Exhibit 10.21

 

WAFER SUPPLY AGREEMENT

 

This Agreement (“Agreement”) is made and entered into as of this 29th day of
June, 2005 (the “Effective Date”), by and between:

 

(1) POWER INTEGRATIONS INTERNATIONAL LTD., a Cayman Islands corporation having
its principal place of business at P.O. Box 219, Strathvale House, North Church
Street, George Town, Grand Cayman, Cayman Islands (“POWER INTEGRATIONS”);

 

and

 

(2) MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., a corporation duly organized under
the laws of Japan, acting through its Semiconductor Company having its principal
place of business at 1 Kotari-yakemachi, Nagaokakyo City, Kyoto 617-8520, Japan
(“COMPANY”).

 

WITNESSETH:

 

WHEREAS, COMPANY is engaged in providing wafer foundry services for
semiconductor companies; and

 

WHEREAS, POWER INTEGRATIONS is engaged in the design, development, marketing and
sale of various integrated circuit products for use in power conversion
applications; and

 

WHEREAS, POWER INTEGRATIONS desires to acquire from COMPANY the fabrication and
supply of wafers of certain integrated circuit products, and COMPANY is willing
to supply such wafers to POWER INTEGRATIONS within the agreed upon production
capacity of COMPANY.

 

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NOW, THEREFORE, in consideration of the mutual covenants of the parties
contained herein, POWER INTEGRATIONS and COMPANY hereby agree as follows:

 

Article 1: (Definitions)

 

When used throughout this Agreement, each of the following terms shall have the
meaning indicated below:

 

1.1 COMMON SPECIFICATION(S): The specifications for the production, delivery and
acceptance of the WAFERS which will be provided by PI.

 

1.2 CONFIDENTIAL INFORMATION: Technical information, or other non-public
information relating to PI or SUPPLIER, whether in a human readable or
machine-readable form and whether recorded on paper, tape, diskette or any other
media, which is disclosed by the disclosing party to the receiving party and,
subject to Section 1.3 (“CONFIDENTIAL MANUFACTURING INFORMATION”), (i) which is
designated in writing, by appropriate legend, as confidential or, (ii) if
disclosed orally is identified as confidential information at the time of
disclosure and a summary of which is confirmed in writing within thirty (30)
days after oral disclosure designated, by appropriate legend, as confidential.
Notwithstanding the foregoing, all information generated by the activities and
actions of SUPPLIER under this Agreement on PI’s behalf (other than SUPPLIER
IMPROVEMENTS and SUPPLIER’S CONFIDENTIAL INFORMATION made solely and
independently by SUPPLIER without use of any of PI’s CONFIDENTIAL INFORMATION)
and any information, including all PI INTELLECTUAL PROPERTY, received by
SUPPLIER shall also be considered PI’s CONFIDENTIAL INFORMATION.

 

1.3 CONFIDENTIAL MANUFACTURING INFORMATION: All of PI’s CONFIDENTIAL
INFORMATION, whether in written, electronic, oral or other form, relating to the
PI PROCESS and conveyed by any means including, without limitation, during a
meeting between the parties, by phone, letter, email or facsimile, whether or
not declared or marked confidential and whether or not it is subsequently
described in writing.

 

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1.4 ENGINEERING PRODUCTION: The production by SUPPLIER of WAFERS for engineering
development.

 

1.5 INDIVIDUAL SALES CONTRACTS: Individual contracts of sale and purchase of the
WAFERS that will be concluded between SUPPLIER and PI pursuant to this
Agreement.

 

1.6 INTELLECTUAL PROPERTY RIGHTS: Copyrights, patent rights, trade secret
rights, moral rights, mask work rights and all other intellectual or proprietary
rights of any kind.

 

1.7 MASK SPECIFICATIONS: The specifications for the production, delivery and
acceptance of the MASK TOOLING SETS.

 

1.8 MASK TOOLING SETS: Those mask tooling sets made by or for SUPPLIER for use
in making WAFERS pursuant to this Agreement.

 

1.9 PI: POWER INTEGRATIONS and any of its SUBSIDIARIES.

 

1.10 PI IMPROVEMENTS: Any modification or change, made during the term of this
Agreement, to the PI INTELLECTUAL PROPERTY, unless such modification or change
is a SUPPLIER IMPROVEMENT.

 

1.11 PI INTELLECTUAL PROPERTY: The PI PROCESS, the COMMON SPECIFICATIONS, the
MASK TOOLING SETS and the mask databases therefor, the PI IMPROVEMENTS, and all
know-how related to the foregoing. PI INTELLECTUAL PROPERTY is PI’s CONFIDENTIAL
INFORMATION.

 

1.12 PI PROCESS: PI’s process technologies, which are implemented in the
SUPPLIER wafer fabrication facility to produce the WAFERS, and of which the
detailed specification is specified in the COMMON SPECIFICATIONS, plus all PI
IMPROVEMENTS.

 

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1.13 PILOT PRODUCTION: The production by SUPPLIER of WAFERS for the purpose of
evaluation by PI.

 

1.14 PRODUCTS: Any and all integrated circuit products of PI manufactured in
accordance with the PI PROCESS.

 

1.15 SUBSIDIARY: Any corporation, company or other entity in which SUPPLIER or
PI, as the case may be, owns and/or controls, directly or indirectly, now or
hereafter, more than fifty percent (50%) of the outstanding shares of stock
entitled to vote for the election of directors or their equivalents regardless
of the form thereof (other than any shares of stock whose voting rights are
subject to restriction); provided, however, that any entity which would be a
SUBSIDIARY by reason of the foregoing shall be considered a SUBSIDIARY only so
long as such ownership or control exists. SUPPLIER shall each enter into
separate written agreements (each a “SUBSIDIARY Agreement”) with each of their
respective SUBSIDIARIES who wish to exercise any rights under this Agreement,
binding the SUBSIDIARY to the terms and conditions of this Agreement. A
SUBSIDIARY shall maintain its status as a SUBSIDIARY under this Agreement only
for so long as such SUBSIDIARY has a SUBSIDIARY Agreement in force and effect.
SUPPLIER guarantees the performance of its respective SUBSIDIARIES under this
Agreement, and will indemnify and hold PI harmless from any costs, damages, or
liabilities incurred by PI arising out of a breach by a SUBSIDIARY of any of the
terms and conditions of this Agreement and/or SUBSIDIARY Agreements.

 

1.16 SUPPLIER: COMPANY and any of its SUBSIDIARIES.

 

1.17 SUPPLIER IMPROVEMENTS: Any modification or change, made during the term of
this Agreement, to the PI INTELLECTUAL PROPERTY that (i) are made solely by
SUPPLIER without use of any of PI’s CONFIDENTIAL

 

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INFORMATION, and (ii) SUPPLIER has a substantial use for other than
manufacturing or incorporation into PRODUCTS, and (iii) are based solely on the
SUPPLIER PROCESS.

 

1.18 SUPPLIER PROCESS: SUPPLIER’S standard process technology steps, from
SUPPLIER owned technologies, developed exclusively by SUPPLIER and implemented
in the SUPPLIER wafer fabrication facility to produce the WAFERS.

 

1.19 VOLUME PRODUCTION: The production by SUPPLIER of WAFERS for the volume
production of PRODUCTS.

 

1.20 WAFER(S): Non-probed silicon wafers manufactured by SUPPLIER for PI in
accordance with the COMMON SPECIFICATION.

 

1.21 WAFER TYPE. The different types of WAFERS (e.g., size, processing, location
of manufacture) as defined by the COMMON SPECIFICATION.

 

Article 2: (Foundry Commitment and Forecasts)

 

2.1 SUPPLIER agrees to commit to PI the foundry capacity (“FOUNDRY CAPACITY”) as
set forth in Exhibit A (SUPPLIER FOUNDRY CAPACITY and PRICING). Annually, PI
will provide SUPPLIER with a non-binding [* * * *] forecast of WAFER orders by
WAFER TYPE (“PI ANNUAL FORECAST”). Annually during the Term of this Agreement
and in advance of the beginning of SUPPLIER’S fiscal year, SUPPLIER and PI will
jointly review the PI ANNUAL FORECAST and SUPPLIER’S FOUNDRY CAPACITY for the
upcoming SUPPLIER fiscal year. Annually, at the beginning of SUPPLIER’S fiscal
year during the Term of this Agreement, SUPPLIER will commit a FOUNDRY CAPACITY
for the current SUPPLIER fiscal year, at each of the SUPPLIER’S plants making
WAFERS for PI, in an amount no less than [* * * *] Percent ([* * * *]%) of PI’s
total WAFER purchases by WAFER TYPE during the previous SUPPLIER fiscal year;
provided, however, that the committed FOUNDRY CAPACITY for the first fiscal year
shall

 

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not exceed the Minimum Capacity for the fiscal year 2005 provided in Exhibit A.
During the SUPPLIER fiscal year, SUPPLIER shall accept up to a [* * * *] percent
([* * * *]%) upside request over the current FOUNDRY CAPACITY, by WAFER TYPE,
upon a [* * * *] month written advance notice from PI, unless the current
FOUNDRY CAPACITY represents [* * * *] percent ([* * * *]%) of SUPPLIER’S total
capacity in which case such advance notice shall be a [* * * *] month written
notice. SUPPLIER can request PI to negotiate to reduce the committed FOUNDRY
CAPACITY, by WAFER TYPE, for the then current SUPPLIER fiscal year, if SUPPLIER
and PI determine that PI will not order at least [* * * *] percent ([* * * *] %)
of the PI ANNUAL FORECAST by WAFER TYPE. Any negotiated reduction in FOUNDRY
CAPACITY must be agreed to by PI in writing. Notwithstanding the foregoing,
SUPPLIER’s maximum committed FOUNDRY CAPACITY is [* * * *] WAFERS per month.

 

2.2 PI shall provide SUPPLIER, on or before a mutually agreed day of each
calendar month, a written [* * * *] month forecast (“PI MONTHLY FORECAST”) of
the quantity of the WAFERS of each PRODUCT to be manufactured and delivered
during the Term of this Agreement. Such forecast shall be in conformity with the
FOUNDRY CAPACITY.

 

2.3 PI must order the exact quantity of WAFERS per each PRODUCT forecasted in
the first month, and at least the quantity of WAFERS by WAFER TYPE forecasted in
the second month, of the PI MONTHLY FORECAST unless SUPPLIER agrees to any
change. PI may revise the quantity for each of the last [* * * *] months of each
PI MONTHLY FORECAST without penalty or charge.

 

Article 3: (Sale and Purchase of WAFERS; MASK TOOLING SETS)

 

3.1 PI shall purchase WAFERS from SUPPLIER and SUPPLIER shall sell such WAFERS
to PI.

 

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3.2 PI shall submit to SUPPLIER a purchase order (the “PO”) for the WAFERS in
accordance with the terms and conditions of this Agreement. All such PO’s shall
be accepted by SUPPLIER unless the PO cannot be met for reasons beyond
SUPPLIER’s control. SUPPLIER shall issue a written confirmation within [* * * *]
business days of receipt of the PO. Upon SUPPLIER’S confirmation, the PO terms
of total quantity, delivery date, delivery location and pricing shall constitute
an INDIVIDUAL SALES CONTRACT which will be deemed to incorporate all of the
terms and conditions of this Agreement. Subject to the restrictions of Section
2.3, for any INDIVIDUAL SALES CONTRACT, the quantity of WAFERS ordered for each
PRODUCT, within a WAFER TYPE, can be modified by PI by written notice received
by SUPPLIER at least [* * * *] weeks before the starting date of fabrication of
such WAFERS, so long as the total quantity of WAFERS is not less than the
original quantity ordered for that WAFER TYPE.

 

3.3 The mask databases for creating MASK TOOLING SETS for WAFERS of any PRODUCT
shall be supplied by PI to SUPPLIER in a timely manner. SUPPLIER shall
immediately notify PI in detail of any defects or non-conformity in the MASK
TOOLING SETS caused by the mask databases. Upon such notice, PI shall either
provide corrected mask databases and pay for corrected MASK TOOLING SETS or,
notwithstanding any other provision of this Agreement, PI can cancel the
INDIVIDUAL SALES CONTRACT for the affected WAFERS, upon written notice to
SUPPLIER, without any liability except for affected WAFER work in progress
(“WIP”) and inventory.

 

3.4 SUPPLIER will produce or procure the MASK TOOLING SETS for the WAFERS in
accordance with the MASK SPECIFICATIONS. SUPPLIER shall submit the MASK
SPECIFICATIONS to PI for prior approval. The cost of production or procurement
of the MASK TOOLING SETS shall be paid by PI and the MASK TOOLING SETS shall be
owned by PI. The price to PI for the MASK TOOLING SETS shall be SUPPLIER’S cost
to produce or procure them, and shall

 

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be commercially reasonable. If PI determines that the price or quality of the
MASK TOOLING SETS is not acceptable then, at PI’s option, the SUPPLIER will
procure the MASK TOOLING SETS from a vendor specified by PI. SUPPLIER will
produce or procure the MASK TOOLING SETS within [* * * *] working days after the
receipt of the mask database from PI. Upon request from PI, SUPPLIER will
produce or procure the MASK TOOLING SETS on an expedited basis.

 

Article 4: (INTELLECTUAL PROPERTY RIGHTS)

 

4.1 PI is and shall remain the sole and exclusive owner of all rights (including
INTELLECTUAL PROPERTY RIGHTS), title and interest in and to the PI INTELLECTUAL
PROPERTY. PI grants SUPPLIER a limited, non-transferable, non-exclusive, royalty
free license, without the right to sublicense, in the PI INTELLECTUAL PROPERTY
for the sole purpose of using it internally to manufacture WAFERS.
Notwithstanding any other statement in this Agreement, the foregoing license
shall not survive expiration or termination of this Agreement. SUPPLIER may not
(i) use the PI INTELLECTUAL PROPERTY for any purpose other than to manufacture
WAFERS, or (ii) license it to any third party.

 

4.2 PI shall be the sole and exclusive owner of all right, title and interest in
the PI IMPROVEMENTS. SUPPLIER hereby irrevocably and unconditionally transfers
and assigns to PI all of SUPPLIER’S right, title and interest worldwide in the
PI IMPROVEMENTS. SUPPLIER will promptly disclose to PI in writing all PI
IMPROVEMENTS upon their creation. SUPPLIER shall take all reasonable actions in
a timely manner, at PI’s expense, to assist PI in perfecting and enforcing its
rights in the PI IMPROVEMENTS. Such actions shall include but not be limited to
execution of assignments, patent applications and other documents. Subject to
all of the terms and conditions of this Agreement, PI hereby grants to SUPPLIER
a non-exclusive, irrevocable, perpetual, royalty-free, non-transferable,
worldwide, right and license to use, modify, reproduce, (but sub-license only to
a SUPPLIER SUBSIDIARY) the PI IMPROVEMENTS only for SUPPLIER’S

 

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development and manufacture of SUPPLIER’s products. Notwithstanding the
foregoing, no license is granted to the PI IMPROVEMENTS for the purpose of
SUPPLIER providing foundry service or other benefit to a third party.

 

4.3 In the event that any portion of Section 4.2 is declared invalid or illegal
according to any applicable law, (a) SUPPLIER hereby waives and agrees never to
assert such right, title and interest, including any moral rights or similar
rights, against PI or PI’s licensees and (b) the parties hereby modify such
portion, effective upon such declaration, in such manner as shall secure for PI
an exclusive, irrevocable, perpetual, worldwide, fully paid and royalty-free
license under all INTELLECTUAL PROPERTY RIGHTS, with rights to sublicense
through one or more level(s) of sublicensee(s), to use, modify, reproduce,
create derivative works of, distribute, publicly perform and publicly display by
all means now known or later developed, and otherwise exploit in any manner,
such rights in the PI IMPROVEMENTS, to the maximum extent permitted by
applicable law.

 

4.4 SUPPLIER shall be the sole and exclusive owner of all right, title and
interest in the SUPPLIER IMPROVEMENTS. SUPPLIER hereby grants to PI a
non-exclusive, irrevocable, perpetual, royalty-free, non-transferable,
worldwide, right and license to use, modify, reproduce, create derivative works
of, distribute, publicly perform and publicly display by all means now known or
later developed, and otherwise exploit in any manner all SUPPLIER IMPROVEMENTS
as part of the PI PROCESS and any modifications thereto. Without any consent of
SUPPLIER, PI may sublicense the foregoing license for the SUPPLIER IMPROVEMENTS
to PI’s SUBSIDIARY so long as the sublicense provides for the protection of
SUPPLIER’S CONFIDENTIAL INFORMATION on terms not less protective than those set
forth in this Agreement. SUPPLIER will promptly disclose to PI in writing all
SUPPLIER IMPROVEMENTS upon their creation.

 

4.5 SUPPLIER agrees not to use the PI INTELLECTUAL PROPERTY or any license under
this Agreement, in whole or in part, or any knowledge gained by SUPPLIER through
producing WAFERS, to develop an equivalent or competing process to the PI
PROCESS, or other product or service that would compete with PI.

 

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Article 5: (WAFER Production)

 

5.1 ENGINEERING PRODUCTION

 

5.1.1 For ENGINEERING PRODUCTION, PI may place an order with SUPPLIER for WAFERS
up to a maximum of [* * * *] WAFERS for each WAFER TYPE, or any other quantity
agreed to in writing by the parties. SUPPLIER will use its [* * * *] to ship
WAFERS in ENGINEERING PRODUCTION to PI as quickly as possible but no more than
[* * * *] working days after availability of the MASK TOOLING SETS.

 

5.1.2 Any output of the ENGINEERING PRODUCTION will be shipped to PI immediately
upon completion. If the WAFERS output is less than [* * * *] percent ([* * * *]
%) of the ordered quantity, SUPPLIER will inform PI of the output quantity of
the WAFERS and if PI requires to have the shortage covered, SUPPLIER will
re-input the WAFERS to cover the shortage of quantity at no additional cost to
PI.

 

5.2 PILOT PRODUCTION

 

5.2.1 For the PILOT PRODUCTION, PI may place an order with SUPPLIER for a
minimum of [* * * *] WAFERS per each PRODUCT, or any other quantity agreed to in
writing by the parties.

 

5.2.2 SUPPLIER will ship to PI WAFERS in PILOT PRODUCTION of each PRODUCT within
[* * * *] working days after availability of MASK TOOLING SETS for such PRODUCT.

 

5.2.3 The output of the PILOT PRODUCTION will be shipped to PI if such WAFERS
output is at least [* * * *] percent ([* * * *]%) of the ordered quantity.

 

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If the WAFERS output is less than [* * * *] percent ([* * * *]%) of the ordered
quantity, SUPPLIER will inform PI of the output quantity of the WAFERS and if PI
requires to have the shortage covered, SUPPLIER will re-input the WAFERS to
cover the shortage of quantity at no additional cost to PI.

 

5.3 VOLUME PRODUCTION

 

5.3.1 For VOLUME PRODUCTION, PI shall place a PO with SUPPLIER for a minimum of
[* * * *] WAFERS per each PRODUCT, or any other quantity agreed to in writing by
the parties. The delivery date of the PO shall be in accordance with the VOLUME
PRODUCTION cycle time for WAFERS as specified by the SUPPLIER but such cycle
time shall not exceed [* * * *] days.

 

5.3.2 For VOLUME PRODUCTION, SUPPLIER will ship the WAFERS ordered by PI by the
delivery date in the INDIVIDUAL SALES CONTRACT. SUPPLIER shall use reasonable
efforts to deliver the WAFERS earlier than such delivery date.

 

5.3.3 SUPPLIER will ship orders in quantities not less than [* * * *] percent
([* * * *] %) of the quantities ordered of each PRODUCT.

 

Article 6: (Delivery)

 

6.1 The terms of delivery of the WAFERS shall be FOB Japan (as such term is
defined in Incoterms 2000).

 

6.2 The title and risk of loss relating to the WAFERS delivered by SUPPLIER to
PI shall transfer from SUPPLIER to PI at such time and point as provided in
Incoterms 2000 relating to such FOB terms. PI shall have the right to designate
a freight forwarder, subject to SUPPLIER’S reasonable approval.

 

6.3 SUPPLIER will deliver the WAFERS within the number of calendar days
specified in the INDIVIDUAL SALES CONTRACT. In the event that

 

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SUPPLIER foresees a delay in the delivery schedule of the WAFERS, SUPPLIER shall
make a best effort to correct any delay and SUPPLIER shall promptly notify PI of
such delay and submit to PI the new delivery schedule. PI will have the right to
cancel, without liability, the INDIVIDUAL SALES CONTRACT for the delayed WAFERS
if the delay is greater than [* * * *] days and the delay is not due to PI’s
instruction.

 

6.4 SUPPLIER shall pack the WAFERS in accordance with the packing standards
defined in the COMMON SPECIFICATIONS.

 

6.5 SUPPLIER shall collect PCM data (“PCM DATA”), as defined in the COMMON
SPECIFICATIONS, on the manufactured WAFERS. SUPPLIER will send the PCM DATA
electronically to PI before the WAFERS are received by PI. The PCM DATA will be
accurate and complete for all WAFERS and sent in a mutually agreed upon format.

 

6.6 If PI determines, in consultation with SUPPLIER, that the WAFERS currently
being manufactured will not meet the PRODUCTS requirements, PI can,
notwithstanding any other provision of this Agreement, cancel the INDIVIDUAL
SALES CONTRACT for the affected WAFERS without any liability except for the
affected WAFER WIP and inventory, upon written notice to SUPPLIER.

 

Article 7: (Test and Inspection)

 

7.1 PI shall conduct incoming inspection of the WAFERS, by WAFER TYPE, to
determine the WAFERS’ conformance to the COMMON SPECIFICATIONS. The PCM DATA is
required for the incoming inspection of the WAFERS and the omission, inaccuracy
or other defect in the PCM DATA will in itself be sufficient cause to reject the
WAFERS. This inspection shall be regarded as final in terms of quality, quantity
and other conditions of the WAFERS supplied to PI, which are subject to
SUPPLIER’S warranty as defined in Section 11.1. All WAFERS passing the incoming
inspection will be accepted by PI.

 

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7.2 PI shall notify SUPPLIER which of the WAFERS have been accepted by PI within
[* * * *] days after receipt of the WAFERS by PI. Should PI fail to notify
SUPPLIER within the said [* * * *] days, the WAFERS shall be deemed to have been
accepted by PI. PI will owe SUPPLIER payment only for the quantity of WAFERS
that have been accepted by PI. PI may return non-accepted WAFERS at Supplier’s
cost and risk after obtaining a return authorization number from SUPPLIER in
writing. PI shall provide SUPPLIER with a report specifying the reason for such
rejection. SUPPLIER shall provide either a refund, or a replacement lot of the
Wafers within [* * * *] days after the receipt thereof pursuant to the mutual
consent of the parties.

 

7.3 SUPPLIER shall not be held responsible for the defects and failures of the
WAFERS which are attributable to the design, test and assembly by PI of the
PRODUCTS.

 

7.4 SUPPLIER shall not be held responsible for the defects, failures and yield
problems of the WAFERS if the WAFERS meet the specifications set forth in the
COMMON SPECIFICATIONS.

 

7.5 SUPPLIER may make a written special waiver request to PI to ship WAFERS that
do not comply with the COMMON SPECIFICATIONS. If PI approves such special waiver
request in writing, which approval may include special terms and conditions,
SUPPLIER may ship such non-complying WAFERS under such terms and conditions.

 

Article 8: (Process and Specification Changes)

 

8.1 SUPPLIER shall notify PI in writing as soon as possible, in advance of any
process change which requires PI’s change in any database or which would affect
the quality, reliability, manufacturability, form, fit or function of the
PRODUCTS. Each such process change shall be subject to PI’s prior written
approval. Notwithstanding any other provision of this Agreement, if PI does not

 

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approve and the process change is implemented, PI will have the right to cancel,
without liability, any INDIVIDUAL SALES CONTRACT affected by the process change.

 

8.2 PI shall have sole responsibility for the control, maintenance, distribution
and modification of the COMMON SPECIFICATIONS including but not limited to the
addition and maintenance of applicable process, inspection, quality and
procurement specifications. PI will notify SUPPLIER of any changes to the COMMON
SPECIFICATIONS by providing a copy of the amended COMMON SPECIFICATIONS to
SUPPLIER. SUPPLIER will acknowledge acceptance of the amended COMMON
SPECIFICATIONS in writing and SUPPLIER’S acceptance will not be unreasonably
withheld, conditioned or delayed. In the case of any issue with the COMMON
SPECIFICATIONS, SUPPLIER agrees that PI is the ultimate authority on the COMMON
SPECIFICATIONS.

 

Article 9: (Price)

 

9.1 The prices of the WAFERS, which are produced in the ENGINEERING PRODUCTION,
the PILOT PRODUCTION and the VOLUME PRODUCTION are set forth in Exhibit A
(SUPPLIER FOUNDRY CAPACITY and PRICING). Any modifications thereto must be
agreed upon by SUPPLIER and PI in writing, either as an amendment to Exhibit A
(SUPPLIER FOUNDRY CAPACITY and PRICING) or as part of an INDIVIDUAL SALES
CONTRACT. SUPPLIER and PI may jointly review and revise the WAFERS price, by
WAFER TYPE, within [* * * *] days of the close of each half of SUPPLIER’S fiscal
year or upon a material change to the COMMON SPECIFICATIONS.

 

9.2 Any gain or loss due to the exchange rate between Japanese Yen and United
States Dollars will be [* * * *] by PI and MEI per Exhibit B (EXCHANGE RATE) at
the time the WAFER order is placed.

 

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Article 10: (Payments)

 

10.1 Payment for the WAFERS shall be by wire transfer [* * * *] days after
receipt of invoice. SUPPLIER agrees to negotiate terms or alternate forms of
payment as proposed by PI.

 

Article 11: (Warranty, Indemnification)

 

11.1 SUPPLIER warrants that the WAFERS sold to PI will conform to the COMMON
SPECIFICATIONS. PI shall notify SUPPLIER in writing of any defect or
non-conformity of said WAFERS within [* * * *] months after notification of
acceptance per Section 7.2 above. SUPPLIER’S sole obligations under this
warranty are limited to, at PI’s option, (i) [* * * *] or [* * * *] any said
WAFERS which shall be returned to SUPPLIER’S manufacturing facility with [* * *
*], or (ii) SUPPLIER [* * * *] PI an [* * * *] to the purchase price of said
WAFERS.

 

11.2 SUPPLIER shall defend, indemnify and hold harmless PI, its officers,
directors, employees and representatives from and against any claim, demand,
cause of action, debt, or liability, including reasonable attorneys’ fees,
relating to or arising from allegations that the SUPPLIER PROCESS, SUPPLIER
IMPROVEMENTS and any SUPPLIER contributions to the PI INTELLECTUAL PROPERTY used
to produce WAFERS or the resulting WAFERS infringes any of the INTELLECTUAL
PROPERTY RIGHTS of a third party; provided that SUPPLIER is promptly notified in
writing of the action and is allowed to assume and control the defense thereof.
SUPPLIER shall pay [* * * *] and [ * * * *] awarded therein, but shall not be
responsible for any compromise or settlement made without SUPPLIER’S written
consent.

 

11.3 EXCEPT AS EXPRESSLY STATED HEREIN, NO EXPRESS OR IMPLIED WARRANTIES ARE
MADE BY SUPPLIER RELATING TO THE WAFERS, INCLUDING BUT NOT LIMITED TO WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. PI MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND WITH REGARD TO ANY OF THE PI INTELLECTUAL
PROPERTY.

 

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11.4 PI shall defend, indemnify and hold harmless SUPPLIER, its officers,
directors, employees and representatives from and against any claim, demand,
cause of action, debt, or liability, including reasonable attorneys’ fees,
relating to or arising from allegations that the PI PROCESS and any PI
contributions to the PI IMPROVEMENTS used to produce WAFERS infringes any of the
INTELLECTUAL PROPERTY RIGHTS of a third party; provided that PI is promptly
notified in writing of the action and is allowed to assume and control the
defense thereof. PI shall pay [* * * *] and [* * * *] awarded therein, but shall
not be responsible for any compromise or settlement made without PI’s written
consent.

 

11.5 Notwithstanding Section 13.7, SUPPLIER shall keep records for three (3)
years, notwithstanding the termination of this Agreement, of the WAFERS
manufactured and summaries of their process monitors. SUPPLIER agrees to permit
such records to be examined and copied by PI or PI’s authorized representative,
upon reasonable prior written notice to SUPPLIER, during normal business hours
at SUPPLIER’S offices. Such records shall be deemed to be PI’s CONFIDENTIAL
INFORMATION.

 

Article 12: (Confidentiality)

 

12.1 The receiving party shall use any CONFIDENTIAL INFORMATION acquired from
the disclosing party in connection with this Agreement solely for the purposes
of this Agreement.

 

12.2 Subject to Sections 12.7 and 12.8, for a period of [* * * *] years after
the receipt or creation of the CONFIDENTIAL INFORMATION, or during the Term of
this Agreement, whichever is longer, the receiving party shall use a reasonable
standard of care not to publish or disseminate the CONFIDENTIAL INFORMATION to
any third party, except as otherwise provided herein, and use

 

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such CONFIDENTIAL INFORMATION only for the purpose of this Agreement. The
receiving party shall have no obligation with respect to any CONFIDENTIAL
INFORMATION received by it which the receiving party shall prove is:

 

(a) Published or otherwise available to the public other than by a breach of
this Agreement or any other agreement by the receiving party;

 

(b) Rightfully received by the receiving party hereunder from a third party not
obligated under this Agreement or any other agreement, and without confidential
limitation;

 

(c) Known to the receiving party prior to its first receipt of the same from the
disclosing party;

 

(d) Independently developed by the receiving party without access to the
CONFIDENTIAL INFORMATION of the disclosing party;

 

(e) Furnished to a third party by the disclosing party without restrictions on
the third party’s right of disclosure similar to those of this Agreement; or

 

(f) Stated in writing by the disclosing party no longer to be CONFIDENTIAL
INFORMATION.

 

In the case that receiving party intends to disclose publicly or to a third
party any CONFIDENTIAL INFORMATION under any of the exceptions above, the
receiving party must first give the disclosing party written notice [* * * *]
days prior to any such disclosure.

 

12.3 If any CONFIDENTIAL INFORMATION is disclosed pursuant to the requirement or
request of a governmental or judicial agency or disclosure is required by
operation of law, such disclosure will not constitute a breach of this
Agreement, provided that the receiving party shall give prompt prior written
notice

 

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to the disclosing party to allow the disclosing party to seek a protective order
with respect thereto reasonably satisfactory to the disclosing party to the
extent available under applicable law.

 

12.4 The receiving party shall limit access to the CONFIDENTIAL INFORMATION only
to such officers and employees of the receiving party who are reasonably
necessary to implement this Agreement and only to such extent as may be
necessary for such officers and employees to perform their duties under this
Agreement. The receiving party shall be liable to cause all of such officers and
employees to sign a secrecy agreement to abide by the secrecy obligations
provided in this Agreement. The receiving party shall maintain records of such
officers and employees.

 

12.5 CONFIDENTIAL INFORMATION and all materials including, without limitation,
documents, drawings, masks, specifications, models, apparatus, sketches, designs
and lists furnished to the receiving party by, and which are themselves
identified to be or designated in writing to be the property of, the disclosing
party are and shall remain the property of the disclosing party and shall be
returned to the disclosing party promptly at its request, including any copies.

 

12.6 PI may disclose information with respect to any SUPPLIER IMPROVEMENTS to
the PI PROCESS to one or more third parties as PI’s CONFIDENTIAL INFORMATION and
covered by a non-disclosure agreement with protection equivalent to this
Agreement for the sole purpose of having such third parties provide PI with
design, layout, foundry, assembly and testing services.

 

12.7 CONFIDENTIAL MANUFACTURING INFORMATION will be confidential for a period of
[* * * *] years after the Term of this Agreement and SUPPLIER agrees to use its
best efforts to never make public the CONFIDENTIAL MANUFACTURING INFORMATION.
Notwithstanding any other provision of this Agreement, SUPPLIER shall treat the
CONFIDENTIAL MANUFACTURING INFORMATION in accordance with the confidentiality
obligations and use restrictions of this Agreement during that [****] year
period.

 

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12.8 SUPPLIER’S obligations with respect to any portion of PI’s CONFIDENTIAL
MANUFACTURING INFORMATION shall terminate when SUPPLIER can document and with
PI’s written concurrence that such CONFIDENTIAL MANUFACTURING INFORMATION:

 

(a) Was rightfully in the public domain at the time it was communicated to
SUPPLIER by PI; or

 

(b) Rightfully entered the public domain through no fault of SUPPLIER subsequent
to the time it was communicated to SUPPLIER by PI; or

 

(c) Was rightfully in SUPPLIER’S possession free of any obligation of confidence
at the time it was communicated to SUPPLIER by PI; or

 

(d) Was rightfully communicated to SUPPLIER by a third party free of any
obligation of confidence subsequent to the time it was communicated to SUPPLIER
by PI; or

 

(e) Was independently developed by SUPPLIER and the SUPPLIER gave PI notice
thereof, within thirty (30) days of the disclosure of the PI CONFIDENTIAL
MANUFACTURING INFORMATION to the SUPPLIER, documenting the information
independently developed by the SUPPLIER.

 

For any CONFIDENTIAL MANUFACTURING INFORMATION to be subject to an exception
above, any document containing such CONFIDENTIAL MANUFACTURING INFORMATION, and
the information related thereto, must in their entirety qualify for the
exception. This explicitly excludes any right to apply the exception by
redacting CONFIDENTIAL MANUFACTURING INFORMATION or any part thereof from a
document.

 

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In the case that SUPPLIER intends to disclose to an unauthorized party PI’s
CONFIDENTIAL MANUFACTURING INFORMATION under the exceptions above, the SUPPLIER
must first receive PI’s prior written approval and such approval will be in PI’s
sole discretion.

 

12.9 PI may request the confidential release of SUPPLIER’S CONFIDENTIAL
INFORMATION to a customer of the PRODUCTS for purposes of such customer’s
evaluation or audit. SUPPLIER shall not unreasonably withhold approval of the
release.

 

12.10 Obligation to Notify and Remedy. SUPPLIER will immediately give written
notice to PI of any suspected unauthorized use or disclosure of PI’s
CONFIDENTIAL MANUFACTURING INFORMATION and SUPPLIER will be responsible for
remedying such unauthorized use or disclosure. In the event that SUPPLIER or (to
the knowledge of SUPPLIER) any of its representatives is requested or required
(by oral questions, interrogatories, requests for information or documents in
legal proceedings, subpoenas, civil investigative demands or other similar
processes) to disclose any of PI’s CONFIDENTIAL MANUFACTURING INFORMATION,
SUPPLIER shall provide PI with prompt written notice of any such request or
requirement sufficiently timely to allow PI adequate time to seek a protective
order or other appropriate remedy and/or waive compliance with the provisions of
this Agreement.

 

Article 13: (Term and Termination)

 

13.1 This Agreement shall continue in full force and effect from the Effective
Date until the fifth anniversary of the Effective Date, unless earlier
terminated as provided herein (“Term”). If this Agreement has not been earlier
terminated, the parties agree to negotiate in good faith, beginning one year
prior to end of the Term, for this Agreement’s continuation for another five (5)
year period, on mutually agreeable terms and conditions.

 

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13.2 Notwithstanding anything to the contrary in Section 17.11 (“Force
Majeure”), if any governmental agency, entity or authority requires (including
through administrative guidance) any changes to this Agreement, PI may terminate
this Agreement immediately if the changes are, in PI’s sole discretion,
detrimental to PI’s interests or otherwise not reasonably acceptable to PI,
without liability of any kind.

 

13.3 In the event that either party has committed a material breach of this
Agreement, the other party shall promptly give written notice thereof to the
breaching party, specifying any alleged material breach or breaches. The
breaching party shall have [* * * *] days after the effective date of such
written notice to have all material breaches specified either remedied or waived
(“cured”). If such breaches are not so cured, the other party shall have the
right to terminate this Agreement effective upon written notice.

 

13.4 Either party shall also have the right to terminate this Agreement with
immediate effect by giving written notice of termination to the other party at
any time upon or after the occurrence of any of the following events with
respect to such other party:

 

(a) Insolvency, bankruptcy, reorganization or liquidation or filing of any
application therefor, or other commitment of an affirmative act of insolvency,
which is not promptly removed or stayed, if (1) the first party does not receive
prompt, satisfactory, written assurance from the other party that it can meet
its obligations under this Agreement, or (2) after such assurance such other
party does not continue to meet such obligations;

 

(b) Attachment, execution or seizure of substantially all of the assets or
filing of any application therefor which is not promptly released or stayed;

 

(c) Assignment or transfer of that portion of the business to which this
Agreement pertains to a trustee for the benefit of creditors; or

 

(d) Termination of its business or dissolution.

 

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13.5 In the event SUPPLIER shall be acquired or controlled, directly or
indirectly, by, or shall be consolidated or merged into, any other company or
corporation and reasonable written assurance satisfactory to PI shall not be
forthcoming in connection therewith as to the continued performance by
SUPPLIER’S successor of SUPPLIER’S obligations under this Agreement within [* *
* *] days thereafter, or in the event of such other company or corporation being
a [* * * *] of PI, then PI shall notify SUPPLIER’S successor immediately of such
a determination in writing and will have the right for a period of [* * * *]
days to request negotiations to cure any concerns. If no cure is obtained, the
parties will negotiate in good faith the orderly termination of this Agreement
upon written notice by PI to SUPPLIER’S successor.

 

13.6 No failure or delay on the part of either party in exercising its right of
termination hereunder for any one or more causes shall be construed to prejudice
its rights of termination for such cause or any other or subsequent cause.

 

13.7 In the event of expiration or termination of this Agreement, within [****]
days after expiration or termination of this Agreement, the receiving party
shall return to the disclosing party all media and documentation containing the
CONFIDENTIAL INFORMATION and render unusable all said CONFIDENTIAL INFORMATION
placed in any storage apparatus under the receiving party’s control. SUPPLIER
will promptly produce for PI all documents in any form containing CONFIDENTIAL
MANUFACTURING INFORMATION, whether made by PI or by SUPPLIER (including notes
made by SUPPLIER), and whether such documents be in hard copy, electronic
(including email), optical or other form.

 

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13.8 The termination or expiration of this Agreement shall not release either
party from any liability which at said date of termination or expiration has
already accrued to the other party.

 

13.9 Notwithstanding any termination or expiration of this Agreement, the
provisions of Articles 1 (“Definitions”), 4 (“INTELLECTUAL PROPERTY RIGHTS”), 11
(“Warranty, Indemnification and Improvements”), and 12 (“Confidentiality”),
Sections 13.7, 13.8, 13.9, and Articles 14 (“Government Regulations”), 15
(“Nondisclosure”), and 17 (“Miscellaneous Provisions”) shall survive this
Agreement.

 

Article 14: (Government Regulations)

 

14.1 Both parties hereto acknowledge that the CONFIDENTIAL INFORMATION disclosed
by the disclosing party to the receiving party hereunder may be subject to the
export control laws, rules or regulations of the relevant countries. The
disclosing party shall be responsible for obtaining any export license required
under such laws or regulations with respect to the export of any CONFIDENTIAL
INFORMATION by the disclosing party, and the receiving party agrees that it will
not export or re-export the CONFIDENTIAL INFORMATION communicated pursuant to
this Agreement, except in compliance with applicable law, rule or regulation,
including without limitation, the U.S. Export Administration Regulations. To the
extent the same practically is within its control, the receiving party agrees
that no CONFIDENTIAL INFORMATION received from the disclosing party will be
knowingly used by the receiving party, directly or indirectly, to make products
for customers whom such party knows intend to make use of such products for “[*
* * *] Purposes” (defined herein below). For the purpose of this Agreement, “[*
* * *] Purposes” means the design, development, or manufacture of any [* * * *],
including without limitation [* * * *], [* * * *], [* * * *] and [* * * *].

 

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14.2 SUPPLIER is responsible for all taxes in respect of this Agreement except
for taxes on PI’s income.

 

Article 15: (Non-Disclosure)

 

SUPPLIER shall keep this Agreement and its terms, conditions and existence
confidential and shall not make disclosure thereof to any third party without
the prior written consent of PI, which will be at PI’s sole discretion and, if
given, shall be conditioned upon all CONFIDENTIAL MANUFACTURING INFORMATION
being redacted from such disclosure. Notwithstanding any other statement in this
Agreement, PI may disclose this Agreement and/or its terms and conditions to the
extent that such disclosure is necessary to comply with federal and state
securities and other applicable laws.

 

Article 16: (Third Party Service Providers)

 

16.1 SUPPLIER shall have no right to have WAFERS manufactured, in whole or in
part, by a third party unless PI gives its written approval therefor in advance,
which approval shall be at PI’s sole discretion. If PI does give such written
approval, then SUPPLIER may disclose PI’s CONFIDENTIAL INFORMATION for the sole
purpose of, and only to the extent reasonably necessary for, having such third
party provide such services solely for the benefit if PI and not for the benefit
of any other party. Such approval shall be conditioned upon:

 

(a) PI’s prior review and written approval of the contract between SUPPLIER and
such third party performing such manufacture; and

 

(b) the third party agreeing in writing to all applicable terms and conditions
of this Agreement, and;

 

(c) SUPPLIER being the insurer and guarantor of such third party’s full
observance of such terms and conditions; and

 

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(d) SUPPLIER’S disclosure of CONFIDENTIAL MANUFACTURING INFORMATION to such
third party being subject to PI’s prior written approval, which shall be at PI’s
sole discretion.

 

Article 17: (Miscellaneous Provisions)

 

17.1 Entire Agreement. This Agreement embodies the entire understanding of the
parties as it relates to the subject matter hereof and this Agreement supersedes
any prior agreements or understandings between the parties with respect to such
subject matter.

 

17.2 Headings. The article and section headings herein are for convenience only
and shall not affect the construction hereof.

 

17.3 Waiver. Should either PI or SUPPLIER fail to enforce any provision of this
Agreement or to exercise any right in respect thereto, such failure shall not be
construed as constituting a waiver or a continuing waiver of its rights to
enforce such provision or right or any other provision or right.

 

17.4 No License. Nothing contained in this Agreement shall be construed as
conferring by implication, estoppel or otherwise upon either party hereunder any
license or other right except as expressly set forth in Article 4 (“INTELLECTUAL
PROPERTY RIGHTS”).

 

17.5 English Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon the
parties. All communications between SUPPLIER and PI to effect the terms of this
Agreement shall be in the English language only.

 

17.6 No Agency. The parties to this Agreement are independent contractors. There
is no relationship of agency, partnership, joint venture, employment or
franchise between the parties. Neither party has, nor will either party
represent that it has, the authority to bind the other or to incur any
obligation on its behalf.

 

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17.7 Notices. Any notice required or permitted to be given by either party to
the other party under this Agreement shall be in writing and delivered by
overnight courier, signature of receipt required, and shall be deemed delivered
upon written confirmation of delivery by the courier, if sent to the following
respective addresses or such new addresses as may from time to time be supplied
hereunder.

 

To:    SUPPLIER          

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

         

Semiconductor Company

         

1 Kotari-yakemachi, Nagaokakyo City,

         

Kyoto 617-8520, Japan

         

Attention: Director, Discrete Semiconductor Business Unit

To:    PI          

Power Integrations International Ltd.

         

P.O. Box 219, Strathvale House, North Church Street

         

George Town, Grand Cayman, Cayman Islands

         

Attention: President

 

17.8 Invalidity. If any provision of this Agreement, or the application thereof
to any situation or circumstance, shall be invalid or unenforceable, the
remainder of this Agreement or the application of such provision to situations
or circumstances other than those as to which it is invalid or unenforceable,
shall not be affected; and each remaining provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by applicable law. In the
event of such partial invalidity, the parties shall seek in good faith to agree
on replacing any such legally invalid provisions with provisions which, in
effect, will most nearly and fairly approach the effect of the invalid
provision.

 

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17.9 Successors and Assigns; No Assignment.

 

(a) This Agreement, and all rights, licenses and obligations herein, shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that except as set forth below neither party
shall assign this Agreement or any of its rights or privileges, or delegate any
of its obligations, hereunder without the prior written consent of the other
party.

 

(b) Notwithstanding any other provision of Agreement, either party may without
the prior consent of the other party assign all of its rights and delegate all
of its duties under this Agreement to a purchaser of all or substantially all of
such party’s stock or assets or to a third party participating in a merger or
other corporate reorganization in which such party is a constituent corporation.
Within 180 days after such assignment, if the assignee is (i) a [****] of the
other party, and (ii) of [****] to the other party or larger, then either party
may elect to have this Agreement be deemed to have expired and to have the
provisions of Sections 13.7 and 13.8 take effect [****] days after written
notice to the other party of such election. Any terminations by either party in
this situation will become effective after a reasonable but significant
transition period for PI to bring up another supplier of WAFERS.

 

17.10 Force Majeure. Either party shall be excused for failures and delays in
performance caused by war, declared or not, any laws, proclamations, ordinances
or regulations of the government of any country or of any political subdivision
of any country, or strikes, lockouts, floods, fires, explosions, acts of
terrorism or such other catastrophes as are beyond the control or without the
material fault of such party (“CAUSES”). Any party claiming any such excuse for
failure or delay in performance due to such CAUSES shall give prompt notice
thereof to the other party, and neither party shall be required to perform
hereunder during the period of such excused failure or delay in performance
except as otherwise provided herein. This provision shall not, however, release
such party from using its best efforts to

 

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avoid or remove all such CAUSES and such party shall continue performance
hereunder with the utmost dispatch whenever such CAUSES are removed. In the
event that the period of excused performance continues for ninety (90) days,
this Agreement may be terminated by the party not excused under this Section
17.10 (“Force Majeure”), by written notice to the other party, subject to the
provisions of Article 13 (“Term and Termination”) relating to the effect of
termination.

 

17.11 Amendment. This Agreement may not be extended, supplemented or amended in
any manner except by an instrument in writing expressly referring to this
Agreement and duly executed by authorized officers of both parties.

 

17.12 Equitable Relief. Each party will have access to and become acquainted
with the CONFIDENTIAL INFORMATION of the other party, the unauthorized use or
disclosure of which would cause irreparable harm and significant injury which
would be difficult to ascertain and which would not be compensable by damages
alone. Therefore the parties agree that in such circumstances the party whose
CONFIDENTIAL INFORMATION was used or disclosed without authorization by the
other party will have the right, in any court of competent jurisdiction, to
obtain an injunction, specific performance, or other equitable relief without
prejudice to any other rights and remedies that it may have for such breach of
this Agreement.

 

17.13 LIMITATION OF LIABILITY. EXCEPT AS TO OBLIGATIONS ARISING UNDER SECTIONS
11.2 AND 11.4, AND ARTICLE 12 (“CONFIDENTIALITY”): (1) NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR [* * * *] IN ANY WAY ARISING
OUT OF OR RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER
IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF ANY REPRESENTATIVE OF SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, AND (2) DAMAGES FOR EACH CLAIM BY EITHER

 

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PARTY UNDER THIS AGREEMENT SHALL NOT EXCEED [* * * *] AS MEASURED FROM THE DATE
OF THE EVENT THAT CAUSED THE CLAIM FOR SUCH DAMAGES. THE FOREGOING SENTENCE
SHALL NOT APPLY TO SUPPLIER’s BREACH OF ANY PROVISION OF ARTICLE 2 (“FOUNDRY
COMMITMENT AND FORECASTS”), IF SUCH BREACH BENEFITED SUPPLIER.

 

17.14 Governing Law. This Agreement and matters connected with the performance
hereof shall be construed, interpreted, applied and governed in all respects in
accordance with the laws of the State of California and the United States
without regard to conflict of laws principles. The parties agree that the United
Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.

 

17.15 Arbitration. Subject to Section 17.12 (“Equitable Relief”) and other than
disputes relating to INTELLECTUAL PROPERTY RIGHTS, disputes which cannot be
settled amicably and by good faith negotiations within sixty (60) days after
written notice by one party to the other party of such inability to amicably
settle shall thereafter be settled by binding arbitration. Subject to Section
17.14 (“Governing Law”), the arbitration shall be conducted in English pursuant
to the Rules of Arbitration of the International Chamber of Commerce, and shall
be held in San Francisco, California. Any judgment or award rendered in these
arbitrations may be entered and enforced by any court of competent jurisdiction
and may include, when appropriate, equitable relief.

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
their respective corporate names by their duly authorized representatives on the
date written below.

 

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.      POWER INTEGRATIONS INTERNATIONAL
LTD. Signature:  

/s/ Yuji Yamanishi

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

     Signature:  

/s/ John Tomlin

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

Name:  

Yuji Yamanishi

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

     Name:  

John Tomlin

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

Title:  

IPD Category Owner

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

     Title:  

President

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

 

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EXHIBIT A

 

SUPPLIER FOUNDRY CAPACITY AND PRICING

 

[* * * *] WAFERS

 

12 Month Period

April 1-March 31

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

   2005-2006

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

  2006-2007

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

   2007-2008

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

   2008-2009

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

   2009-2010

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

Minimum Capacity    [* * * *]
WAFERS/
Mo.                    Standard Process Price Per Wafer    [* * * *] ¥         
         

DC Process

Price per Wafer for orders between [* * * *] and [* * * *] WAFERS per month

   [* * * *] ¥                   

DC Process

Price per Wafer for orders between [* * * *] and [* * * *] WAFERS per month

   [* * * *] ¥                   

DC Process

Price per Wafer for orders of [* * * *] WAFERS per month and above

   Price to be
negotiated                   

 

The above prices apply to ENGINEERING PRODUCTION, PILOT PRODUCTION and VOLUME
PRODUCTION WAFERS.

 

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EXHIBIT B

 

EXCHANGE RATE

 

Base exchange rate (“F/X_BASE”) will be set at [* * * *]¥.

 

A new effective F/X_RATE is only established at the time of placing a purchase
order for WAFERS if the Previous Month’s Average daily exchange rate is equal to
or greater than [* * * *]¥ from the current F/X_RATE. The new F/X_RATE will be
set to the Previous Month’s Average exchange rate and will remain in effect for
at least the month it was established.

 

The actual WAFERS PURCHASE_PRICE used at the time of order will be calculated by
the following formula:

 

Calculation Example

 

Production WAFERS BASE_PRICE = [* * * *] ¥

 

F/X_BASE = [* * * *] ¥/$

 

Initial F/X_RATE = [* * * *] ¥/$

 

PURCHASE_PRICE = [* * * *]

 

Examples:

 

  1) Nominal F/X Rate Example: F/X_RATE = [* * * *] ¥:

 

PURCHASE_PRICE = [* * * *]

 

  2) Higher F/X Rate Example: New F/X_RATE = [* * * *] ¥:

 

PURCHASE_PRICE = [* * * *]

 

  3) Lower F/X Rate Example: New F/X_RATE = [* * * *] ¥:

 

PURCHASE_PRICE = [* * * *]

 

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