Document:

Exhibit 10.2 - Form of Xoma Ltd. Change of Control Severance Agreement

     

    Exhibit
      10.2

     

    FORM
      OF

     

    XOMA
      LTD.

     

    CHANGE
      OF CONTROL SEVERANCE AGREEMENT

    

     

    This
      Change of Control Severance Agreement (the “Agreement”) is made and entered into
      effective as of _______, 2006 (the “Effective Date”), by and between ___________
      (the “Employee”) and XOMA Ltd., a Bermuda company (the “Company”).

     

    R
      E C I
      T A L S

     

    A. It
      is
      expected that the Company may from time to time consider the possibility of
      a
      Change of Control (as hereinafter defined). The Board of Directors of the
      Company (the “Board”) recognizes that such consideration could be a distraction
      to the Employee and could cause the Employee to consider alternative employment
      opportunities.

     

    B. The
      Board
      believes that it is in the best interest of the Company and its shareholders
      to
      provide the Employee with an incentive to continue the Employee’s employment and
      to maximize the value of the Company upon a Change of Control for the benefit
      of
      its shareholders.

     

    C. In
      order
      to provide the Employee with enhanced financial security and sufficient
      encouragement to remain with the Company notwithstanding the possibility of
      a
      Change of Control, the Board believes that it is imperative to provide the
      Employee with certain severance benefits upon the Employee’s termination of
      employment following a Change of Control.

     

    D. XOMA
      (US)
      LLC, a wholly-owned subsidiary of the Company, and the Employee have previously
      entered into an employment agreement effective as of _______, 2006 (the
“Existing Agreement”), which provides the Employee with certain severance
      benefits upon the Employee’s termination of employment.

     

    E. The
      parties intend that this Agreement shall operate in addition to, and not in
      replacement of, the Existing Agreement.

     

    AGREEMENT

     

    In
      consideration of the mutual covenants herein contained and the continued
      employment of the Employee by the Company, the parties agree as
      follows:

     

    1.  Definition
      of Terms.
      The
      following terms referred to in this Agreement shall have the following
      meanings:

     

     

    (a)  “Cause”
      shall mean (i) the Employee has been convicted of any crime or offense
      constituting a felony under applicable law, including, without limitation,
      any
      act of dishonesty such as embezzlement, theft or larceny, (ii) the Employee
      has acted or refrained from 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    acting
      in
      respect of any of the duties and responsibilities which have been assigned
      to
      her/him in accordance with this Agreement or the Existing Agreement and shall
      fail to desist from such action or inaction within thirty (30) days after the
      Employee’s receipt of notice from the Company of such action or inaction and the
      Board determines that such action or inaction constituted gross negligence
      or a
      willful act of malfeasance or misfeasance of the Employee in respect of such
      duties, or (iii) the Employee has breached any material term of this
      Agreement or the Existing Agreement and shall fail to correct such breach within
      thirty (30) days after the Employee’s receipt of notice from the Company of such
      breach.

     

     

    (b)  “Change
      of
      Control” shall mean the occurrence of any of the following events: 

     

     

    (i)  a
      merger,
      amalgamation or acquisition in which the Company is not the surviving or
      continuing entity, except for a transaction the principal purpose of which
      is to
      change the jurisdiction of the Company’s organization;

     

     

    (ii)  the
      sale,
      transfer or other disposition of all or substantially all of the assets of
      the
      Company;

     

     

    (iii)  any
      other
      reorganization or business combination in which fifty percent (50%) or more
      of
      the Company’s outstanding voting securities are transferred to different holders
      in a single transaction or series of related transactions;

     

     

    (iv)  any
      approval by the shareholders of the Company of a plan of complete liquidation
      of
      the Company;

     

     

    (v)  any
      “person” (as such term is used in Sections 13(d) and 14(d) of the
      Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as
      defined in Rule 13d-3 under said Act), directly or indirectly, of
      securities of the Company representing more than fifty percent (50%) of the
      total voting power represented by the Company’s then outstanding voting
      securities; or

     

     

    (vi)  a
      change
      in the composition of the Board, as a result of which fewer than a majority
      of
      the directors are Incumbent Directors. “Incumbent Directors” shall mean
      directors who (A) are directors of the Company as of the date hereof, (B)
      are elected, or nominated for election, to the Board with the affirmative votes
      of the directors of the Company as of the date hereof, or (C) are elected,
      or nominated for election, to the Board with the affirmative votes of at least
      a
      majority of those directors whose election or nomination was not in connection
      with any transaction described in subsections (i) through (v) or in
      connection with an actual or threatened proxy contest relating to the election
      of directors of the Company. 

     

     

    (c)  “Change
      of
      Control Protection Period” shall mean the period commencing one (1) month prior
      to the execution of the definitive agreement for a Change of Control and
      eighteen (18) months following the closing of a Change of Control.

     

    
      
         

      

      
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    (d)  “Compensation
      Continuation Period” shall mean the period of time commencing with termination
      of the Employee’s employment as a result of Involuntary Termination at any time
      within a Change of Control Protection Period and ending with the date ______
      months following the date of the Employee’s Involuntary
      Termination.

     

     

    (e)  “Code”
      shall mean the Internal Revenue Code of 1986, as amended. 

     

     

    (f)  “Involuntary
      Termination” shall mean (i) the failure of a successor or an acquiring
      company to offer the Employee the position held by Employee on the date of
      this
      Agreement (or, if higher, a subsequent position of the Employee) with the
      successor or acquiring company following a Change of Control; (ii) without
      the Employee’s express written consent, a substantial reduction, without good
      business reasons, of the rights, privileges and perquisites available to the
      Employee immediately prior to such reduction; (iii) without the Employee’s
      express written consent, a material diminution in the authority,
      responsibilities, duties or reporting lines held or possessed by the Employee
      prior to the Change of Control; (iv) without the Employee’s express written
      consent, a reduction by the Company of the Employee’s base salary or target
      bonus as in effect immediately prior to such reduction; (v) without the
      Employee’s express written consent, a material reduction by the Company in the
      kind or level of employee benefits to which the Employee is entitled immediately
      prior to such reduction with the result that the Employee’s overall benefits
      package is significantly reduced; (vi) without the Employee’s express
      written consent, the relocation of the regular offices of the Employee to a
      facility or a location more than thirty (30) miles further from the Employee’s
      current location (unless such new facility or location is closer to the
      Employee’s residence); (vii) any purported termination of the Employee by
      the Company which is not effected for Cause or for which the grounds relied
      upon
      are not valid; or (viii) the failure of the Company to obtain the
      assumption of this Agreement by any successors contemplated in Section 7
      below.

     

     

    2.  Term
      of
      Agreement.
      This
      Agreement shall terminate upon the date that all obligations of the parties
      hereto under this Agreement have been satisfied or, if earlier, on the date,
      prior to a Change of Control Protection Period, the Employee is no longer
      employed by the Company.

     

     

    3.  At-Will
      Employment.
      The
      Company and the Employee acknowledge that the Employee’s employment is and shall
      continue to be at-will, as defined under applicable law. If the Employee’s
      employment terminates for any reason, the Employee shall not be entitled to
      any
      payments, benefits, damages, awards or compensation other than as provided
      by
      this Agreement or the Existing Agreement or as may otherwise be established
      under the Company’s then existing employee benefit plans or policies at the time
      of termination.

     

     

    4.  Change
      of Control and Severance Benefits.

     

     

    (a)  Option
      Acceleration and Extended Exercise Period.
      If the
      Employee’s employment with the Company terminates as a result of an Involuntary
      Termination at any time within a Change of Control Protection Period, then
      the
      exercisability of all options granted to the Employee by the Company (including
      any such options granted or assumed by the sur-

     

    
      
         

      

      
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    viving
      or
      continuing entity of the Change of Control) and still outstanding (the
“Options”) shall automatically be accelerated so that all the Options may be
      exercised immediately upon such Involuntary Termination for any or all of the
      shares subject thereto and the post-termination exercise period shall be
      extended to sixty (60) months or the remainder of the maximum term of the
      Options (or such shorter period of time to avoid the application of Section
      409A
      of the Code). The Options shall continue to be subject to all other terms and
      conditions of the Company’s share option plans and the applicable option
      agreements between the Employee and the Company. 

     

     

    (b)  Outplacement
      Program.
      If the
      Employee’s employment with the Company terminates as a result of an Involuntary
      Termination at any time within a Change of Control Protection Period, the
      Employee will immediately become entitled to participate in a twelve (12) month
      executive outplacement program provided by an executive outplacement service,
      at
      the Company’s expense not to exceed fifteen thousand dollars
      ($15,000).

     

     

    (c)  Termination
      Following a Change of Control.

     

     

    (i)  Cash
      Severance Payment Upon Involuntary Termination.
      If the
      Employee’s employment with the Company terminates as a result of an Involuntary
      Termination at any time within a Change of Control Protection Period, then
      the
      Employee shall be entitled to receive a severance payment equal to the sum
      of
      (A) an amount equal to ____ times the Employee’s annual base salary as in effect
      immediately prior to the Involuntary Termination, plus (B) an amount equal
      to
      ____ times Employee’s target bonus as in effect for the fiscal year in which the
      Involuntary Termination occurs. Such severance payments shall be in lieu of
      any
      other severance payment to which the Employee shall be entitled as a result
      of
      such termination pursuant to this Agreement, any employment agreement with
      or
      offer letter from the Company or any of its affiliates or the Company’s or any
      of its affiliate’s then existing severance plans and policies. The severance
      payment described in Section 4(c)(i)(A) shall be paid in monthly installments
      over ______ months, beginning within thirty (30) days of the termination,
      provided, however, if the Employee is employed with another employer at any
      time
      within ______ months following the termination, then, to the extent permitted
      under Section 409A of the Code and the final rules and regulations promulgated
      thereunder, any remaining unpaid installment payments shall be paid in a lump
      sum within 30 days of the receipt by the Company of written notice and
      confirmation of such new employment. The severance payment described in Section
      4(c)(i)(B) shall be paid in a lump sum within thirty (30) days of the
      termination. 

     

     

    (ii)  Provision
      of Group Health and Certain Other Benefits.
      In
      addition, during a period of ______ months following the termination of
      Employee’s employment as a result of an Involuntary Termination at any time
      within a Change of Control Protection Period, (A) the Company shall make
      available and pay for the full cost of the coverage (plus an additional amount
      to pay for the taxes on such payments, if any, plus any taxes on such additional
      amount) of the Employee and Employee’s spouse 

     

    
      
         

      

      
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    and
      eligible dependents under any group health plans of the Company on the date
      of
      such termination of employment at the same level of health (i.e., medical,
      vision and dental) coverage and benefits as in effect for the Employee or such
      covered dependents on the date immediately preceding the date of the Employee’s
      termination; provided,
      however,
      that
      (1) the Employee and Employee’s spouse and eligible dependents each
      constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of
      the Internal Revenue Code of 1986, as amended; and (2) the Employee elects
      continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
      Act of 1985, as amended (“COBRA”), within the time period prescribed pursuant to
      COBRA; and (B) if Employee is, at the time of such termination, an eligible
      participant in the Company’s mortgage differential program, the Company shall
      continue to make mortgage assistance payments to Employee pursuant to such
      program as in effect at the time of such termination. Notwithstanding the
      foregoing, the payments by the Company for such group health coverage and/or
      mortgage assistance, as applicable, shall cease prior to the expiration of
      the
      ______ month period in this Section 4(c)(ii) upon the employment of the
      Employment by another employer. Furthermore, if, at the time of the termination
      of Employee’s employment as a result of an Involuntary Termination at any time
      within a Change of Control Protection Period, Employee is the obligor of a
      “forgivable” loan (i.e., a loan which by its terms is to be considered forgiven
      by the Company and paid by the obligor in circumstances other than actual
      repayment) from the Company, then, notwithstanding any provisions of such loan
      to the contrary, such loan shall remain outstanding, and the forgiveness thereof
      shall continue, for a period of ______ months following such termination in
      accordance with the terms of such loan in effect at the time of such
      termination; provided,
      however, that
      at
      the end of such period of ______ months, the outstanding balance of such loan
      shall be immediately due and payable, together with any accrued and unpaid
      interest thereon.

     

     

    (iii)  Section
      409A of the Code.
      Notwithstanding the foregoing clauses (i) and (ii), to the extent any of the
      severance payments, mortgage assistance payments or loan forgiveness referred
      to
      therein, or any taxes payable on the health benefits referred to therein, would
      be deemed made in connection with a “separation from service” within the meaning
      of the term in Section 409A(a)(2)(A)(i) of the Code to a “specified employee”
within the meaning of the term in Section 409A(a)(2)(B(i) of the Code, and
      not
      exempt from the requirements of Section 409A of the Code, then such payments
      or
      forgiveness, as the case may be, shall be postponed until six (6) months
      following the Employee’s termination from employment as required by Section 409A
      of the Code, provided,
      however,
      if prior
      to the expiration of such six-month period, the Employee dies or becomes
“disabled” within the meaning of the term in Section 409A(a)(2)(c) of the Code,
      or suffers an “unforeseeable emergency” within the meaning of the term in
      Section 409A(a)(2)(B)(ii), or there has occurred a subsequent “change in the
      ownership or effective control” of the Company or in the “ownership of a
      substantial portion of the assets” of the Company within the meaning of such
      phrases in Section 409A(a)(2)(A)(v) of the Code, then such payments or
      forgiveness, as the case may be, shall commence prior to expiration of the
      six
      month pe-

     

    
      
         

      

      
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    riod
      according to the original payment schedule for such payments to the extent
      permitted by Section 409A of the Code. Thus, for example, if the provision
      in
      the preceding sentence applies, the first six (6) monthly installments of the
      severance payments provided for in clause (i) above shall be paid immediately
      following the six (6) month period in a lump sum and the seventh (7th) through
      ______ installments shall be paid according to their original schedule provided
      that the Employee does not die, become “disabled,” or suffer an “unforeseeable
      emergency,” and there has not occurred a “change in the ownership or effective
      control” of the Company or in the “ownership of a substantial portion of the
      assets” of the Company during such six-month period.

     

     

    (iv)  Voluntary
      Resignation or Termination for Cause.
      If the
      Employee’s employment with the Company terminates as a result of the Employee’s
      voluntary resignation which is not an Involuntary Termination or if the Employee
      is terminated for Cause at any time after a Change of Control, then the Employee
      shall not be entitled to receive severance or other benefits hereunder, but
      may
      be eligible for those benefits (if any) as may then be established under the
      Company’s then existing severance and benefits plans and policies at the time of
      such termination.

     

     

    (d)  Disability
      or Death.
      If the
      Employee’s employment with the Company terminates due to the Employee’s death or
      disability following a Change of Control, then the Employee shall not be
      entitled to receive severance or other benefits hereunder, except for those
      (if
      any) as may be then established under the Company’s then existing severance and
      benefits plans and policies at the time of such disability or death. In the
      event of the Employee’s death or disability after the termination of the
      Employee’s employment with the Company as a result of an Involuntary Termination
      within a Change of Control Protection Period, the Employee’s personal or legal
      representatives, executors, administrators, successors, heirs, distributees,
      devisees and legatees shall be entitled to receive severance or other benefits
      hereunder.

     

     

    (e)  Accrued
      Wages and Vacation; Expenses.
      Without
      regard to the reason for, or the timing of, the Employee’s termination of
      employment (and without duplication of any similar benefits under any employment
      agreement with the Company or any of its affiliates): (i) the Company shall
      pay the Employee any unpaid base salary due for periods prior to the date of
      termination; (ii) the Company shall pay the Employee all of the Employee’s
      accrued and unused vacation through the date of termination; and
      (iii) following submission of proper expense reports by the Employee, the
      Company shall reimburse the Employee for all expenses reasonably and necessarily
      incurred by the Employee in connection with the business of the Company prior
      to
      the date of termination. These payments shall be made promptly upon termination
      and within the period of time mandated by law.

     

     

    5.  Conditional
      Nature of Severance Payments.

     

     

    (a)  Non-Compete.
      The
      Employee shall not, to the detriment of the Company or any of its affiliates,
      disclose or reveal to any unauthorized person any trade secret or other
      confidential information relating to the Company or its affiliates or to any
      businesses oper-

     

    
      
         

      

      
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    ated
      by
      them, and the Employee confirms that such information constitutes the exclusive
      property of the Company. The Employee shall not otherwise act or conduct
      her/himself to the material detriment of the Company or its affiliates, or
      in a
      manner which is inimical or contrary to the interests thereof, and, for a period
      of twenty-four (24) months following the termination of Employee’s employment as
      a result of an Involuntary Termination at any time within a Change of Control
      Protection Period, shall not, directly or indirectly, engage in or render any
      service (whether to a person, firm or business) in direct competition with
      the
      Company; provided,
      however,
      that the
      Employee’s ownership of less than five percent (5%) of the outstanding stock of
      a corporation shall not itself be deemed to constitute such competition. The
      Employee recognizes that the possible restrictions on her/his activities which
      may occur as a result of her/his performance of her/his obligations under this
      Section 5(a) are required for the reasonable protection of the Company and
      its
      investments. For purposes hereof, “in direct competition” means engaged in the
      research, development and/or production of biological materials intended for
      use
      as therapeutic, prophylactic or diagnostic products in one or more of the same
      indications, and that utilize one or more of the same scientific bases (e.g.,
      in
      the case of a therapeutic antibody, targets the same signal initiating pathway),
      as a product or product candidate the research, development and/or production
      of
      which is an active part of the Company’s business plan at the time of Employee’s
      termination.

     

     

    (b)  Non-Disparagement.
      The
      Employee and the Company agree to refrain from any defamation, libel or slander
      of the other and its respective officers, directors, employees, representatives,
      investors, shareholders, administrators, affiliates, divisions, subsidiaries,
      predecessor and successor corporations and assigns or tortious interference
      with
      the contracts and relationships of the other and its respective officers,
      directors, employees, representatives, investors, shareholders, administrators,
      affiliates, divisions, subsidiaries, predecessor and successor corporations
      and
      assigns.

     

     

    (c)  Understanding
      of Covenants.
      The
      Employee represents that the Employee (i) is familiar with the foregoing
      covenants not to compete and not to disparage, and (ii) is fully aware of
      the Employee’s obligations hereunder, including, without limitation, the
      reasonableness of the length of time, scope and geographic coverage of the
      covenant not to compete.

     

     

    6.  Golden
      Parachute Excise Tax.
      In the
      event that the benefits provided for in this Agreement or otherwise payable
      to
      the Employee constitute “parachute payments” within the meaning of
      Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)
      that are subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then the Employee shall receive (i) a one-time payment from
      the Company sufficient to pay such excise tax (the “Excise Tax Gross-Up”), and
      (ii) an additional one-time payment from the Company sufficient to pay the
      additional excise tax and federal, state and local income and employment taxes
      arising from the Excise Tax Gross-Up made by the Company to the Employee
      pursuant to this Section 6 (the “Additional Gross-Up”). Unless the Company
      and the Employee otherwise agree in writing, the
      determination of the Employee’s excise tax liability and the amount required to
      be paid under this Section 6 shall
      be
      made in writing in good faith by the accounting firm serving as the Company’s
      inde-

     

    
      
         

      

      
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    pendent
      public accountants immediately prior to the Change of Control (the
“Accountants”). In
      the
      event that the Excise Tax incurred by the Employee is determined by the Internal
      Revenue Service to be greater or lesser than the amount so determined by the
      Accountants, the Company and the Employee agree to promptly make such additional
      payment, including interest and any tax penalties, to the other party as the
      Accountants reasonably determine is appropriate. For
      purposes of making the calculations required by this Section 6, the
      Accountants may make reasonable assumptions and approximations concerning
      applicable taxes and may rely on interpretations concerning the application
      of
      the Code
      for which
      there is a “substantial authority” tax reporting position.
      The
      Company and the Employee shall furnish to the Accountants such information
      and
      documents as the Accountants may reasonably request in order to make a
      determination under this Section 6. The Company shall bear all costs the
      Accountants may reasonably incur in connection with any calculations
      contemplated by this Section 6.

     

     

    7.  Successors.

     

     

    (a)  Company’s
      Successors.
      Any
      successor to the Company (whether direct or indirect and whether by purchase,
      lease, merger, amalgamation, consolidation, liquidation or otherwise) to all
      or
      substantially all of the Company’s business and/or assets shall assume the
      Company’s obligations under this Agreement and agree expressly to perform the
      Company’s obligations under this Agreement in the same manner and to the same
      extent as the Company would be required to perform such obligations in the
      absence of a succession. For all purposes under this Agreement, the term
“Company” shall include any successor to the Company’s business and/or assets
      which executes and delivers the assumption agreement described in this
      subsection (a) or which becomes bound by the terms of this Agreement by
      operation of law.

     

     

    (b)  Employee’s
      Successors.
      Without
      the written consent of the Company, the Employee shall not assign or transfer
      this Agreement or any right or obligation under this Agreement to any other
      person or entity. Notwithstanding the foregoing, the terms of this Agreement
      and
      all rights of the Employee hereunder shall inure to the benefit of, and be
      enforceable by, the Employee’s personal or legal representatives, executors,
      administrators, successors, heirs, distributees, devisees and
      legatees.

     

     

    8.  Notices.

     

     

    (a)  General.
      Notices
      and all other communications contemplated by this Agreement shall be in writing
      and shall be deemed to have been duly given when personally delivered or when
      mailed by U.S. registered or certified mail, return receipt requested and
      postage prepaid. In the case of the Employee, mailed notices shall be addressed
      to the Employee at the home address that the Employee most recently communicated
      to the Company in writing. In the case of the Company, mailed notices shall
      be
      addressed to its corporate headquarters, and all notices shall be directed
      to
      the attention of its Secretary.

     

     

    (b)  Notice
      of Termination.
      Any
      termination by the Company for Cause or by the Employee as a result of a
      voluntary resignation or an Involuntary Termination shall be communicated by
      a
      notice of termination to the other party hereto given in accordance with this
      

     

    
      
         

      

      
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    Section
      8.
      Such notice shall indicate the specific termination provision in this Agreement
      relied upon, shall set forth in reasonable detail the facts and circumstances
      claimed to provide a basis for termination under the provision so indicated.
      The
      failure by the Employee to include in the notice any fact or circumstance which
      contributes to a showing of Involuntary Termination shall not waive any right
      of
      the Employee hereunder or preclude the Employee from asserting such fact or
      circumstance in enforcing the Employee’s rights hereunder.

     

     

    9.  Execution
      of Release Agreement Upon Termination.
      As a
      condition of entering into this Agreement and receiving the benefits under
      Section 4, the Employee agrees to execute and not revoke a release of
      claims agreement substantially in the form attached hereto as Exhibit A
      upon the
      termination of the Employee’s employment with the Company. Such release shall
      not, however, apply to the rights and claims of the Employee under this
      Agreement, any indemnification agreement between the Employee and the Company
      (or its successor or acquirer), the bye-laws of the Company (or its successor
      or
      acquirer), the share award agreements between the Employee and the Company
      (or
      its successor or acquirer), or any employee benefit plan of which the Employee
      is a participant and under which all benefits due under such plan have not
      yet
      been paid or provided.

     

     

    10.  Arbitration.

     

     

    (a)  Any
      dispute or controversy arising out of, relating to, or in connection with this
      Agreement, or the interpretation, validity, construction, performance, breach,
      or termination thereof, shall be settled by binding arbitration to be held
      in
      San Francisco or Alameda County, California, in accordance with the National
      Rules for the Resolution of Employment Disputes then in effect of the American
      Arbitration Association (the “Rules”). The cost of the arbitration shall be
      borne in full by the Company (or its successor or acquirer) but each of the
      Employee and the Company (or its successor or acquirer) shall bear his, her
      or
      its own legal fees and other cost in such arbitration subject to a possible
      award of attorneys fees and costs by the arbitrator as provided in the
      arbitration ruling. The arbitrator may grant injunctions or other relief in
      such
      dispute or controversy. The decision of the arbitrator shall be final,
      conclusive and binding on the parties to the arbitration. Judgment may be
      entered on the arbitrator’s decision in any court having
      jurisdiction.

     

     

    (b)  The
      arbitrator(s) shall apply California law to the merits of any dispute or claim,
      without reference to conflicts of law rules. The arbitration proceedings shall
      be governed by federal arbitration law and by the Rules, without reference
      to
      state arbitration law. The Employee hereby consents to the personal jurisdiction
      of the state and federal courts located in California for any action or
      proceeding arising from or relating to this Agreement or relating to any
      arbitration in which the parties are participants.

     

     

    (c)  The
      Employee understands that nothing in this Section 10 modifies the Employee’s
      at-will employment status. Either the Employee or the Company can terminate
      the
      employment relationship at any time, with or without cause.

     

     

    (d)  THE
      EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION.
      THE
      EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO,
      OR
      IN 

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    CONNECTION
      WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
      BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION TO THE EXTENT PERMITTED
      BY
      LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THE EMPLOYEE’S
      RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING
      TO
      ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED
      TO,
      THE FOLLOWING CLAIMS:

     

     

    (i)  ANY
      AND
      ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH
      EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING,
      BOTH
      EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS;
      NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
      INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND
      DEFAMATION.

     

     

    (ii)  ANY
      AND
      ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING,
      BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS
      ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS
      WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA
      FAIR
      EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et
      seq;

     

     

    (iii)  ANY
      AND
      ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT
      OR EMPLOYMENT DISCRIMINATION.

     

     

    11.  Miscellaneous
      Provisions.

     

     

    (a)  Mitigation.
      The
      Employee shall not be required to mitigate the amount of any payment
      contemplated by this Agreement, nor shall any such payment be reduced by any
      earnings that the Employee may receive from any other source. However, the
      Employee shall not be entitled to receive the health coverage and benefits
      contemplated by this Agreement in the event that the Employee receives similar
      health coverage and benefits as a result of new employment during the
      Compensation Continuation Period.

     

     

    (b)  Waiver.
      No
      provision of this Agreement may be modified, waived or discharged unless the
      modification, waiver or discharge is agreed to in writing and signed by the
      Employee and by an authorized officer of the Company (other than the Employee).
      No waiver by either party of any breach of, or of compliance with, any condition
      or provision of this Agreement by the other party shall be considered a waiver
      of any other condition or provision or of the same condition or provision at
      another time.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    

     

     

    (c)  Integration.
      This
      Agreement represents the entire agreement and understanding between the parties
      with respect to the subject matter herein but shall not supersede any employment
      agreement between the Company or any of its affiliates and the Employee, any
      indemnification agreement between the Employee and the Company (or its successor
      or acquirer), the share award agreements between the Employee and the Company
      (or its successor or acquirer), or any employee benefit plan of which the
      Employee is a participant and under which all benefits due under such plan
      have
      not yet been paid or provided.

     

     

    (d)  Choice
      of Law.
      The
      validity, interpretation, construction and performance of this Agreement shall
      be governed by the internal substantive laws, but not the conflicts of law
      rules, of the State of California.

     

     

    (e)  Severability.
      The
      invalidity or unenforceability of any provision or provisions of this Agreement
      shall not affect the validity or enforceability of any other provision hereof,
      which shall remain in full force and effect.

     

     

    (f)  Tax
      Withholdings.
      All
      payments made pursuant to this Agreement shall be subject to withholding of
      applicable income and employment taxes.

     

     

    (g)  Compliance
      with Section 409A of the Code.
      Any
      payments under this Agreement which would be subject to Section 409A of the
      Code
      shall be administered in compliance with the requirements of Section 409A of
      the
      Code.

     

     

    (h)  Counterparts.
      This
      Agreement may be executed in counterparts, each of which shall be deemed an
      original, but all of which together will constitute one and the same
      instrument.

     

     

    

     

    

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS
      WHEREOF, each of the parties has executed this Agreement, in the case of the
      Company by its duly authorized officer, as of the day and year first above
      written.

     

    COMPANY:                                                                            
      XOMA
      LTD.

    

     

    By: 
      _____________________________________________

                                                                                     Name

                                                                                    
      [Independent
      Director or CEO]

     

    

     

    EMPLOYEE:                                                                            
      _________________________________________________

    Name

    

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    FORM
      RELEASE OF CLAIMS AGREEMENT

     

     

    This
      Release of Claims Agreement (this “Agreement”) is made and entered into by and
      between XOMA Ltd. (the “Company”) and ________ (the “Employee”).

     

    WHEREAS,
      the Employee was employed by the Company; and

     

    WHEREAS,
      the Company and the Employee have entered into a Change of Control Severance
      Agreement effective as of ________, 2006 (the “Severance
      Agreement”).

     

    NOW
      THEREFORE, in consideration of the mutual promises made herein and other good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Company and the Employee (collectively referred to as the
      “Parties”) desiring to be legally bound do hereby agree as follows:

     

    1.  Termination.
      The
      Employee’s employment with the Company terminated on ___________,
      20__.

     

    2.  Consideration.
      Subject
      to and in consideration of the Employee’s release of claims as provided herein,
      the Company has agreed to pay the Employee certain benefits and the Employee
      has
      agreed to provide certain benefits to the Company, both as set forth in the
      Severance Agreement.

     

    3.  Release
      of Claims.
      The
      Employee agrees that the foregoing consideration represents settlement in full
      of all currently outstanding obligations owed to the Employee by the Company.
      The Employee, on the Employee’s own behalf and the Employee’s respective heirs,
      family members, executors and assigns, hereby fully and forever releases the
      Company and its past, present and future officers, agents, directors, employees,
      investors, shareholders, administrators, affiliates, divisions, subsidiaries,
      parents, predecessor and successor corporations, and assigns, from, and agrees
      not to sue or otherwise institute or cause to be instituted any legal or
      administrative proceedings concerning any claim, duty, obligation or cause
      of
      action relating to any matters of any kind, whether presently known or unknown,
      suspected or unsuspected, that the Employee may possess arising from any
      omissions, acts or facts that have occurred up until and including the Effective
      Date (as defined below) of this Agreement including, without
      limitation:

     

    (a)  any
      and
      all claims relating to or arising from the Employee’s employment relationship
      with the Company and the termination of that relationship;

     

    (b)  any
      and
      all claims relating to, or arising from, the Employee’s right to purchase, or
      actual purchase of shares of the Company, including, without limitation, any
      claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty
      under applicable state corporate law and securities fraud under any state or
      federal law;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    (c)  any
      and
      all claims for wrongful discharge of employment, termination in violation of
      public policy, discrimination, breach of contract (both express and implied),
      breach of a covenant of good faith and fair dealing (both express and implied),
      promissory estoppel, negligent or intentional infliction of emotional distress,
      negligent or intentional misrepresentation, negligent or intentional
      interference with contract or prospective economic advantage, unfair business
      practices, defamation, libel, slander, negligence, personal injury, assault,
      battery, invasion of privacy, false imprisonment and conversion;

     

    (d)  any
      and
      all claims for violation of any federal, state or municipal statute, including,
      but not limited to, Title VII of the Civil Rights Act of 1964, the Civil
      Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
      Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the
      Employee Retirement Income Security Act of 1974, The Worker Adjustment and
      Retraining Notification Act, the California Fair Employment and Housing Act,
      and
      Labor Code Section 201, et
      seq.
      and
      Section 970, et
      seq.
      and all
      amendments to each such Act as well as the regulations issued
      thereunder;

     

    (e)  any
      and
      all claims for violation of the federal or any state constitution;

     

    (f)  any
      and
      all claims arising out of any other laws and regulations relating to employment
      or employment discrimination; and

     

    (g)  any
      and
      all claims for attorneys’ fees and costs.

     

    The
      Employee agrees that the release set forth in this Section 4 shall be and
      remain in effect in all respects as a complete general release as to the matters
      released. Notwithstanding the foregoing, this release does not extend to any
      obligations now or subsequently incurred under this Agreement, the Severance
      Agreement, the Indemnification Agreement between the Employee and the Company
      (or its successor or acquirer), the outstanding share award agreements between
      the Employee and the Company (or its successor or acquirer), or any employee
      benefit plan of which the Employee is a participant and under which all benefits
      due under such plan have not yet been paid or provided.

     

    4.  Acknowledgment
      of Waiver of Claims under ADEA.
      The
      Employee acknowledges that the Employee is waiving and releasing any rights
      the
      Employee may have under the Age Discrimination in Employment Act of 1967
      (“ADEA”) and that this waiver and release is knowing and voluntary. The Employee
      and the Company agree that this waiver and release does not apply to any rights
      or claims that may arise under the ADEA after the Effective Date of this
      Agreement. The Employee acknowledges that the consideration given for this
      waiver and release agreement is in addition to anything of value to which the
      Employee was already entitled. The Employee further acknowledges that the
      Employee has been advised by this writing that (a) the Employee should
      consult with an attorney prior
      to
      executing this Agreement; (b) the Employee has at least twenty-one (21)
      days within which to consider this Agreement; (c) the Employee has seven
      (7) days following the execution of this Agreement by the Parties to revoke
      the
      Agreement; and (d) this Agreement shall not be effective until the
      revocation period has expired. Any revocation should be in writing and delivered
      to the Company by the close of business on the seventh (7th)
      day from
      the date that the Employee signs this Agreement.

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    

     

    5.  Civil
      Code Section 1542.
      The
      Employee represents that the Employee is not aware of any claims against the
      Company other than the claims that are released by this Agreement. The Employee
      acknowledges that the Employee has been advised by legal counsel and is familiar
      with the provisions of California Civil Code Section 1542, which provides
      as follows:

     

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

     

    The
      Employee, being aware of said code section, agrees to expressly waive any rights
      the Employee may have thereunder, as well as under any other statute or common
      law principles of similar effect.

     

    6.  No
      Pending or Future Lawsuits.
      The
      Employee represents that the Employee has no lawsuits, claims or actions pending
      in the Employee’s name, or on behalf of any other person or entity, against the
      Company or any other person or entity referred to herein. The Employee also
      represents that the Employee does not intend to bring any claims on the
      Employee’s own behalf or on behalf of any other person or entity against the
      Company or any other person or entity referred to herein except, if necessary,
      with respect to the agreements listed in the last sentence of Section 4 of
      this
      Agreement. 

     

    7.  Confidentiality.
      The
      Employee agrees to use the Employee’s best efforts to maintain in confidence the
      existence of this Agreement, the contents and terms of this Agreement, and
      the
      consideration for this Agreement (hereinafter collectively referred to as
“Release Information”). The Employee agrees to take every reasonable precaution
      to prevent disclosure of any Release Information to third parties and agrees
      that there will be no publicity, directly or indirectly, concerning any Release
      Information. The Employee agrees to take every precaution to disclose Release
      Information only to those attorneys, accountants, governmental entities and
      family members who have a reasonable need to know of such Release
      Information.

     

    8.  No
      Adverse Cooperation.
      The
      Employee agrees the Employee will not act in any manner that might damage the
      business of the Company. The Employee agrees that the Employee will not counsel
      or assist any attorneys or their clients in the presentation or prosecution
      of
      any disputes, differences, grievances, claims, charges or complaints by any
      third party against the Company and/or any officer, director, employee, agent,
      representative, shareholder or attorney of the Company, unless compelled under
      a
      subpoena or other court order to do so.

     

    9.  Costs.
      The
      Parties shall each bear their own costs, expert fees, attorneys’ fees and other
      fees incurred in connection with this Agreement.

     

    10.  Authority.
      The
      Company represents and warrants that the undersigned has the authority to act
      on
      behalf of the Company and to bind the Company and all who may claim through
      it
      to the terms and conditions of this Agreement. The Employee represents and
      warrants that the 

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    Employee
      has the capacity to act on the Employee’s own behalf and on behalf of all who
      might claim through the Employee to bind them to the terms and conditions of
      this Agreement.

     

    11.  No
      Representations.
      The
      Employee represents that the Employee has had the opportunity to consult with
      an
      attorney, and has carefully read and understands the scope and effect of the
      provisions of this Agreement. Neither party has relied upon any representations
      or statements made by the other party hereto which are not specifically set
      forth in this Agreement.

     

    12.  Severability.
      In the
      event that any provision hereof becomes or is declared by a court of competent
      jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
      in full force and effect without said provision.

     

    13.  Entire
      Agreement.
      This
      Agreement and the Severance Agreement and the agreements and plans referenced
      therein represent the entire agreement and understanding between the Company
      and
      the Employee concerning the Employee’s separation from the Company, and
      supersede and replace any and all prior agreements and understandings concerning
      the Employee’s relationship with the Company and the Employee’s compensation by
      the Company. This Agreement may only be amended in writing signed by the
      Employee and an executive officer of the Company.

     

    14.  Governing
      Law.
      This
      Agreement shall be governed by the internal substantive laws, but not the choice
      of law rules, of the State of California.

     

    15.  Effective
      Date.
      This
      Agreement is effective eight
      (8)
      days after it has been signed by the Parties (the “Effective Date”) unless it is
      revoked by the Employee within seven (7) days of the execution of this Agreement
      by the Employee.

     

    16.  Counterparts.
      This
      Agreement may be executed in counterparts, and each counterpart shall have
      the
      same force and effect as an original and shall constitute an effective, binding
      agreement on the part of each of the undersigned.

     

    17.  Voluntary
      Execution of Agreement.
      This
      Agreement is executed voluntarily and without any duress or undue influence
      on
      the part or behalf of the Parties hereto, with the full intent of releasing
      all
      claims. The Parties acknowledge that:

     

    (a)  they
      have
      read this Agreement;

     

    (b)  they
      have
      been represented in the preparation, negotiation and execution of this Agreement
      by legal counsel of their own choice or that they have voluntarily declined
      to
      seek such counsel;

     

    (c)  they
      understand the terms and consequences of this Agreement and of the releases
      it
      contains; and

     

    (d)  they
      are
      fully aware of the legal and binding effect of this Agreement.

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS
      WHEREOF, the Parties have executed this Agreement on the respective dates set
      forth below.

     

    XOMA
      LTD.

    

     

    By: 
      __________________________________________

     

    Title: 
      _________________________________________

     

    Date: 
      _________________________________________

     

    

     

    EMPLOYEE

     

     

    ______________________________________________
Name

     

    Date: 
      _________________________________________

     

    

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    

     

    Terms
      of
      Individual Executive Officer Change of Control and Severance
      Agreements

    (to
      be
      read in conjunction with Form of Change of Control and Severance
      Agreement)

     

    

    
      	
               

              Name

            	
               

              Paragraph
                1(d)

            	
               

              Paragraph
                4(c)(i)

            	
               

              Paragraph
                4(c)(ii)

            
	
               

              John
                L. Castello

            	
               

              24
                months

            	
               

              2.0

            	
               

              24
                months

            	
               

              24
                months

            
	
               

              Patrick
                J. Scannon, MD, PhD

            	
               

              18
                months

            	
               

              1.5

            	
               

              18
                months

            	
               

              18
                months

            
	
               

              Christopher
                J. Margolin

            	
               

              18
                months

            	
               

              1.5

            	
               

              18
                months

            	
               

              18
                months

            
	
               

              J.
                David Boyle II

            	
               

              18
                months

            	
               

              1.5

            	
               

              18
                months

            	
               

              18
                months

            

    

     

     

     

     

     

    -6-Exhibit 10.11

 

 

WAFER
SUPPLY AND SERVICES AGREEMENT

 

among:

 

SPECIALTYSEMI,
INC.,

a Delaware corporation;

 

and

 

CONEXANT SYSTEMS, INC.,

a Delaware corporation

 

 

Dated as of March 30, 2002

 

 

 

 

Confidential treatment is being requested for
portions of this document.  This copy of the document filed as
an exhibit omits the confidential information subject to the
confidentiality request.  Omissions are designated by the symbol
[...***...].  A complete version of this document has been filed
separately with the Securities and Exchange Commission.

 

 

TABLE OF
CONTENTS

 

	
  1.

  	
  DEFINITIONS.

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  “Affiliate”

  	
  1

  
	
   

  	
  1.2

  	
  “Basic Price”

  	
  1

  
	
   

  	
  1.3

  	
  “Capacity”

  	
  1

  
	
   

  	
  1.4

  	
  “Conexant Spin-off”

  	
  1

  
	
   

  	
  1.5

  	
  “Contract Price”

  	
  2

  
	
   

  	
  1.6

  	
  “Current
  Average Probe Yield

  	
  2

  
	
   

  	
  1.7

  	
  “Delivery Note”

  	
  2

  
	
   

  	
  1.8

  	
  “Engineering Wafers”

  	
  2

  
	
   

  	
  1.9

  	
  “Fab Yield”

  	
  2

  
	
   

  	
  1.10

  	
  “Lot”

  	
  2

  
	
   

  	
  1.11

  	
  “Maximum
  Capacity”

  	
  2

  
	
   

  	
  1.12

  	
  “Move”

  	
  2

  
	
   

  	
  1.13

  	
  “MPD”

  	
  2

  
	
   

  	
  1.14

  	
  “Non-Specialty Wafers”

  	
  2

  
	
   

  	
  1.15

  	
  “Party”

  	
  2

  
	
   

  	
  1.16

  	
  “Pizza Mask Wafers”

  	
  2

  
	
   

  	
  1.17

  	
  “Photomasks”

  	
  2

  
	
   

  	
  1.18

  	
  “Planning Yield Assumption”

  	
  2

  
	
   

  	
  1.19

  	
  “Probe Services”

  	
  3

  
	
   

  	
  1.20

  	
  “Probe Yield”

  	
  3

  
	
   

  	
  1.21

  	
  “Process Failure”

  	
  3

  
	
   

  	
  1.22

  	
  “Production Wafers”

  	
  3

  
	
   

  	
  1.23

  	
  “Purchase Order”

  	
  3

  
	
   

  	
  1.24

  	
  “Purchase Order Release

  	
  3

  
	
   

  	
  1.25

  	
  “Quality Specifications”

  	
  3

  
	
   

  	
  1.26

  	
  “Risk Materials”

  	
  3

  
	
   

  	
  1.27

  	
  “Segment”

  	
  3

  
	
   

  	
  1.28

  	
  “Specialty Wafers”

  	
  3

  
	
   

  	
  1.29

  	
  “Specifications”

  	
  3

  

 

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.30

  	
  “Third-Party Requirement

  	
  4

  
	
   

  	
  1.31

  	
  “Uncommitted Available
  Capacity”

  	
  4

  
	
   

  	
  1.32

  	
  “Wafers”

  	
  4

  
	
   

  	
  1.33

  	
  “Wafer Credits”

  	
  4

  
	
   

  	
  1.34

  	
  “Wafer Volume Commitment”

  	
  4

  
	
   

  	
  1.35

  	
  “WOPD”

  	
  4

  
	
   

  	
  1.36

  	
  “WSPD”

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  PURCHASE AND SUPPLY OBLIGATIONS

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Conexant Purchase
  Obligations

  	
  4

  
	
   

  	
  2.2

  	
  Company Supply Obligations

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  WAFER PURCHASES

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Scope

  	
  9

  
	
   

  	
  3.2

  	
  Forecasts

  	
  10

  
	
   

  	
  3.3

  	
  Purchase Orders; Purchase Order Releases; Specialty Wafers

  	
  10

  
	
   

  	
  3.4

  	
  Acceptance and Acknowledgement

  	
  11

  
	
   

  	
  3.5

  	
  Wafer Lots; Expedited Services

  	
  11

  
	
   

  	
  3.6

  	
  Pizza Mask Wafers

  	
  12

  
	
   

  	
  3.7

  	
  Cancellation and Modifications to Orders

  	
  12

  
	
   

  	
  3.8

  	
  Materials

  	
  13

  
	
   

  	
  3.9

  	
  Risk Materials

  	
  13

  
	
   

  	
  3.10

  	
  NRE Services

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  PROBE SERVICES AND RE-PROBE SERVICES

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Scope

  	
  14

  
	
   

  	
  4.2

  	
  Purchase Orders

  	
  14

  
	
   

  	
  4.3

  	
  Acknowledgement and Acceptance

  	
  14

  
	
   

  	
  4.4

  	
  Changes, Cancellation and Modifications to Orders

  	
  14

  
	
   

  	
  4.5

  	
  Removal of Test Equipment from the Fab

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  DELIVERY AND LOGISTICS

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Delivery

  	
  15

  
	
   

  	
  5.2

  	
  Storage

  	
  16

  
	
   

  	
  5.3

  	
  Transition Services Agreement

  	
  16

  

 

ii

 

	
  6.

  	
  PRICING; CREDITS; AND PAYMENTS

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Wafer Credits

  	
  16

  
	
   

  	
  6.3

  	
  Costs

  	
  17

  
	
   

  	
  6.4

  	
  Taxes

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  TRACKING; REPORTING; AND AUDITS

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Wafer Tracking

  	
  17

  
	
   

  	
  7.2

  	
  Reporting Requirements

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  WARRANTY AND DISCLAIMER

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Wafer Warranty

  	
  17

  
	
   

  	
  8.2

  	
  Process Failure

  	
  18

  
	
   

  	
  8.3

  	
  Disclaimers

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  INDEMNIFICATION

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Conexant
  Indemnification Obligations

  	
  18

  
	
   

  	
  9.2

  	
  Company Indemnification Obligations

  	
  18

  
	
   

  	
  9.3

  	
  Conditions

  	
  19

  
	
   

  	
  9.4

  	
  Sole and Exclusive Remedy

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  CONFIDENTIALITY

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  LIMITATIONS OF LIABILITY

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Disclaimer

  	
  19

  
	
   

  	
  11.2

  	
  Basis of Bargain

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  TERM; TERMINATION

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Term

  	
  20

  
	
   

  	
  12.2

  	
  Termination

  	
  20

  
	
   

  	
  12.3

  	
  Effect of Termination

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  GENERAL

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Agency

  	
  21

  
	
   

  	
  13.2

  	
  Governing Law; Venue and Jurisdiction

  	
  21

  
	
   

  	
  13.3

  	
  Dispute Resolution

  	
  21

  
	
   

  	
  13.4

  	
  Injunctive Relief

  	
  23

  
	
   

  	
  13.5

  	
  Third-Party Beneficiaries

  	
  23

  
	
   

  	
  13.6

  	
  Compliance with Law

  	
  23

  

 

iii

 

	
   

  	
  13.7

  	
  Force Majeure

  	
  23

  
	
   

  	
  13.8

  	
  Amendment; Later Agreement

  	
  23

  
	
   

  	
  13.9

  	
  Notices

  	
  23

  
	
   

  	
  13.10

  	
  Assignment

  	
  24

  
	
   

  	
  13.11

  	
  Waiver

  	
  24

  
	
   

  	
  13.12

  	
  Severability

  	
  24

  
	
   

  	
  13.13

  	
  Counterparts and Facsimile

  	
  24

  
	
   

  	
  13.14

  	
  Rules of Construction

  	
  25

  
	
   

  	
  13.15

  	
  Schedules and Exhibits

  	
  25

  
	
   

  	
  13.16

  	
  Entire Agreement

  	
  25

  

 

iv

 

	
  EXHIBIT A

  	
   

  	
  PRICING

  
	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  WAFER VOLUME COMMITMENTS

  
	
   

  	
   

  
	
   

  	
  SCHEDULE 1

  	
  FORECAST

  
	
   

  	
   

  	
   

  
	
   

  	
  SCHEDULE 2

  	
  WAFER MOVES TABLE

  
	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  RULES OF CHANGE, OPERATION, AND RELEASE
  PROCEDURES

  
	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  NEWPORT BEACH FAB CAPACITY

  
	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
   

  	
  WAFER CYCLE TIMES

  
	
   

  	
   

  	
   

  
	
  EXHIBIT F

  	
   

  	
  QUALITY SPECIFICATIONS

  
	
   

  	
   

  	
   

  
	
  EXHIBIT G

  	
   

  	
  REPORTS

  
					

 

v

 

CONFIDENTIAL

 

WAFER
SUPPLY AND SERVICES AGREEMENT

 

THIS WAFER SUPPLY AND SERVICES AGREEMENT
(the “Supply Agreement”) is entered into
as of March 30, 2002 (the “Effective Date”)
by and between CONEXANT SYSTEMS, INC., a Delaware corporation (“Conexant”) and SPECIALTYSEMI, INC.
a Delaware corporation (“Company”).

 

RECITALS

 

A.                                   Conexant,
Company, and Carlyle Capital Investors, L.L.C. have entered
into a Contribution Agreement dated February 23, 2002 (the “Contribution Agreement”)pursuant to
which Conexant
contributed to Company the assets used to provide specialty process foundry
services and to manufacture semiconductor wafers at a facility in Newport
Beach, California (the “Newport Beach Fab”).

 

B.                                     Conexant
desires, on the terms and conditions of this Supply Agreement, to purchase from
Company semiconductor wafers and related foundry, manufacturing, and probe
services. Company is willing to supply such wafers and services to Conexant
on the terms and conditions of this Supply Agreement.

 

NOW, THEREFORE, in
consideration of the mutual covenants and agreements contained in this Supply
Agreement, the Parties agree as follows:

 

AGREEMENT

 

1.                                      DEFINITIONS. Capitalized
terms not expressly defined elsewhere in this Supply Agreement have the
following meanings:

 

1.1                               “Affiliate” means any entity that at
any time during the term of this Supply Agreement controls, is controlled by,
or is under common control with a Party, where
control means direct or indirect ownership of fifty percent (50%) or more of
the outstanding voting stock or other equity interests ordinarily having voting
rights.

 

1.2                               “Basic Price” is defined in Exhibit A
(Pricing).

 

1.3                               “Capacity” means, as of any date for any period, the
number of MPD capable of being completed at the Newport Beach Fab during such
period, based on available equipment, tools, and personnel,
without additional capital spending, equipment purchases, or hiring of
personnel.

 

1.4                               “Conexant Spin-off” means any entity that is a successor of
any portion of the business of Conexant resulting
from a spin-off, sale, or divestiture of such business, regardless of whether Conexant
retains an equity or ownership interest in such entity. Without limiting the
foregoing, the Parties agree and acknowledge that Mindspeed Technologies and Conexant’s
wireless business (which is referred to within Conexant as “LeaderCo”) are, or
upon the date of divestiture will be, Conexant Spin-offs.

 

1

 

1.5                               “Contract Price” is defined in Exhibit A
(Pricing).

 

1.6                               “Current Average Probe Yield means,
for a particular type of Wafer, the Probe Yield established by averaging the
Probe Yield for two hundred (200) Wafers of such type in each of the three
previous Segments.

 

1.7                               “Delivery Note” means the delivery instructions provided
by Conexant
to Company for Wafers ordered by Conexant.

 

1.8                               “Engineering Wafers” means non-production Wafers
manufactured by Company for qualification or testing and may include Pizza Mask
Wafers.

 

1.9                               “Fab Yield” means the percentage deviation between a
particular number of Wafers for which fabrication is commenced at the Newport
Beach Fab, and the number of such Wafers for which fabrication is successfully
completed, irrespective of probe results.

 

1.10                        “Lot” means a single lot of Wafers
that are processed together at the Newport Beach Fab. Each Lot of Production
Wafers, Pizza Mask Wafers (other than Engineering Wafers), or Risk Materials
shall consist of twenty-five (25) Wafers. Each Lot of Engineering Wafers shall
consist of no less than five (5) and no more than twenty-five (25) Wafers.

 

1.11                        “Maximum Capacity” means, as of any date for any period, the
maximum number of MPD capable of being completed at the Newport Beach Fab
during such period based on available equipment, tools, and personnel, without
additional capital spending or equipment purchases. Maximum Capacity as of the
Effective Date is reflected in Exhibit D
(Newport Beach Fab Capacity).

 

1.12                        “Move” means completion with respect to a single Lot of
an individual stage in any of the processes required in fabricating Wafers at
the Newport Beach Fab, as described in Exhibit B, Schedule 2.

 

1.13                        “MPD” means Moves per day at the Newport Beach Fab.

 

1.14                        “Non-Specialty Wafers” means all Wafers of all types
other than Specialty Wafers.

 

1.15                        “Party” means either Conexant or Company,
as the context requires, and “Parties” means Conexant and Company collectively.

 

1.16                        “Pizza Mask Wafers” means multiple device designs on a
single Wafer.

 

1.17                        “Photomasks” means precision photographic quartz or
glass plates containing microscopic images of integrated circuits for use as
master images to transfer circuit patterns onto semiconductor wafers during the
fabrication of integrated circuits and other semiconductor products.

 

1.18                        “Planning Yield Assumption” means, for any given type of
Wafer, the expected
percentage deviation between the number of Wafers specified for delivery in a
Purchase Order and 

 

2

 

the total
number of Wafers actually delivered, as set forth in Exhibit B, Schedule 2
as such exhibit may be updated from time to time upon written notice from
Company.

 

1.19                        “Probe Services” means electrical testing of individual
semiconductor wafers on a substrate.

 

1.20                        “Probe Yield” means the percentage deviation between a
particular number of Wafers for which probing is conducted at the Newport Beach
Fab, and the number of such Wafers that probe successfully.

 

1.21                        “Process Failure” means a fault or flaw in the
performance of any process within the fabrication
operation that is
not due to designs, specifications, Photomasks, or
instructions provided by Conexant.

 

1.22                        “Production Wafers” means Wafers manufactured by Company
at the Newport Beach Fab after successful qualification and approval for mass
production.

 

1.23                        “Purchase Order” means a written blanket order for the
purchase of a specified quantity of Wafers or Probe Services submitted by Conexant
to Company.

 

1.24                        “Purchase Order Release” means a written release issued
by Conexant
authorizing Company to commence processing of the Wafers under a Purchase
Order.

 

1.25                        “Quality Specifications” means the Wafer quality
standards and criteria set forth in Exhibit F (Quality
Specifications), as may they be modified by written agreement of the Parties
from time to time.

 

1.26                        “Risk Materials” means Wafers specifically identified by
Conexant
in a Purchase Order as “Risk Materials” that are to be manufactured by Company
pursuant to Conexant’s
Specifications, but for which compliance with the Quality Specifications is
specifically waived. “Risk Materials” may include the following: unverified
mask sets, unverified process changes, no supporting qualification data, and
known design rule violations.

 

1.27                        “Segment” means any one of the following two-calendar
month periods: April-May, June-July, August-September, October-November,
December-January, and February-March. Segments shall be numbered sequentially
during the term of this Supply Agreement, commencing with Segment 1, which
shall be the first full Segment following the Effective Date.

 

1.28                        “Specialty Wafers” means Bipolar, Bi-CMOS, and SiGe
Wafers.

 

1.29                        “Specifications” means the technical specifications for
the Wafers in effect at the Newport Beach Fab immediately prior to the
Effective Date, as they may be modified from time to time by written agreement
of the Parties, or if such technical specifications do not exist as of the
Effective Date, then those technical specifications mutually agreed to in
writing by the Parties for such Wafers, as they may be modified from time to
time written agreement of the Parties.

 

3

 

1.30                        “Third-Party Requirement means any oral or written
commitment from a customer (other than Conexant or a Conexant
Spin-Off or a Conexant Affiliate) to engage Company to
manufacture Wafers or provide related services for such customer at the Newport
Beach Fab, which commitment is reasonably likely to result in a binding
obligation.

 

1.31                        “Uncommitted Available Capacity” means, at any given
time, the Capacity remaining at the Newport Beach Fab after excluding all
Capacity necessary to fulfill the Company’s commitments under this Supply
Agreement and Third-Party Requirements.

 

1.32                        “Wafers” means semiconductor wafers to be processed and
prepared for shipping by Company at the Newport Beach Fab including Engineering
Wafers, Production Wafers, Pizza Mask Wafers, and Risk Materials.

 

1.33                        “Wafer Credits” is defined in Section 6.2
(Wafer Credits).

 

1.34                        “Wafer Volume Commitment” is defined in Section 2.1(a) (Volume
Commitments).

 

1.35                        “WOPD” means a number of Wafers for which the
fabrication process is completed at the Newport Beach Fab in a single day.

 

1.36                        “WSPD” means a number of Wafers for which the
fabrication process is commenced at the Newport Beach Fab in a single day.

 

2.                                      PURCHASE
AND SUPPLY OBLIGATIONS.

 

2.1                               Conexant Purchase Obligations.

 

(a)                                  Volume
Commitments. Subject to the terms and conditions of this Supply Agreement
and in accordance with the procedures set forth in Section 3.3 (Purchase
Orders; Purchase Order Releases; Specialty Wafers), Conexant
will submit Purchase Orders to Company for the manufacture of, and will
purchase pursuant to such Purchase Orders, Wafers in volumes sufficient to meet
the minimum MPD purchase commitments set forth in Exhibit B,
Schedule 1 (the “Wafer Volume Commitments”),
at the prices set forth below.

 

(b)                                  Segments
1 Through 6. During Segments 1 through 6:

 

(i)                                    Conexant
shall meet the Wafer Volume Commitment corresponding to the current Period set
forth in Exhibit B, Schedule 1.

 

(ii)                                For
any of Segments 1 through 6 in which the number of Wafers purchased by Conexant
at the end of the Segment is less than the greater of (i) the Wafers
ordered in the Purchase Order for such Segment described in Section 3.3(a) and
(ii) the Wafer Volume Commitment for such Segment, in addition to the
amounts paid for Wafers purchased, Conexant shall pay the following in respect
of the shortfall in the Wafers purchased compared to the greater of (i) the
Wafers ordered in the Purchase Order for such Segment described in Section 3.3(a) and
(ii) the Wafer Volume Commitment (the “Shortfall”):

 

4

 

(1)                                 [...***...]
of the Contract Price for the Shortfall up to the difference between the Wafer
Volume Commitment and the Wafers ordered in the Purchase Order described in Section 3.3(a) (unless the number of Wafers ordered in the
Purchase Order described in Section 3.3(a) equals or exceeds
the Wafer Volume Commitment, in which case this portion will be equal to
[...***...]); plus

 

(2)                                 [...***...]
of the Contract Price for the portion of the Shortfall not covered in Section 2.1(b)(ii)(1) above
(if any), up to the lesser of (i) the difference between (A) the
number of Wafers purchased in the Working Segment and (B) the Wafer Volume
Commitment (unless the number of Wafers purchased exceeds the Wafer Volume
Commitment, in which case this amount will be equal to [...***...]); and (ii) the
difference between the Wafers covered in Section 2.1(b)(ii)(1) and
[...***...] of the Wafer Volume Commitment; plus

 

(3)                                 [...***...]
of the Contract Price for the portion of the Shortfall not covered in Section 2.1(b)(ii)(1) or
in Section 2.1(b)(ii)(2) above (if any).

 

Example
1. The Wafer Volume Commitment is [...***...] WSPD. Thirty
days prior to the beginning of the Working Segment, Conexant orders the Wafer
equivalent of [...***...] WSPD for
the Working Segment. At the end of the Segment, Conexant purchases the Wafer
equivalent of [...***...] WSPD. The
Shortfall is the Wafer equivalent of [...***...] WSPD. Conexant pays [...***...] on a Wafer equivalent of [...***...] WSPD, [...***...] on a Wafer equivalent of [...***...] WSPD, and [...***...] on a
Wafer equivalent of [...***...] WSPD.

 

Example 2. The Wafer Volume Commitment is [...***...]
WSPD. Thirty days prior to the beginning of
the Working Segment, Conexant orders the Wafer equivalent of [...***...]
WSPD for the Working Segment. At the end of
the Segment, Conexant purchases the Wafer equivalent of [...***...] WSPD. The Shortfall is the Wafer equivalent of [...***...]
WSPD. Conexant pays [...***...] on a Wafer equivalent of [...***...] WSPD, and [...***...] on the Wafer equivalent of [...***...] WSPD.

 

(iii)                            If,
in any of Segments 1 through 6, Conexant fails to meet the Wafer Volume
Commitment or to purchase Wafers ordered in the Purchase Order for such Segment
described in Section 3.3(a), and as a result pays any amounts pursuant to Section 2.1(b)(ii),
and, prior to the end of Segment 6, purchases Wafers in excess of the Wafer
Volume Commitment for the Working Segment, then Conexant shall be required to
pay only [...***...] of the Contract Price for all Wafers purchased in such Working
Segment in excess of the Wafer Volume Commitment, until the total number
purchased up to that time equals the greater of (A) the average of the
total Wafer Volume Commitment for Segments 1 through 6, pro-rated to the time
in question; or (B) the average of the total Wafers ordered in Purchase
Orders pursuant to Section 3.3(a) during Segments 1 through 6
for which Conexant paid amounts pursuant to Section 2.1(b)(ii),
pro-rated to the time in question. Conexant will pay the Contract Price, Basic
Price, or other price specified in this Supply Agreement, as appropriate, for
any additional Wafers purchased in the Working Segment thereafter.

 

(c)                                  Segments
7 Through 18. During Segments 7 through 18:

 

5

 

(i)                                    Conexant
shall meet the Wafer Volume Commitment for such period set forth in Exhibit B,
Schedule 1.

 

(ii)                                In
the event that the number of Wafers purchased under the Purchase Order(s) for
any Working Segment is less than the greater of (i) the Wafers ordered in
the Purchase Order for such Segment described in Section 3.3(a) and (ii) the
Wafer Volume Commitment for the Working Segment, Conexant
shall pay to Company, in addition to the Contract Price for the Wafers actually
purchased,
an amount equal to one hundred percent (100%) of the total Contract Price for
the Shortfall for such Segment.

 

(d)                                  Requirements
in Excess of the Wafer Volume Commitment.

 

(i)                                    Non-Specialty
Wafers. During Segments 1 through 24, except to the extent that it has any
preexisting obligations as of the Effective Date to purchase Non-Specialty
Wafers from third parties, (and, only during Segments 18 through 24, upon the additional condition
that Company is competitive on cost, service, yield
and technology for those Non-Specialty Wafers), Conexant shall
submit all requirements for Non-Specialty Wafers that are in excess of the
Wafer Volume Commitment to Company, which, provided that it has sufficient
Uncommitted Available Capacity, shall be obligated to produce such Wafers, and Conexant
shall be obligated to purchase such Wafers at the Contract Price, except during
Segments 13 through 24. During Segment 13 and the first month of Segment 14 (“Quarter 9”), Conexant
will purchase such Wafers at a price equal to the sum of the Contract Price and
[...***...] of the difference between the Contract Price and the Basic Price. During
the second month of Segment 14 and Segment 15 (“Quarter 10”), Conexant
will purchase such Wafers at a price equal to the sum of the Contract Price and
[...***...] of the difference between the Contract Price and the Basic Price. During
Segment 16 and the first month of Segment 17 (“Quarter 11”), Conexant
will purchase such Wafers at a price equal to the sum of the Contract Price and
[...***...] of the difference between the Contract Price and the Basic Price (in
each of Quarters 9, 10, and 11, the prices described for each respective
Quarter shall be referred to as the “Stepped Price”). During Segments 18
through 24, Conexant
will purchase such Wafers at the Basic Price.

 

(ii)                                Specialty
Wafers. During Segments 1 through 12, Conexant may submit
its requirements for Specialty Wafers in excess of the Wafer Volume Commitment
to Company, which, provided that it has sufficient Uncommitted Available
Capacity, shall be obligated to produce such Wafers. Conexant
shall purchase such Wafers at the Contract Price.

 

(e)                                  Surge
Capacity. At any time after Conexant’s
submission of a Purchase Order for any Working Segment, Conexant
may request to increase the number of Wafers to be purchased in such Working
Segment (an “Increase Notice”).

 

(i)                                    Segments 1 through 18. During
Segments 1 through 18, the following terms will apply:

 

(1)                                 Commitment Surge. If Conexant
submits an Increase Notice with at least [...***...] advance notice for additional
Wafers in order to meet a Wafer Volume Commitment (“Commitment Surge Wafers”),
Company will fabricate and sell to Conexant a number of Commitment Surge Wafers
equal to the lesser of (A) [...***...]; or (B) the 

 

6

 

equivalent
of no more than [...***...] WSPD. Company will use commercially reasonable efforts
to deliver the Commitment Surge Wafers as soon as possible. Conexant will pay
the [...***...] for all Commitment Surge Wafers.

 

(2)                                 Beyond Commitment Surge. If
Conexant submits an Increase Notice with at least [...***...] advance notice for
additional Wafers that either (A) are [...***...]; or (B) represent the
equivalent of more than [...***...] WSPD (“Additional Wafers”), Company will use
commercially reasonable efforts to fabricate and sell to Conexant the number of
Additional Wafers ordered by Conexant. Conexant will pay [...***...] for all
Additional Wafers.

 

(ii)                                After Segment 18. After Segment
18, at any time after Conexant’s submission of a Purchase Order for
any Working Segment, Conexant may submit an Increase Notice to Company. If Company
has Uncommitted Available Capacity, Company will fabricate and sell to Conexant
such additional Wafers, or as many as can be fabricated in light of the
Uncommitted Available Capacity. Conexant will pay [...***...] for all such
additional Wafers purchased after Segment 18.

 

(f)                                    Purchases
for Certain Entities. Company agrees that Conexant, as agent,
may place orders for any Conexant Spin-Off or Conexant
Affiliate, under the same terms and conditions for Wafers established under
this Supply Agreement. The Parties acknowledge and agree that at any time after
a Conexant
Spin-off commences operations as a separate legal entity, (i) Conexant
may partition the Wafer Volume Commitments between Conexant
and Conexant
Spin-offs, assuring that the total volume meets the total Wafer Volume
Commitment; (ii) Conexant and Conexant Spin-offs
may partition Wafer Credits between them, provided, however, that the total number
of Wafer Credits held by Conexant and all Conexant Spin-offs
will not exceed the original number of Wafer Credits; and (iii) each Conexant
Spin-off (a “Participating Spin-off”) may
enter into a separate agreement with Company containing all of the terms and
conditions of this Supply Agreement, in which case the Participating Spin-off
will order Wafers directly from Company. Company will have the right to review
the allocation
of Wafer Volume Commitments, Wafer Credits, and other rights hereunder
partitioned and assigned to each Participating Spin-off, and Conexant
will work in good faith with Company to resolve any reasonable objections that
the Company may have to such allocation. If Conexant
and Participating Spin-offs partition Wafer Volume Commitments as set forth
above, the determination of whether the Wafer Volume Commitment is met will be
determined on a collective basis, and no additional payments to meet the Wafer
Volume Commitment will be due to Company if the total number of Wafers purchased
by Conexant
and Participating Spin-offs is sufficient to meet or exceed the applicable
Wafer Volume Commitment. Conexant will remain responsible
to Company for
satisfaction of Wafer purchase and payment obligations hereunder,
regardless of whether it is  Conexant itself or a
Participating Spin-off that fails to satisfy any such obligations.
In the event that a third party acquires any Participating Spin-off, its
business, or all or substantially all of its assets, then such third party may
only assume the rights of Participating Spin-offs hereunder with respect to
Wafer types of such Participating Spin-off that have been manufactured or are
under development by the Newport Beach Fab at the time of such acquisition.

 

(g)                                 Cooperation.
Conexant
shall cooperate with Company in furtherance of the purposes hereof by timely
furnishing all design information, Photomasks, specifications, 

 

7

 

intellectual
property, and other items and information needed to fabricate the Wafers
ordered by Conexant,
and by providing reasonable technical advice and assistance in such efforts.

 

(h)                                 Payment;
Remedy. All determinations of whether Wafer Volume Commitments have been
met during any Working Segment shall be determined at the end of such Working
Segment, and all amounts to be paid in respect of portions of the Wafer Volume
Commitment not purchased in accordance with this Section will be tracked
monthly, and reconciled and paid at the end of each Working Segment. Conexant’s
payment of the foregoing amounts shall be Company’s sole and exclusive remedy,
and Conexant’s
entire liability, for Conexant’s failure to meet any Wafer Volume
Commitment hereunder or to purchase any Wafers ordered in Purchase Orders
pursuant to Section 3.3(a) during Segments 1 through 18.

 

2.2                               Company
Supply Obligations.

 

(a)                                  Commitment; Requests
for Increased Capacity. Company shall be able to provide the Capacity to
satisfy the Wafer Volume Commitments set forth in Exhibit B, Schedule 1
during each Segment of the term of this Supply Agreement, and will accept and
fulfill all Purchase Orders that are submitted pursuant to the [...***...] Purchase
Order requirements set forth in Section 3.3 (Purchase Orders;
Purchase Order Releases; Specialty Wafers) up to the applicable Wafer Volume
Commitments. In addition, upon Conexant’s request,
Company will increase (and maintain for a period of time specified by Conexant)
Capacity up to the Maximum Capacity of the Newport Beach Fab,
provided that (i) Company will have no less than three (3) Segments
in which to accomplish such increase; (ii) in no event will Company be
required to increase Capacity by an increment equivalent to more than fifty
(50) WSPD for any three (3) Segment period; and (iii) at the time of
its request, Conexant submits binding Purchase Orders for a
total number of Wafers sufficient to utilize the requested increase in Capacity
for the period of the desired increase.

 

(b)                                  Notice
Requirements. If at any time Company believes or becomes aware that it
would be unable to satisfy the Wafer requirements of Conexant
contained in the latest Order Forecast, then Company will promptly notify Conexant
in writing.

 

(c)                                  Wafer
Processes. This Supply Agreement applies to all processes currently
available or in development at the Newport Beach Fab. Future processes that are
developed by the Company may be added to this Supply Agreement by mutual
consent. Subject to the restrictions in this Section 2.2(c),
Company may terminate the use of a Wafer process at the Newport Beach Fab. At
least [...***...] prior to the date of the discontinuance of any process with
respect to any Wafers, Company shall provide Conexant with
written notice of its intent to terminate such Wafer process and shall
cooperate with Conexant on a transition plan with respect to Conexant’s
supply of Wafers. If the projected or actual volume on any process decreases to
less than the equivalent of [...***...] WSPD over [...***...] consecutive Segments,
Company may phase out such process without such [...***...] notice, provided that Conexant and Company will in such case
cooperate to phase out such process in a timely manner through an end-of-life
buy. Company will perform the transition in accordance with the plan and will
use commercially reasonable efforts to ensure a smooth transition.

 

8

 

(d)                                  Closing
of Newport Beach Fab. Company shall notify Conexant at least
[...***...] prior to the date that Company intends to commence any closure, in
whole or in part, of the Newport Beach Fab. Company shall prepare and obtain Conexant’s
written approval on a transition plan to transfer the Wafer processing
technologies requested by Conexant to a foundry or foundries designated by
Conexant
and specifically designed to ensure that there is no interruption in Conexant’s
supply of Wafers. The time to prepare and approve the transition plan will be
completed in parallel with the [...***...] notification period. Both Parties will
use commercially reasonable efforts to (i) transfer the Wafer processing
technology in accordance with the Conexant-approved
plan and (ii) ensure a smooth transition of Wafer processing including
making available Company engineers to assist the designated foundry or
foundries in implementing and qualifying the Wafer processing technology and to
promptly respond to inquiries regarding the use of such processes or technology.
Conexant
shall reimburse Company for the actual out-of-pocket expenses incurred by
Company, and pre-approved by Conexant, in
transitioning such technology to the designated foundry or foundries. Conexant
will have the right, until such time as the designated foundry or foundries is
operational and qualified to process the Wafers, to continue to submit Purchase
Orders for Wafers to Company. Company will continue to manufacture, supply, and
provide to Conexant,
in accordance with the Wafer purchase procedures in Section 3
(Wafer Purchases), any such Wafers that are ordered. The foregoing obligations
are in addition to Company’s other obligations under this Supply Agreement.

 

(e)                                  Supply Interruptions. If at any time
Company experiences a Material Interruption (as defined below), Conexant’s
Wafer Volume Commitments shall be reduced by the number of Wafers Company is
unable to supply for the actual duration of such Material Interruption,
provided, however, that if such Material Interruption results from Conexant’s
failure to provide any services that Conexant is obligated to provide under the
Information Technology Service Agreement of even date herewith by and between
Company and Conexant, then Conexant’s Wafer Volume Commitment shall not be  reduced as a result of such Material
Interruption. If an unintended interruption in Company’s ability to fulfill its
supply obligations occurs that is not a Material Interruption, Conexant shall
remain obligated to satisfy its obligations hereunder to purchase Wafers,
provided, that if, due to such interruption, Company is unable to deliver a
number of Wafers ordered to fulfill a portion of a Wafer Volume Commitment
prior to the end of the Segment, then Conexant will be excused from that
portion of the Wafer Volume Commitment for that Segment, and such portion will
be rolled over to be fulfilled by the end of the following Segment. This
provision shall not limit any other rights or remedies Conexant or Company may
have for a breach of this Supply Agreement or otherwise, and nothing in this
provision is intended to supersede, restrict, or otherwise limit either party’s
rights under Section 13.7 (Force Majeure). For purposes of this Section, “Material
Interruption” means an unintended interruption in Company’s ability to produce
Wafers that (i) endures for more than a period of [...***...], and (ii) causes
a reduction in Capacity of [...***...] or more WSPD.

 

3.                                      WAFER
PURCHASES.

 

3.1                               Scope.
Upon receipt of an applicable Purchase Order Release (as described in Section 3.3(b) (Purchase
Order Releases) below), Company shall produce Wafers and provide Probe Services
for Conexant.
Wafers may include Production Wafers, Engineering Wafers, and Risk Materials from
any semiconductor wafer process in production, or released to production, at
the Newport Beach Fab on or after the Effective Date. For new Wafers or
processes requested by 

 

9

 

Conexant,
Conexant
will provide Company with the documentation substantially similar to the
document(s) set forth in Exhibit C (Rules of Change, Operation
and Release Procedures), as applicable to the requested process. Both Parties
agree to cooperate to provide all necessary information as described in Exhibit C.

 

3.2                               Forecasts.
On or about the last day of each calendar month during the term of this
Supply Agreement, Conexant will provide to Company a rolling
forecast, covering a minimum period of [...***...], of Conexant’s
expected order volumes for Wafers in the coming [...***...] (the “Order Forecast”). The Order
Forecasts are for planning purposes only and will not bind Conexant
or the Company in any respect. No deviation of actual volumes from the
forecasted volumes will relieve Conexant or Company
of their respective responsibilities and obligations under this Supply
Agreement or affect the pricing established under this Supply Agreement. Subject
to the requirements of Section 2.1 (Conexant Purchase Obligations),
Conexant
may change or update the forecasts delivered hereunder at any time upon notice
to Company.

 

3.3                               Purchase
Orders; Purchase Order Releases; Specialty Wafers.

 

(a)                                  Purchase
Order. Not later than [...***...] prior to the first business day of each
Segment during the term of this Supply Agreement (other than Segment 1), Conexant
shall submit to Company a written Purchase Order setting forth the specific
volume and mix of Wafers [...***...] it intends to purchase under this Supply
Agreement during the following Segment (the “Working
Segment”), expressed as total WSPD per type of Wafer. Conexant
shall not load the Newport Beach Fab by a number of WSPD in each day of the
Working Segment set forth in such Purchase Order that deviates by more than
plus or minus [...***...] WSPD from the average number of WSPD per day for the
entire Working Segment, as determined by dividing the total number of WSPD for
the entire Working Segment set forth in such Purchase Order by sixty and
two-thirds (60 2/3) days. The Purchase Order for Segment 1 will be submitted to
Company within three (3) business days after the Effective Date.

 

(b)                                  Purchase
Order Releases  Conexant
will submit [...***...] Purchase Order Releases against outstanding Purchase
Orders, to be submitted by close of business on [...***...] for
Wafers to be released [...***...]   Each Purchase Order Release for Wafers will
specify the applicable Purchase Order, Wafer part number and revision level,
quantity, additional component parts required by Conexant,
price, delivery date, ship-to address, and other applicable information as
determined by Conexant. Purchase Order Releases shall not
deviate from the volumes and mixes specified for the corresponding period of
time in the applicable Purchase Order, except that Conexant
may (i) modify the volume of Wafers by no more than plus or minus [...***...]
WSPD from the specified volume for the applicable period of time in the
applicable Purchase Order; and (ii) [...***...], subject to available Capacity
at the Newport Beach Fab. Notwithstanding the receipt of a Purchase Order, Company
will not commence manufacturing of the Wafers under a Purchase Order until Conexant
has issued a Purchase Order Release.

 

(c)                                  Reserved
SiGe Wafers. If, at any time Company receives a written order (a “SiGe Order”) from a third party
customer for the purchase of SiGe Wafers, and Company lacks sufficient Capacity
to fill the SiGe Order because it is obligated to reserve such Capacity for
SiGe Wafers that have been ordered but not yet released by Conexant
pursuant to Section 3.3(b) (Purchase Order Releases) above
(the “Reserved SiGe Wafers”), Company may
notify Conexant

 

10

 

of the SiGe
Order and require Conexant to confirm that it will issue a
Purchase Order Release for such Reserved SiGe Wafers.

 

(i)                                    If
Conexant
confirms that it will issue a Purchase Order Release for the Reserved SiGe
Wafers and later does so, then Company will fill the Purchase Order Release for
the Reserved SiGe Wafers [...***...].

 

(ii)                                If
Conexant
confirms that it will issue a Purchase Order Release for the Reserved SiGe
Wafers and later fails to do so, then Conexant will pay to
Company an amount equal to [...***...], up to the number of SiGe Wafers made
unavailable due to Conexant’s failure to cancel the unreleased
Reserved SiGe Wafers.

 

(iii)                            If
Conexant
agrees to cancel the Reserved SiGe Wafers, then (A) Company will be
relieved of any further obligation to hold the Capacity for the Reserved SiGe
Wafers or deliver the Reserved SiGe Wafers to Conexant; and (B) Company
may utilize the previously reserved Capacity to fill the SiGe Order.

 

3.4                               Acceptance
and Acknowledgement  All Purchase
Orders submitted at least [...***...] prior to the start of the Working Segment for
Wafers shall be accepted by Company up to the Wafer Volume Commitment and as
specified in Section 2.1(d) (Requirements in Excess of the
Wafer Volume Commitment), and may be accepted by Company in all other cases. Subject
to the terms of this Supply Agreement, once Company accepts a Purchase Order,
it will be obligated to produce and deliver the Wafers in the volumes specified
in the Purchase Order (subject to the applicable Planning Yield Assumption),
and Conexant will be obligated to purchase such Wafers in the volumes specified
in the Purchase Order. Within [...***...] after receipt of each Purchase Order or
Purchase Order Release or, if received on a non-business day or on the day
prior to a non-business day, within [...***...], Company will acknowledge such
Purchase Order or Purchase Order Release in writing by either fax or e-mail
notice to Conexant’s
purchasing agent identified on the face of the Purchase Order or Purchase Order
Release. Such acknowledgement will include Company’s projected delivery date
for the order; provided that, in establishing such delivery date, Company shall
use reasonable efforts to comply with the delivery dates specified in Conexant’s
Purchase Order Release. The Wafer process cycle times set forth in Exhibit E
(Wafer Cycle Times) shall be updated each Segment. If at any time during the
production of such Wafers Company believes or becomes aware that the delivery
may be delayed by more than [...***...], Company shall provide Conexant
with written notice of such change in the delivery schedule and the
quantity of Wafers affected. Such report shall be referred to as an “Exception Report” and any Wafer
Lots not specifically identified in an Exception Report shall be delivered by
Company no later than the delivery date specified in the Purchase Order Release.
Purchase Orders or Purchase Order Releases not acknowledged or rejected by
Company within such time will be deemed accepted by Company.

 

3.5                               Wafer
Lots; Expedited Services. Unless otherwise agreed to in writing by the
Parties, Production Wafers shall be ordered by Conexant and
delivered by Company in Lots of twenty-five (25) Wafers
(subject to the applicable Planning Yield Assumptions)
and Engineering Wafers shall be ordered by Conexant and
delivered by Company in Lots of five (5) to twenty-five (25) Wafers
(subject to the applicable Planning Yield Assumptions). At Conexant’s
request, Company will use commercially reasonable efforts to process Production
Wafer Lots, Engineering 

 

11

 

Wafer Lots,
and Risk Materials on an expedited basis; provided that
Company shall have no liability for failure to actually provide priority
processing. Company shall provide up to the Allowable Number (as defined below)
of priority Lots to be processed at any one time [...***...], and if the number of
expedited Lots requested by Conexant and provided on an expedited basis by
Company exceeds the Allowable Number of Lots in process at any given time, the
cost of Wafers in excess of the Allowable Number shall be:

 

	
  P1 Lots

  	
   

  	
  [...***...] multiplied
  by the Contract Price or Basic Price (or other applicable price)

  
	
   

  	
   

  	
   

  
	
  HVL Lots

  	
   

  	
  [...***...] multiplied
  by the Contract Price or Basic Price (or other applicable price)

  

 

The “Allowable Number” shall be
determined as follows:  in Segments 1-6,
the Allowable Number of expedited Lots shall be [...***...] ([...***...] of which may
be HVL), in Segments 7-12, the Allowable Number shall be [...***...] ([...***...] of
which may be HVL), and in Segments 13-18, the Allowable Number shall be [...***...]
([...***...] of which may be HVL); provided, that,
for every [...***...] WSPD contained in any Purchase Order in excess of the Wafer
Volume Commitment for any Working Segment, the Allowable Number shall be
increased by [...***...] for that Segment.

 

3.6                               Pizza
Mask Wafers. Conexant may submit Purchase Orders and Purchase
Order Releases for Pizza Mask Wafers, and Company shall fulfill such orders to
the extent required to fill such orders under Section 2.2 (Company
Supply Obligations), provided that (i) the only testing of Pizza Mask
Wafers required to be performed by Company will be parametric testing; and (ii) Company
will deliver Pizza Mask Wafers in wafer form. The price of the Pizza Mask Wafer
will be [...***...].

 

3.7                               Cancellation
and Modifications to Orders. Conexant may modify
or reschedule a Purchase Order Release (in whole or in part) as set forth
in this Section 3.7; provided that Conexant meets its
Wafer Volume Commitments.

 

(a)                                  Cancellation
Before Process Start  Except as set
forth in Section 3.3(b) (Purchase Order Releases), for each
Purchase Order Release for which processing of the Wafers has not yet begun, Conexant
may cancel or modify a Purchase Order Release (in whole or in part) [...***...] by
delivering to Company a written notice of cancellation or modification, provided that Conexant replaces
within a reasonable time any Moves reduced or eliminated through such
cancellation or modification with the same number of Moves with respect to
replacement products.

 

(b)                                  Rescheduling.
For each Purchase Order Release, Conexant may reschedule delivery
[...***...]  by delivering to Company a
written notice rescheduling such delivery; provided that Conexant
shall be responsible for payment for all completed Wafers in accordance with
the original delivery schedule, and that such delays shall be subject to Section 5.2
(Storage) regarding storage of completed Wafers.

 

12

 

(c)                                  Cancellation
After Process Start  If Conexant
cancels a Purchase Order Release (in whole or in part) after the date the
processing of such Wafers has been started, then either, (i) if so
instructed by Conexant, Company will not complete the
cancelled Wafers and will deliver the incomplete Wafers to a location
designated by Conexant, in which case the Wafers will not
count against the Wafer Volume Commitment, and Conexant will pay
the Pro-Rated Price, as defined below; or (ii) unless otherwise instructed
pursuant to clause (i) of this Section, complete the cancelled Wafers and
hold the resulting Wafers in finished goods inventory where they will be stored
in accordance with Section 5.2 (Storage), in which case the Wafers
will count against the Wafer Volume Commitment and Conexant
will pay the applicable Price for completed Wafers. The “Pro-Rated
Price” means the greater of (A) [...***...] percent ([...***...] %)
of the price that would have been paid for the completed Wafers (either the
Contract Price, the Basic Price, or other applicable price, as the case may be)
and (B) such applicable price for completed Wafers multiplied by the ratio
obtained by dividing (i) the number of Moves completed with respect to the
Lots for which the Purchase Order Release is cancelled as of the time the
cancellation notice is received by Company by (ii) the total number of
Moves that would have been required to process the Lots in question.

 

(d)                                  Rework
Requests  If for any reason other than
a Process Failure it becomes necessary to, or Conexant otherwise
requests Company to, modify any part of the fabrication process with respect to
Wafers for which a Purchase Order has already been accepted or for which the
fabrication process has already started, Company may agree to such changes if
technically feasible and if Company has available Capacity, in which case Conexant
will be obligated to pay the applicable price for rework services set forth in Exhibit A
(Pricing). In the event that Company does not accept such changes, then Conexant
may cancel the Purchase Order Release in question, subject to this Section 3.7.

 

3.8                               Materials.
Company shall be responsible for procuring all materials required to
manufacture the quantity of Wafers ordered by Conexant. Conexant
shall be responsible for obtaining and furnishing to Company all Photomasks, or
any other products with similar functional characteristics, required to
manufacture or support the Wafers ordered by Conexant. Company
shall be responsible for repair or replacement of any of Conexant’s
Photomasks damaged while in Company’s possession.

 

3.9                               Risk
Materials. At Conexant’s request and subject to Section 2.1
(Conexant Purchase Obligations) and to an applicable Purchase Order, Company
shall process and provide Risk Materials to Conexant. With all
Purchase Orders for Risk Materials, Conexant shall
provide a written statement setting forth the risk factors or any special
circumstances related to the Risk Materials and specifying the quantity of Risk
Materials to be provided. Company’s acknowledgement of a Purchase Order for
Risk Materials shall be deemed an acknowledgement of such risks or
circumstances.

 

3.10                        NRE
Services  At Conexant’s
request, Company shall negotiate to provide non-recurring engineering services
for new Wafers, provided that the Parties reach
agreement concerning the terms and conditions of provision of such services. The
Parties shall negotiate in good faith the terms and conditions and any
applicable costs associated with such engineering services.

 

13

 

4.                                      PROBE
SERVICES AND RE-PROBE SERVICES.

 

4.1                               Scope.
Company shall provide Probe Services for all Wafers produced for Conexant
by the Company that are included in the Wafer Volume Commitment, at no
additional charge. For other Wafers provided by Company, the Parties will agree
upon whether the Basic Price will include Probe Services. Company may also
provide Probe Services for Wafers from other sources provided by Conexant,
subject to agreement by the Parties on terms and conditions for such Probe
Services. Probe Services to be provided under this Supply Agreement shall be
limited to Probe Services in conjunction with Wafer production, and do not
include Engineering Probe or Probe Card Services, which are subject to the
separate Transition Services Agreement between the Parties. Probe Services may
be provided using testers owned by Company or Conexant, as
specified by Conexant in the applicable Purchase Order. Conexant
will provide all of the documentation and test parameters necessary to complete
Probe Services prior to issuing a Purchase Order Release.

 

4.2                               Purchase
Orders. Subject to the agreement of the Parties on the terms for Probe
Services (other than for Wafers produced by Company), Conexant
will submit blanket Purchase Orders to Company for Conexant’s
expected requirements for Probe Services. Conexant will then
submit [...***...] Purchase Order Releases to such Purchase Orders. Notwithstanding
the receipt of a Purchase Order, Company will not commence performance of Probe
Services under a Purchase Order until Conexant has issued
a Purchase Order Release. Each Purchase 
Order Release for Probe Services will specify the applicable Purchase
Order, applicable wafers provided by Conexant, testers to
be used, price, delivery date, ship-to address, and other applicable
information as determined by Conexant.

 

4.3                               Acknowledgement
and Acceptance. Within [...***...] after receipt of each Purchase Order or
Purchase Order Release or, if received on a non-business day or on the day
prior to a non-business day, within [...***...], Company will acknowledge such
Purchase Order or Purchase Order Release in writing by either fax or e-mail
notice to Conexant’s
purchasing agent identified on the face of the Purchase Order or Purchase Order
Release. Purchase Orders or Purchase Order Releases not acknowledged or
rejected by Company within such time will be deemed accepted by Company.

 

4.4                               Changes,
Cancellation and Modifications to Orders.

 

(a)                                  Changes.
Conexant
may submit documentation changes for Probe Services at any time. In the event
such change requires a substantial change in the scope of work, Company shall
promptly notify Conexant in writing as to whether Company
accepts such change, and, if accepted, of the impact of the change on cost and
delivery prior to implementing the change. Upon receipt of Conexant’s
written approval of the change, Company shall adjust the price and delivery for
the Probe Services to be performed and implement the requested change

 

(b)                                  Cancellations.
For each Purchase Order Release for which Probe Services has not yet been
started, Conexant
may cancel or modify a Purchase Order Release (in whole or in part) [...***...] by
delivering to Company a written notice of cancellation or modifications.

 

(c)                                  Rescheduling.
For each Purchase Order Release, Conexant may reschedule the
Probe Services [...***...] by delivering to Company a written notice rescheduling 

 

14

 

such Probe
Services, which schedule change shall be subject to Company’s approval
depending on Capacity and available resources

 

(d)                                  Holds
and Cancellations After Process Start. Conexant may put on
hold any Probe Services to be provided under a Purchase Order Release for up to
[...***...] Lots at a time; provided that no Lot will remain on hold for longer
than [...***...], after which the Probe Services shall be deemed cancelled and
Company shall, as Company’s sole remedy, invoice Conexant
for the Probe Services actually performed by Company prior to date of the hold.
If Conexant
cancels a Purchase Order Release (in whole or in part) after the date the Probe
Services have been started, then Company will either, at Conexant’s
sole discretion (i) not complete the cancelled Probe Services and hold the
wafers in a processing location designated by Conexant; or (ii) complete
the cancelled Probe Services. As Conexant’s sole
liability, and Company’s sole remedy, for such cancellation, Conexant
will pay to Company an amount equal to the price for the Probe Services actually
performed by Company prior to the date of cancellation.

 

(e)                                  Excess
Service Requirements. If Conexant’s demand
exceeds the Company’s Probe Services capacity in Newport Beach, Conexant
shall offer any available Probe Services capacity to Company at a Conexant
facility and assure this capacity is offered at the same cost or less then the
cost that would have been incurred by Company had the Probe Services been
performed at the Company.

 

4.5                               Removal
of Test Equipment from the Fab. The Parties acknowledge that certain probe
and test equipment owned by Conexant is located in the Newport Beach Fab,
and that Company is entitled to use and access such equipment pursuant to the
Transition Services Agreement between Conexant and
Company, dated March 12, 2002. Conexant may
not remove any of the test equipment from the Probe floor during the first
three (3) year period during the term of this Supply Agreement. At any
time following the third anniversary of this Supply
Agreement, Conexant
may deliver a written notice of removal to
Company with respect to any test device owned by it, and may remove such test
device after six (6) months following
receipt by Company of such notice. Notwithstanding the
foregoing, at any
time following the first anniversary of
this Supply Agreement, Conexant may deliver a written notice of
removal to
Company with respect to the HP 84000 equipment owned by it, and may remove such
HP 84000 equipment after three (3) months
following receipt by Company of such notice.

 

5.                                      DELIVERY
AND LOGISTICS.

 

5.1                               Delivery.
All Wafers delivered to Conexant shall be delivered F.O.B. the Company’s
facility at the Newport Beach Fab, as requested in the applicable Delivery Note.
Title and risk of loss shall pass from Company to Conexant
upon delivery, which shall be deemed made upon transfer of possession to the
shipping carrier or to storage if not shipped immediately. Conexant
shall be responsible for all freight, handling and insurance charges subsequent
to such delivery. Except in accordance with the applicable delivery terms set
forth in this Supply Agreement, Company shall not have any liability in
connection with shipment, nor shall the shipping carrier be deemed to be an
agent of Company.

 

15

 

5.2                               Storage.
Following delivery to Conexant, Company shall provide storage of up to
[...***...] Lots of completed Wafers [...***...], provided that
no Lot shall remain in such storage for longer than [...***...].

 

5.3                               Transition
Services Agreement  Shipping and
handling of finished Wafers will be in accordance with the applicable
provisions of the Transition Services Agreement between Conexant
and Company, dated March 12, 2002.

 

6.                                      PRICING;
CREDITS; AND PAYMENTS.

 

(a)                                  Wafers.
Company will invoice Conexant for all Wafers upon completion of
production of each Lot, at the applicable Wafer price calculated pursuant to Exhibit A
(Pricing) in effect on the date of the invoice, less any applicable Wafer
Credits (as defined in Section 6.2 (Wafer Credits) below). For Lots
of Engineering Wafers, Company will invoice Conexant at the end
of each month for all Moves completed with respect to such Engineering Wafers
during such month, and upon completion of production for Engineering Wafers for
any completed Moves not previously invoiced. Each invoice submitted to Company
shall specifically set forth the Wafer Credits, if any, applied to such invoice.
In Segments 1 through 6, Conexant shall pay any amounts due on such
invoices within [...***...] of the receipt of the invoice and in all subsequent
Segments such payments shall be made within [...***...] of receipt of the invoice. Notwithstanding
any other provision hereof, neither Party may offset any amounts owed by such
Party to the other Party against any amounts from such other Party, without
such other Party’s express written agreement to such offset in each case.

 

(b)                                  Probe
Services and Re-probe Services. Company will invoice Conexant
for Probe Services and any other services specified in this Supply Agreement on
a monthly basis. Pricing for such services shall be in accordance with Exhibit A
(Pricing). All invoice costs include, without limitation, the labor for
services actually performed, materials, material burden, and costs associated
with any changes approved in writing by Conexant

 

6.2                               Wafer
Credits. Company will provide to Conexant credits for
the purchase of Wafers from Company in the amount of Sixty Million U.S. Dollars (U.S. $60,000,000) to be used in
Segments 13 through 30 (the “Wafer Credits”).
No more than Twenty Million U.S. Dollars (U.S. $20,000,000) total in Wafer
Credits may be used within any consecutive six-Segment period. Such Wafer
Credits shall apply only to Wafers purchased by Conexant at the
Basic Price (or, during Quarters 9 through 11, at the Stepped Price). The
amount of the Wafer Credit applied to each such Wafer shall not exceed Four Hundred U.S. Dollars (U.S. $400) or the difference between
the Contract Price and the Basic Price, whichever is less. Conexant
may, at its discretion and at any time upon written notice to Company, allocate
any existing Wafer Credits between Conexant and any of
the Conexant
Spin-offs, provided that any Wafer Credits so
allocated shall remain subject to the provisions hereof. Upon expiration of this
Supply Agreement, if Conexant has any unused Wafer Credits remaining,
Conexant
will be permitted to apply such unused Wafer Credits against any purchase of
Wafers from Company during the two (2) year period immediately following
the date of termination; provided, however,
that the amount of the Wafer Credit applied to any one Wafer shall not exceed Four Hundred U.S. Dollars (U.S. $400) and the total amount of
Wafer Credits may not exceed Twenty Million U.S. Dollars (U.S. $20,000,000) in the
aggregate in such two year period. During the time
that Conexant has unused Wafer Credits available, Conexant may make a 

 

16

 

guaranteed
commitment (a “Guaranteed Commitment”) to Company for the following quantities
of Wafers:  (a) during Segments 13
through 18 (“Year 3”), a number of Wafers equal to no more than the equivalent
of [...***...] ([...***...]) MPD during Year 3; and (b) thereafter, a number of
Wafers equal to no more than the equivalent of [...***...] ([...***...]) MPD during
each year. Provided that the Guaranteed Commitment is made no later than six (6) months
in advance and covers the purchase of Wafers over a six (6) month period,
Company will accept and fulfill all Purchase Orders issued against the
Guaranteed Commitment.

 

6.3                               Costs.
Except as otherwise provided herein or agreed to in writing by the Parties,
each Party will be solely responsible for the costs and expenses it incurs in
performing its obligations under this Supply Agreement.

 

6.4                               Taxes.
Conexant
will be responsible for payment of any and all taxes or related governmental
charges (“Taxes”) imposed on or
arising from Conexant’s purchase of Wafers or Probe Services
under this Supply Agreement, excluding any Taxes on the net income or net worth
of Company, provided that such taxes are specifically identified by Company as
a separate line item on Company’s invoices provided pursuant to Section 6.1
(Pricing and Invoices). Company will provide Conexant with copies
of official receipts for the payment of any such Taxes, and any other
information and documents Conexant may reasonably request in order to
verify the payment of such amounts to the appropriate governmental entity.

 

7.                                      TRACKING;
REPORTING; AND AUDITS.

 

7.1                               Wafer
Tracking. All Wafers manufactured and delivered by Company to Conexant
shall have backward and forward trace ability sufficient to enable Company to
identify (i) the processes and materials used in the manufacture of such
Wafers; (ii) the batches or lots of such materials; and (iii) other
Wafers in the same or sequential lots. Such information shall be provided to Conexant,
upon Conexant’s
request.

 

7.2                               Reporting
Requirements. Company shall provide Conexant with the
reports specified in Exhibit G (Reports) in accordance with
frequency or schedule set forth therein. All such reports shall be in
writing and provided to Conexant in the form (e.g.,
electronic form) specified in Exhibit G or otherwise mutually
agreed to in writing by the Parties.

 

8.                                      WARRANTY
AND DISCLAIMER.

 

8.1                               Wafer
Warranty. For a period of [...***...] days from the date of delivery (the “Wafer
Warranty Period”), Company warrants that the Wafers, other than Risk Materials,
delivered hereunder will conform to the applicable Specifications, will be
manufactured in accordance with the Quality Standards, and will be free from
defects in material, manufacturing and workmanship. If, during the Wafer
Warranty Period, a breach of the warranty is discovered in the Wafers, then
Company shall promptly begin production to replace the defective Wafer and work
with Conexant
on a timely basis to determine the cause of such defect and appropriate
corrective measures. For the avoidance of doubt, a breach of the foregoing
warranty will not give rise to any termination provision under Section 12
(Term; Termination) provided that Company provides the foregoing express
remedy.

 

17

 

8.2                               Process
Failure. In the event that, (a) the Fab Yield of any Lot of Production Wafers
is [...***...] percent ([...***...] %) or
less of the applicable Planning Yield Assumption due to a Process Failure or (b) during
Segments 12 through 30, the Probe Yield of any Lot of Production Wafers
purchased at the Basic Price is [...***...] percent
([...***...] %) or less of the Current Average Probe Yield
(applied to the applicable Planning Yield Assumption) due to a Process Failure,
then Company will notify Conexant
and will dispose of such Lot and/or start a new Lot in accordance with Conexant’s
directions.

 

8.3                               Disclaimers.
EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS SUPPLY AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED OR
OTHERWISE, IN CONNECTION WITH THIS SUPPLY AGREEMENT OR ANY WAFERS OR SERVICES
PROVIDED UNDER THIS SUPPLY AGREEMENT, AND EACH PARTY SPECIFICALLY DISCLAIMS THE
IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR PARTICULAR
PURPOSE AND NONINFRINGEMENT.

 

9.                                      INDEMNIFICATION.

 

9.1                               Conexant Indemnification Obligations. Conexant
agrees to indemnify, hold harmless and defend at its own expense any liability
or cost associated with any claim, suit, or action (collectively, “Claims”) asserted or brought
against Company, its Affiliates and its subsidiaries, and their officers,
directors, employees, agents, and representatives by a third party to the
extent that such Claim alleges that Conexant’s
specifications or designs used in the production of Wafers infringe on any
patent, copyright, or any other intellectual property right (a “Conexant
Infringement Claim”). Conexant will pay
such damages awarded against Company by a court of competent jurisdiction, or
agreed to in a monetary settlement of any such Claim by Conexant,
to the extent that such damages are directly attributable to a Conexant
Infringement Claim. Conexant’s indemnification obligation will not
apply to Conexant
Infringement Claims to the extent they result from or are attributable to (a) any
modifications, combinations, or improvements made to the design or
specification as furnished to Company by Conexant that are
not agreed to by Conexant; or (b) use of the design or
specification by Company for any purpose other than providing Wafers or Probe
Services to Conexant.

 

9.2                               Company
Indemnification Obligations. Company agrees to indemnify, hold harmless and
defend at its own expense any liability or cost associated with any claim,
suit, or action (collectively, “Claims”)
asserted or brought against Conexant, a Conexant Spin-off,
or any of their respective Affiliates and subsidiaries, and their officers,
directors, employees, agents, and representatives by a third party to the
extent that such Claim alleges that Company’s use of technology, equipment,
processes, or methods to manufacture the Wafers or provide the Probe Services
infringes upon any patent, copyright, or any other intellectual property right
(a “Company Infringement Claim”). Company
will pay such damages awarded against Conexant by a court
of competent jurisdiction, or agreed to in a monetary settlement of any such
Claim by Company, to the extent that such damages are directly attributable to
a Company Infringement Claim. Company’s indemnification obligation hereunder
will not apply to Company Infringement Claims alleging infringement by any
technology, equipment, processes, or methods that were (a) in use by
Company upon the Effective Date; or (b) provided by Conexant
to Company. For the avoidance of doubt, if Company modifies, improves, or
combines any such technology equipment, 

 

18

 

processes, or
methods, the foregoing indemnification obligation will apply to the extent that
Company Infringement Claims are directed at the modifications, improvements, or
combinations, except for modifications, improvements, or combinations performed
at the direction of Conexant or its Affiliates.

 

9.3                               Conditions.
The obligations of the indemnifying Party (the “Indemnifying
Party”) under Section 9.1 (Conexant Indemnification
Obligations) or Section 9.2 (Company Indemnification Obligations)
with respect to a Conexant Infringement Claim or Company
Infringement Claim (as applicable) (an “Infringement Claim”)
are subject to the following conditions: (a) the indemnified Party (the “Indemnified Party”) must promptly
notify the Indemnifying Party in writing of such Infringement Claim; (b) the
Indemnifying Party must have sole control of the defense and settlement of the
Infringement Claim; and (c) the Indemnified Party must fully cooperate
with and provide reasonable assistance to the Indemnifying Party in the defense
and settlement of such Infringement Claim (which includes furnishing to the
Indemnifying Party all evidence in the possession of the Indemnified Party that
is relevant to such Infringement Claim). The Indemnifying Party will not accept
a settlement or stipulated judgment of any Conexant
Infringement Claim or Company Infringement Claim (as applicable) without the
prior written consent of the Indemnified Party, which consent will not be
unreasonably withheld. The Indemnifying Party will have no liability under this
Section 9 (Indemnification) for any costs, losses, liabilities, or
damages resulting from the willful acts of the Indemnified Party or any
settlement or compromise incurred or made by the Indemnified Party without the
Indemnifying Party’s prior written consent. The Indemnified Party will have the
right to participate, at its own expense, in the defense or settlement of the
Infringement Claim.

 

9.4                               Sole
and Exclusive Remedy. This Section 9 (Indemnification) states
the Indemnifying Party’s entire liability and the Indemnified Party’s sole
remedy with respect to the infringement, violation, or misappropriation of any
intellectual property rights of any third party arising from or relating to
this Supply Agreement, other than any rights to indemnification provided for in
the Contribution Agreement. Each Party’s obligations under this Section 9
(Indemnification) are subject to the limitations of liability set forth in Section 11
(Limitations of Liability).

 

10.                               CONFIDENTIALITY.
The Parties acknowledge that any nonpublic information disclosed or provided by
one Party to another Party in connection with this Agreement will be subject to
the Confidentiality Agreement between the Parties dated February 23, 2002.
The terms and conditions of this Supply Agreement (including the pricing
information contained herein) will be considered to be the Confidential
Information (as defined in the Confidentiality Agreement) of both parties.

 

11.                               LIMITATIONS
OF LIABILITY.

 

11.1                        Disclaimer.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS SUPPLY AGREEMENT, IN NO
EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR LOST PROFITS OR FOR
ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES ARISING
FROM THE SUBJECT MATTER OF THIS SUPPLY AGREEMENT, REGARDLESS OF THE TYPE OF 

 

19

 

CLAIM AND EVEN
IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

11.2                        Basis
of Bargain. EACH PARTY ACKNOWLEDGES THAT THE MUTUAL LIMITATIONS OF
LIABILITY CONTAINED IN THIS SECTION 11 (LIMITATIONS OF LIABILITY)
REFLECT THE ALLOCATION OF RISK SET FORTH IN THIS SUPPLY AGREEMENT AND THAT EACH
PARTY WOULD NOT ENTER INTO THIS SUPPLY AGREEMENT WITHOUT THESE LIMITATIONS ON
LIABILITY.

 

12.                               TERM;
TERMINATION.

 

12.1                        Term  This Supply Agreement will take effect on the
Effective Date and will remain in effect for a period of five (5) years
from the Effective Date (the “Initial Term”),
unless earlier terminated in accordance with this Section 12 (Term;
Termination). Following the Initial Term, this Supply Agreement may be renewed
for additional one-year renewal terms (each a “Renewal
Term”), upon mutual agreement of the Parties.

 

12.2                        Termination.
This Supply Agreement may be terminated at any time as follows:

 

(a)                                  by
written agreement of the Parties;

 

(b)                                  by
either Party, at its discretion upon written notice to the other Party, if the
other Party materially breaches any provision of this Supply Agreement and such
breach is not cured within sixty (60) days after written notice of such breach
is furnished by the non-breaching Party;

 

(c)                                  by
either Party, at its discretion upon written notice to the other Party, if
within any period of twelve (12) months there are five (5) or more
material breaches by the other Party that would constitute grounds for termination
pursuant to this Section 12.2 (without giving effect to cure
periods), regardless of whether such breaches were cured within the applicable
cure periods; or

 

(d)                                  by
either Party, at its discretion, if (i) the other Party becomes insolvent,
admits in writing its inability to pay its debts as they become due, or files
or has filed against it any proceeding in bankruptcy or for reorganization
under any federal bankruptcy law or similar state law, or has any receiver
appointed for all or a substantial part of such Party’s assets or business, or
makes any assignment for the benefit of its creditors, or enters into any other
proceeding for debt relief, and such proceeding is not dismissed within sixty
(60) days of filing; (ii) the other Party dissolves, liquidates, or
institutes any proceedings for the liquidation or winding up of its business.

 

12.3                        Effect
of Termination. The rights and obligations under Sections 1
(Definitions), 6.2 (Wafer Credits), 8 (Warranty and Disclaimer), 9 (Indemnification),
10 (Confidentiality), 11 (Limitations of Liability), 12.4 (Effect
of Termination), and 13 (General) will survive termination or expiration
of this Supply Agreement for any reason.

 

20

 

13.                               GENERAL.

 

13.1                        Agency.
Under this Supply Agreement (i) each Party will be deemed to be an
independent contractor and not an agent, joint venturer, or representative of
the other Party; (ii) neither Party may create any obligations or
responsibilities on behalf of or in the name of the other Party; and (iii) neither
Party will hold itself out to be a partner, employee, franchisee,
representative, servant, or agent of the other Party.

 

13.2                        Governing
Law; Venue and Jurisdiction. This Supply Agreement will be governed by,
subject to, and construed in accordance with the internal laws of the State of
Delaware, as such laws apply to contracts between Delaware residents performed
entirely within Delaware. The Parties agree that the United Nations Convention
on Contracts for the International Sale of Goods will not apply to this Supply
Agreement.

 

13.3                        Dispute
Resolution. The Parties will act in good faith and use commercially
reasonable efforts to promptly resolve any claim, dispute, controversy or
disagreement arising out of or relating to or in connection with this Supply
Agreement or the breach, termination or validity hereof (each a “Dispute”) between the Parties under
or related to this Supply Agreement or any of the transactions contemplated
hereby.

 

(a)                                  Upon
the written request (a “Request”)
of a Party, the other Party shall commence good faith negotiations with the
goal of resolving the Dispute on a mutually satisfactory basis. If the Dispute
has not been resolved to the satisfaction of the Parties within fifteen (15)
days after the date on which the Request is delivered, the Dispute shall
immediately be referred to senior officers of each Party. The senior officers
of each Party (e.g., chief executive officer
and/or chief executive officer of international business) shall meet immediately,
and in no case later than thirty (30) days after the date on which the Request
is delivered, for a minimum of two (2) Business Days with a mutually
selected mediator and attempt in good faith to negotiate a resolution of the
Dispute. If the Parties are unable to resolve the Dispute within thirty-five
(35) days after the date on which the Request is delivered, then any relevant
Party may submit the Dispute to arbitration as the exclusive means of resolving
it in accordance with the procedures set forth in this Section 13.3.

 

(b)                                  Except
as otherwise specified in this Section 13.3, any Dispute not
resolved through the procedure set forth above shall be finally settled by
arbitration in accordance with the International Rules and Procedures of
the American Arbitration Association (the “Arbitration Rules”),
which are deemed to be incorporated by reference herein except as otherwise
modified herein.

 

(c)                                  The
arbitration situs shall be Wilmington, Delaware, and the laws of the State of
Delaware shall be applied.

 

(d)                                  In
the event of arbitration, there shall be one arbitrator who shall be jointly
nominated by such parties. If the Parties fail to so nominate the arbitrators
within thirty (30) days from the date when the Dispute is submitted to
arbitration pursuant to this Section 13.3, at the request of any
Party, the arbitrator(s) shall be appointed in accordance with the Arbitration
Rules.

 

21

 

(e)                                  The
arbitration hearing shall commence no later than ninety (90) days following the
appointment of the sole arbitrator, as the case may be, and the final award
shall be rendered no later than thirty (30) days following the close of the
hearing.

 

(f)                                    Consistent
with the expedited nature of arbitration, each Party will, upon the written
request of the other Party, provide the other with copies of documents relevant
to the issue raised by any claim or counterclaim. Other discovery may be
ordered by the arbitrator to the extent the arbitrator deems additional
discovery relevant and appropriate, and any dispute regarding discovery,
relevance or scope thereof, shall be determined by the arbitrator, which
determination shall be conclusive.

 

(g)                                 By
agreeing to arbitration, the Parties do not intend to deprive any court of its
jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment,
injunctive or other equitable relief or an order in aid of arbitration
proceedings and the enforcement of any award. Without prejudice to such
provisional remedies in aid of arbitration as may be available under the
jurisdiction of a national court, the arbitral tribunal shall have full
authority to grant provisional remedies and to award damages for the failure of
any party to respect the arbitral tribunal’s orders to that effect.

 

(h)                                 The
award shall be final and binding upon the Parties, and shall be the sole and
exclusive remedy between the Parties regarding any claims, counterclaims,
issues, or accounting presented to the arbitral tribunal in connection with the
Dispute. Judgment upon any award may be entered in any court having competent
jurisdiction thereof.

 

(i)                                    The
costs of the arbitration shall be borne as determined in accordance with the
Arbitration Rules; provided, however,
that to the extent a Party is non-prevailing or unsuccessful on a claim in an
arbitration proceeding under this Section 13.3 as determined by the
arbitrator, that Party shall pay the prevailing or successful Party’s costs and
expenses incurred in connection with the arbitration of that Dispute, including
attorneys’ fees and arbitration expenses, whether or not such Dispute is
prosecuted to award or judgment.

 

(j)                                    Subject
to the receipt of any applicable governmental approval, any monetary award
shall be made and promptly payable in U.S. dollars, if due in U.S. dollars,
free of any deduction or offset, and the arbitral tribunal shall be authorized
in its discretion to grant pre-award and post-award interest at commercial
rates. The arbitral tribunal shall have the authority to award any remedy or
relief proposed by the claimants or respondents pursuant to this Supply
Agreement, including without limitation, a declaratory judgment, specific
performance of any obligation created under this Supply Agreement or the
issuance of an injunction.

 

13.4                        Injunctive
Relief. Company acknowledges and agrees that Conexant
would suffer irreparable harm for which monetary damages would be an inadequate
remedy if there were a willful or intentional breach of any obligation of
Company to supply Wafers ordered against a Wafer Volume Commitment hereunder. Accordingly,
Company acknowledges and agrees that equitable relief, including specific
performance, would be appropriate to protect Conexant’s rights
and interests if such a breach were to arise, were threatened, or were
asserted, and that Conexant shall be entitled to obtain such
equitable relief without proving any additional elements.

 

22

 

13.5                        Third-Party
Beneficiaries. Except for Conexant Spin-offs,
there are no third-party beneficiaries of this Supply Agreement. Except for the
pricing established under this Supply Agreement, and the rights of Conexant
Spin-offs to purchase Wafers from Company at such pricing, no provision of this
Supply Agreement, express or implied, is intended or will be construed to
confer upon or give to any customer or other person other than the Parties any
rights, remedies, or other benefits under or by reason of this Supply
Agreement.

 

13.6                        Compliance
with Law. The Parties will at all times comply with all applicable foreign,
U.S., state, and local laws, rules and regulations relating to the
execution, delivery and performance of this Supply Agreement. Each Party agrees
that it will not export or reexport, resell, ship, or divert or cause to be
exported or reexported, resold, shipped, or diverted directly or indirectly any
software, documentation, or technical data incorporating any software to any
country for which the government (or any agency thereof) of the United States,
or any foreign sovereign government with competent jurisdiction requires an
export license or other governmental approval without first obtaining such
license or approval.

 

13.7                        Force
Majeure. Neither Party shall be liable for failure or delay in performance
of its obligations under this Supply Agreement to the extent such failure or
delay is caused by an act of God, act of a public enemy, war or national
emergency, rebellion, insurrection, riot, epidemic, quarantine restriction,
fire, flood, explosion, storm, earthquake, interruption in the supply of
electricity, power, or energy, or other catastrophe, terrorist attack, labor
dispute or disruption of such Party’s suppliers, or other event beyond the
reasonable control of such Party. If a Party’s performance under this Supply
Agreement is affected by a force majeure event, such Party shall give prompt
written notice of such event to the other Party and shall at all times use its
reasonable commercial efforts to mitigate the impact of the force majeure event
on its performance under this Supply Agreement. In the event of a force majeure
event as described in this Section that affects either or both Parties’
ability to perform under this Supply Agreement, the Parties agree to cooperate
in good faith in order to resume the transactions contemplated by this Supply
Agreement as soon as commercially possible to the extent commercially
reasonable.

 

13.8                        Amendment;
Later Agreement. This Supply Agreement may not be amended, modified, or
supplemented by the Parties in any manner, except by an instrument in writing
signed by Conexant
and Company and specifically reciting that it amends this Supply Agreement. No
purchase order or acknowledgement will amend this Supply Agreement. All matters
designated herein as subject to agreement of the Parties must be agreed upon in
a writing signed by authorized representatives of both Parties for such
agreement to be effective.

 

13.9                        Notices.
Any notice, consent, approval, or other communication intended to have
legal effect to be given under this Supply Agreement (other than a purchase
order or invoice) must be in writing and will be delivered (as elected by the
Party giving such notice): (i) personally; (ii) by postage prepaid
registered or certified airmail, return receipt requested; (iii) by
express courier service; or (iv) by facsimile with a confirmation copy
deposited prepaid with an express courier service. Unless otherwise provided
herein, all notices will be deemed to have been duly given on: (y) the date of
receipt (or if delivery is refused, the date of such refusal) if delivered
personally, by mail, or by express courier; or (z) one (1) business day
after receipt by telecopy if the telecopy was accompanied by the mailing of the
notice via mail or courier service. Each Party may change its address for
purposes hereof on not less than three (3) days’ prior notice to the other

 

23

 

Party. Notice
hereunder will be sent to the following addresses (with a copy to the legal
department):

 

	
  If to Conexant, to:

  	
   

  	
  If to Company, to:

  
	
   

  	
   

  	
   

  
	
  Conexant Systems, Inc.

  

  4311 Jamboree Road

  

  Newport Beach, CA 92660

  

  Attn: General Counsel 

  

  Telecopy: (949) 483-9576

  	
   

  	
  Specialtysemi, Inc.

  

  c/o The Carlyle Group

  

  101 S. Tryon Street, 25th Floor

  

  Charlotte, N.C. 28280

  

  Attn: Claudius E. Watts, IV

  

  Telecopy: (704) 632-0299

  

 

13.10                 Assignment.
Except as otherwise expressly provided in this Supply Agreement, neither
Party shall be permitted to assign any of its rights or delegate any of its
obligations under this Supply Agreement without the prior written consent of
the other Party; except that (i) Company may, without such consent, assign
all such rights to any Affiliate controlling Company or to any Person providing
cash financing to the Company as collateral security for such financing
provided that no such assignment shall relieve Company from any of its
obligations hereunder, (ii) Conexant may,
without such consent, assign all such rights to any Affiliate controlling Conexant,
provided that no such assignment shall relieve Conexant from any of
its obligations hereunder, and (iii) either Party may, without the other
Party’s consent, assign all rights to any entity which acquires, directly or
indirectly, all or any substantial portion of the assets or securities of such
Party. Any unauthorized assignment or transfer shall be null and void. This
Supply Agreement shall be binding upon and inure solely to the benefit of each
Party and its successors and permitted assigns.

 

13.11                 Waiver.
If a Party fails to insist on performance of any of the terms and conditions,
or fails to exercise any of its rights or privileges of this Supply Agreement,
such failure will not constitute a waiver of such terms, conditions, rights, or
privileges.

 

13.12                 Severability.
If the application of any provision or provisions of this Supply Agreement
to any particular facts or circumstances is held to be invalid or unenforceable
by any court of competent jurisdiction, then: (i) the validity and
enforceability of such provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of this
Supply Agreement will not in any way be affected or impaired thereby; and (ii) such
provision or provisions will be reformed without further action by the Parties
and only to the extent necessary to make such provision or provisions valid and
enforceable when applied to such particular facts and circumstances.

 

13.13                 Counterparts
and Facsimile  This Supply Agreement
may be executed in any number of counterparts, each of which when so executed
and delivered will be deemed an original, and such counterparts together will
constitute one and the same instrument. The Parties intend that each Party will
receive a duplicate original of the counterpart copy or copies executed by it. For

 

24

 

purposes hereof, a facsimile
copy of this Supply Agreement, including the signature pages hereto, will be
deemed to be an original.

 

13.14                 Rules
of Construction.. As used in this Supply Agreement, all terms used in the singular
will be deemed to include the plural, and vice versa, as the context may
require. The words “hereof,” “herein,” and “hereunder” refer to this Supply
Agreement as a whole, including the attached exhibits, as the same may from
time to time be amended or supplemented, and not to any subdivision in this
Supply Agreement. When used in this Supply Agreement, unless otherwise
expressly stated, “including” means “including, without limitation” and “discretion”
means sole discretion. Unless otherwise expressly stated, when a Party’s
approval or consent is required under this Supply Agreement, such Party may
grant or withhold its approval or consent in its discretion. References to “Section”
or “Exhibit” will be to the applicable section or exhibit of this Supply
Agreement. Descriptive headings are inserted for convenience only and will not
be utilized in interpreting the Supply Agreement. This Supply Agreement has
been negotiated by the Parties and reviewed by their respective counsel and
will be fairly interpreted in accordance with its terms and without any strict
construction in favor of or against either Party.

 

13.15                 Schedules
and Exhibits  Conexant hereby represents and warrants to
Company that the information related to the fabrication processes conducted at
the Newport Beach Fab provided by Conexant in Exhibit
B, Schedule 2 (the “Fabrication Information”) is materially true and
correct as of the Effective Date. If the Fabrication Information is later found
not to have been materially true and correct as of the Effective Date in a
manner such that the pricing for any Wafer did not accurately reflect the
actual number of Moves required for its fabrication, Conexant
will work together in good faith with Company to recalculate a new price based
upon corrected assumptions. The Parties will determine whether there were any
amounts overpaid or underpaid for purchases previously conducted pursuant to
this Supply Agreement as a result of using the original price, and settle any
underpayments or overpayments within ninety (90) days of such determination. The
recalculated price will apply to all prospective purchases of affected Wafers
under this Supply Agreement. The foregoing states Company’s sole and exclusive
remedy, and Conexant’s
entire liability, for breach of the representation and warranty set forth in
this Section 13.15.

 

13.16                 Entire
Agreement. As to the subject matter hereof: (i) this Supply Agreement,
including its exhibits, sets forth the entire agreement between Conexant
and Company; (ii) no promise, inducement, understanding, or agreement not
expressly contained herein has been made; and (iii) this Supply Agreement
merges and supersedes any and all previous agreements, understandings, and
negotiations between the Parties concerning the subject matter hereof.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

25

 

IN WITNESS
WHEREOF, the parties have executed this Supply
Agreement as of the Effective Date by the undersigned duly authorized
representatives of each party.

 

	
  CONEXANT SYSTEMS, INC.,

  	
  SPECIALTYSEMI, INC.,

  
	
  a Delaware corporation

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  \s\ Dwight Decker

  	
   

  	
  By:

  	
  \s\ Claudius E. Watts IV

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Dwight Decker

  	
   

  	
  Name:

  	
  Claudius E. Watts IV

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
										

 

26

 

EXHIBIT A - PRICING

 

WAFER PRICING.

 

Contract Price. For
Wafers purchased by Conexant to fulfill its Wafer Volume Commitment
and, except as set forth in this Supply Agreement, for all additional Wafers
purchased by Conexant during Segments 1-6 and 7-12, the price
of the Wafers shall be calculated by multiplying the Moves in Exhibit B
- Schedule 2 by the Fab Cost per Move set forth below, plus the cost
of the raw wafer (the “Contract Price”).

 

Fab Cost per Move                                                                                                                                             $[...***...]
per probed wafer

 

Basic Price. For
Wafers purchased by Conexant subsequent to Segment 18, and as
otherwise set forth in this Supply Agreement, the price of the Wafers shall be
the “Basic Price,” determined as set
forth below, less any applicable Wafer Credit. For Wafers purchased by Conexant
in excess of the Wafer Volume Commitment during Segments 13 through 18, the
price of the Wafers will increase from the Contract Price to the Basic Price on
a stepped basis, as further described in Section 2.1(d)(i).

 

The Basic Price for each type of Wafer shall be determined
upon the Effective Date and recalculated every six (6) months thereafter
during the term hereof, and shall be the lesser of (a) the
most favorable per-Wafer price offered by Company to any of its customers for
comparable volumes and schedules during the six (6) months immediately
preceding the date of calculation; or (b) the most favorable Wafer price
offered by [...***...] over the previous six (6) months for Wafers
manufactured using similar process technology for comparable volumes and
comparable schedules. If no similar Wafers or terms provided by these
manufacturers can be found, (y) for Specialty Wafers, Company will determine
the Basic Price based on the average price per Move as sold to all customers
(other than, Conexant, Conexant Affiliates,
or Conexant
Spin-offs) for the family of Company’s Specialty Wafer products most comparable
to the Wafers in question; and (z) for Non-Specialty Wafers, the Parties will
agree upon a reasonable Basic Price.

 

Wafer Rework Pricing. Conexant
shall reimburse Company for any rework requested by Conexant
in an amount determined by multiplying the applicable
Contract or Basic Price for the completed Wafers times
a ratio determined by dividing the number of additional Moves required as a
result of such rework by the total number of moves required for processing the
Wafer, as set forth in Exhibit B – Schedule 2.

 

27

 

PROBE SERVICES AND RE-PROBE SERVICES.

 

Cost (based on FY02 standards)

 

	
   

  	
   

  	
  $/hour

  	
   

  
	
  Platform

  	
   

  	
  JV Tester

  	
   

  	
  Non-JV Tester

  	
   

  
	
  Trillium

  	
   

  	
  $

  	
  [...***...]

  	
   

  	
  $

  	
   

  	
  [...***...]

  	
   

  
	
  Synchro

  	
   

  	
  $

  	
  [...***...]

  	
   

  	
  $

  	
   

  	
  [...***...]

  	
   

  
	
  Catalyst

  	
   

  	
  $

  	
  [...***...]

  	
   

  	
  $

  	
   

  	
  [...***...]

  	
   

  

 

THESE COSTS ARE BASED
ON ANNUAL SPEND. THE ACTUAL COST WILL BE THE GREATER OF THIS NUMBER OR THE
ACTUAL SPEND RECONCILED AT THE END OF EACH SEGMENT. THE CURRENT COST PER PROBE
HAS BEEN CALCULATED AT $[...***...] ON AVERAGE.

 

28

 

EXHIBIT B
- WAFER VOLUME COMMITMENTS

 

SCHEDULE 1

 

Conexant will submit Purchase Orders
to Company for the manufacture of Wafers in volumes sufficient to sustain the
MPD purchases as follows, averaged over 364 days:  

 

	
  Period

  	
   

  	
  # of Work Days

  	
   

  	
  MPD

  	
   

  
	
  I
  (first 12 calendar month period from Effective Date)

  	
   

  	
  364

  	
   

  	
  [...***...]

  	
   

  
	
  II
  (second 12 calendar month period from Effective Date)

  	
   

  	
  364

  	
   

  	
  [...***...]

  	
   

  
	
  III
  (third 12 calendar month period from Effective Date)

  	
   

  	
  364

  	
   

  	
  [...***...]

  	
   

  

 

Conexant’s current fifteen (15) month
forecast is attached as Exhibit B – Schedule 1. Based on the
forecasted demand and the mix of Wafers specified therein, the average
conversion rate is [...***...] Moves
per Wafer. Conexant’s
Wafer Volume Commitments, in MPD, are calculated as follows:

 

	
  Period I:

  	
   

  	
  [...***...] WSPD x [...***...] = [...***...] MPD

  
	
   

  	
   

  	
   

  
	
  Period II:

  	
   

  	
  [...***...] WOPD x [...***...] = [...***...] MPD

  
	
   

  	
   

  	
   

  
	
  Period III:

  	
   

  	
  [...***...] WOPD x [...***...] = [...***...] MPD

  

 

These Wafer Volume Commitments include up to [...***...]
Engineering Wafers.

 

For determining compliance with the Wafer
Volume Commitments, the number of MPD utilized by Conexant will be determined by converting the total quantity and
type of Wafers purchased by Conexant during the calendar year to moves based on
the conversion table attached as Exhibit B – Schedule 2 and
dividing this number by 364 days. The Parties agree that Wafers that are
delivered after the end of the Segment in which the original delivery date was
scheduled as agreed by the Parties through no fault of Conexant shall count
toward the Wafer Volume Commitment for the Segment in which the original
delivery date was scheduled as agreed by the Parties.

 

29

 

EXHIBIT B

 

SCHEDULE 2

 

WAFER MOVES TABLE

 

[...***...]

 

30

 

EXHIBIT C
— RULES OF CHANGE, OPERATION AND RELEASE PROCEDURES

 

[See Attached]

 

[...***...]

 

31

 

EXHIBIT D
– NEWPORT BEACH FAB CAPACITY

 

Maximum Capacity:

 

	
  Process Family

  	
   

  	
  Nwpt Bch

  	
   

  
	
  8” Equiv. WSPD

  	
   

  	
  Cap. WSPD

  	
   

  
	
  1+ micron

  	
   

  	
  [...***...]

  	
   

  
	
  0.8 um

  	
   

  	
  [...***...]

  	
   

  
	
  0.6 um

  	
   

  	
  [...***...]

  	
   

  
	
  0.5 um

  	
   

  	
  [...***...]

  	
   

  
	
  0.35 um

  	
   

  	
  [...***...]

  	
   

  
	
  0.25 um

  	
   

  	
  [...***...]

  	
   

  
	
  0.18 um & below

  	
   

  	
  [...***...]

  	
   

  
	
  Bipolar

  	
   

  	
  [...***...]

  	
   

  
	
  BiCMOS

  	
   

  	
  [...***...]

  	
   

  
	
  SiGe BiCMOS

  	
   

  	
  [...***...]

  	
   

  
	
  Subtotal WSPD

  	
   

  	
  [...***...]

  	
   

  
	
  ELOTS

  	
   

  	
  [...***...]

  	
   

  
	
  Total WSPD

  	
   

  	
  [...***...]

  	
   

  
	
  Total int vs. Ext

  	
   

  	
   

  	
   

  

 

32

 

EXHIBIT E
– WAFER CYCLE TIMES

 

The following table sets forth the average Wafer process cycle time for
the Newport Beach Fab:

 

	
  PROCESS

  	
   

  	
  Days Per
  Layer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  
	
  [...***...]

  	
   

  	
  [...***...]

  	
   

  

 

All new or
unidentified processes will be added to this table once at least three (3) lots
have been manufactured to set an average cycle time. THESE CYCLE
TIMES ARE FOR PLANNING PURPOSES ONLY AND NOT AN OBLIGATION FOR DELIVERY, BUT
THE COMPANY WILL WORK TO MEET THESE CYCLE TIMES.

 

33

 

EXHIBIT F
- QUALITY SPECIFICATIONS

 

IX.                                RELEASED
MATERIAL SPECIFICATIONS REPORT

 

A.                                   Released Material Specifications as
of 10-jan-2002 11:04 PM

 

[...***...]

 

34

 

X.                                    RELEASED WAFER
PROCUREMENT REPORT

 

A.                                    Released Wafer Procurements as of 10-jan-2002
11:03 PM

 

[...***...]

 

35

 

EXHIBIT G
- DELIVERY AND LOGISTICS

 

[To be expanded as necessary.]

 

Processing Requirements.

 

Company shall provide the following processing for all wafers:

 

1.              Handling and
packaging for delivery (packaging specification attached as Exhibit G –
Schedule 1).

 

2.              Box and hold (if
specified).

 

3.              Preparing
required shipping paperwork (airway bill, export documentation).

 

4.              Customs
clearance documentation, packing list, etc.

 

5.              Export control
clearance.

 

6.              Posting delivery
in [...***...].

 

7.              Contacting the
specified carrier.

 

8.              Handing product
off to the specified carrier at the appropriate location.

 

9.                                      Tape
and reel (when specified).

 

Handling and Receiving Services. Company
will provide handling and receiving services to Castle at the Newport Beach Fab
including the following:

 

1.                                      Returned
goods material authorization (RMA) receipt, notification and delivery to Castle
quality control (per log into the appropriate information system).

 

2.                                      Receive,
count, notify and deliver documents and goods delivered to the subject shipping
locations for Castle personnel and functions.

 

3.                                      Receive
Castle production goods (wafers, die, and/or packaged parts) and either: (a) transfer
to another production location; (b) enter into Company’s Probe Services;
or (c) enter into Castle finished goods (system) and store in a secure,
physically separate and secure finished goods area as specified below.

 

Finished Goods Storage. Company
will provide finished goods storage for Castle on consistent with the
following:

 

1.              Product storage
consistent with IEEE (spec#?).

 

2.              Product stored
in a separate and secure storage location.

 

36

 

3.              Inventory
quantity maintained accurately in the appropriate system ([...***...]) including
periodic cycle counts as required to maintain accuracy.

 

37

 

[...***...14 pages omitted]

 

 

EXHIBIT H
- REPORTS

 

Company shall prepare and provide the following reports to Castle. Such
reports shall be comparable in form, substance, and content to those reports
prepared by the Newport Beach Fab as of the Effective Date and shall be
provided in accordance with the schedule and in the form specified below:

 

1.              Work in process
(WIP) reports – daily; electronic form

 

2.              E-Test (WAT/PCM)
data – upon request; electronic form

 

3.              In-line control
data – upon request; electronic or paper form

 

4.              Yield trend
charts – upon request; electronic or paper form

 

5.              Customer line
item performance (CLIP) – upon request; electronic or paper form

 

6.              On-time delivery
report – weekly; electronic form

 

7.              Commitment to
forecast – monthly; electronic form

 

8.              Scrap reports –
daily; electronic form

 

9.              Capacity
availability – quarterly; electronic form

 

10.       PPM levels – upon
request; electronic form

 

11.       Probe data – upon
request; electronic or paper form

 

12.       Test
data – upon request; electronic form

 

13.       SPC
(Cp/Cpk) data for key nodes – upon request; electronic form

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]