Exhibit 10.1

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

FOUNDRY AGREEMENT

This Foundry Agreement is entered into as of August 31, 2007 (the “Effective
Date”), by and between Semiconductor Manufacturing International Corporation, a
Cayman Islands company, on behalf of itself and its Affiliates, including
without limitation the Facilities (as defined below) (“SMIC”), and Spansion LLC,
a limited liability company organized in the State of Delaware, on behalf of
itself and its Affiliates (“Spansion”). In consideration of the mutual covenants
and conditions contained herein, the Parties agree as follows:

 

1. DEFINITIONS

The following terms shall have the following meanings under the Agreement:

1.1 “Affiliate” shall mean, with respect to any entity, any other entity that
directly or indirectly Controls, is Controlled by or under common Control with
such entity.

1.2 “Capacity Plan” has the meaning set forth in Section 10.2.

1.3 “Charge Trapping Storage Technology” has the meaning set forth in
Section 3.3.

1.4 “Confidential Information” means any information obtained by one Party from
the other in connection with this Agreement which is in written, graphic,
machine readable or other tangible form and is marked “Confidential”,
“Proprietary” or in some other manner to indicate its confidential nature.
Confidential Information may also include oral information disclosed by one
Party to the other pursuant to this Agreement, provided that such information is
designated as confidential at the time of disclosure and either has previously
been provided in an appropriately marked writing or is reduced to a written
summary by the disclosing Party, within thirty (30) days after its oral
disclosure, which is marked in a manner to indicate its confidential nature and
delivered to the receiving Party. Such Confidential Information includes, but is
not limited to, technical information transferred hereunder, and all copies and
derivatives thereof, and information received as a consequence of rendering or
receiving technical assistance, owned or controlled by either Party, which
relates to its past, present or future activities with respect to the subject
matter of this Agreement, provided that if such Confidential Information is
disclosed by one of the Parties to the other Party in written and/or graphic or
model form, or in the form of a computer program or data base, or any derivation
thereof, the disclosing Party must designate it as confidential, in writing, by
an appropriate legend, together with the name of the Party so disclosing it,
such as Spansion Confidential Proprietary or SMIC Confidential Proprietary
Information.

1.5 “Contract Wafers” means Wafers manufactured by SMIC for Spansion, including
unsorted Wafers, qualification Wafers, test Wafers, Risk Start Wafers and
un-diced Wafers, the individual Die which are Spansion Products and which are
manufactured using the applicable Spansion Process.

1.6 “Control” shall mean: (a) the legal, beneficial, or equitable ownership,
directly or indirectly, of at least 50% of the aggregate of all voting equity
interests in an entity; (b) the right to appoint, directly or indirectly, a
majority of the board of directors; (c) the right to control, directly or
indirectly, the management or direction of the entity by contract or corporate
governance document.

 

1

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

1.7 “Die” means an individual integrated circuit or components which when
completed create an integrated circuit.

1.8 “Facilities” means the SMIC physical manufacturing and managed facility
located at [*******], and such other facilities owned or controlled by SMIC as
may be qualified by Spansion (and specifically approved by Spansion in writing)
to produce Contract Wafers for Spansion.

1.9 “Foundry Services” has the meaning set forth in Section 2.1.

1.10 “Gross Die per Wafer” means the total quantity of Die candidates on each
Wafer, whether or not the Die is operational when the Wafer has completed the
manufacturing process.

1.11 “Improvements” means with respect to any Technology, all discoveries,
innovations, improvements, enhancements, derivative works, or modifications of
or to such Technology.

1.12 “Intellectual Property Rights” means any and all: (a) copyrights, mask work
rights, trademarks, and patents; (b) rights relating to innovations, know-how,
trade secrets, and confidential, technical, and non-technical information;
(c) moral rights, author’s rights, and rights of publicity; and (d) other
industrial, proprietary and intellectual property related rights anywhere in the
world, and all applications for, renewals and extensions of the foregoing now or
hereafter filed, regardless of whether or not such rights have been registered
with the appropriate authorities in such jurisdictions in accordance with the
relevant legislation.

1.13 “Jointly Developed Technology” means any New Technology that is written,
created, or otherwise made or acquired not solely by one or more employees of
one Party but is created jointly by employees or contractors of Spansion
together with employees or contractors of SMIC during and in the course of the
transactions contemplated by this Agreement provided that: (a) with respect to
copyrightable material, each contributing Party prepared the work with the
intention that their contributions be merged into inseparable or interdependent
parts of a unitary whole; (b) with respect to inventions subject to patent
protection, each contributing Party made some original contribution to the
inventive thought and to the final solution; and (c) with respect to matter
subject to trade secret protection, each contributing Party made substantial
contributions to such matter.

1.14 “Lot” means a group of Contract Wafers which are processed simultaneously.
Each Lot will be assigned a specific alpha/numeric identification that
distinguishes it from any other group that contains the same type of Die so that
each Lot can be separately identified.

1.15 “Minimum Yield” means, with respect to a particular Sorted Contract Wafer,
the minimum acceptable Yield for such Sorted Contract Wafer as set forth in the
corresponding Product Supplement.

 

[*******] Confidential treatment requested.

 

2

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

1.16 “Net Die per Wafer” means the total quantity of Die on a Sorted Contract
Wafer that pass the Probe Program and the requirements of Section 5.2 applicable
to that Sorted Contract Wafer.

1.17 “New Technology” means Technology developed under this Agreement during the
Term by or for either party that does not constitute (i) an Improvement to the
Pre-Existing Spansion Technology; (ii) an Improvement to the Pre-Existing SMIC
Technology or (iii) Charge Trapping Storage Technology.

1.18 “Non-Performance” means the inability of SMIC to completely fulfill
Spansion production Purchase Orders within SMIC’s standard order leadtime.

1.19 “Probe Program” means the specific set of electrical and mechanical tests
provided by Spansion when necessary.

1.20 “Process Specifications” mean the technical specifications provided by
Spansion for the Spansion Process as further described and delivered as set
forth in the applicable Process Supplement.

1.21 “Process Supplement” means a written exhibit to this Agreement in a form
substantially as attached hereto as Exhibit A1, duly executed by the Parties
that sets forth the particular terms and conditions pursuant to which a specific
Spansion Process will be implemented at the Facilities and which exhibit is
sequentially identified (i.e., as Exhibit A1, Exhibit A2) for each such Spansion
Process and, as applicable, sets forth or includes as an attachment: (a) a
description of the particular Spansion Process to be implemented and the
specifications therefore; (b) the particular Facilities at which the Spansion
Process is to be implemented; (c) the implementation schedule and/or
implementation milestones; (d) any Foundry Services not otherwise set forth
herein to be provided; (e) the Technology to be provided by the Parties; and
(f) any fees, reimbursements or cost allocations in connection with such
implementation other than as set forth herein.

1.22 “Product Specifications” mean the technical specifications provided by
Spansion for the Spansion Product as further described and delivered as set
forth in the applicable Product Supplement.

1.23 “Product Supplement” means a written exhibit to this Agreement in a form
substantially as attached hereto as Exhibit B1, as may be duly executed by the
Parties from time to time that sets forth particular terms and conditions
pursuant to which specific Contract Wafers will be provided pursuant to this
Agreement and which exhibit is sequentially identified (i.e., as Exhibit B1,
Exhibit B2) for each such Contract Wafer and, as applicable, sets forth or
includes as an attachment: (a) a description of the particular Spansion Product
to be manufactured on the Contract Wafers to be provided and the specifications
therefore; (b) the applicable Spansion Process to be used; (c) any Foundry
Services not otherwise set forth herein to be provided; (d) the applicable Probe
Program (or process for determining such program); (e) the Quality Standards;
(f) the implementation schedule; (g) any SMIC qualification plan, qualification
acceptance criteria and SMIC loading plan; (h) the applicable Target Yield and
Minimum Yield; (i) any Technology to be provided by the Parties; and (j) the
pricing for the Contract Wafers.

 

3

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

1.24 “Purchase Order” has the meaning set forth in Section 11.1.

1.25 “Quality Standards” has the meaning set forth in Section 4.1.

1.26 “Risk Start Wafers” means any fab wafer lot started before all acceptable
technology or product qualification tests including reliability and quality have
been completed.

1.27 “Scrap” means any Wafer or Die, in any stage of completion, without regard
to its ability to function, that is not in conformance with the requirements of
this Agreement for Contract Wafers to be sold to Spansion.

1.28 “Sorted Contract Wafer” means Contract Wafers that have been sorted in
accordance with the terms of Section 5.2 and the applicable Product Supplement.

1.29 “Spansion Product” means a proprietary integrated circuit product of
Spansion set forth on a Product Supplement (including all Technology embodied in
and related to the functionality of such device except as may be called out in a
Product Supplement) that conforms to the applicable Product Specification and
the logic design or architecture provided to SMIC by Spansion hereunder,
including all updates thereto.

1.30 “Spansion Process” means the proprietary wafer manufacturing process of
Spansion set forth on a Process Supplement (i.e., the process for converting a
raw Wafer into a finished Wafer, including Wafer preparation and Wafer
processing), but not including: (a) Technology related to the circuitry
contained within, or the functionality of, the Spansion Product so produced on a
Die by such manufacturing and process technology, such as, by way of example
only, the memory cell, program/erase algorithms, layout design or architecture
of the circuitry of the memory device or circuitry and (b) SMIC Technology.

1.31 “Spansion Process Technology” shall include process technology (including
Spansion Process), electrical design rules, process design rules, process
qualification, Product(s) qualification, certain manufacturing process and
methodology, if any, and any and all license rights including without
limitation, have made rights, to manufacture the Spansion Contract Wafers,
Sorted Contract Wafers and Spansion Product, in all cases as transferred by
Spansion to SMIC pursuant to this Agreement.

1.32 “Target Yield” means, with respect to a particular Sorted Contract Wafer,
the Target Yield for such Sorted Contract Wafer as set forth in the applicable
Product Supplement, subject to post qualification confirmation and adjustment.

1.33 “Technology” means any and all technical information, specifications,
drawings, records, documentation, works of authorship or other creative works,
ideas, algorithms, models, databases, ciphers/keys, systems architecture,
network protocols, research, development, and manufacturing information,
software (including object code and source code), application programming
interfaces (APIs), innovations, logic designs, circuit designs, technical data,
processes and methods.

 

4

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

1.34 “Wafer” means the direct material substrate (raw material) which as a
result of the semiconductor fabrication process is incrementally transformed to
consist of several operational integrated circuit products in unpackaged form.

1.35 “Yield” means the percentage represented by Net Die per Wafer divided by
Gross Die per Wafer.

 

2. SERVICES TO BE PROVIDED

2.1 Foundry Services. Subject to the terms of this Agreement and unless Spansion
otherwise agrees in writing, SMIC shall (a) manufacture solely for, and sell and
deliver to, Spansion the Contract Wafers, Sorted Contract Wafers and Spansion
Product, as applicable, using 300mm manufacturing processes, or such other
manufacturing processes as agreed upon from time to time, (b) at Spansion’s
request, perform mask-making (and photolithography optimization), (c) perform
Wafer probe testing and other associated manufacturing tasks including
performing failure analysis, process engineering, and pre-production testing,
qualification and optimization activities, as further described below,
(d) transport and deliver Contract Wafers to Spansion’s chosen assembly, test,
marking and packaging facilities and obtain and maintain all necessary
import/export and customs clearances for such Contract Wafers; and (e) cooperate
with Spansion to successfully conclude the other activities agreed upon by the
Parties in writing and set forth in any Process Supplement or Product Supplement
(collectively, the “Foundry Services”). SMIC agrees to perform the Foundry
Services in accordance with the terms and conditions of this Agreement. SMIC is
obligated to follow direction given by Spansion as to the manufacture of
Contract Wafers including direction regarding systems, data, or the movement of
Contract Wafers. SMIC shall be obligated to follow the discipline, procedures,
and system requirements as if it was an internal Spansion fab. Except as
otherwise agreed in writing by the Parties, Spansion will be responsible for
product design, assembly, final test, marking, packaging, distribution and sales
of the Spansion Products and may perform or arrange for mask-making.

2.2 Site Restriction. All manufacturing of Contract Wafers will take place at
the Facilities. If SMIC desires to manufacture Contract Wafers at another
facility or transfer any Spansion Process Technology to another SMIC facility,
it will give Spansion at least one hundred and eighty (180) days prior notice of
the relocation to the new facility. If Spansion agrees to the transfer, the
parties will mutually agree to a reasonable transition plan to avoid adverse
impact on Spansion’s revenue stream. If Spansion notifies SMIC within ninety
(90) days of its reasonable objection to the new location, SMIC will not
transfer the manufacture of such materials to the new facility. Failure of the
part of SMIC to give Spansion reasonable assurances of avoidance of an adverse
impact on Spansion’s revenue stream shall be a basis for reasonable objection by
Spansion to any such move. If an agreed upon transfer occurs, all transferred
Contract Wafers and manufacturing processes will be re-qualified to the extent
necessary. If the transfer to another facility occurs solely for SMIC’s
convenience or for other causes not directly related to Spansion interests, SMIC
shall bear the costs of the transfer. Any assistance by Spansion requested by
SMIC which Spansion agrees to or deemed necessary by Spansion for any such
transfer shall be paid for by SMIC at Spansion’s cost plus [*******].

 

[*******] Confidential treatment requested.

 

5

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

2.3 Outsourcing/Delegation. SMIC may engage its Affiliates or third parties to
perform certain ancillary Foundry Services (such as mask-making, wafer probe
testing, Wafer transport, product engineering and support), provided, however,
that SMIC shall: (a) actively oversee and monitor the provision of such
ancillary Foundry Services; (b) remain primarily liable to Spansion for such
Affiliates or third parties; (c) indemnify and hold Spansion harmless from any
failure on the part of any SMIC’s Affiliates or such third parties to comply
with the terms and conditions of this Agreement; and (d) not engage any
affiliate or third party to provide Foundry Services in which such third party
would receive or have access to any Spansion Confidential Information (or matter
from which such information could be derived) unless (i) Spansion has approved
such Affiliate or third party in writing, and (ii) such Affiliate or third party
has agreed in writing to confidentiality obligations with respect to such
Confidential Information which are at least as protective as those set forth
herein. For the avoidance of doubt, SMIC shall not outsource or delegate to any
Affiliate or third party the manufacture of Contract Wafers without Spansion’s
permission nor shall this section otherwise alter SMIC’s obligation to
manufacture Contract Wafer’s solely at the Facilities.

2.4 Execution of Supplements. From time to time during the Term of this
Agreement, the Parties may execute one or more Process Supplements or Product
Supplements as further described below. Each such Process Supplement or Product
Supplement shall be subject to the terms and conditions set forth in this
Agreement as if fully set forth therein, unless and to the extent the Parties
expressly agree otherwise in writing. No Process Supplement or Product
Supplement shall be binding upon either Party unless and until executed by the
duly authorized representatives of each of the Parties. For avoidance of doubt,
in the event of a conflict between the terms of this Agreement and any Process
Supplement or Product Supplement, the terms of the applicable Process Supplement
or Product Supplement shall control.

 

3. PROCESS TECHNOLOGY AND ASSISTANCE

3.1 Process Technology. Spansion desires to have SMIC manufacture the Contract
Wafers at the Facilities using certain Spansion Process Technology, provided the
Facilities meet Spansion’s specifications. To this end, the Parties shall
execute from time to time during the term individual Process Supplements
substantially in the form set forth in Exhibit A1 for each Spansion Process
(e.g., for a particular process node) to be implemented at the Facilities. The
initial Process Supplement will be provided by Spansion within fifteen (15) days
after execution of this Foundry Agreement and attached hereto as Exhibit A1.

(a) Process Specifications. With respect to each Process Supplement, Spansion
shall deliver the specifications listed and described in the Process Supplement
in accordance with the time schedule provided in such Process Supplement.
Without limiting the foregoing, SMIC will contribute necessary technical
resources and manpower for successfully establishing the Spansion Process at
SMIC within the schedule set forth in such Process Supplement. SMIC agrees to
use its best efforts to achieve the milestones or execute statements of work
that may be identified in Process Supplements or as otherwise mutually agreed.
If SMIC fails to meet the scheduled dates or milestones in a Process Supplement,
SMIC shall provide Spansion with a recovery plan to meet future scheduled dates
or milestones.

 

6

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(b) Phase-In Projects. SMIC agrees to implement each Spansion Process at the
applicable Facilities in accordance with the program schedule set forth in the
corresponding Process Supplement. Each Party shall promptly provide the other
with notice as soon as possible after it has reason to believe it will be unable
to timely deliver any required deliverable together with the reason for such
delay and the date on which such Party reasonably expects to deliver any such
required deliverable. The Parties agree that this Section shall not be construed
to relieve a Party of its obligation to continue in the performance of its
responsibilities notwithstanding any delay by the other Party.

3.2 Contract Wafer Technology. SMIC will use the Spansion Process Technology
solely for performing Foundry Services relating to the manufacture of Contract
Wafers for Spansion. The Parties will use the procedures set forth in the
applicable Process Supplement and Product Supplement to implement Spansion’s
Process Technology at SMIC, or agree upon changes to the Product Specifications,
as appropriate. After a process for manufacturing Contract Wafers has been
qualified, all changes to the qualified process will be made consistent with
Spansion’s process change procedure. SMIC will not make any modifications to the
Spansion Process Technology without Spansion’s prior written approval, unless
specifically provided in a Process Supplement or Product Supplement. If SMIC
needs to modify the Spansion Process Technology as implemented at the
Facilities, SMIC will obtain the prior written approval of Spansion. A baseline
will be established for each relevant process, with revision control, which will
serve as the reference for all process changes.

3.3 Intellectual Property Rights. Notwithstanding anything to the contrary in
this Agreement, in the event SMIC provides services to Spansion hereunder
resulting in the conception, creation, or reduction to practice by SMIC, solely
or in collaboration with others, of writings, software, drawings, designs,
copyrightable material, mask works, inventions, improvements, developments, or
discoveries (“Enhancements”) during the course of this Agreement which relate in
any manner to any nonvolatile memory technology employing a charge trapping
mechanism that uses, by way of example and not limitation, one or more layers of
nitride, oxidized nitride, oxide, or any other material as a charge trapping
material, including without limitation the film itself and the associated
process steps to form such charge trapping mechanism, including any processes or
business related thereto (collectively referred to as “Charge Trapping Storage
Technology”), such Enhancements to the Charge Trapping Storage Technology shall
be the sole property of Spansion as provided in Section 13.

3.4 Spansion Technology Improvements by SMIC. SMIC shall provide Spansion with
prompt written notice with respect to any Technology or Intellectual Property
Rights conceived, developed, or reduced to practice by or on behalf of SMIC that
constitutes a Charge Trapping Storage Technology or an Improvement under
Section 13.1(d). Thereafter, at Spansion’s request, SMIC shall make available to
Spansion appropriate personnel with suitable knowledge and understanding of such
Technology or Intellectual Property Rights to describe and explain such
Technology or Intellectual Property Rights to designated Spansion personnel and
to otherwise provide such Spansion personnel with sufficient information and
materials to enable Spansion to implement and practice such Technology or
Intellectual Property Rights. No Improvement by SMIC shall be implemented in the
Spansion Process Technology without the prior written consent of Spansion.

 

7

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

4. PRE-PRODUCTION QUALIFICATION AND ACCEPTANCE

4.1 Qualification Process. Spansion shall verify the applicable Spansion Process
as implemented at the designated Facilities for all Contract Wafers, and shall
agree upon the parametric, electrical, process flow, quality, and reliability
specifications, as well as other standards or requirements that may be necessary
for manufacturing the Contract Wafers as provided in the applicable Product
Supplements (the “Quality Standards”). Thereafter, Spansion and SMIC will
execute the qualification plan for such Contract Wafers as set forth in the
applicable Product Supplement.

4.2 Risk Start Wafers. Risk Start Wafers may be started and completed at the
request of either party. The price of Risk Start Wafers will be shared by the
parties. If Risk Start Wafers meet the applicable quality specifications and
standards, Spansion shall pay the then current wafer price for Contract Wafers.
If Risk Start Wafers fail to meet the applicable quality specifications and
standards, the parties shall share the expense of such Risk Start Wafers with
the party initiating the request for Risk Start Wafers bearing [*******] and the
other party bearing [*******] of the then current wafer price for Contract
Wafers. If Risk Start Wafers fail to meet the applicable quality specifications
and standards, and both parties agreed to the production of Risk Start Wafers,
then the parties shall share the expense of such Risk Start Wafers with each
party bearing fifty percent (50%) of the then current wafer price for Contract
Wafers. SMIC shall comply with all instructions regarding Risk Start Wafers.
Risk Start Wafers shall be handled in the same manner as Contract Wafers absent
specific instructions with the exception of shipping. Such Risk Start Wafers are
not to be shipped until all qualification tests have been completed and a
shipping instruction is given to SMIC by Spansion.

4.3 Qualification Sample Lots. SMIC will produce and transfer to Spansion the
number of qualification sample Lots of the Contract Wafers as set forth in the
applicable Product Supplement. Spansion will evaluate each Lot of qualification
samples and will, using the acceptance criteria set forth in the Product
Supplements, issue a notice of approval or disapproval of the qualification Lots
within ninety (90) days of Spansion’s receipt of such Contract Wafers. If
Spansion rejects qualification sample Lots, the Parties will jointly cooperate
in developing a corrective action plan. Based on such plan, SMIC will
manufacture additional Lots of sample qualification Wafers for Spansion’s
evaluation. Spansion may purchase all qualification Wafers that are subsequently
determined to meet the Product Specifications. SMIC shall not be entitled to
ship production quantities of Lots to Spansion until SMIC receives written
notice of qualification of the sample Contract Wafers from Spansion.

4.4 Pre-Production Termination. At any time prior to qualification, Spansion may
terminate fabrication of any qualification Contract Wafers by giving SMIC
written notice, which shall specify whether such Contract Wafers should be
delivered to Spansion or scrapped. Upon receipt of such notice, SMIC will stop
related fabrication at the conclusion of the manufacturing step in process.
Following such termination SMIC may invoice Spansion pro-rata based on
percentage of completion for such qualification Contract Wafers.

 

[*******] Confidential treatment requested.

 

8

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

4.5 Process Establishment and Yield. After notice of process qualification has
been sent by Spansion to SMIC:

(a) The Spansion Process may be further refined only with Spansion’s prior
written approval. SMIC will obtain written approval of Spansion before making
any modifications to the manufacturing process, materials, or tooling, subject
to the process change procedures set forth in the Process Supplement.

(b) The Parties shall confirm the Target Yield and Minimum Yield for the
Contract Wafers as set forth in applicable Product Supplements. Compliance with
the Target Yield standards is a performance obligation of SMIC under this
Agreement. Without limiting the foregoing, Spansion shall have the right to
reject any individual Contract Wafer or its entire Lot which do not meet the
Minimum Yield.

 

5. PRODUCTION QUALITY, RELIABILITY AND CONTROL

5.1 Quality Culture. SMIC agrees that the Facilities will become ISO/TS
16949:2002 qualified within six (6) months of the Effective Date of this
Agreement and that SMIC will drive a quality culture within the Facilities.
SMIC’s quality systems shall include online statistical process control (SPC)
with statistically valid limits in accordance with industry standard best
practices. SMIC will establish a culture which responds to established limits
and will notify Spansion immediately of any violation, trend toward violation,
or deviation of an established SPC limit, including without limitation any in
process test failures. SMIC will stop the manufacturing line if these limits are
found to be outside acceptable tolerances. SMIC will drive excellence in quality
with continuous improvement methods.

SMIC will maintain a mutually acceptable “documented quality system,” such as an
ISO9002 certified qualified program or equivalent, at each SMIC Facility, and
will make such documented quality system available for Spansion’s review. SMIC’s
documented quality system will include, but is not limited to, programs for
monitoring SMIC’s manufacturing process, improving SMIC’s material and
procurement process, and implementing corrective actions. Upon Spansion’s
request, SMIC will provide data verifying SMIC’s compliance with such quality
system, including but not limited to process distributional data and SPC charts
for key material parameters as identified in Spansion’s Product Specifications.
Spansion will have the right to audit SMIC’s facility and/or records upon at
least two (2) business days notice during the normal business hours of SMIC’s
Facility and/or administrative office; provided, however, if Spansion has
experienced a significant problem that Spansion reasonably believes may have
caused or contributed to by the Products and/or SMIC’s activities, SMIC will use
all commercially reasonable efforts to provide Spansion immediate access to such
facility and/or records and to otherwise cooperate with Spansion’s
investigation.

 

9

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

5.2 Specification Testing and Compliance. SMIC will produce Contract Wafers for
Spansion that meet the Product Specifications and any other quality requirements
defined in the applicable Product Supplement. In that regard:

(a) SMIC shall conduct testing in accordance with the applicable Product
Supplement, and inspect and confirm that the Contract Wafers are free of defects
in materials and workmanship, and conform to the applicable Product
Specifications. SMIC shall neither ship nor bill Spansion for any Contract Wafer
that, to SMIC’s knowledge, fails to meet the Minimum Yield and Quality Standards
applicable thereto unless specifically instructed in writing by Spansion to do
so. SMIC shall notify Spansion at the earliest possible time of any Contract
Wafer that is below the Minimum Yield or otherwise fails to meet the applicable
quality standards. SMIC must notify Spansion in advance of shipment of any
Contract Wafers that do not comply with the requirements of the applicable
Product Supplement, including without limitation the Product Specifications.

(b) Notwithstanding Section 5.4 (Epidemic Failure Event), below, if SMIC detects
any significant Wafer fabrication related defects in any Contract Wafers, SMIC
will perform failure analysis and provide to Spansion both the results of the
failure analysis and a corrective action plan to correct the failure mechanisms
and/or defects detected. Spansion will assist SMIC with failure analysis and the
drafting of a corrective action plan.

(c) From time to time Spansion may desire to update, revise or modify Product
Specifications for Contract Wafers. SMIC will implement all revisions, updates,
or modifications as soon as practicable, and at a reasonable cost. If such
changes impact Contract Wafer Yield, the Parties shall re-set Target Yields
using the same procedure as initially used. SMIC will advise Spansion of any
cost and schedule impact, and the date and lot number of implementation of the
revision, update or modification.

(d) Results from SMIC testing processes will be accessible and available to
Spansion for review and download to Spansion records. These records must be
available at the conclusion of each test Lot and must conform to the summary
structure as agreed between SMIC and Spansion.

(e) Spansion shall have the right to limit and approve substrate and material
suppliers.

5.3 Failure and Defect Reporting. The Parties will notify each other in writing
of any detected failure mechanisms and/or defects which are present, or which
they suspect might be present, in completed Contract Wafers.

5.4 Epidemic Failure Event

(a) For purposes of this Agreement, “Epidemic Failure Event” shall mean Contract
Wafer failures (i) having the same or similar cause, verified by SMIC, by
Spansion, or an independent third party on behalf of Spansion, (ii) occurring
within three (3) years after the date of delivery of the Contract Wafers to
Spansion, (iii) resulting from defects in materials, workmanship, manufacturing
process, design or failure to conform with the Product Specifications,
(iv) having a one-month failure rate equal to or in excess of two times (2x) the
previous consecutive six-month (or any other mutually agreed upon, currently
monitored duration) rolling average

 

10

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

failure rate where such failure rates are calculated by dividing the number of
Contract Wafer failures by the total number of Contract Wafers delivered to
Spansion during the applicable period (Failure Rate = N Contract Wafers / N
total number of Contract Wafers) (“Threshold Failure Rate”). The Threshold
Failure Rate shall apply to all Contract Wafers unless Spansion and SMIC have
agreed in writing to an alternative metric for a particular Lot. Upon occurrence
of an Epidemic Failure Event, the remedies of Section 5.4(b) and Section 5.4(c)
shall apply to the entire Lot(s) affected or potentially affected by the root
cause failure (“Affected Lot”).

(b) Upon knowledge of an Epidemic Failure Event, Spansion shall notify SMIC, and
provide, if known and as may then exist, a description of the failure, and the
suspected lot numbers, serial numbers or other identifiers, and delivery dates,
of the Affected Lot. Upon written request from SMIC, Spansion shall also deliver
or make available to SMIC samples of the failed Contract Wafers for testing and
analysis. Upon receipt of such Contract Wafers from Spansion, SMIC shall
promptly provide its preliminary findings regarding the cause of the failure.
The parties shall cooperate and work together to determine the root cause.
Thereafter, SMIC shall promptly provide the results of its root cause analysis,
its proposed plan for the identification of and the repair and/or replacement of
the Affected Lot, and such other appropriate information. SMIC shall recommend a
corrective action program, subject to Spansion’s written approval, that
identifies the Affected Lot for repair or replacement, and minimizes disruption
to the end user. Upon Spansion’s written approval, SMIC shall implement the
corrective action program.

(c) Upon occurrence of an Epidemic Failure Event, SMIC shall: (1) at Spansion's
option: (i) either repair and/or replace the Affected Lot at no cost to
Spansion, or (ii) provide a credit or payment to Spansion in an amount equal to
the cost to Spansion for qualified, replacement Contract Wafers acceptable to
Spansion; and (2) reimburse Spansion for all labor, equipment and processing
costs incurred by Spansion or third parties in the implementation of the
corrective action program, including test procedures, test equipment, the
testing of Contract Wafers, the cost of repairing and/or replacing the Affected
Lot, reasonable freight, transportation, customs, duties, insurance, storage,
handling and other incidental shipping costs incurred by Spansion in connection
with the repair and/or replacement of the Affected Lot or other expenses relate
to a product recall, and any amounts that Spansion is required to pay to its
customers as a result of the Epidemic Failure Event to the extent attributable
to the Contract Wafers.

5.5 Reliability Records and Data.

Without limitation of any requirements in the Quality Standards, SMIC agrees to
provide the following information relating to the quality or reliability of the
Contract Wafers and the quality systems used to comply with the required
standards and specifications.

(a) SMIC will maintain history records for all Lots during the Term and for a
period of five (5) years from the termination or expiration of the Agreement. At
the conclusion of the five (5) year period, SMIC will transfer such Lot history
records to Spansion. All Lot history records are the property of Spansion and
will be considered Confidential Information of Spansion. SMIC will provide
Spansion with access to all Lot history records, upon reasonable notice to SMIC,
both during the Term and after until the Lot history records are transferred to
Spansion.

 

11

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(b) SMIC agrees to provide reliability data which demonstrates the ability of
the processes used for all Contract Wafers to meet Spansion’s reliability
criteria. Any exceptions to these criteria will be reviewed on a
product-by-product basis. Spansion shall have the right to use reliability data
concerning Contract Wafers for the purposes of preparing sales and promotional
information concerning Contract Wafers for Spansion’s customers, provided
however that such reliability data will be transmitted subject to a
non-disclosure agreement having terms and conditions no less restrictive than
those terms with respect to Confidentiality in this Agreement between the
Parties. SMIC’s reliability testing methods and conditions shall be subject to
the review of Spansion, and shall be changed based on Spansion’s request.

(c) SMIC agrees to maintain sufficient documentation regarding all Contract
Wafers sold to Spansion for five (5) years after shipment. All Contract Wafers
shall be traceable to a unique Lot number assigned by SMIC. Lot traceability for
Contract Wafers shall be maintained throughout the entire process of from
fabrication through verification testing, packing and shipment. Traceability and
full history for Contract Wafers shall include applicable wafer fabrication
process recipes, substrate vendor identification and lot number, quality control
data, process deviation notes and probe data as well as assembly records and
deviations, verification test results, visual inspection results, burn-in
conditions, final test data, and finished goods top side date codes.

(d) Subject to the conditions set out in Section 6.1 below, and SMIC’s
reasonable security and confidentiality requirements, (i) Spansion may conduct
an on-site inspection and audit of the process and manufacturing records
relevant to Contract Wafers, provided that the audits will occur no more often
than twice annually, unless Spansion has a reasonable belief that additional
inspections or audits are necessary and (ii) upon prior notice to SMIC and with
SMIC’s consent, not to be unreasonably withheld, Spansion may bring a Spansion
customers to conduct an on-site visit and inspection of the Facilities and
applicable process and manufacturing records relevant to Contract Wafers
provided Spansion and its customers have executed a non-disclosure agreement
relating thereto.

5.6 Process Control Information, On-Line Information Access. On an ongoing daily
basis, SMIC will provide Spansion with process control information both onsite
and via on-line web access. Such information may include: process and electrical
test yield results, calibration schedules and logs for equipment, environmental
monitor information for air, gases and DI water, documentation of operator
qualification and training, documentation of traceability, process verification
information, and trouble report currently available from SMIC’s document control
center in a format pursuant to SMIC’s standard document retention policy.
Spansion will have on-line web access to the foregoing information and reports
and other SMIC information including test, yield, quality and reliability data.

5.7 Scrap Disposal. SMIC shall destroy and properly dispose of all Scrap or
recycle in such a way in order to prevent any unauthorized sale of any Contract
Wafers, subject to Spansion approval. Upon request by Spansion, SMIC shall sell
such Scrap to Spansion at a price to be negotiated by the parties. SMIC will
maintain Scrap procedures and will record all products scrapped including Lot
history, reason for scrap and Spansion’s approval for scrap. Spansion shall have
the rights to audit the scrap procedures and to witness scrap of Spansion’s
material. In the

 

12

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

event that SMIC’s records are unable to fully account for scrapped Contract
Wafers, Spansion’s request to witness scrap of Spansion’s Contract Wafers is not
honored, or Contract Wafers are unaccountable by SMIC for a period of more than
thirty (30) days, SMIC shall be subject to immediate payment to Spansion an
amount equal to five (5) times the total purchase price of said Contract Wafers.

5.8 Manufacturing Metrics. SMIC agrees to provide customary manufacturing
metrics to Spansion, including but not limited to data such as process Yield,
cycle time, tool downtime, Scrap and rework. It is Spansion’s desire to receive
raw data for these metrics such that the data could be calculated using Spansion
standard formulas, and to be able to access this data from SMIC in real time,
using the most effective method.

5.9 Return Material Authorization (RMA). SMIC strives to maintain high quality
and reliability standards in fabrication. All Contract Wafers good for shipping
shall have passed necessary criteria. If Spansion rejects a Contract Wafer
during the Warranty Period, Spansion shall request, within one (1) year of
receipt of the Contract Wafers, SMIC’s authorization to return any Contract
Wafers. In such circumstances, Spansion and SMIC will confer and determine the
reason for the rejection of the Contract Wafers, and SMIC will immediately
exercise its commercially reasonable efforts to develop and implement a
corrective action plan to address the manufacturing-related issues or defects
relating to the SMIC Process. All Contract Wafers that are properly rejected due
to failure to meet Wafer Standards and that are confirmed by SMIC to be
nonconforming may be returned to SMIC for a refund of the purchase price stated
in the applicable Addendum or may be retained by Spansion subject to an agreed
upon credit being issued by SMIC. For such properly rejected Wafers that
Spansion returns to SMIC for a refund of the purchase price, SMIC will be
responsible for Spansion’s shipping cost, customs and export costs and
insurance. Title and risk of loss of damage to RMA material will pass to SMIC at
Spansion’s docks.

 

6. PARTIES’ ACTIVITIES

6.1 Site Visits, Employee Assignees. Spansion may send its employees and/or
customers to visit SMIC's production facilities to inspect fabrication of
products and conduct other activities contemplated by this Agreement. Such
visits shall be conducted during SMIC’s normal working hours. While visiting
SMIC’s Facilities, the visitor shall at all times fully comply with SMIC’s plant
rules and regulations as well as all reasonable instructions that may be issued
by SMIC’s employees and personnel accompanying such visitor. Spansion may assign
Spansion employees to work at each Facility manufacturing Contract Wafers. SMIC
will grant these employees full access to employee parking facilities and the
factory and support facilities including clean room where Contract Wafers are
manufactured or placed. SMIC will provide such Spansion employees with secured
office space and full access to all facilities including conference room, food
and break facilities. SMIC will allow employees to be full and active
participants with respect to the manufacturing of Contract Wafers. Such Spansion
employees shall abide by the policies and regulations of SMIC, and Spansion
shall, at SMIC’s reasonable request, replace any employee who fails to do so. At
the request of Spansion. SMIC will assist Spansion in obtaining the appropriate
visas for any Spansion employees.

 

13

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

6.2 Program Reviews. Spansion and SMIC shall participate in regular monthly
program reviews by a program review committee established by Spansion and SMIC
to focus on operational details of the installation, qualification, and ongoing
performance of the manufacturing processes.

6.3 Transfer Project Manager.

(a) Project Manager Designation – SMIC shall identify a person technically
proficient in flash fabrication technology as Spansion’s principal contact to
whom all communications with respect to the applicable project shall be directed
(“Project Manager”). SMIC shall provide the address, e-mail, telephone number
and fax number for such Project Manager. SMIC may replace or substitute its
designated Project Manager from time to time upon written notice to Spansion.
SMIC shall also provide Spansion from time to time with the names and telephone
numbers of additional specific contact persons to communicate specific
information or manage specific project matters when such direct contact is
preferable.

(b) Project Manager Responsibilities – The Project Manager shall: (i) serve as
the primary point of contact; (ii) coordinate SMIC’s undertakings and activities
in connection with this Agreement, including, without limitation, defining and
tracking the statements of work and facilitating project reviews (with a
steering committee, if necessary); (iii) address technical and resource
allocation issues arising, and (iv) have first tier responsibility for resolving
disputes arising under this Agreement and for escalating such disputes.

6.4 Business Review Meetings. The Parties will plan and schedule business
reviews at least quarterly. The review will focus on current and forecast
business activities, feedback on performance and factory metrics, key
improvement programs and activities focused on enabling the relationship between
the Parties and will review the status of open issues and action items. Such
reviews are considered to be a key activity for the Parties.

 

7. PRICING, COSTS AND PAYMENTS

7.1 Pre-Production Cost Allocation. Unless otherwise specified in a Process
Supplement, SMIC will bear its own costs associated with establishing Facilities
capable of producing fully qualified Contract Wafers and Sorted Contract Wafers,
including without limitation, all costs to receive Technology, conduct
non-recurring engineering activities, perform qualification activities, and ramp
to full production, related labor cost, materials costs, engineering wafers,
travel costs and associated expenses and Wafer processing expenses prior to
running the first Contract Wafers. Spansion shall be responsible for the first
mask set for a particular product. SMIC shall be responsible for any additional
mask sets for such product. Spansion shall own all masks purchased by Spansion
or SMIC in connection with performance under this Foundry Agreement.

7.2 Production Wafer Pricing. For each Contract Wafer ordered and accepted by
Spansion and delivered by SMIC in accordance with this Foundry Agreement,
Spansion shall pay SMIC the applicable price for such Contract Wafers as
specified in the applicable Product Supplement. The parties intend to transition
to a die buy purchasing model, as outlined in the applicable Process Supplement.

 

14

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

7.3 Audit Rights. Spansion will have the right to have a mutually agreed upon
independent certified public accounting firm, whose selection SMIC shall have
the right to approve, but which approval shall not be unreasonably withheld,
audit SMIC’s compliance with this Section 7, not more frequently than once a
year. The auditor shall only have access to information that is reasonably
necessary to verify SMIC’s compliance with this Section 7, and the audit must
maintain the confidentiality of SMIC’s customer and sales information. In the
event the audit determines that SMIC did not comply with Section 7, SMIC will
adjust Spansion’s price as appropriate and issue a credit against future
purchases. Spansion shall pay the costs of such audit unless SMIC owes a credit,
in which case the SMIC will pay the costs of such audit.

7.4 Invoicing and Payment Terms. SMIC shall invoice Spansion upon shipment of
Contract Wafers. SMIC’s invoices shall set forth the amounts due from Spansion
to SMIC for such shipment, and shall contain sufficient detail to allow Spansion
to determine the accuracy of the amounts billed. Spansion’s payment for all
undisputed amounts set forth in a proper invoice from SMIC and shall be due
[*******] after the date of receipt of the invoice by Spansion, provided that
such invoice is not submitted to Spansion prior to shipment of Contract Wafers.
The invoice shall be dated and delivered as of the date of shipment. All
payments will be in United States Dollars.

7.5 [*******]. SMIC warrants that [*******] Spansion hereunder are not [*******]
by SMIC to [*******]. Spansion may, at its discretion, engage a mutually
agreeable independent auditor to examine SMIC’s records to verify that
[*******]. SMIC will be responsible for all payments to any auditor. The
auditor’s report and conclusions will be treated as Confidential Information
pursuant to Section 16 (Confidentiality) below.

 

8. RELEASES, SHIPMENTS, AND DELIVERY

8.1 Shipment of Products. All Contract Wafers shipped by SMIC pursuant to this
Agreement shall be packaged, marked, and otherwise prepared for shipment in a
manner which is (i) in accordance with good commercial practice; (ii) acceptable
to standards of common carriers for shipment and in accordance with
International Chamber of Commerce (“ICC”) regulations; and (iii) adequate to
insure safe arrival of the Contract Wafers at Spansion's designated location.
SMIC will ship Contract Wafers Delivered Duty Paid (“DDP”) (Incoterms 2000). DDP
terms will apply only to deliveries within China. Deliveries to all other
locations will be EXWORKS (Incoterms 2000) unless otherwise agreed to by the
Parties.

All packaging of the Contract Wafers by SMIC shall consist of anti-static
materials and shall be resistant to any damage which may result in failure to
meet specifications. SMIC shall notify Spansion in writing and in advance of
changes in existing packaging, even if such changes are within Spansion’s
specifications.

8.2 Delays. Time is of the essence under this Agreement and all deliveries by
SMIC to Spansion must conform to the delivery requirements set forth in the
applicable Purchase Order. Any deviation from such delivery requirements must be
agreed to in writing by Spansion. SMIC

 

[*******] Confidential treatment requested.

 

15

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

must, at all times, maintain an adequate reserve inventory of Contract Wafers at
SMIC’s facility such that SMIC can remain in compliance with such delivery
requirements even if an unexpected event jeopardizes timely delivery of the
Contract Wafers to Spansion. Except as provided in Section 8.4 (Force Majeure)
below or delivery schedule changed by mutual agreement, failure to timely
deliver Contract Wafers as required shall constitute a material breach of this
Agreement, Spansion may terminate the Agreement in whole or in part and seek
remedy pursuant to section 18.2 (Termination), and Spansion will have the right
to immediately procure similar substitute Products from an alternate supplier.

8.3 Delivery Capability. For each type of Contract Wafer purchased by Spansion
hereunder, SMIC must maintain sufficient Contract Wafer production and
distribution capabilities that will enable SMIC to deliver (i) [*******] of
Spansion’s forecasted demand throughout the Term of this Agreement, or (ii) if
no forecast has been provided by Spansion, [*******] of Spansion’s Product
purchases during the previous Spansion fiscal quarter.

8.4 Force Majeure. Neither Party shall be held responsible for any delay or
failure in performance of any part of this Agreement to the extent such delay or
failure is caused by an act of God or other similar causes beyond its control
and without the fault or negligence of the delayed or non-performing Party (each
a “Force Majeure Event”). Delays by vendors in manufacture or delivery of
materials not caused by a Force Majeure Event, or shortages of labor or
materials resulting from general market conditions (including price increases),
do not constitute a Force Majeure Event. A Party who is delayed or fails to
perform as a result of a Force Majeure Event (“Affected Party”) will use its
best efforts to mitigate and minimize any resulting delay in the performance of
the suspended obligation. The Affected Party will provide written notice to the
other Party within twenty-four (24) hours of learning of a Force Majeure Event
stating the nature and cause of the event, the anticipated length of the delay,
the measures proposed or taken by the Affected Party to minimize the delay, and
the timetable for implementation of such measures. If a Force Majeure Event
occurs, Spansion may (i) suspend this Agreement in whole or in part for the
duration of the delay; (ii) conduct business elsewhere and deduct such business
from any committed quantities; and/or (iii) extend the term of this Agreement up
to the length of time of the delay. If the SMIC is the Affected Party, Spansion
may terminate this Agreement or any part hereof without penalty if the delay or
failure in performance continues beyond twenty (20) days.

8.5 Title Transfer; Risk of Loss. Notwithstanding any prior inspections, and
irrespective of any Incoterm point that may be named on the Purchase Order, SMIC
will bear all risk of loss, damage, and destruction to the Contract Wafers until
final acceptance of the Contract Wafers by Spansion at the applicable Spansion
facility. Further, SMIC will bear the same risks with respect to any Contract
Wafers rejected by Spansion or as to which Spansion had revoked its acceptance,
from the time of such rejection or revocation. Title to and risk of loss of the
Contract Wafers will pass to Spansion upon final acceptance.

8.6 Country of Origin. SMIC hereby agrees that upon written request from
Spansion, SMIC will identify the country of origin (as such is then interpreted
by the U.S. Customs Services) of the Contract Wafers and provide written
notification of such country of origin for Spansion. Spansion shall be entitled
to rely upon such information of SMIC and SMIC hereby agrees to indemnify
Spansion for all costs, expenses, or other damages incurred by way of such
reliance.

 

[*******] Confidential treatment requested.

 

16

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

8.7 Containers. Absent the express written agreement of the parties to the
contrary, title to and risk of loss of returnable or reusable Contract Wafer
containers, including but not limited to, bottles, canisters, drums, totes,
tanks, tanker trucks, and other returnable or reusable Contract Wafer containers
and packages in which the Contract Wafers are delivered (hereafter collectively
referred to as “Containers”) and title to any residual Contract Wafers or
materials remaining in or that are removed prior to refilling such Containers
shall at all times remain with the SMIC. SMIC is responsible for performing
maintenance on Containers and for ensuring that an adequate number of extra
Containers are available at all times to prevent the disruption of Contract
Wafer supply hereunder. SMIC will at all times be responsible for any and all
transportation, cleaning, recycling, and disposing of its Containers. SMIC
represents that it will exercise commercially reasonable efforts to resell any
residual Contract Wafer or material remaining in or removed from Containers
returned by Spansion to the greatest extent feasible.

 

9. DISASTER RECOVERY PLAN

SMIC will prepare a written “Disaster Recovery Plan” describing the measures
taken by SMIC to ensure the continued supply of Contract Wafers to Spansion
pursuant to the requirements of this Agreement in the event of any disaster or
problem. Such plan will be submitted to Spansion for Spansion’s approval within
thirty (30) days of the execution of this Agreement by SMIC. The Disaster
Recovery Plan will be updated at least annually by SMIC in order to improve
SMIC’s ability to be prepared for any disaster or problem, and such updates will
be provided to Spansion for approval in the same manner as the original plan.
SMIC’s failure to provide and update the Disaster Recovery Plan in a timely
manner will be a material breach of this Agreement.

 

10. CAPACITY PLANNING AND FORECASTING

10.1 Four Quarter Forecasts. Upon qualification of the Facilities, in the sixth
week of each calendar quarter during the Term, Spansion shall provide a rolling
four quarter forecast for Contract Wafers, broken down by technology node and
specific Spansion Product, with each quarterly forecast covering the four
quarter period commencing at the beginning of the immediately subsequent
quarter. The Contract Wafers forecast for the first quarter of each four quarter
forecast is fixed (the “Firmly Forecast Orders”). Orders specified for
subsequent quarters of such four quarter forecast shall be non-binding. The
Parties anticipate that the first four quarter forecast shall be made in the
quarter prior to the initial qualification of the Facilities and shall be based
on the forecast volumes set forth on the pricing schedule set forth in Product
Supplement attached hereto as Exhibit A1.

10.2 Capacity Commitment.

(a) Within ten (10) days after receipt of Spansion’s four quarter forecast, SMIC
shall provide Spansion with a written plan detailing SMIC’s manufacturing
capacity commitments for the forecast period (the “Capacity Plan”), provided
that in any calendar quarter, SMIC shall provide [*******] of the Firmly
Forecast Orders for such quarter and shall use commercially reasonable efforts
to provide additional capacity beyond [*******], as requested and as available.
Spansion will order an amount equivalent to [*******] of the forecast for such
quarter or the Capacity Plan, whichever is less. If Spansion believes Spansion
requires more capacity than provided in the Capacity Plan, the Parties shall
cooperate in good faith to resolve Spansion’s capacity requirements.

 

[*******] Confidential treatment requested.

 

17

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(b) SMIC shall provide current-quarter weekly Wafer output updates to the four
quarter forecast of Contract Wafers. This weekly update would comprehend
anticipated changes to forecast related to deviations from planned cycle-time,
Yield and fabrication processing excursions. Spansion's production control staff
will use the weekly updates to direct SMIC activities.

(c) SMIC shall provide Spansion prompt written notice if SMIC becomes aware of
any circumstance which may constrain its capacity to manufacture Contract Wafers
in accordance with the then current four quarter forecast. If SMIC’s
manufacturing capacity to manufacture products for Spansion is constrained for
any reason, SMIC will treat Spansion as it does its other sole sourced customers
and with the same priority as such customers, without regard to wafer pricing.

(d) Subject to agreement on the terms and conditions associated therewith, SMIC
agrees to maintain a wafer bank with [*******] of volume in amounts requested by
Spansion (henceforth to be referred to as the "Wafer Bank") in an amount no
greater than [*******] Contract Wafers. The Wafer Bank will be arranged such
that inventory carried in the Wafer Bank shall, for financial accounting
purposes, be inventory of SMIC.

10.3 Capacity Shortfall.

(a) Quarterly Commitment. Notwithstanding Section 10.3(b) (Monthly Commitment),
below, if SMIC’s Capacity Plan is less than [*******], SMIC shall pay Spansion
[*******] of the then current Contract Wafer price set forth in the Product
Supplement for the amount by which the number of Contract Wafers supplied by
SMIC is less than those specified in the Firmly Forecast Order. Furthermore, If
SMIC supplies less than [*******] of the Contract Wafers listed on Spansion’s
Purchase Order for the Firmly Forecast Orders, SMIC shall pay Spansion [*******]
of the then current Contract Wafer price set forth in the Product Supplement for
the amount by which the number of Contract Wafers supplied by SMIC is less than
those specified in the Purchase Order. If Spansion purchases less than the
Firmly Forecast Orders of Contract Wafers in a given quarter, Spansion shall pay
to SMIC [*******] of the then current Contract Wafer price set forth in the
Product Supplement for the amount by which the number of Contract Wafers
purchased by Spansion in such quarter is less than [*******] of the Firmly
Forecast Orders.

(b) Monthly Commitment. The monthly variance of SMIC’s Contract Wafer capacity
may vary by [*******] of the Firmly Forecast Orders for a given month without
incurring any penalty (“Monthly Variance”). If the Monthly Variance exceeds
[*******], SMIC shall pay Spansion, in the case of a shortfall of supply,
[*******] of the then current Contract Wafer price set forth in the Product
Supplement for the amount of Contract Wafers by which the Monthly Variance
exceeds [*******] Firmly Forecast Orders. In addition, the Monthly Variance
shall be made up during the remaining months in the applicable quarter, or the
provisions of Section 10.3(a) shall also apply for the applicable quarter.

 

[*******] Confidential treatment requested.

 

18

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

11. ORDER, SHIPMENT AND ACCEPTANCE

11.1 Order Placement. Spansion shall place written orders for Contract Wafers
and Spansion Product to be provided under this Agreement (each, a “Purchase
Order”) each calendar quarter in conjunction with the four quarter forecast or
as otherwise necessary from time to time. Such Purchase Orders shall include
shipment instructions included thereon or issued in connection with the written
order that reference the applicable written order and provide detail regarding
the mix, quantities and requested shipment date for the Contract Wafers or
Spansion Product.

11.2 Order Acceptance.

(a) SMIC shall acknowledge all Purchase Orders, and either confirm all shipment
schedules and instructions therein, or provide alternative quantities and
schedules within five (5) business days following its receipt of Purchase Order.
In the event that SMIC proposes alternative quantities and schedules, Spansion
shall respond in writing within five (5) business days following receipt of
SMIC’s acknowledgement to SMIC by either accepting SMIC’s proposed alternatives,
or suggesting different quantities and delivery dates. Unless a response is
received within such five (5) business day period, the mix, quantities and
schedule of Contract Wafers contained in a received Purchase Order or an
acknowledgement or proposed change thereto shall be deemed accepted by the
receiving party. Any remaining disputes will be resolved in accordance with the
procedure set forth in Section 20 (Dispute Resolution), below. Notwithstanding
anything herein to the contrary, SMIC may not reject Purchase Orders based on
ordering instructions that conform to the terms of this Agreement (e.g., if
Spansion orders Contract Wafers in a month in quantities greater than the
forecasted quantities but less than the maximum quantities indicated in a
Product Supplement). The terms of this Agreement shall govern all purchases and
deliveries of Contract Wafers between the Parties, and no additional or
inconsistent terms set forth on any order acknowledgement, terms of sale,
invoice or similar document shall be binding on any Party unless specifically
and expressly agreed upon in writing by duly authorized representatives of all
Parties.

(b) SMIC shall deliver the exact quantity of Contract Wafers set forth in the
applicable Purchase Order. On-time delivery will be considered delivered five
(5) days before, but zero (0) days after, SMIC’s originally scheduled delivery
date.

11.3 Cancellations and Schedule Changes.

(a) Spansion may not cancel any accepted Purchase Order, provided SMIC has begun
manufacture of the Contract Wafers so ordered within SMIC's stated lead time.
The Parties will cooperate in good faith to modify delivery schedules and other
terms of previously accepted Purchase Orders to reflect changing business
requirements of Spansion. Spansion may, in its discretion, cancel, suspend or
modify any other Purchase Orders. SMIC may not terminate any accepted Purchase
Order, even if SMIC terminates this Agreement for default by Spansion, unless
the termination is a result of uncured payment default by Spansion.

(b) Delivery schedule and Spansion Product mix changes may be made by written
agreement of the Parties. SMIC will make commercially reasonable efforts to
accommodate Spansion requested changes. SMIC will notify Spansion at the
earliest indication of any interruption in supply of the Contract Wafers or
other Facility difficulty that may affect the availability of Contract Wafers
under this Agreement.

 

19

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

11.4 Wafer Acceptance Testing. Acceptance testing of Contract Wafers delivered
to Spansion or a third party designated by Spansion will be performed by
Spansion and at its expense within forty-five (45) days of receipt. If Spansion
does not provide SMIC with the result of acceptance test during such forty-five
(45) days period, the Contract Wafers shall be deemed to have been accepted by
Spansion. SMIC will certify to Spansion with each shipment that the Contract
Wafers contained in the shipment have successfully passed the applicable Probe
Program and the Quality Standards. If Spansion rejects any Contract Wafers or
determines that a Wafer has a different Net Die per Wafer than certified by
SMIC, then Spansion and SMIC will confer and determine the reason for the
rejection or the inaccurate count of Net Die per Wafer. SMIC will immediately
exercise its commercially reasonable efforts to develop and implement a
corrective action plan for any errors, including manufacturing errors or defects
identified in its systems.

 

12. WARRANTY

12.1 Product Warranty. SMIC warrants that, at the time of delivery to Spansion,
all Contract Wafers will: (a) be clear of any liens, restrictions, encumbrances,
and other claims; (b) be free from any defects in material and workmanship (and
shall remain free of such defects for a period of one (1) year from the date of
Spansion’s receipt of Contract Wafers from SMIC) (“Warranty Period”);
(c) conform to all written specifications relating to such Contract Wafers and
(d) conform to the agreed Quality and Reliability Standards (collectively,
“Wafer Standards”). All other warranties, including the implied warranties of
merchantability and fitness for a particular purpose, are specifically
disclaimed. Spansion shall advise SMIC in writing of any claims involving
failure to meet Wafer Standards within the Warranty Period.

12.2 Remedies for Breach of Warranty. If any Contract Wafers purchased hereunder
do not meet the warranties specified herein, Spansion may, at Spansion's option
(i) require SMIC to replace or correct at no cost to Spansion any defective or
nonconforming Contract Wafers pursuant to the Product return procedures set
forth in Section 12.3 (Return of Contract Wafers) below, (ii) return any
nonconforming Contract Wafers to SMIC at SMIC’s expense and recover from SMIC
the full sales price and any packaging or shipping costs thereof, (iii) procure
similar Contract Wafers from an alternate supplier, and SMIC shall be liable to
Spansion for any and all additional costs or expenses reasonably incurred by
Spansion in procuring such substitute Contract Wafers, or (iv) terminate this
Agreement. Furthermore, if SMIC’s failure to deliver Contract Wafers to Spansion
that conform with the warranty set forth in Section 12.1 results in a breach of
warranty claim against Spansion, SMIC will indemnify Spansion for any damages,
costs, penalties, or other amounts that Spansion will pay to its customers as
the result of such breach of warranty. The provisions of this Section 12.2 are
in addition to and shall not limit or otherwise restrict rights of Spansion
under this Agreement or at law or equity for failure of SMIC to supply
conforming Contract Wafers.

 

20

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

12.3 Return of Contract Wafers. In the event that Spansion elects to return
non-conforming Contract Wafers to SMIC, Spansion will notify SMIC of the
nonconformance and of Spansion’s intent to return the nonconforming Contract
Wafers. Upon receipt of Spansion’s notification to SMIC of the nonconformance,
if SMIC determines that such non-conforming Contract Wafers contain defects
which are not caused by accident, abuse, misuse, neglect, improper handling or
packing, repair or alteration by a third party other than SMIC or improper
testing or usage contrary to any instructions issued by SMIC or Spansion, SMIC
will promptly deliver replacement Contract Wafers, and will provide all the
assistance and authorization required to return the nonconforming Contract
Wafers to SMIC within 24 hours. The nonconforming Contract Wafers will be
returned to SMIC at SMIC’s expense, and SMIC will be liable and will assume all
title and responsibility for all Contract Wafers during return transport,
including liability caused by hazardous substance releases during such
transport. SMIC will immediately investigate to determine the cause of the
nonconformance and will notify Spansion of its findings.

12.4 No Waiver. No inspection or acceptance, approval or acquiescence by
Spansion with respect to SMIC’s Contract Wafers shall relieve SMIC from any
portion of its warranty obligation nor will waiver by Spansion of any
specification requirement for one or more items constitute a waiver of such
requirements for remaining items unless expressly agreed by Spansion in writing.

 

13. INTELLECTUAL PROPERTY OWNERSHIP

13.1 Technology Owned by Spansion. Spansion shall own all rights, title and
interest (including all Intellectual Property Rights) in and to any and all:

(a) Pre-Existing Technology — Technology developed or acquired by Spansion or
any of its Affiliates prior to or independently of this Agreement, including but
not limited to Technology expressly described on a Product Supplement or Process
Supplement as “Spansion Technology” (including any Process Specifications or
Product Specifications) and Spansion Process Technology or otherwise embodied in
or used to practice the Spansion Process Technology (collectively, “Spansion
Pre-Existing Technology);

(b) Charge Trapping Storage Technology. Technology developed under this
Agreement during the Term, by whomever developed, solely or jointly, related to
Charge Trapping Storage Technology;

(c) New Technology — New Technology developed under this Agreement during the
Term solely by or for Spansion without SMIC contributions;

(d) Improvements — Improvements to any of Technology in (a), (b), or (c) above
during the Term if such Improvements (i) are developed solely by or for Spansion
(e.g., a commissioned work), or (ii) are developed solely by or for SMIC where
such Improvement is based upon or derived in whole or in part from Spansion
Confidential Information or from Technology in (a), (b), and (c) above.

(All of (a), (b), (c), and (d) above, collectively, “Spansion Technology”.)

 

21

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

13.2 Technology Owned by SMIC. Subject to Section 3.3, SMIC shall own all
rights, title and interest (including all Intellectual Property Rights) in and
to any and all:

(a) Pre-Existing Technology — Technology developed or acquired by SMIC or any of
its Affiliates prior to or independently of this Agreement, including but not
limited to Technology expressly described on a Product Supplement or Process
Supplement as “SMIC Technology” (collectively, “SMIC Pre-Existing Technology”;

(b) New Technology — New Technology developed under this Agreement during the
Term solely by or for SMIC without Spansion contributions;

(c) Improvements — Improvements to any of Technology in (a) or (b) above during
the Term if such Improvements (i) are developed solely by or for SMIC (e.g., a
commissioned work); or are developed solely by or for Spansion where such
Improvement is based upon or derived in whole or in part from SMIC Confidential
Information or from Technology in (a) or (b) above.

(All of (a), (b) and (c) above, collectively, “SMIC Technology”.)

13.3 Jointly Developed Technology.

(a) Jointly Developed Technology shall be jointly and equally owned by Spansion
and SMIC in undivided half interests. Ownership of the Jointly Developed
Technology shall not imply any rights to any Intellectual Property Rights of the
other party, including without limitation any Spansion Technology or any SMIC
Technology, which may be necessary to practice or utilize the Jointly Developed
Technology, unless expressly provided under this Agreement or in a Process
Supplement or a Product Supplement.

(b) Subject to paragraph (a) above, each party will have the right to practice
or utilize any and all of the Jointly Developed Technology without any
obligation to account to the other party or obtain the other party’s consent,
subject to any Intellectual Property Rights of the other party and other terms
and conditions provided in this Agreement or in any applicable Process
Supplement or Product Supplement; provided that (i) neither party shall assign
or transfer title to any Jointly Developed Technology without the prior written
consent of the other party, which the other party may withhold in its sole
discretion, and (ii) neither party shall license or provide any Jointly
Developed Technology to any competitor of the other party or any infringer or
potential infringer which the other party is pursuing or plans to pursue without
the prior written consent of the other party, which the other party may withhold
in its sole discretion.

13.4 Assignment of Rights.

(a) The parties agree that the services under this Agreement have been
commissioned by Spansion and therefore, any Technology resulting therefrom or
any Intellectual Property Rights therein, to the extent such Technology and
Intellectual Property Rights are allocated to be owned by Spansion as described
above in this Section 13, such Technology and Intellectual Property Rights shall
be treated as commissioned works commissioned by Spansion. To the extent that
the allocation of rights, title and interests in and to any Intellectual
Property specified in this Section 13 (entitled — Intellectual Property
Ownership) do not automatically vest in the applicable Party, the other Party
(the “Assignor”) hereby assigns, transfers and conveys (and agrees to assign,
transfer and convey or to cause to be assigned, transferred or conveyed) to the
other Party (the

 

22

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

“Assignee”) such of the Assignor’s right, title and interest in and to all such
Intellectual Property as is necessary to achieve such allocation. The Assignor
will provide, at the Assignee’s expense, all assistance reasonably required by
the Assignee to consummate, record and perfect the foregoing assignment,
including, but not limited to, signing all papers and documents necessary to
register and/or record such assignment with the United States Patent & Trademark
Office, United States Copyright Office, other state and federal agencies and all
corresponding government agencies and departments in all other countries, where
applicable. Assignor hereby appoints Assignee as its attorney-in-fact to act as
Assignor to execute and file the papers and documents specified in this
Section 13 (entitled — Intellectual Property Ownership) if Assignor is unwilling
or unable to comply with the foregoing sentence of this paragraph (a) (entitled
— Assignment of Rights).

(b) To the extent, if any, that any right, title or interest in and to any
Technology or Intellectual Property Right intended to be assigned to Assignor
pursuant to paragraph (a) above is at any time determined in any jurisdiction
not to belong to Assignor, then Assignee hereby grants an exclusive, even with
respect to Assignee, irrevocable, perpetual, royalty-free and fully paid up
license to Assignor, (transferable and sublicensable by Assignor without
limitation) to exploit such Technology or Intellectual intended to be owned by
Assignor under the terms and conditions of Section 13 and all rights therein in
such jurisdiction for any purpose. Such exclusive license shall continue in
effect for the maximum term as may now or hereafter be permissible under
applicable law.

13.5 Protection and Enforcement. Each Party shall have the right, in its sole
discretion and at its own expense, to apply for, maintain and enforce and
Intellectual Property Rights (including registrations therefor) with respect to
the Technology owned by such Party as described above in this Section 13. Each
party shall cooperate in good faith with respect to the protection and
enforcement of Jointly Developed Technology. If the parties jointly decide to
file for Intellectual Property protection of any Jointly Developed Technology,
the parties shall, unless they otherwise agree in writing, jointly file and
maintain such Intellectual Property Rights (including registrations therefor),
with each party bearing one-half of the costs of such filing and maintenance.

13.6 Overlapping Technology. If and to the extent that SMIC Technology and
Spansion Technology are substantially the same, each Party shall retain their
innate or pre-existing ownership therein. For example, Spansion will transfer
process information to SMIC, all of which will constitute Spansion Technology,
but some of which will already be in SMIC’s possession as existing semiconductor
manufacturing technology. The Parties do not intend this article 13 to alter
their respective ownership interests in such substantially similar technology.

 

14. INTELLECTUAL PROPERTY LICENSES

14.1 SMIC Technology License. Subject to the terms and conditions of this
Agreement, SMIC hereby grants to Spansion a worldwide, non-exclusive, perpetual,
irrevocable, royalty-free, paid-up license, under all Intellectual Property
Rights in the SMIC Technology, including any Improvements thereto, to make, have
made, use, sell, offer for sale, import, export, reproduce, prepare derivative
works of, distribute (directly or indirectly) or otherwise exploit any SMIC

 

23

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

Technology that is incorporated in, used in connection with or otherwise
necessary or useful in the development or commercial exploitation of any
Spansion Technology in any jurisdiction for any purpose, including without
limitation any Spansion Process Technology, or any products made therefrom,
including without limitation any Spansion Products; provided that any such use
or exploitation of such SMIC Technology shall only be done in connection with
the development or commercial exploitation of Spansion Technology.

14.2 Spansion Process Technology License. Subject to the terms and conditions of
this Agreement, Spansion hereby grants to SMIC a limited, non-transferable,
non-exclusive, non-sub licensable, royalty-free license during the Term, under
all Intellectual Property Rights owned or licensable by Spansion without payment
of fees or royalties to any third party, to use the Spansion Technology solely
to make (but not have made) Contract Wafers for Spansion at the Facilities as
set forth in applicable Process Supplements and Product Supplements, subject to
the terms and conditions specified therein and the terms and conditions of this
Agreement. SMIC shall not (and shall not permit any third party to) use the
Spansion Technology for any other purpose, including without limitation, SMIC
shall not (and shall not permit any third party to): (a) modify,
reverse-engineer or create derivative works of the Spansion Technology or any
components thereof except as specifically permitted hereunder; (b) remove or
alter any patent, trademark, copyright or other proprietary legend in Spansion
Technology; or (c) sell, loan, lease, assign or otherwise encumber or transfer
any rights to Spansion Technology.

14.3 No Other Rights Granted by Spansion. Except as expressly set forth in this
Foundry Agreement, no license or other right is granted, by implication,
estoppels or otherwise to SMIC under any Intellectual Property Rights now or
hereafter owned or controlled by Spansion. Except for the licenses expressly
granted in this Foundry Agreement, all right, title and interest in and to
Spansion’s Intellectual Property Rights, including without limitation, the
Spansion Process Technology, shall remain the property of Spansion.

14.4 Embedded Third Party Technology. SMIC acknowledges and agrees that Spansion
may incorporate or otherwise include third Party software or hardware as part of
the Spansion Technology and/or in Improvements thereto (“Embedded Third Party
Technology”). Such Embedded Third Party Technology may only be used as part of
the Spansion Technology, and subject to any terms applicable thereto.

14.5 Retained Rights. Spansion reserves all rights in Spansion Technology, and
related Intellectual Property Rights not expressly granted to SMIC. Spansion
grants no rights to Spansion Technology for uses beyond the scope of rights set
forth in this Section 14 (entitled — Intellectual Property Licenses).

 

15. PROTECTION OF TECHNOLOGY AND INTELLECTUAL PROPERTY

15.1 Protection Cooperation Between Parties. The Parties will cooperate to avoid
benefit to Spansion’s competitors from Spansion Technology, as follows:

(a) SMIC will create a firewall between (i) products, process and other
activities on behalf of Spansion, and (ii) all personnel, products and processes
of other SMIC customers.

 

24

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(b) The Parties will cooperate to prevent the unauthorized distribution, use or
access, or the unauthorized disclosure of Spansion Technology, and any
Intellectual Property Rights therein, by SMIC or by employees or contractors of
SMIC.

(c) If a security compromise related to the Spansion Technology or other
Confidential Information of Spansion is caused by or results primarily from the
acts or omissions of SMIC or any of its subsidiaries, affiliates, vendors,
employees, contractors or sub licensees or their failure to comply with the
agreed security procedures, SMIC will be responsible for responding to and
containing such security compromise and shall reimburse Spansion for any and all
damages and expenses reasonably incurred in connection with investigating,
mitigating or defending any such security breaches.

15.2 Spansion does not grant SMIC a license under Spansion’s Intellectual
Property Rights, Spansion Technology, or Confidential Information, including any
confidential information for any purpose whatsoever except as expressly set
forth in this Agreement. Without limiting the foregoing:

(a) SMIC will not use any Intellectual Property Right of Spansion (including
without limitation any Spansion Technology or any Confidential Information), for
any purpose inside or outside SMIC, except for the direct and sole benefit of
Spansion.

(b) The Parties will comply with, and cause to comply with, the provisions of
Section 13; and

(c) The Parties will not license, disseminate, transfer or disclose any
Confidential Information of the other Party, including any residuals.

 

16. CONFIDENTIALITY.

16.1 Confidentiality Obligations. Each Party will, for the Term of this
Agreement and for a period of five (5) years after termination or expiration of
this Agreement, treat as confidential all Confidential Information of the other
Party, will not use the Confidential Information except as expressly set forth
herein or otherwise authorized in writing, will implement reasonable procedures
to prohibit the disclosure, unauthorized duplication, misuse, or removal of the
other Party’s Confidential Information and will not disclose the Confidential
Information to any third Party except as may be necessary and required in
connection with the rights and obligations of such Party under this Agreement,
and subject to confidentiality obligations at least as protective as those set
forth herein. Without limiting the foregoing, each Party will use at least the
same procedures and degree of care which it uses to prevent the disclosure of
its own Confidential Information of like importance to prevent the disclosure of
Confidential Information disclosed to it by the other Party under this
Agreement, but in no event less than reasonable care. Any disclosure of
Confidential Information under this Agreement shall not imply any grant of
Intellectual Property Rights contained or related therein by the disclosing
party. In addition to the foregoing, SMIC agrees to implement and maintain
adequate security to ensure performance if SMIC’s obligations under this
Section 16.1, including without limitation, storing all Spansion Confidential
Information in a secure environment (including password-protected systems and
locked storage

 

25

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

and file cabinets for tangible materials), restricting access to such
information to those SMIC employees requiring access to perform SMIC’s
obligations under this Agreement, maintaining a log of all SMIC employees who
have had access to Spansion Confidential Information, educating all such
employees of SMIC’s obligations with respect to Spansion Confidential
Information, and pursuant to Section 16.5, ensuring each employees have executed
a Non-Disclosure, Non-Competition and Proprietary Information Agreement in the
from attached hereto as Exhibit C.

16.2 Excluded Information. Notwithstanding the above, neither Party will have
liability to the other with regard to any Confidential Information of the other
which:

(a) is generally known or available by publication, commercial use, or otherwise
through no fault of the receiving Party;

(b) is known by the receiving Party at the time of disclosure and is not subject
to restriction;

(c) is independently developed or learned by the receiving Party;

(d) is lawfully obtained from a third Party which has the right to make such
disclosure; or

(e) is released for publication or use by the disclosing Party in writing.

16.3 Certain Confidential Material. Confidential Information shall remain the
property of the disclosing party and shall be returned to the disclosing party
upon request of the disclosing party or after the termination of this Agreement,
except as necessary to carry out obligations or exercise rights expressly
provided in this Agreement. Without limiting the foregoing, it is expressly
understood that any drawings, blueprints, descriptions, or other papers,
resumes, documents, tapes, or any other media transferred by the disclosing
Party hereunder, and all copies, modifications, and derivatives thereof, will
remain the property of the disclosing Party, and the receiving Party is
authorized to use those materials only in accordance with the terms and
conditions of this Agreement. At no time may the receiving Party knowingly
transfer such material or part of it to a third party except as expressly
permitted under this Agreement. In addition, upon termination of this Agreement,
upon SMIC’s ceasing to use any masks for the Contract Wafers (whether
manufactured by or for SMIC or provided by Spansion), or otherwise at Spansion’s
request, SMIC shall promptly deliver such masks and related material to
facilities designated by Spansion.

16.4 Residuals. Spansion will be free to use for any purpose Residuals resulting
from access to or work with SMIC’s Confidential Information; provided that
Spansion complies with the non-disclosure obligations related to such
information as provided in this Agreement. The term “Residuals” means
information in an intangible form, such as general knowledge, ideas, concepts,
know-how, professional skills, work experience or techniques (but not specific
implementations) that is retained in the unaided memories of persons who have
had access to the Confidential Information pursuant to the terms of this
Agreement. A person’s memory is unaided if the person has not intentionally
memorized the information or reduced it to a tangible form for the purpose of
retaining and subsequently using or disclosing the information.

 

26

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

16.5 SMIC agrees to ensure that its project personnel, who have access to
Spansion Confidential Information, shall utilize Spansion’s Confidential
Information only for the purpose of carrying out the Foundry Services. SMIC will
take commercially reasonable measures to ensure compliance of the project
personnel with this section, including but not limited to, ensuring that each
project personnel is bound by a duty of confidentiality to SMIC and to
Spansion. As a precondition to the assignment of any project personnel to
perform Foundry Services under this Agreement, SMIC shall require each of the
project personnel to sign a Non-Disclosure, Non-Competition and Proprietary
Information Agreement in the form attached hereto as Exhibit C, as applicable,
prior to such assignment. As a further precondition to the assignment of any
project personnel to perform the Foundry Services, SMIC shall require each of
the project personnel to sign a Confidential Information Agreement in the form
attached hereto as Exhibit C prior to such assignment. SMIC shall indemnify
Spansion for any breach of either of the foregoing agreements by any project
personnel.

16.6 Audit Rights. Spansion may conduct an on-site inspection and audit of
SMIC’s processes and records relevant to SMIC’s performance of its obligations
under this Section 16, provided that the audits will occur no more often than
once quarterly, unless Spansion has a reasonable belief that additional
inspections or audits are necessary.

 

17. INDEMNIFICATION

17.1 GENERAL INDEMNIFICATION. EXCEPT FOR THIRD-PARTY CLAIMS OF INTELLECTUAL
PROPERTY INFRINGEMENT AND NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT
TO THE CONTRARY, SMIC AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS SPANSION,
ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, SUBCONTRACTORS,
CONSULTANTS, AND AGENTS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, DAMAGES,
LOSSES, AND EXPENSES ARISING OUT OF, IN CONNECTION WITH OR RESULTING FROM ANY
ACT OR OMISSION IN THE PERFORMANCE OF WORK AND/OR FROM CONTRACT WAFERS OR OTHER
MATERIALS SUPPLIED BY SMIC OR ITS ASSISTANTS, SUBCONTRACTORS (OF ANY TIER),
CONSULTANTS, AGENTS, OFFICERS, DIRECTORS, OR EMPLOYEES. SUCH INDEMNIFICATION
OBLIGATION INCLUDES BUT IS NOT LIMITED TO THE PAYMENT OF ALL REASONABLE
ATTORNEYS’ FEES, COSTS, AND EXPENSES OF CONSULTANTS AND EXPERT WITNESSES, COSTS
OF APPEAL, AND OTHER COSTS INCURRED IN DEFENDING ANY SUCH CLAIMS. SMIC WILL
UTILIZE COMPETENT COUNSEL ACCEPTABLE TO SPANSION IN ITS SOLE DISCRETION.

17.2 INTELLECTUAL PROPERTY INDEMNIFICATION BY SMIC.

(a) SMIC agrees to defend at its expense any suits brought by a third party
against Spansion based upon a claim that the process used by SMIC to manufacture
Contract Wafers and the SMIC Technology used in such process infringes any
Intellectual Property Rights, and to pay

 

27

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

costs and damages finally awarded in any such suit against Spansion. Spansion
will promptly notify SMIC in writing of any claim or suit. SMIC will have
control of such claim or suit to defend or settle at its expense. Spansion will
provide reasonable assistance for SMIC’s defense of such claim or suit.

(b) If the use and sale of any of the Contract Wafers is prohibited by court
order, SMIC, at Spansion’s option and at no expense to Spansion, will obtain for
Spansion the right to use and sell the Contract Wafers in accordance with this
Agreement. If SMIC is unable to do so, SMIC will, at its own expense:
(i) substitute an equivalent method for performing the services which are
acceptable to and qualified by Spansion, or (ii) modify the services to be
non-infringing, or (iii) accept the Contract Wafers returned and reimburse
Spansion for the purchase price.

(c) SMIC SHALL HAVE NO LIABILITY FOR ANY COSTS, LOSS OR DAMAGES TO THE EXTENT
THE PATENT INFRINGEMENT WOULD NOT HAVE OCCURRED BUT FOR: I) COMPLIANCE WITH ANY
SPECIFICATIONS FURNISHED BY SPANSION; OR II) ANY MODIFICATION OF THE CONTRACT
WAFERS BY A PARTY OTHER THAN SMIC.

17.3 INTELLECTUAL PROPERTY INDEMNIFICATION BY SPANSION.

Spansion agrees to defend at its expense any suits brought by a third party
against SMIC based upon a claim that any Process Specifications, Product
Specification, Technology or other Intellectual Property or Confidential
Information provided by Spansion infringes any Intellectual Property Rights, and
to pay costs and damages finally awarded in any such suit against SMIC. SMIC
will promptly notify Spansion in writing of any claim or suit. Spansion will
have control of such claim or suit to defend or settle at its expense. SMIC will
provide reasonable assistance for Spansion’s defense of such claim or suit.

 

18. TERM AND TERMINATION

18.1 Term of Agreement. This Agreement will become effective as of the Effective
Date when signed by the Parties and will continue until [*******] (the “Term”).
The Term is renewable for additional terms of one year each by mutual agreement.

18.2 Termination. Any Party may terminate this Agreement as follows:

(a) If any Party defaults on any of its material obligations or conditions of
this Agreement which remain uncured for forty-five (45) calendar days after
written notice to the defaulting Party specifying the nature of the default, the
non-defaulting Party will have the right to terminate this Agreement by giving
written notice of termination to the defaulting Party. Upon giving of such
notice of termination, this Agreement will terminate on the thirtieth
(30th) calendar day after such notice is given. The defaulting Party will have
the right to cure any such default up through but not after the day of
termination. In the event of a cure of the default, the cure will be effective
retroactively to the date of notice of default.

 

[*******] Confidential treatment requested.

 

28

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(b) Any Party will have the right to terminate this Agreement by giving written
notice of termination to the other Parties at any time upon or after: (i) the
filing by the other Party of a petition in bankruptcy or insolvency; (ii) any
adjudication that the other Party is bankrupt or insolvent; (iii) the filing by
the other Party under any law relating to bankruptcy or insolvency; (iv) the
appointment of a receiver for all or substantially all of the property of the
other Party; (v) the making by the other Party of any assignment or attempted
assignment for the benefit of creditors; or (vi) the institution of any
proceedings for the liquidation or winding up of the other Party’s business or
for the termination of its corporate charter. This Agreement will terminate on
the tenth (10th) calendar day after notice of termination is given.

(c) Either Party will have the right to terminate this Agreement if, in its sole
judgment, official government policy, directives, or rulings are put into effect
that substantially affect or change the economic viability of this Agreement and
the Parties have not been able to renegotiate this Agreement in a mutually
satisfactory manner within a reasonable period of time following such official
action(s). No Party will make any claims or demands against any other Party for
any damages, losses, expenses, or costs, if any, incurred as a result of
termination of this Agreement pursuant to this Section 18.2 (entitled —
Termination).

18.3 Effect of Termination.

(a) If Spansion terminates this Agreement because of SMIC’s default, Spansion
may, at Spansion’s sole discretion, terminate delivery of all unshipped, and
shipped but unaccepted, Contract Wafers.

(b) Within one (1) month after written request following termination or
termination of this Agreement, the noticed Party will furnish to the other Party
a certificate certifying with respect to each item of Technical Information and
Confidential Information delivered to it hereunder that, through its best
efforts, and to the best of its knowledge, the original and all copies, in whole
or in part, in any form, of such Technical Information and Confidential
Information have been destroyed or returned to its originator.

(c) In the event this Agreement is terminated for any reason, Spansion may, in
its discretion, require delivery to Spansion or its designee(s) of all or any
portion of the works in progress for the Contract Wafers. SMIC shall provide
such works in progress as requested by Spansion, within fourteen (14) days of
such request. Spansion will pay for any finished goods or work in process so
provided that meet the Wafer Standards.

(d) In the event of expiration of termination of this Agreement, all licenses
licensed per Section 14 shall terminate.

18.4 Survival. The provisions of this Section and Sections 13, 16, 17, 20, 21,
and 22 will survive any expiration or termination of this Agreement.

 

29

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

19. INSURANCE

SMIC shall maintain in full force and effect during the term of this Agreement
insurance covering its activities and obligations in accordance with the
requirements set forth below:

 

Type of Coverage

  

Maximum Coverage Limits

(outbound employees)

  

Maximum Coverage Limits

(inbound employees)

Worker’s Compensation    In compliance with PRC law.    Statutory limits (as
required by PRC law; if a government program provides this cover, participation
satisfies requirement.) Employer’s Liability    [*******]    [*******]   
[*******]    [*******]    [*******]    [*******] Commercial General Liability*
(including without limitation Premises-Operations, Completed Operations,
Contractual, Broad Form Property Damage, Personal Injury)    [*******]   
Umbrella or Excess Liability       Automobile Liability**[including hired,
non-owned auto and mobile equipment (if not covered under the Commercial General
Liability policy)].    Standard coverage from the rental car insurance for
collision and liability if the vehicle is rented to perform the service at
Spansion property.   

 

Standard coverage from the auto car insurance for collision and liability if
SMIC company vehicle is used to perform the service at the Spansion property.

Professional Liability/Errors & Omissions***    Covered by medical insurance   
Covered by medical insurance and the PRC government medical program

 

* Coverage to apply worldwide without geographic limitation. Sole proprietors
may satisfy this requirement through an in-home business endorsement to their
homeowner’s insurance policy. Note that a personal umbrella liability policy
will not satisfy this requirement.

 

[*******] Confidential treatment requested.

 

30

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

** Only applicable to the extent SMIC (i) operates motor vehicles on Spansion
property as a necessary part of performing services, (ii) transports Spansion
property or Spansion employees, or (iii) transports hazardous materials to or
from Spansion property or on Spansion’s behalf.

 

*** Only applicable to the extent SMIC or its employees or contractors perform
services of a professional nature (e.g., engineers, accountants, architects,
etc.), regardless of whether a professional license or certification is
required.

All such insurance will provide coverage on the basis of occurrences during the
policy period, and not on the basis of claims made during the policy period.
SMIC will maintain additional insurance coverage if required by law or as
required in the applicable Purchase Order or Statement of Work. Spansion and/or
any subsidiary of Spansion shall be named as an additional insured on all
policies, except workers’ compensation, and said policies shall waive
subrogation against Spansion and/or any subsidiary of Spansion when permitted by
law. The additional insured endorsement shall provide coverage at least as broad
as insurance industry form ISO CG 20 10 11 85. The Workers Compensation policy
shall be endorsed to include a waiver of subrogation against Spansion and/or any
subsidiary of Spansion when permitted by law. SMIC’s insurance policy shall be
the primary policy covering claims arising out of SMIC’s or its contractors’
work or activities under this Agreement, and no insurance maintained by Spansion
will contribute unless and until such SMIC’s (and its contractors’) policies are
exhausted. Prior to commencing work, SMIC shall provide executed certificates of
insurance to Spansion evidencing and certifying compliance with these insurance
requirements, but Spansion’s failure to object if the certificate of insurance
fails to evidence the required coverage shall not serve as a waiver of these
requirements. All insurance shall be provided by an insurance carrier licensed
to do business in the state where the Services are to be performed and shall be
underwritten by insurance carriers with an AM Best rating of at least A – VII.
SMIC will notify Spansion in writing at least sixty (60) days prior to any
cancellation, material modification, lapse, or termination of any required
insurance policy. If SMIC uses any contractors to perform any activities under
this Agreement, SMIC shall ensure that the contractor shall procure and maintain
insurance at least as broad (including policy limits) as that required under
this Section 7, including naming SMIC and Spansion and/or any subsidiary of
Spansion as additional insureds under their policies of insurance.

 

20. DISPUTE RESOLUTION

20.1 Informal Resolution Principals. The Parties will attempt to settle any
claim, controversy or disagreement arising out of or in connection with this
Agreement (any “Dispute”) through consultation and negotiation in good faith and
a spirit of mutual cooperation. Except as set forth in Section 20.3 (entitled —
Escalation Exceptions), Parties shall attempt to resolve all Disputes in
accordance the escalation procedure set forth in Section 20.2 (entitled —
Escalation Procedure). The persons taking part in the dispute resolution process
for a Party shall endeavor negotiate a solution pursuant to such provisions
taking into account the needs of the Parties, and the risks taken and sacrifices
made by each.

 

31

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

20.2 Escalation Procedure. Except as set forth in Section 20.3 (entitled —
Escalation Exceptions), the Parties shall follow the escalation path below with
respect to any Dispute.

(a) In the first instance, the Parties will attempt to informally resolve to
resolve any Dispute.

(b) If the Parties are unable to come to agreement, they will refer resolution
of the Dispute to appointed senior management representatives.

(c) If the senior management representatives are unable to come to agreement,
they will refer resolution of the issue to the CEOs of SMIC and Spansion.

(d) If the CEOs are unable to resolve the matter in one hundred and eighty
(180) days after a Party has first submitted the matter for resolution in
accordance with this Section 20.2 (entitled — Escalation Procedure), then,
either Party may initiate legal proceedings.

20.3 Escalation Exceptions. Notwithstanding the foregoing, either Party may
initiate a judicial or administrative action without first engaging in the
escalation procedures described above with respect to: (a) any interim or
injunctive relief with respect to a Dispute; or (b) any Dispute with respect to
the Parties’ respective rights in any Technology, Intellectual Property Rights
or Confidential Information.

 

21. LIMITATION OF LIABILITY

21.1 EXCEPT FOR (I) SMIC’S PERFORMANCE OF OR FAILURE TO PERFORM ITS OBLIGATIONS
UNDER SECTION 17.2 (“INTELLECTUAL PROPERTY INDEMNIFICATION”), (II) BREACH OF
SMIC’S OBLIGATIONS UNDER SECTION 16 (“CONFIDENTIALITY”), OR (III) VIOLATION OF
SPANSION’S INTELLECTUAL PROPERTY RIGHTS,, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANTICIPATED OR LOST PROFITS OR FOR SPECIAL, PUNITIVE, INDIRECT,
LIQUIDATED, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.

21.2 EXCEPT FOR (I) SMIC’S PERFORMANCE OF OR FAILURE TO PERFORM ITS OBLIGATIONS
UNDER SECTION 17.2 (“INTELLECTUAL PROPERTY INDEMNIFICATION”), (II) BREACH OF
SMIC’S OBLIGATIONS UNDER SECTION 16 (“CONFIDENTIALITY”), OR (III) VIOLATION OF
SPANSION’S INTELLECTUAL PROPERTY RIGHTS, EITHER PARTY’S TOTAL LIABILITY ON ANY
CLAIM OF ANY KIND FOR ANY LOSS OR DAMAGE ARISING OUT OF OR IN CONNECTION WITH OR
RESULTING FROM THIS AGREEMENT OR FROM THE PERFORMANCE OR BREACH THEREOF SHALL IN
NO CASE EXCEED TWENTY-FIVE (25) MILLION U.S. DOLLARS.

 

22. MISCELLANEOUS

22.1 Compliance With Law. In the performance of this Agreement, SMIC will at all
times comply with all applicable governmental laws, statutes, ordinances, rules,
regulations, orders, and other requirements, including, without limitation, such
governmental requirements applicable to environmental protection, health,
safety, wages, hours, equal employment opportunity, nondiscrimination, working
conditions, import or export control, customs, and transportation. SMIC will
further comply with Spansion’s environmental, health, safety, and

 

32

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

security policies, procedures, and programs to the extent applicable, and
Spansion’s Code of Conduct. The current version of this Code is available upon
request and posted at www.spansion.com. As Spansion may modify this Code at any
time, SMIC shall periodically review the current version of the Code. In the
event that Spansion's assistance is necessary to achieve such compliance, SMIC
will promptly notify Spansion. Upon Spansion's request, SMIC will provide
Spansion with documentation demonstrating SMIC’s compliance. After reasonable
notice and under reasonable conditions, Spansion has the right to inspect and
copy any records of SMIC regarding such compliance.

22.2 Government Approval. SMIC shall, at its own expense, timely obtain all
necessary registration and government approvals (including without limitation,
Technology Import and Export Registration with the Ministry of Commerce) and
fulfill all other requirements and carry out all procedures related to this
Agreement that are or may in the future be required or advisable under any law
or regulation now or hereafter existing in PRC, to enable the Parties to
exercise, enforce and enjoy all of the rights and obligations contained herein,
including but not limited to the approvals and registrations required for the
import and export of technology and the procedures relating to the payment and
remittance of all amounts payable hereunder to SMIC in U.S. currency. SMIC shall
not be entitled to exercise any rights, and Spansion shall not be bound to
perform any obligations, contained in this Agreement until Spansion has received
evidence satisfactory to it of the granting to SMIC of all approvals and the
fulfillment of all other requirements referred to in this Section 22.2. Spansion
will use reasonable efforts to assist SMIC, i.e., by providing relevant
documentation or information, in meeting SMIC’s obligations under this
Section 22.2.

22.3 Delegation, Subcontracting, and Assignments. SMIC shall not assign its
rights, delegate its duties, or subcontract any work performed under the terms
of this Agreement without prior written authorization from Spansion. SMIC will
require its delegates or subcontractors to agree, in writing, to the terms and
conditions of this Agreement. Notwithstanding any delegation or subcontract,
SMIC shall remain obligated to Spansion in the performance of Services and will
remain bound by the terms and conditions of this Agreement. SMIC hereby consents
to the transfer and assignment of all rights, licenses, and obligations under
this Agreement to a successor entity of Spansion in connection with the
reorganization of Spansion. SMIC will not delegate or subcontract its
performance of this Agreement to any third Party without the express prior
written approval of Spansion. In addition, SMIC may not transfer the fabrication
of Contract Wafers to any physical location other than the Facilities at which
the fabrication of qualification Lots occurred without the express prior written
approval of Spansion.

22.4 Order of Precedence. If any inconsistencies arise between the terms of this
Agreement, the Process Supplements, Product Supplements, Process, Project
Schedules and other exhibits and attachments hereto, and agreements entered into
between the Parties, the order of precedence in determining the rights and
obligations of the Parties will be: (a) the Process Supplements, Product
Supplements (including any Process Project Schedules and other attachments);
then (b) this Agreement; then (c) the relevant accepted Purchase Order.

 

33

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

22.5 Environmental Matters.

(a) SMIC will indemnify and hold Spansion harmless from and against any
liability, claim, damage, injury, expense, suit, or cause of action, including,
but not limited to, reasonable attorneys fees, arising from or caused by any
toxic or hazardous substances or chemicals, as those terms are defined by
applicable environmental health or safety laws or regulations, which are used in
performance of this Agreement by SMIC, present in Scrap disposed of or destroyed
by SMIC, or present on any of the Facilities in or during SMIC’s performance of
this Agreement. SMIC will maintain compliance of the Facility with all
applicable laws and have all necessary permits, operating licenses or
authorizations necessary to operate its Facilities under applicable
environmental safety or health laws or regulations.

(b) SMIC hereby represents and warrants that all products manufactured by SMIC
and delivered to Spansion under this Agreement will not constitute products
manufactured with, or contain Class 1 ozone depleting substances or persistent
organic pollutants PFOS and PFOA.

22.6 Export Control and Governmental Approval.

(a) The Parties acknowledge that each must comply with all applicable rules and
laws in the performance of their respective duties and obligations including,
but not limited to, those relating to restrictions on export and to approval of
agreements. SMIC will be responsible for obtaining and maintaining all approvals
and licenses, including export licenses, permits and governmental authorizations
from the appropriate governmental authorities as may be required, to enable such
SMIC to fulfill its obligations under this Agreement.

(b) Each Party agrees that, unless prior written authorization is obtained from
the United States Bureau of Export Administration, it will not export,
re-export, or transship, directly or indirectly, any products or technical
information that would be in contravention of the Export Administration
Regulations then in effect as published by the United States Department of
Commerce.

22.7 Taxes. In the event that Spansion determines it is required by any
applicable law, regulation, or government order to withhold any taxes, customs,
levies, tariffs, duties or other charges (“Taxes”), from any payment made
pursuant to this Agreement or any amendment thereto:

(a) Spansion shall (i) withhold such Taxes from such payment, (ii) remit such
Taxes to the appropriate governmental authority, and (iii) obtain and furnish to
SMIC a tax receipt or other evidence of such remittance from the appropriate
governmental authority; and

(b) Spansion shall pay to SMIC the price set forth in the Agreement or any
amendment thereto, reduced by the amount of Taxes withheld and remitted to the
appropriate governmental authority; and

(c) Spansion and SMIC hereby agree that in the event a taxing authority claims
that Taxes in addition to the amount of Taxes withheld pursuant to Section 22.6
and/or interest and penalties are owing in respect of any payment made pursuant
to this Agreement or any amendment thereto, then SMIC shall indemnify Spansion
for any such Taxes, interest and penalties; and

 

34

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(d) SMIC shall provide Spansion with any form, certificate or other
documentation required to establish its eligibility for the benefits of any
applicable income tax treaty or to establish its entitlement to a reduction in
or an exemption from withholding.

(e) In the event that any Taxes are withheld pursuant to this Section 22.6,
Spansion shall take such steps as SMIC shall reasonably request to assist SMIC
to recover such Taxes from the appropriate governmental authority. For the
elimination of any doubt, SMIC shall be responsible for any employment related
taxes for the services performed by its employees

22.8 Records Available. SMIC will keep full and detailed accounting records,
correspondence, instructions, memoranda, receipts, specifications, vouchers, and
similar data relating to this Agreement. The accounting records will be prepared
and maintained on the basis of generally accepted accounting principles,
consistently applied. All such records will be available to Spansion or to
Spansion's authorized representative upon request of Spansion, within a
reasonable period of time after such a request, at a reasonable location, and
during normal business hours for a period of five (5) years after the delivery
of the applicable Product.

22.9 Gratuities. SMIC warrants that it has not directly or indirectly offered or
given, and will not directly or indirectly offer or give, to any employee,
agent, or representative of Spansion any cash or non-cash gratuity or payment
with a view toward securing any business from Spansion or influencing such
person with respect to the conditions of or performance under any contracts with
or order from Spansion, including without limitation this Agreement and any
Purchase Order. Any breach of this warranty will be a material breach of each
and every contract between Spansion and SMIC.

22.10 Notices. All notices relating to this Agreement must be given in writing
and will be deemed given (i) in the case of mail, on the date deposited in the
mail, postage prepaid, either registered or certified, with return receipt
requested (or its equivalent); (ii) in the case of personal delivery to an
authorized representative or officer of the party, or in the case of express
courier service or overnight delivery service of national standing, on the date
of delivery or attempted delivery (if receipt is refused); or (iii) in the case
of facsimile, 24 hours after it has been sent provided that a duplicate copy of
such notice is also promptly sent pursuant to (i) or (ii) above. Notices will be
sent to the Address for Notices set forth above, but each party may change its
address by written notice in accordance with this section.

22.11 Governing Law. This Agreement is governed by, subject to, and construed in
accordance with the internal laws of the State of California, excluding the
conflict of law rules, for any claim described under 22.12(a). Any claim
described under Section 22.12(b) shall be governed by and enforced in accordance
with the laws of the People’s Republic of China (“PRC”), excluding its conflict
of law principles. The parties specifically exclude from application to this.
The parties specifically exclude from application to this Agreement the United
Nations Convention on Contracts for the International Sale of Goods.

 

35

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

(a) Except for the Claims described in paragraph (b) below, all other claims
shall be submitted to arbitration to be conducted in the Hong Kong SAR in
accordance with the UNCITRAL Rules as applied by the Hong Kong International
Arbitration Centre (the “HKIAC”) at the time of the submission to arbitration by
a single arbitrator, who shall be a lawyer qualified in a common law
jurisdiction who has been engaged in the practice of law for at least ten
(10) years. If the parties are unable to agree on the identity of the single
arbitrator within thirty (30) days of submission to arbitration, the appointment
shall be made by the Secretary General of the HKIAC. The language of the
arbitration shall be English. Each party shall cooperate with the other party in
making full disclosure of and providing complete access to all information and
documents requested by the other party in connection with such arbitration
proceedings, subject only to any confidentiality obligations binding on such
party. The costs of arbitration shall be borne by the losing party. When any
claim occurs and is under arbitration, except for the matters under dispute, the
parties shall continue to fulfill their respective obligations and shall be
entitled to exercise their rights under this Agreement. The award of the
arbitration tribunal shall be final and binding upon the disputing parties, and
the prevailing party may apply to a court of competent jurisdiction for
enforcement for such award. Any party shall be entitled to seek injunctive
relief, if possible, from any court of competent jurisdiction pending the final
award of the arbitral tribunal. The parties agree that this Agreement relates to
certain confidential intellectual property rights and trade secrets of each
party.

(b) For claims related to Sections 15 and 16, the parties agree that these
provisions relate to particularly sensitive confidential and intellectual
property rights of each party and any breach of such provisions will result in
irreparable harm to the non-breaching party. As such, the parties agree that
preliminary or final injunctive relief will be particularly meaningful in the
event of any breach of such provisions. Therefore, solely for any claim related
to such provisions, the parties hereby agree that such claims related to
Sections 15 and 16 shall be governed by the laws of the PRC as determined by the
relevant PRC People’s Court.

(c) All remedies under this Agreement shall be cumulative except as expressly
provided otherwise and each party shall be entitled to seek any and all remedies
available to it at law or in equity from any court of competent jurisdiction
with respect to the enforcement of its intellectual property rights and the
other confidentiality obligations under this Agreement.

22.12 Severability. Each term of this Agreement shall be interpreted in such a
manner as to be effective and valid under applicable law. However, in the event
that any of the terms of this Agreement becomes or is declared illegal by any
court or tribunal of competent jurisdiction, or becomes otherwise unenforceable,
such term shall be deemed deleted from this Agreement and all the remaining
terms of this Agreement will remain in full force and effect.

22.13 Survivability. Except for termination of the obligations to provide
Products and to compensate for such Products, the terms and conditions of this
Agreement will continue and survive any termination of this Agreement.

22.14 Nonwaiver of Rights. The failure of either party to this Agreement to
object to or to take affirmative action with respect to any conduct of the other
party that is in violation of the terms of this Agreement will not be construed
as a waiver thereof, nor as a waiver of any future breach or subsequent wrongful
conduct.

 

36

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

LOGO [g49258g16c41.jpg]

CONFIDENTIAL

 

22.15 Modification. This Agreement may not be modified or amended except in
writing signed by a duly authorized representative of each party; no other act,
document, usage, or custom will be deemed to amend or modify this Agreement.

22.16 Agency. For purposes of this Agreement, SMIC acknowledges that only
officers of Spansion or members of Spansion’s Corporate Supply Management
department are authorized to provide notices, instructions, and directions
regarding SMIC’s performance hereunder. Spansion will not be liable for any
damages resulting from SMIC’s reliance upon statements made verbally or in
writing by other Spansion representatives.

22.17 Agreement Nonexclusive. It is understood and agreed between the parties
that unless specified to the contrary in the applicable Addendum, this Agreement
and each Purchase Order placed hereunder is non-exclusive and that SMIC will be
free to accept orders for Products from customers other than Spansion and that
Spansion will be free to order Products from sources other than SMIC.

22.18 Entire Agreement. This Agreement and all exhibits, attachments,
appendices, and documents incorporated or referenced herein, and the terms and
conditions in each Purchase Order and executed Addendum, constitute the complete
agreement between the parties and supersede all prior or contemporaneous
agreements or representations, written or oral, concerning the subject matter of
this Agreement. Where there is any conflict or inconsistency with the express
terms in this Agreement, the terms of this Agreement supersede such conflicting
or inconsistent terms and conditions in any Purchase Order or Addendum.

22.19 Foreign Corrupt Practices Act. Neither Party nor any of its officers,
employees, directors, representatives or agents, in connection with this
Agreement has paid or given, or will pay or give, anything in value, or has made
or will make, directly or indirectly, (i) any unlawful payment or (ii) any
payment, gift or other inducement to any government official, political party or
official thereof or any candidate for political office, with the intent or
purpose of: (a) influencing any act or decision of such person in his official
capacity; (b) inducing such person to do or omit to do any act in violation of
the lawful duty of such person; (c) receiving an improper advantage; or
(d) inducing such person to use his influence with a governmental authority to
affect or influence any act or decision of such governmental authority in
connection with this Agreement.

 

37

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

IN WITNESS WHEREOF, the Parties have caused the Agreement to be signed by duly
authorized representations on the dates specified below

 

SEMICONDUCTOR MANUFACTURING

INTERNATIONAL

CORPORATION, LTD.

    SPANSION LLC By:   /s/ Sam T. Wang     By:   /s/ Doug Duval Name:   Sam T.
Wang     Name:   Doug Duval Title:   Corporate V.P. and President     Title:  
VP, GSM           SMIC Americas       Date:   August 29, 2007     Date:   9/6/07

 

38