EXHIBIT 10.1 CONTRIBUTION AGREEMENT

 

 

CONTRIBUTION AGREEMENT

 

THIS CONTRIBUTION AGREEMENT (this “Agreement”) is entered into as of February 23, 2002, by and among:  SPECIALTYSEMI, INC., a Delaware corporation (the “Company”); CONEXANT SYSTEMS, INC., a Delaware corporation (“Conexant”); and CARLYLE CAPITAL INVESTORS, L.L.C., a Delaware limited liability company (“Carlyle”). Certain capitalized terms used in this Agreement are defined in Exhibit A.

 

RECITALS

 

WHEREAS, the Conexant Group Companies currently conduct, and historically have conducted, semiconductor wafer fabrication and manufacturing operations at Conexant’s Newport Beach California facilities (the “Wafer Fabrication Operations”), which operations include (i) the semiconductor wafer fabrication and probing operations located at the facilities surrounding, or physically housed in, either in part or in whole, Buildings 501, 503 and 505 located at 4311 Jamboree Road, Newport Beach, California (buildings 503 and 505 being referred to collectively as the “El Capitan Buildings”) and (ii) certain research and development, design support service and other support operations (“Wafer Fabrication Support Operations”);

 

WHEREAS, (i) Conexant wishes to contribute to the Company, and the Company wishes Conexant to contribute to the Company, all of the membership interests of Newport Fab, LLC, a Delaware limited liability company and a wholly owned Subsidiary of Conexant (“Newport Fab LLC”), and the Warrant (as defined below) and (ii) Carlyle wishes to contribute to the Company cash in the amounts specified herein, each in exchange for shares of Common Stock of the Company as part of a plan pursuant to Section 351 of the Code; and

 

WHEREAS, in connection with the transactions contemplated by this Agreement, (i) the Company, Conexant and Carlyle will enter into (1) a Stockholder Agreement in the form of Exhibit B hereto (the “Stockholders Agreement”) which, among other things, sets forth the agreements relating to the operations of the Company and the rights and obligations of Conexant and Carlyle as stockholders of the Company and (2) a Registration Rights Agreement in the form of Exhibit C hereto (the “Registration Rights Agreement”) setting forth certain rights of registration of the Company’s capital stock; (ii) the Company, Newport Fab LLC and Conexant will enter into: (1) one or more License Agreements in the form agreed to by both parties (the “License Agreements”) pursuant to which, among other things, Conexant will transfer or license certain technology and intellectual property rights to the Company; (2) a Long Term Supply Agreement in the form of Exhibit D hereto (the “Long-Term Supply Agreement”) pursuant to which, among other things, the Company shall supply wafers to Conexant; (3) Real Property Lease Agreements in the forms agreed to by both parties (the “Real Property Lease Agreements”) pursuant to which, among other things, the Company will lease the wafer fabrication facilities located in Newport Beach, California from Conexant; (4) a Transition Services Agreement in the form agreed to by both parties (the “Transition Services Agreement”) pursuant to which Conexant and the Company will agree to the sharing and transitioning of certain support services related to the Wafer Fabrication Operations; (5) an IT Services Agreement in the form agreed to by the parties (the “IT Services Agreement”) pursuant to which Conexant will provide certain information technology support services to the Company, and (6) an Employee Matters Agreement in the form of Exhibit E hereto (the “Employee

 

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Matters Agreement”); (iii) the Company will enter into Employment Agreements with certain key employees of Conexant listed on Schedule 6.8(a) to be hired by the Company in the form agreed upon by the parties (the “Key Employees”); and (iv) the Company and Carlyle will enter into (1) a Management Services Agreement in the form of Exhibit F hereto (the “Carlyle Management Services Agreement”) pursuant to which Carlyle will perform certain management services for the Company, and (2) agreements in the form of Exhibit G hereto (the “Carlyle Management Rights Agreements”), pursuant to which Carlyle will have certain rights with respect to management of the Company; and (v) the Company and Conexant will enter into (1) a Management Services Agreement in the form of Exhibit H hereto (the “Conexant Management Services Agreement”) pursuant to which Conexant will perform certain management services for the Company and (2) agreements in the form of Exhibit I hereto (the “Conexant Management Rights Agreements” and, together with the Carlyle Management Rights Agreements, the “Management Rights Agreements”) pursuant to which Conexant will have certain rights with respect to management of the Company.

 

AGREEMENT

 

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound, agree as follows:

 

1.             CONTRIBUTION OF ASSETS; RELATED TRANSACTIONS.

 

1.1          Contributions by Conexant. Conexant shall contribute, assign, transfer, convey and deliver to the Company, and the Company shall accept from Conexant, at the Closing (as defined in Section 1.7), good and valid title to the Membership Interests, which Membership Interests represent one hundred percent (100%) of the membership and other interests in Newport Fab LLC, free and clear of any Encumbrances, on the terms and subject to the conditions set forth in this Agreement. In addition, at the Closing, Conexant shall issue to the Company a warrant (the “Warrant”) to purchase up to an aggregate of 2,900,000 shares of Conexant’s Common Stock (the “Warrant Shares”). The Warrant shall (i) be exercisable according to a schedule agreed upon by the parties, (ii) have an exercise price per share agreed upon by the parties, (iii) expire on a date agreed upon by the parties, and (iv) be in such form, and contain such other terms and conditions (including without limitation provisions regarding registration of the shares issuable upon exercise of the Warrant), as may be agreed to by the parties.

 

1.2          Cash Contribution by Carlyle. Carlyle shall contribute to the Company, and the Company shall accept from Carlyle, at the Closing, cash in the amount of fifty-two million dollars ($52,000,000). Such cash contribution shall be made by wire transfer of immediately available funds made payable to the order of the Company.

 

1.3          Consideration for Membership Interests and Cash.

 

(a)           Subject to the satisfaction or waiver of the conditions set forth in Sections 5 and 6, as consideration for the contribution of the Membership Interests and the Warrant by Conexant to the Company set forth in Section 1.1 above, the Company shall:

 

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(i)            at the Closing, issue 4,500,000 shares of Class B Common Stock, par value $0.001 per share, of the Company, to Conexant, representing 45.0% of the total shares of Common Stock of the Company outstanding immediately after the Closing;

 

(ii)           at the Closing, pay to the order of Conexant, by wire transfer of immediately available funds, cash in the amount of twenty million dollars ($20,000,000) (the “Cash Consideration”);

 

(iii)         at the Closing, guarantee the timely discharge or satisfaction by Newport Fab LLC of the Assumed Liabilities;

 

(iv)          pay to the order of Conexant, by wire transfer of immediately available funds, cash equal to the amount of the Earn-Out Payment (as and to the extent provided by Section 1.4), if and when earned; and

 

(v)            pay to the order of Conexant, by wire transfer of immediately available funds, cash equal to the amount of the Royalties (as and to the extent provided by Section 1.5), if and when earned.

 

(b)           Subject to the satisfaction or waiver of the conditions set forth in Sections 5 and 6, as consideration for the cash contribution of Carlyle to the Company set forth in Section 1.2 above, the Company shall issue 5,500,000 shares of Class A Common Stock of the Company to Carlyle, representing 55.0% of the total shares of Common Stock of the Company outstanding immediately after the Closing.

 

1.4          Earn-Out Payments.

 

(a)           As partial consideration for the contribution by Conexant to the Company of the Membership Interests and the Warrant as contemplated by Section 1.1(a), the Company shall pay to Conexant cash in the amount of ten million dollars ($10,000,000) (the “Earn-Out Payment”), as provided in Section 1.4(d), if either:

 

(i)            the Specialtysemi Group Companies’ total Revenue (as defined in Section 1.4(b)) during the period commencing on the first anniversary of the Closing Date and ending 12 months thereafter is equal to or greater than eighty-five million dollars ($85,000,000); or

 

(ii)           the Specialtysemi Group Companies’ total Revenue during the period commencing on the second anniversary of the Closing Date and ending 12 months thereafter is equal to or greater than one hundred five million dollars ($105,000,000).

 

(b)           For purposes of this Section 1.4, “Revenue” for any period shall mean that revenue, determined in accordance with GAAP, including nonrecurring engineering revenue (“NRE Revenue”), of the Specialtysemi Group Companies, derived during such period from sales of products (including all revenue derived from engineering lots (“E-Lot Revenue”)) and services of the types produced by or provided through, in each case either currently or in the future, the Wafer Fabrication Operations as such operations are currently conducted by the Conexant Group Companies and as will be conducted by the Specialtysemi Group Companies

 

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after the Closing (taking into account any revenue resulting from the expansion of the capacity of Wafer Fabrication Operations located in the El Capitan Buildings after the Closing) as well as any revenue derived from sales to customers of the Specialtysemi Group Companies through the Specialtysemi Group Companies’ other fabrication operations as a result of the Specialtysemi Group Companies not being able to satisfy such customers from the then manufacturing capacity of the Wafer Fabrication Operations (all such products and services being referred to herein as the “Products”); provided however that Revenue shall exclude: (i) any revenue of the Specialtysemi Group Companies derived or earned from the sale of Products to (1) Conexant, (2) any Person who is an Affiliate of Conexant as of the date hereof, or (3) any Affiliate of Conexant that is formed by Conexant after the date hereof from Conexant’s current assets and operations, (ii) any revenue of the Specialtysemi Group Companies derived from businesses that are acquired by the Specialtysemi Group Companies after the Closing Date (to the extent such businesses are not used to increase the capacity of the Wafer Fabrication Operations located in the El Capitan Buildings), (iii) any revenue of the Specialtysemi Group Companies derived from assets acquired (other than equipment acquired pursuant to ordinary course capital expenditures and other than any assets that are employed in the Wafer Fabrication Operations located in the El Capital Building), or Subsidiaries formed (to the extent such Subsidiaries are not deriving revenue from the sale of Products), by the Specialtysemi Group Companies after the Closing, (iv) any amounts received or realized in respect of dispositions of assets (other than sales of Products) or any other non-recurring or extraordinary items, (v) mask revenues, and (vi) revenues derived from the sale of Products pursuant to the Long-Term Supply Agreement; provided that all revenue derived from the sale of Products to Persons other than Conexant, Affiliates of Conexant as of the date hereof and Affiliates of Conexant formed by Conexant after the date hereof from Conexant’s current assets and operations pursuant to the Long-Term Supply Agreement at the Basic Price (as defined in the Long-Term Supply Agreement) shall be included in the definition of “Revenue.”

 

(c)           In the event Conexant shall be entitled to the Earn-Out Payment under Section 1.4(a)(i), then no further Earn-Out Payment shall be due under Section 1.4(a)(ii), and the total amount of the Earn-Out Payment due under Section 1.4(a) shall not exceed ten million dollars ($10,000,000).

 

(d)           In the event Conexant shall be entitled to the Earn-Out Payment, the Company shall make such payment to Conexant no later than thirty (30) days following the date on which the Company has completed audited financial statements of the Company (which will include the revenue of Newport Fab LLC) for the year to which such payment applies (but in any event no later than April 15 of the year following the year to which such payment applies). In the event such payment is not to be made by the Company, then the Company shall provide to Conexant, on the dates set forth in the preceding sentence, a report (the “Revenue Report”) reflecting the amount and sources (on a product-by-product basis) of Revenue received by the Specialtysemi Group Companies for the calendar year to which the Revenue Report relates. Conexant shall have thirty (30) days from the date the Revenue Report is received by Conexant to dispute the amount of Revenue reflected thereon. If Conexant disputes the amount of Revenue reflected on the Revenue Report, Conexant and the Company shall negotiate in good faith to reconcile their differences. If such dispute has not been resolved within thirty (30) days after the Company’s receipt of notice of such dispute, the parties shall submit the item(s) remaining in dispute to a mutually acceptable Independent Accounting Firm, which shall, as

 

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promptly as practical but in no event later than thirty (30) calendar days after such submission, determine the total Revenue received by the Specialtysemi Group Companies during the period in dispute. The Company shall provide the Independent Accounting Firm access to all books and records of the Specialtysemi Group Companies necessary or reasonably requested by the Independent Accounting Firm and will assist the Independent Accounting Firm in completing their report in a timely fashion. Such determination and report shall be final, binding and conclusive on the parties hereto and any amount payable under this Section 1.4 shall be paid by the Company within five (5) business days thereafter. The fees and disbursements of the Independent Accounting Firm shall be allocated equally between Conexant and the Company.

 

1.5          Royalties.

 

(a)           As partial consideration for the contribution by Conexant to the Company of the Membership Interests as contemplated by Section 1.1(a), the Specialtysemi Group Companies or any Specialtysemi Group Successor shall, subject to Section 8.10 hereof, pay to Conexant a royalty equal to five percent (5%) of the Gross Revenue of the Specialtysemi Group Companies or any Specialtysemi Group Successor, as applicable, derived or earned from the sale of SiGe Products; provided, however, that (i) no such royalties will be due for sales that occur more than ten (10) years after the Closing Date and (ii) no royalties will be due for sales by any Specialtysemi Group Successor other than sales (directly or indirectly through any Subsidiary) to third party customers. (As used herein, the term “sale” shall include leases, licenses, and all other dispositions of SiGe Products but shall not include proceeds from the disposition of SiGe Products in connection with the sale of any business or the sale of all or substantially all of the assets of any business or business unit.)

 

(b)           For the purposes of this Section 1.5, “SiGe Products” shall mean each product that, as of the Closing Date, is manufactured, or for which a prototype has been developed, by the Wafer Fabrication Operations, in whole or in part, with the use of silicon germanium (SiGe) specialty process technology or Intellectual Property assigned, licensed or transferred to the Newport Fab LLC by Conexant or any improvements to or future versions of such technology or Intellectual Property developed by or on behalf of the Specialtysemi Group Companies or any Specialtysemi Group Successor (other than such improvements or future versions purchased, acquired or obtained by license by the Specialtysemi Group Companies for value following the Closing Date); and “Gross Revenue” shall mean all revenue of the Specialtysemi Group Companies or any Specialtysemi Group Successor, determined in accordance with GAAP, derived or earned from sales of the SiGe Products and including E-Lot Revenue; provided that Gross Revenue shall exclude: (i) any revenue of the Specialtysemi Group Companies derived or earned from the sale of SiGe Products to (1) Conexant, (2) any Person who is an Affiliate of Conexant as of the date hereof, or (3) any Affiliate of Conexant that is formed by Conexant after the date hereof from Conexant’s current assets and operations, (ii) any amounts received (1) in respect of dispositions of any property or assets other than SiGe Products, or (2) from non-recurring or extraordinary items, (iii) mask revenues, (iv) any NRE Revenue, (v) any incremental revenue that is earned from the sale of SiGe Products with features that are the result of the implementation of Intellectual Property that was not assigned, licensed or transferred to the Newport Fab LLC by Conexant and (vi) any revenue derived from any sales pursuant to the Long-Term Supply Agreement; provided that all revenue derived from the sale of SiGe Products to Persons other than Conexant, Affiliates of Conexant as of the date hereof and

 

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Affiliates of Conexant formed by Conexant after the date hereof from Conexant’s current assets and operations pursuant to the Long-Term Supply Agreement at the Basic Price (as defined in the Long-Term Supply Agreement) shall be included in the definition of “Gross Revenue.”  “Specialtysemi Group Successor” shall mean any entity that acquires all or substantially all of the assets and properties of the Company and its Subsidiaries, taken as a whole.

 

(c)           Within thirty (30) days after the end of each calendar quarter, the Company shall submit to Conexant a quarterly royalty report containing a statement of the royalties owed to Conexant under this Section 1.5 and such other information as specified by Conexant prior to preparation of such report reasonably necessary to show how the amount of such royalties was calculated. Payment of the royalties owed to Conexant shall be due along with the report. The Company shall maintain complete and accurate books and records, prepared in accordance with GAAP, relating to all sales of SiGe Products, including purchase orders and acknowledgments, invoices and receipts, for a period of at least five (5) years from the date of the sale. No more than once per year, Conexant will have the right, upon reasonable advance notice to the Company and so as not to unduly interfere with the Specialtysemi Group Companies’ operations, to have a mutually acceptable Independent Accounting Firm inspect and audit the Specialtysemi Group Companies’ books and records to determine whether the Specialtysemi Group Companies have accurately reported and paid the royalties owed to Conexant in any one or more of the preceding two calendar years under this Section 1.5. Notwithstanding the foregoing, Conexant shall not be entitled to audit any year prior to the two preceding years and shall not be entitled to audit any specific year more than once. The Company shall provide to the Independent Accounting Firm access to all of the books and records of the Specialtysemi Group Companies necessary or reasonably requested by the Independent Accounting Firm and will assist the Independent Accounting Firm in completing the audit in a timely fashion. In the event the audit reveals that the Company owes any additional amounts to Conexant, then subject to the Company’s right to dispute such amounts as provided below, the Company shall, within five (5) business days of the completion of the audit, pay to Conexant, in immediately available funds, all such amounts. Conexant shall pay the fees and expenses of the Independent Accounting Firm in connection with any such audit, unless the audit reveals that the Company has underreported or underpaid the amount of royalties owed to Conexant by five percent (5%) or more over the period of time being audited in which case the Company shall pay the fees and expenses of the Independent Accounting Firm. Both the Company and Conexant shall have fifteen (15) days from the date the audit is received by them to dispute the amount of the royalties reflected thereon. If either party disputes the amount of royalties reflected on the audit then the Company and Conexant shall resolve such dispute in accordance with Section 10.18 hereto.

 

1.6          Sales Taxes. Conexant shall be responsible for, and shall pay and reimburse the Specialtysemi Group Companies, Carlyle, and/or their Affiliates (other than the Specialtysemi Group Companies), as applicable, for, any sales taxes, use taxes, transfer taxes, documentary charges, recording fees, stamp taxes or similar taxes, charges, fees or expenses (collectively “Sales and Transfer Taxes”) that may become payable in connection with the contributions of Membership Interests and cash to the Company as contemplated hereby and the consummation of the transactions contemplated by the Newport Fab Contribution Agreement. The Company and Conexant shall cooperate with each other in timely making all filings, returns, report and forms as may be required in connection with the payment of all Sales and Transfer Taxes,

 

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including but not limited to delivering all instruments and certificates as are necessary to minimize such Sales and Transfer Taxes and enable the other to timely comply with the filing of any Tax Return that relates to Sales and Transfer Taxes.

 

1.7          Closing.

 

(a)           The closing of the transactions contemplated by Sections 1.1, 1.2 and 1.3 and the other transactions contemplated hereby (the “Closing”) shall take place at the offices of Cooley Godward LLP, located at 4401 Eastgate Mall, San Diego, California, at 9:00 a.m. (Pacific Standard Time) no later than the second (2^nd) business day after the last of the conditions set forth in Sections 5 and 6 has been satisfied or waived or such other date, time or place as mutually agreed between the parties. For purposes of this Agreement, “Closing Date” shall mean the date as of which the Closing actually takes place.

 

(b)           At the Closing:

 

(i)            Conexant shall execute and deliver to the Company such endorsements, assignments and other documents as may (in the reasonable judgment of Carlyle) be necessary or appropriate to assign, convey, transfer and deliver to the Company the Membership Interests;

 

(ii)           Carlyle shall pay to the Company the sum, in cash, of $52,000,000, by wire transfer of immediately available funds to a bank account in the United States to be designated by the Company to Carlyle at least two business days prior to the Closing;

 

(iii)         the Company shall pay to Conexant the sum, in cash, of $20,000,000, by wire transfer of immediately available funds to a bank account in the United States to be designated by Conexant to the Company at least two business days prior to the Closing;

 

(iv)          each of the parties to the Transactional Agreements shall execute and deliver such agreements to the other parties thereto;

 

(v)            Conexant and the Company shall execute and deliver to each other an Assignment and Assumption Guarantee Agreement in the form reasonably acceptable to Conexant, Carlyle and the Company (the “Assignment and Assumption Agreement”);

 

(vi)          the Company shall issue to Conexant and Carlyle certificates evidencing the shares of Common Stock contemplated by Section 1.3; and

 

(vii)         Conexant shall execute and deliver to the Company the Warrant.

 

2.             REPRESENTATIONS AND WARRANTIES OF CONEXANT.

 

Conexant represents and warrants to, and for the benefit of, the Company, Carlyle and the other Carlyle Indemnitees, as follows:

 

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2.1          Due Organization; Authority; Binding Nature of Agreements. Conexant is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Conexant has the requisite corporate power and authority to own the Membership Interests, and Newport Fab LLC has the requisite corporate power and authority to own, lease and operate the Contributed Assets. Each of the Conexant Group Companies has the requisite corporate power and authority to enter into, deliver, and perform its obligations under each of the Transactional Agreements to which it is a party and the Newport Fab Contribution Agreement; and the execution, delivery and performance by each of the Conexant Group Companies of the Transactional Agreements to which it is a party and the Newport Fab Contribution Agreement have been duly authorized by all necessary action on the part of each of such Conexant Group Company and its board of directors, and no other corporate proceedings on the part of any of the Conexant Group Companies are necessary to authorize the Transactional Agreements and the Newport Fab Contribution Agreement and the transactions contemplated thereby. This Agreement and the Newport Fab Contribution Agreement have been duly executed and delivered by Conexant, and constitute the legal, valid and binding obligation of Conexant, and enforceable against Conexant in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability. Upon the execution of each of the other Transactional Agreements at the Closing, each of such other Transactional Agreements to which any of the Conexant Group Companies is a party will constitute the legal, valid and binding obligation of each of the Conexant Group Companies that is a party thereto, enforceable against such Conexant Group Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability.

 

2.2          Tangible Assets. Newport Fab LLC owns, and has good and valid title to all of the Contributed Assets (other than the Transferred Contracts). Except as set forth in Part 2.2(a) of the Conexant Disclosure Schedule, all of the Contributed Assets owned by Newport Fab LLC are owned free and clear of any Encumbrances, other than Permitted Encumbrances. Part 2.2(b) of the Conexant Disclosure Schedule identifies all of the Contributed Assets that are leased or licensed to the Conexant group Companies. All material Tangible Personal Property is in good operating condition and repair in all material respects, subject to normal wear and tear. No Conexant Group Company has any agreement with any other Person to sell or otherwise transfer any of the Contributed Assets or any line of business or material asset required for the performance of Conexant’s obligations under the Transactional Agreements, except for any sales or transfers of finished goods. The Tangible Personal Property, collectively with any tangible personal property owned by the Conexant Group Companies and used in the provision of services to be provided to the Specialtysemi Group Companies pursuant to the Transition Services Agreement and the IT Services Agreement, constitute all of the material tangible personal property used by the Conexant Group Companies and the Transferred Employees in the ordinary course of conduct of the Wafer Fabrication Operations. Since January 1, 2001, except as otherwise set forth in Part 2.2(c) of the Conexant Disclosure Schedule, no Conexant Group Company has (i) sold, transferred or conveyed any material tangible personal property used in the ordinary course of conduct of the Wafer Fabrication Operations, or (ii) removed any material items of tangible personal property from the blue shaded areas on the floor plan building schematics for Buildings 503 and 505 located at 4311 Jamboree Road, Newport Beach,

 

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California attached hereto as Schedule 1.1(a)(i)(2), in each case, other than the sale of finished goods (and the raw materials and inventory comprising the finished goods) in the ordinary course of business and the disposition of obsolete or worn-out equipment.

 

2.3          Inventory.The Inventory is of such quality and quantity as to be usable and saleable by the Conexant Group Companies in the ordinary course of business, and is free of any defect or deficiency. The levels of Inventory maintained by the Conexant Group Companies (i) are not excessive in light of the Conexant Group Companies’ normal operating requirements for the Wafer Fabrication Operations and (ii) are adequate for the conduct of the Wafer Fabrication Operations as conducted by the Conexant Group Companies in the ordinary course of business. The Inventory to be included in the Contributed Assets shall have a book value, determined in accordance with Conexant’s past practices, of no less than $8,000,000.

 

2.4          Contracts.

 

(a)           Part 2.4(a) of the Conexant Disclosure Schedule lists each Contract to which any Conexant Group Company is a party and which is used in connection with or relate to the conduct of the Wafer Fabrication Operations as currently conducted by the Conexant Group Companies. Part 2.4(b) of the Conexant Disclosure Schedule lists each Contract to which any Conexant Group Company is a party that relates solely to the Wafer Fabrication Operations and which is transferable with consent of the other party thereto by Conexant to Newport Fab LLC in connection with the transactions contemplated by the Newport Fab Contribution Agreement (the “Transferred Contracts”). Each of the Transferred Contracts requires that Conexant obtain the Consent of the other party thereto in order to be transferred to the Newport Fab LLC. Part 2.4(c) of the Conexant Disclosure Schedule lists each Contract to which any Conexant Group Company is a party related in part to the Wafer Fabrication Operations (the “Shared Contracts”). The Transferred Contracts and the Shared Contracts are collectively referred to herein as the “Wafer Fabrication Operations Contracts.”  Conexant has made available to Carlyle accurate and complete copies of all Wafer Fabrication Operations Contracts, including all amendments thereto. The Wafer Fabrication Operations Contracts include all of the material Contracts (other than any Contracts related to the license of intellectual property) necessary to conduct the Wafer Fabrication Operations as such operations are being conducted by the Conexant Group Companies as of the date hereof and include all the material Contracts reasonably necessary to enable the Specialtysemi Group Companies to conduct the Wafer Fabrication Operations in the manner in which such business is currently being conducted by the Conexant Group Companies. Each Transferred Contract is valid and in full force and effect. Except as set forth in Part 2.4(e) of the Conexant Disclosure Schedule: (i) no Person has violated or breached, or declared or committed any default under, any Transferred Contract; (ii) no event has occurred that has or would reasonably be expected to (A) result in a violation or breach of any of the provisions of any Transferred Contract, (B) give any Person the right to declare a default or exercise any remedy under any Transferred Contract, (C) give any Person the right to accelerate the maturity or performance of any Transferred Contract, or (D) give any Person the right to cancel, terminate or modify any Transferred Contract;  (iii) the Conexant Group Companies have not received any written notice or other communication regarding any violation or breach of, or default under, any Transferred Contract; (iv) no Conexant Group Company has knowingly waived any right under any Transferred Contract; and (v) neither any Conexant Group Company nor any of its Affiliates

 

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has, and to the knowledge of Conexant no other Person has, repudiated any material provision of any of the Transferred Contracts.

 

(b)           To the knowledge of the Conexant Group Companies, the performance of the Transferred Contracts will not result in any violation of or failure to comply with any material Legal Requirement.

 

(c)           No Person is renegotiating, or has the right to renegotiate, any amount paid or payable to the Conexant Group Companies under any Transferred Contract or any other term or provision of any Transferred Contract.

 

(d)           The Conexant Group Companies have no knowledge of any basis upon which any party to any Transferred Contract may object to (i) the assignment to the Newport Fab LLC or the Specialtysemi Group Companies of any right under such Transferred Contract, or (ii) the delegation to or performance by the Specialtysemi Group Companies of any obligation under such Transferred Contract, except for those Transferred Contracts that require the consent of such third party thereto prior to any such assignment, delegation or performance, all of which are identified on Part 2.4(b) of the Conexant Disclosure Schedule.

 

2.5          Intellectual Property.

 

(a)           Schedule 1.1(a)(vi)(2) is a complete and accurate list of all patents and patent applications owned by the Conexant Group Companies that are primarily related to the Process Technology used in the Wafer Fabrication Operations. Schedule 2.5(a) is a complete and accurate list of all patent and patent applications (other than the patents and patent applications listed on Schedule 1.1(a)(vi)(2)) owned by the Conexant Group Companies related to the Process Technology used in the Water Fabrication Operations. None of the Excluded Patent Rights is primarily related to the Process Technology used in the Wafer Fabrication Operations.

 

(b)           The Newport Fab LLC owns, and has good and valid title to, all of the Transferred Intellectual Property, free and clear of any Encumbrances other than Permitted Encumbrances and other than licenses granted by Conexant or its predecessors or any previous owner of the Transferred Intellectual Property prior to the date of this Agreement.

 

(c)           Conexant has taken reasonable steps in accordance with normal industry practice to protect the Conexant Group Companies’ rights in the portions of the Transferred Know-How that: (1) derive independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) are the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Without limiting the foregoing, all Intellectual Property developed by any contractor or employee of the Conexant Group Companies during the course of their employment and constituting a part of the Transferred Intellectual Property has been fully assigned to Conexant.

 

(d)           None of the Transferred Patents is involved in any interference or opposition proceeding, and, to the Knowledge of the Conexant Group Companies, no such proceeding is being threatened with respect to any of the Transferred Patents.

 

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(e)           Part 2.5(e) of the Conexant Disclosure Schedule contains a complete and accurate list, and except as set forth in Part 2.5(e) of the Conexant Disclosure Schedule, Conexant has provided to Carlyle or its representatives complete and accurate copies, of all material licenses under or to the Transferred Intellectual Property granted by the Conexant Group Companies or by Conexant’s predecessors or any other previous owner of the Transferred Intellectual Property. Any licenses that are no longer valid or in effect will not be considered material for purposes of this representation and warranty. There is no pending or, to the Knowledge of the Conexant Group Companies, threatened dispute concerning any license listed in Part 2.5(e) of the Conexant Disclosure Schedule.

 

(f)            Part 2.5(f) of the Conexant Disclosure Schedule contains a complete and accurate list, and, except as set forth in Part 2.5(f) of the Conexant Disclosure Schedule, Conexant has provided to Carlyle or its representatives complete and accurate copies, of all material intellectual property licenses granted to the Conexant Group Companies or, to the Knowledge of Conexant, any of their predecessors, that relate to the Process Technology used in the Wafer Fabrication Operations or the Design Kits and under which any of the Conexant Group Companies has rights. Any licenses that are no longer valid or in effect will not be considered material for purposes of this representation and warranty. There is no pending or, to the Knowledge of the Conexant Group Companies, threatened dispute concerning any license listed in Part 2.5(f) of the Conexant Disclosure Schedule.

 

(g)           Part 2.5(g) of the Conexant Disclosure Schedule contains a complete and accurate list of all software licensed to any of the Conexant Group Companies by third parties that is used in or for and is material to the Wafer Fabrication Operations, other than (i) software used in other parts of Conexant’s business operations, the use of which by or on behalf of the Specialtysemi Group Companies is addressed in the IT Transition Services Agreement and (ii) software that is commercially available on standard terms for less than $10,000, and the agreement or agreements pursuant to which such software is licensed to the Conexant Group Companies. True and correct copies of such license agreements (other than any shrinkwrap or clickwrap licenses) have been provided to Carlyle. There is no pending or, to the Knowledge of Conexant, threatened dispute concerning any of the Conexant Group Companies’ licenses for such software and other copyrights.

 

(h)           As of the Closing Date, Conexant will have full right, power and authority to grant to the Specialtysemi Group Companies the licenses to be granted any of the Specialtysemi Group Companies in the License Agreements. No approval, permission or consent of any third party will be needed for Conexant to grant such licenses.

 

(i)            Except as set forth in Part 2.5(i) of the Conexant Disclosure Schedule, since December 31, 1998, none of the Conexant Group Companies has received any written notice or claim alleging that the conduct of the Wafer Fabrication Operations, as currently conducted, infringes, misappropriates, or violates any Intellectual Property of a third party (other than any claims relating to the design, structure, performance or functionality of specific devices or other products manufactured at the Newport Beach Fab Facility, as opposed to the process used to fabricate the device or product). Except as set forth in Part 2.5(i) of the Conexant Disclosure Schedule, there is not now nor at any time since December 31, 1998 have there been any pending or, to the Knowledge of Conexant, threatened Proceeding involving any such claims

 

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or allegations. To the Knowledge of the Conexant Group Companies, no third party is infringing, misappropriating, or violating any of the Transferred Intellectual Property or Licensed Intellectual Property (other than the Intellectual Property of third parties sublicensed by Conexant to the Specialtysemi Group Companies), and since December 31, 1998, no Conexant Group Company has asserted any claims or initiated any Proceedings against any third party based on any such infringement, misappropriation, or violation of the Transferred Intellectual Property. To the Knowledge of the Conexant Group Companies, the conduct of the Wafer Fabrication Operations, as currently conducted, does not infringe, misappropriate, or violate any Intellectual Property of a third party (other than Intellectual Property related to the design, structure, performance or functionality of specific devices or other products manufactured at the Newport Beach Fab Facility, as opposed to the process used to fabricate the device or product).

 

(j)            The Transferred Intellectual Property and the Licensed Intellectual Property, along with (1) all rights granted or transferred under Transferred Contracts, (2) any express rights granted or transferred to the Specialtysemi Group Companies, and any implied rights the Specialtysemi Group Companies may have, under the Long-Term Supply Agreement and other agreements relating to the supply of products by the Specialtysemi Group Companies to Conexant, Conexant Subsidiaries or Conexant Spin-Offs (as defined in the Long-Term Supply Agreement), and (3) “have made” rights of Conexant, Conexant Subsidiaries and Conexant Spin-Offs under third party Intellectual Property licenses, (i) collectively constitute all Intellectual Property rights owned or controlled by the Conexant Group Companies related to the Process Technology and Design Kits currently practiced or used in the Wafer Fabrication Operations and (ii) collectively include all Intellectual Property Rights owned or controlled by the Conexant Group Companies that are sufficient to permit the Specialtysemi Group Companies to conduct the Wafer Fabrication Operations as currently conducted.

 

(k)           None of the Transferred Patents is licensed to IBM under the Agreement between IBM and Rockwell International Corporation dated as of January 1, 1991.

 

(l)            Conexant has provided to Carlyle a true and correct copy of that certain License and Supply Agreement (the “TSMC License Agreement”) dated January 10, 2001 between Conexant and Taiwan Semiconductor Manufacturing Company Limited (“TSMC”), except that certain provisions (the “Redacted TSMC Provisions”) of the TSMC License Agreement have been redacted from the copy of the TSMC License Agreement provided to Carlyle. The Redacted TSMC Provisions do not and will not in any way restrict or limit the rights of the Conexant Group Companies or the Specialtysemi Group Companies related to the practice, use, licensing or assignment of the Intellectual Property that is subject to the TSMC License Agreement.

 

(m)          The TSMC License Agreement does not and will not restrict the rights of the Specialtysemi Group Companies to (i) make, have made, use, offer to sell, sell, distribute, advertise, import or export any product at or from the Newport Beach Fab Facility, including, without limitation, using the Transferred Intellectual Property and Licensed Intellectual Property at the Newport Beach Fab Facility or (ii) assign or convey ownership of, or pledge or grant a security interest in, any Transferred Intellectual Property (it being understood that any future owner of the Transferred Intellectual Property will take ownership subject to the license granted to TSMC in the TSMC License Agreement).

 

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(n)           The TSMC License Agreement does not and will not restrict the rights of the Specialtysemi Group Companies to (i) assert, bring, pursue or prosecute any claim or suit for infringement or misappropriation of any of the Transferred Intellectual Property against any party, except for claims or suits (x) asserted against TSMC with respect to the Intellectual Property under which TSMC received a license under the TSMC License Agreement, and (y) relating to products manufactured or sold by TSMC or TSMC affiliates, or their successors, under the rights licensed to TSMC in the TSMC License Agreement, or (ii) grant non-exclusive licenses to make, have made, use, offer to sell, sell, distribute, advertise, import and/or export products (a “Settlement License”) to any Person (a “Settlement Licensee”) under the Transferred Intellectual Property in connection with settling or avoiding any pending or threatened litigation (and nothing in the TSMC License Agreement restricts the rights of any Settlement Licensee from exercising its rights under any Settlement License granted to it).

 

2.6          Employee Matters.

 

(a)           Part 2.6(a)(i) of the Conexant Disclosure Schedule sets forth the name and position with Conexant of (i) each employee of Conexant whose services are related to the Wafer Fabrication Operations that is covered by the Collective Bargaining Agreement (the “Union Employees”), and (ii) each other employee of Conexant whose services are related to the Wafer Fabrication Operations that is not covered by or subject to the Collective Bargaining Agreement (the “Non-Union Employees”). The Union Employees and the Non-Union Employees are collectively referred to herein as the “Wafer Fabrication Operations Employees”. Except as set forth on Part 2.6(a)(ii) of the Conexant Disclosure Schedule, (1) Conexant is not a party to any labor, collective bargaining agreement, union, or other similar agreement covering any of the Wafer Fabrication Operations Employees, (2) there are not occurring or, to Conexant’s knowledge, threatened, and there have not been within the last five (5) years, any strikes, slowdowns, work stoppages, or other organized efforts by union or other groups of employees against Conexant and the Wafer Fabrication Operations Employees, (3) to the knowledge of Conexant, no union or other labor organization has attempted to organize any Wafer Fabrication Operations employees except as set forth in Part 2.6(a)(ii) of the Conexant Disclosure Schedule, (4) to Conexant’s knowledge, Conexant has not committed any unfair labor practices, (5) Conexant is currently in compliance with all applicable Legal Requirements relating to the employment of the Wafer Fabrication Operations Employees, including those related to wages, hours, collective bargaining, labor, and the payment and withholding of taxes and other sums required to be withheld, (6) Conexant has paid in full to all Wafer Fabrication Operations Employees all amounts currently due and payable for wages, salaries, commissions, bonuses, benefits and other compensation, and (7) to Conexant’s knowledge, no Wafer Fabrication Operations Employee is in violation of any employment contract, nondisclosure agreement, noncompetition agreement, or nonsolicitation agreement to which such employee is bound due to the activities in which such employee engages on behalf of Conexant.

 

(b)           Part 2.6(b) of the Conexant Disclosure Schedule sets forth all employee benefit plans, as such term is defined in Section 3(3) of ERISA (including without limitation medical, dental, health, life insurance) in which all or any of the Wafer Fabrication Operations Employees are entitled to participate and true and correct copies of each such plan have been provided or otherwise made available by Conexant to Carlyle (each such plan, an “Employee

 

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Plan”). Conexant has provided the Company a true and correct copy of the actuarial report related to the Retirement Plan.

 

(c)           Conexant has delivered to Carlyle complete and accurate copies of the Retirement Plan and the documents relating to the trust established in connection with the Retirement Plan. To Conexant’s knowledge, Conexant is, and has been, in compliance with all applicable material Legal Requirements related to the Retirement Plan except the requirement to furnish a summary plan description to participants and beneficiaries as required under ERISA Sections 102 and 104. Conexant has made all contributions or other payments that are required to have been made under or with respect to the Retirement Plan. Conexant shall pay to the Company a portion of the contributions required to be made under or with respect to the Retirement Plan for 2002. Such portion will be determined by dividing the number of days beginning January 1, 2002 and ending on May 1, 2002 by 365 and multiplying that fraction by the amount of any contribution required to be made by the Company under or respect to the Retirement Plan for 2002. Conexant shall pay such prorated amount and the balance of the 2001 minimum contribution within 30 days of receipt of an invoice from the Company. No Person that is or was an administrator or fiduciary of the Retirement Plan (or that acts or has acted as an agent of any such administrator or fiduciary): (i) has engaged in a “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Code; (ii) has failed to perform any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA; or (iii) has taken any action that (A) may subject such Retirement Plan or such Person to any Tax, penalty or Liability relating to any “prohibited transaction,” or (B) may directly or indirectly give rise to or serve as a basis for the assertion (by any employee or by any other Person) of any claim under, on behalf of or with respect to such Retirement Plan. To Conexant’s knowledge, the trusts forming a part of each Employee Plan of Conexant that is intended to be qualified under both Section 401(a) and 401(k) of the Code (the “Conexant 401(k) Plans”) and of the Retirement Plan are exempt from tax pursuant to Code Section 501(a). To Conexant’s knowledge, no fact or set of circumstances has adversely affected, or could adversely affect, the qualification of the Retirement Plan and the Conexant 401(k) Plans prior to May 1, 2002. To Conexant’s knowledge, there are no pending or threatened claims by, on behalf of, or against, the Retirement Plan or its related trust (other than routine requests for benefits). As of the last day of the plan year of the Retirement Plan prior to Closing, the Projected Benefit Obligation as defined under Financial Accounting Standards Board Statement 87 (“PBO”) based upon the actuarial assumptions used for accounting purposes in the most recent actuarial report prepared by the Retirement Plan’s actuary, will not exceed the market value of the assets of the Retirement Plan. In addition, based on a reasonable projection of the PBO using generally accepted actuarial principles, the PBO will not exceed the market value of the assets of the Retirement Plan as of May 1, 2002. Conexant shall be required to reimburse the Company for all costs and expenses incurred in the preparation and filing of a determination letter request for the Retirement Plan, and the preparation and distribution of a summary plan description for the Retirement Plan unless Conexant prepares and files the determination letter request with the Internal Revenue Service, and prepares and distributes the summary plan description prior to Closing. Conexant shall pay any such required amounts within 30 days of receipt of invoice(s) from the Company.

 

2.7          Compliance with Legal Requirements. Except as set forth in Section 2.9 (and the schedules thereto) and in Part 2.7 of the Conexant Disclosure Schedule: (a) the Conexant Group Companies and their Affiliates are, and at all times during the prior five (5) calendar years

 

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have been, in material compliance with each Legal Requirement (including Environmental Laws) that is applicable to the Wafer Fabrication Operations or any of the Contributed Assets; (b) no event has occurred that, to Conexant’s knowledge, would be reasonably likely to result in a material violation by any Conexant Group Company or any of its Affiliates of, or a material failure on the part of any Conexant Group Company or any of its Affiliates to comply with, any Legal Requirement (including Environmental Laws) related to the Wafer Fabrication Operations or the Contributed Assets; and (c) none of the Conexant Group Companies has received any notice from any Governmental Body regarding any violation of, or failure to comply with, any material Legal Requirement. Conexant has made available to Carlyle an accurate and complete copy of each report, study, survey, letter, or other document or communication received by any of the Conexant Group Companies within the last five (5) calendar years that addresses or otherwise relates to the compliance by any of the Conexant Group Companies with, or the applicability to any of the Conexant Group Companies of, any Legal Requirement related to the Wafer Fabrication Operations or the Contributed Assets. To Conexant’s knowledge, no Governmental Body has proposed or is considering any Legal Requirement that, if adopted or otherwise put into effect, (i) may have an adverse effect on the current Wafer Fabrication Operations or the ownership of the Contributed Assets, or on the ability of Conexant to comply with or perform any covenant or obligation under any of the Transactional Agreements, or (ii) may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions. Except as set forth in Part 2.7 of the Conexant Disclosure Schedule, none of the Conexant Group Companies has, during the past five (5) years, conducted any internal investigation concerning any actual or alleged violation of any Legal Requirement by any of the Conexant Group Companies, any Affiliate thereof, or any officer, director, employee, or agent thereof in connection with the conduct of the Wafer Fabrication Operations.

 

2.8          Governmental Authorizations. Part 2.8(a) of the Conexant Disclosure Schedule lists all Governmental Authorizations held by any of the Conexant Group Companies and related to the conduct of the Wafer Fabrication Operations and the Contributed Assets (the “Wafer Fabrication Operations Permits”). Conexant has made available to Carlyle accurate and complete copies of all Wafer Fabrication Operations Permits, including all renewals thereof and all amendments thereto. Each Wafer Fabrication Operations Permit is valid and in full force and effect. Except as set forth in Part 2.8(b) of the Conexant Disclosure Schedule: (i) the Conexant Group Companies are in material compliance with all of the terms and requirements of each Wafer Fabrication Operations Permit; (ii) no event has occurred that would be reasonably likely to (A) result in a material violation of or a material failure to comply with any term or requirement of any Wafer Fabrication Operations Permit or (B) result in the revocation, withdrawal, suspension, cancellation, termination, modification, or failure to be renewed if applicable in the ordinary course of any Wafer Fabrication Operations Per