will pass to Blue Coat upon delivery of the Products to Blue Coat' s forwarder.

8.3 Late Shipments . Vendor shall immediately notify Blue Coat in writing upon becoming aware that any part of a shipment of Products will not be, or has not been, delivered by the Delivery Date and shall provide reasons for the delay and a revised Delivery Date. Vendor' s revised Delivery Date must take into account the use of all means available to expedite production and delivery of the delayed Products, including


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without limitation expediting the procurement of materials, using expedited transportation means and labor overtime (" Accelerated Measures" ). Vendor shall bear the cost difference incurred as a result of the Accelerated Measures provided that such delay is attributable to Vendor. A default by the designated forwarder will not, by itself, constitute a cause attributable to Vendor.

8.4 Inspection. Notwithstanding any prior inspection or payment by Blue Coat, all Products shall be subject to final inspection and acceptance within sixty (60) days after delivery.

8.5 Documentation . Vendor shall maintain complete and accurate shipping documentation for all shipments for a minimum of five (5) years following the date of shipment . Shipment documentation includes the purchase order, packing slip, commercial invoice, carrier waybill, any information pertaining to direct fulfillment of Product and Vendor billing invoice. Blue Coat and its authorized agents and representatives shall have access to such records for purposes of performing an audit during normal business hours during the term of this Agreement and during periods which Vendor is required to retain such records.

8.6 Allocation . Vendor agrees that, in the event of a need to allocate performance among Vendor' s customers, Blue Coat' s order(s), subject to normal lead-time requirements, shall be filled according to an allocation plan no less favorable than that provided to any other Vendor customer. Vendor shall provide Blue Coat with immediate notice if it anticipates or has reason to believe that Vendor' s output of a Product shall not be sufficient to meet Blue Coat' s Forecast. 9. PRICING AND PAYMENT TERMS

9.1 Prices. The initial price for a Product shall be set forth in the associated Product Information Document. Prices will be reviewed on a quarterly basis and are subject to anticipated reductions as provided in this Agreement. The Total Product Cost model shall follow the model set forth below:


Cost Element

Calculation Bill of Material Actual - No Mark-Ups Material Mark Up 3% of PCBA BOM cost (Not include HDD/ CPU/ Memory/ Enclosure/ Power Suppler) System Assembly Cost Fremont Burdened Labor Rate: $37.50/hour System Test Cost Fremont Burdened Labor Rate: $37.50/hour ESS with ORT For every 1 hour of ESS, estimated 8 minutes of labor cost might be required by BC experiences Utility Test Costs Fremont Burdened Rate: $10/hour (actual - no mark-ups) Administration, Overhead & Profit Flat Rate: $50 Freight Actual - No Mark Ups / Pending mutually agreed shipping route and method

9.2 Non-Recurring Engineering Fee. As consideration for the Tooling and any other items specifically outlined in a Product Design Document, Blue Coat shall pay to Vendor a non-recurring engineering fee as specified in the associated Product Information Document or SOW (as the case may be). 9.3 Taxes. Prices stated in a Product Information Document are in U.S. dollars and are inclusive of all taxes, other than taxes on a party' s net income, which shall be the sole responsibility of that party. Subject to Blue Coat' s provision to Vendor of an appropriate resale certificate, Vendor shall be solely responsible for any sales or use tax assessed upon the manufacture and sale of Product(s) to Blue Coat hereunder.


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9.4 Payment Terms. Vendor shall invoice Blue Coat upon shipment of a Product. All payments due hereunder shall be paid in US dollars not later than forty-five (45) days following the invoice date (which shall be no earlier than the shipment date) specified in an accurate invoice issued by Vendor without any delay, deductions, set-offs, discounts or withholdings whatsoever. In case an inaccurate invoice is received by Blue Coat, Blue Coat shall notify Vendor within ten (10) business days of receipt of the inaccurate invoice. After such notice, Vendor shall promptly correct and reissue an invoice for the accurate payment due and payable. Blue Coat shall be obligated to make the payment within forty-five (45) days following the shipment date despite the foregoing dispute. Vendor shall be entitled to charge Blue Coat, and Blue Coat shall pay to Vendor, interest at the rate of 1.5% per month on all amounts not paid when due, except that Blue Coat shall have a grace period of two days. Notwithstanding the above, if Vendor is not able to receive funds through Evaluated Receipt Settlement (ERS), then the grace period set forth above shall be five (5) days.

9.5 Monthly Report. Within the first five (5) days of each month, Vendor shall provide Blue Coat with a detailed accounts receivable aging report (in electronic format). Such report shall be sent to accountsreceivable@bluecoat.com .

9.6 Favorable Terms. Vendor warrants that during the term of this Agreement the terms and conditions of this Agreement, including discounts, prices and shipping, are no less favorable than the terms, conditions, discounts and prices given to any third party that either retains Vendor to perform design services or purchases or licenses similar quantities of the similar products or services from Vendor under similar terms and conditions.

9.7 Non-approved Charges. Blue Coat shall not be liable without Blue Coat' s prior approval to Vendor for any overtime charges, freight charges or Component product price increases incurred by Vendor.

10. COST REDUCTIONS

10.1 Cost Reduction. Vendor shall use commercially diligent efforts to achieve ongoing reductions in both Component Costs and Transformation Costs. Vendor shall work on achieving cost savings in both materials and processes, and such savings shall serve to reduce the Total Product Cost of a Product. In addition, Vendor shall institute any cost reduction proposals reasonably suggested by Blue Coat, and shall reduce the Total Product Cost of Product(s) to Blue Coat by an amount equal to the per unit saving realized therefrom. Vendor agrees to pass on the benefits of cost reductions as follows:

10.1.1 Blue Coat Suggested Cost Reduction (a) If Blue Coat suggests or initiates the cost reduction (including without limitation cost reductions resulting from Blue Coat' s directions to Vendor with respect to the specification, use or acquisition of Components), then the Total Product Cost of all Products to which the reduction is applicable shall be decreased by 75% of such cost reduction for the first three (3) months following the sale of the first Product to which such cost reduction is applicable; and

(b) The price of all Products to which the reduction is applicable shall be decreased by 100% of such cost reduction after the three (3) month period has ended. 10.1.2 Vendor Suggested Cost Reduction (a) If Vendor initiates a cost reduction, then the price of all Products to which the reduction is applicable shall be decreased by 25% of such cost reduction for a period of three (3) months following the sale of the first Product to which such cost reduction is applicable; and


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(b) The price of all Products to which the reduction is applicable shall be decreased by 50% of such cost reduction after the three (3) month period has ended; and

(c) The price of all Products to which the reduction is applicable shall be decreased by 100% of such cost reduction after the six (6) month period above has ended.

10.1.3 Neutral Cost Reduction. If there is a reduction in the cost of a Component that is not initiated by Vendor or Blue Coat, then the Total Product Cost of all Products to which the reduction is applicable shall be decreased by 100% of such cost reduction immediately.

11. SOUR ...