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 Permit; (iii) none of the Conexant Group Companies has received any written notice or other communication from any Governmental Body regarding any violation of or failure to comply with any term or requirement of any Wafer Fabrication Operations Permit. Except as set forth on Part 2.8(c) of the Conexant Disclosure Schedule, the Wafer Fabrication Operations Permits constitute all of the Governmental Authorizations necessary (i) to enable the Conexant Group Companies to conduct the Wafer Fabrication Operations in the manner in which such business is currently being conducted, and (ii) to permit the Conexant Group Companies to own and use the Contributed Assets in the manner in which they are currently owned and used by the Conexant Group Companies.

 

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2.9           Environmental Matters. Except as set forth in Part 2.9 of the Conexant Disclosure Schedule:

 

(a)            Conexant has no knowledge of any violation of any Environmental Law, which violation is the result of or arises out of the conduct of the Wafer Fabrication Operations or any of the Contributed Assets and would be reasonably likely to result in a Conexant Material Adverse Effect, and there are no facts or circumstances that, to Conexant’s knowledge, would reasonably be expected to give rise to any such violation of any Environmental Law.

 

(b)            Conexant has obtained or caused to be obtained all environmental permits necessary for the operation of the Wafer Fabrication Operations or any of the Contributed Assets to comply, in all material respects, with all applicable Environmental Laws, and all such environmental permits are in full force and effect.

 

(c)            None of the Conexant Group Companies has received any written notice, report, or other communication regarding any violation, alleged violation of, liability, or potential liability under any Environmental Law relating to the Wafer Fabrication Operations or any of the Contributed Assets, and there are no writs, injunctions, decrees, orders or judgments outstanding, or any actions, suits, claims, proceedings or investigations pending or, to Conexant’s knowledge, threatened, relating to compliance with or liability under any Environmental Law affecting the Wafer Fabrication Operations or any of the Contributed Assets.

 

(d)            None of the Conexant Group Companies has received, during the last five years, any notice, report or other communication regarding any alleged violation of any Environmental Law, based on the treatment, storage, disposal of, arrangement for or permission for the disposal of, transportation, handling, use, or release of any Hazardous Material, or ownership or operation of any property or facility relating to the Wafer Fabrication Operations or any of the Contributed Assets.

 

(e)            To Conexant’s knowledge, no Hazardous Material has been discharged, disposed of, dumped, injected, pumped, deposited, spilled, leaked, emitted, or released at, on or under any facility or property relating to the Wafer Fabrication Operations or any of the Contributed Assets.

 

(f)             Conexant has made available to Carlyle accurate and complete copies of all material environmental audits, reports and other material environmental documents authored within the past five years relating to the Wafer Fabrication Operations or any of the Contributed Assets, which are in its possession, custody or control, provided that any conclusions or assessments made by Conexant in any such audits, reports and other environmental documents prepared by Conexant have been stricken or otherwise redacted from the copies of such audits, reports and other environmental documents.

 

2.10         Proceedings; Orders.  There is no Order to which the Contributed Assets are subject; and none of the Conexant Group Companies is subject to any Order that relates to the Wafer Fabrication Operations. To Conexant’s knowledge, no Wafer Fabrication Operations Employee is subject to any Order that may prohibit such employee from engaging in the Wafer Fabrication Operations. Except as set forth in Part 2.10 of the Conexant Disclosure Schedule,

 

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there is no proposed Order and no Proceeding pending or, to Conexant’s knowledge, threatened that (i) relates to the Wafer Fabrication Operations, the Contributed Assets, or on any of the Conexant Group Companies’ ability to comply with or perform any covenant or obligation under any of the Transactional Agreements, or (ii)  if issued or already determined, would be reasonably likely to have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions.

 

2.11         Non-Contravention; Consents.

 

(a)            Except as set forth in part 2.11(a) of the Conexant Disclosure Schedule, neither the execution and delivery by any of the Conexant Group Companies of any of the Transactional Agreements and the Newport Fab Contribution Agreement nor the consummation or performance by any of the Conexant Group Companies of any of the Transactions or the Newport Fab Contribution, will:

 

(i)             contravene, conflict with or result in a violation of, or give any Governmental Body the right to challenge any of the Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which any of the Conexant Group Companies, the Wafer Fabrication Operations, or any of the Contributed Assets is subject;

 

(ii)            contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, modify, or fail to renew in the ordinary course, any Transferred Permit;

 

(iii)          violate or conflict with any provision of the Certificate of Incorporation or Bylaws or other organizational documents of any of the Conexant Group Companies or any of their Affiliates;

 

(iv)           violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any material Encumbrance upon any of the Contributed Assets or the Membership Interests under any of the terms, conditions or provisions of, or require the consent of any party under, any contract, indebtedness, note, bond, indenture, security or pledge agreement, commitment, license, Lease, franchise, Permit, agreement, or other instrument or obligation (i) to which any of the Conexant Group Companies or any of their Affiliates is a party or (ii) by which the Contributed Assets or the Membership Interests are bound; or

 

(v)             otherwise result in or impose any Encumbrance on the Contributed Assets or the Membership Interests.

 

(b)            Except as otherwise set forth in Part 2.11(b) of the Conexant Disclosure Schedule, none of the Conexant Group Companies is or will be required to make any filing with or give any notice to, or obtain any Consent from, any Person in connection with the execution and delivery of any of the Transactional Agreements or the Newport Fab Contribution Agreement or the consummation or performance of any of the Transactions or the Newport Fab Contribution.

 

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2.12         Absence of Certain Changes or Events.   Since June 30, 2001, except as contemplated by this Agreement, there has not been any:

 

(a)            event or occurrence resulting in or reasonably likely to result in a Conexant Material Adverse Effect;

 

(b)            material damage, destruction or loss (whether or not covered by insurance) adversely affecting the Contributed Assets or the Wafer Fabrication Operations;

 

(c)            increase in the rate of compensation payable or to become payable to any employee primarily engaged in the Wafer Fabrication Operations, except as provided in any employment agreement (including any union contract) between Conexant and any such Persons or in any Employee Plan, and any increases in the normal course of business;

 

(d)            cancellation or termination of any material contract or entry into any material contract relating to the Contributed Assets or the Wafer Fabrication Operations that is not in the ordinary course of the business of the Conexant Group Companies;

 

(e)            agreement by any of the Conexant Group Companies or any if their Affiliates to do any of the things described in the preceding clauses (a) through (d) other than as expressly provided for herein.

 

2.13         Financial Information.   Conexant has provided Carlyle or its representatives the historical financial and operating information related to the Wafer Fabrication Operation and the Contributed Assets for the periods commencing October 1999 through November 2001 listed in Schedule 2.13 (collectively the “ Financial Information ”). The Financial Information (i) is complete, true and accurate in all material respects; (ii) with respect to the financial information, was prepared on a basis consistent with Conexant’s historical accounting policies, practices, and procedures consistently applied as those in prior fiscal years; and (iii) fairly and accurately presents in all material respects all costs associated with the Wafer Fabrication Operations and the Contributed Assets for the period commencing October 1999 through November 2001.

 

2.14         Suppliers.   Part 2.14 of the Conexant Disclosure Schedule sets forth a complete and accurate list of the names and addresses of the Wafer Fabrication Operations’ ten (10) largest suppliers for the most recent fiscal year showing the approximate total purchases in dollars by Conexant from each such supplier during such fiscal year.  As of the date hereof, no Conexant Group Company has received any communication from any supplier named on Part 2.14 of the Conexant Disclosure Schedule of any intention to terminate or materially reduce purchases from or supplies to any of the Conexant Group Companies. Part 2.14 of the Conexant Disclosure Schedule sets forth a list of all current customer contracts and current customer proposals of the Conexant Group Companies with respect to the Wafer Fabrication Operations.

 

2.15         Taxes.

 

(a)            Except as set forth in part 2.15(a) of the Conexant Disclosure Schedule, (i) all Tax Returns required to be filed with respect to the Wafer Fabrication Operations or the Contributed Assets have been or will be timely filed, (ii) all Taxes that accrue or are payable by any of the Conexant Group Companies in respect of the Contributed Assets or the Wafer

 

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Fabrication Operations for Pre-Closing Tax Periods (determined on the closing of the books method of accounting) have been or will be timely paid in full, (iii) there are no liens for Taxes on the Contributed Assets (other than liens for current Taxes not yet due and payable), (iv) there is no audit or other matter in controversy with respect to any Taxes that relate to the Wafer Fabrication Operations or the Contributed Assets and there is no Tax deficiency or claim assessed that relates to the Wafer Fabrication Operations or the Contributed Assets, (v) none of the Contributed Assets (A) are required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f)(8) of the Code, (B) secures any debt the interest of which is tax-exempt under Code Section 103(a), (C) is tax-exempt use property within the meaning of Code Section 168(h) or (D) is subject to a 467 rental agreement as defined in Section 467 of the Code,

 

(b)            each of the Conexant Group Companies has paid in full or discharged all Taxes the nonpayment of which could result in (i) a Lien on the Contributed Assets in the hands of the Company or (ii) a Lien on the Contributed Assets in the hands of the Newport Fab LLC after the Closing Date, excepting in each case such Taxes as will not be due until after the Closing Date.

 

(c)            Conexant is not a “foreign person” within the meaning of section 1445 of the Code;

 

(d)            Conexant has not entered into an agreement to dispose of the Common Stock of the Company to be received pursuant to Section 1.3(a)(i) of this Agreement and Conexant does not have a plan or intention to dispose of such stock;

 

(e)            The aggregate adjusted tax basis of the Contributed Assets is not less than $204,139,164.30 and Part 2.15(e) of the Conexant Disclosure Schedule sets forth the aggregate adjusted tax basis of each category of Contributed Assets that is included in the Company’s regularly prepared balance sheet.

 

(f)             Conexant is not a “new loss corporation” within the meaning of Section 382 of the Code and losses or deductions with respect to the Contributed Assets will not be subject to any limitations under Section 382 of the Code or the Treasury Regulations promulgated thereunder immediately prior to the contribution of the Membership Interests to the Company.

 

(g)            Conexant is the sole member of Newport Fab LLC. The Newport Fab LLC is, and has been since its formation, classified for federal and state income Tax purposes as a disregarded entity, and neither Conexant nor Newport Fab LLC has made an election for the Newport Fab LLC to be treated as an association taxable as a corporation.

 

2.16         No Brokers.   No broker, finder or similar agent is entitled to any finder’s fee, brokerage fees or commission or similar payment from any of the Conexant Group Companies or any of their Affiliates in connection with the transactions contemplated hereby or by the Newport Fab Contribution Agreement.

 

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2.17         Real Property.   Part 2.17 of the Conexant Disclosure Schedule lists all real property owned or leased by Conexant or its Affiliates and primarily used in the Wafer Fabrication Operations (the “Real Property” ).

 

2.18         Affiliated Transactions.   Except as set forth on Part 2.18 of the Conexant Disclosure Schedule, no Affiliate of any of the Conexant Group Companies or any Subsidiary thereof and, to Conexant’s knowledge, no officer, director, employee, stockholder, or any individual related by blood, marriage or adoption to any such individual or any entity in which any such Person or individual owns a greater than 10% beneficial interest, is a party to any agreement, commitment, or transaction with any of the Conexant Group Companies or any Subsidiary thereof or has any material interest in any material property used by the Conexant Group Companies or any Subsidiary, wherein such agreement, commitment, transaction, or property is primarily related to the Wafer Fabrication Operations or the Contributed Assets.

 

2.19         Sufficiency of Assets.   The Membership Interests and the Contributed Assets, together with the rights and assets to be leased, licensed, or otherwise provided to the Company pursuant to the Transactional Agreements together with the Shared Contracts, are sufficient to permit the Specialtysemi Group Companies to operate the Wafer Fabrication Operations, following the Closing, in the manner currently conducted by the Conexant Group Companies.

 

2.20         Newport Fab Contribution Agreement .  Conexant has provided to Carlyle a true and correct copy of the Newport Fab Contribution Agreement and all documents and instruments (the “Related Newport Fab Documents” ) executed in connection with the consummation of the Newport Fab Contribution. The Newport Fab Contribution Agreement and the Related Newport Fab Documents have not been amended or modified by the parties thereto and no party thereto has waived, released or compromised any rights under the Newport Fab Contribution Agreement or any of the Related Newport Fab Documents.

 

2.21         Liabilities .  The Newport Fab LLC has no liabilities or obligations of any kind or nature other than the Assumed Liabilities.

 

2.22         Consummation of the Newport Fab Contribution .    The Newport Fab Contribution has been consummated strictly in accordance with the terms of the Newport Fab Contribution Agreement and the Related Newport Fab Documents, and Newport Fab LLC owns all of the Contributed Assets (other than the Transferred Contracts), free and clear of all Encumbrances other than Permitted Encumbrances.

 

2.23         Membership Interests .    The Membership Interests were duly authorized and validly issued by Newport Fab LLC, free of any preemptive or similar rights, and are held, beneficially and of record, by Conexant, free and clear of all Encumbrances. Other than the Membership Interests, there are not issued or outstanding any membership or equity interests of Newport Fab LLC or any options, warrants or other rights exercisable for, or securities convertible or exchangeable into, any membership or equity interests of Newport Fab LLC.

 

2.24         Newport Fab LLC .  Newport Fab LLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified as a foreign limited liability company to conduct business in each state

 

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and other jurisdiction where the character of the Contributed Assets and the nature of such activities make such qualification necessary, except where the failure to be so qualified would not result in a Conexant Material Adverse Effect. Conexant has provided to Carlyle true and correct copies of the certificate of formation, limited liability company agreement, and other organizational documents of Newport Fab LLC as amended to date (the “Newport Fab LLC Organizational Documents” ). Newport Fab LLC has conducted no business, operations or activities other than the ownership of the Contributed Assets and conduct of the Wafer Fabrication Operations.

 

2.25         The Warrant .

 

Prior to Closing, the issuance of the Warrant will be duly authorized by all necessary corporate action on the part of Conexant. Prior to Closing, the Warrant Shares will be duly authorized and reserved for issuance and, when issued upon exercise of the Warrant, will be validly issued, fully paid and non-assessable and will be issued free of any preemptive or similar rights.

 

3.              REPRESENTATIONS AND WARRANTIES OF CARLYLE.

 

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

 

3.1           Due Organization; Authority; Binding Nature of Agreements.   Carlyle is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware. Carlyle has the requisite corporate power and authority to enter into, deliver and to perform its obligations under each of the Transactional Agreements to which it is a party; and the execution, delivery and performance by Carlyle of the Transactional Agreements to which it is a party have been duly authorized by all necessary action on the part of Carlyle and its members and no other limited liability company proceedings on the part of Carlyle are necessary to authorize the Transactional Agreements and the transactions contemplated thereby. This Agreement constitutes the legal, valid and binding obligation of Carlyle, enforceable against Carlyle 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. Upon the execution of each of the other Transactional Agreements at the Closing, each of such other Transactional Agreements to which Carlyle is a party will constitute the legal, valid and binding obligation of Carlyle, enforceable against Carlyle 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.

 

3.2           Non-Contravention; Consents.   Except as set forth in Part 3.2 of the Carlyle Disclosure Schedule, neither the execution and delivery by Carlyle of any of the Transactional Agreements, nor the consummation or performance by Carlyle of any of the Transactions, will directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with or result in a violation of, or give any Governmental Body the right to challenge any of the Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any

 

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Order to which Carlyle is subject; or (ii) result in the imposition or creation of any Encumbrance (other than Permitted Encumbrances) upon or with respect to any shares of Common Stock of the Company to be issued to Carlyle. Except as set forth in Part 3.2 of the Carlyle Disclosure Schedule, Carlyle is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with the execution and delivery of any of the Transactional Agreements or the consummation or performance of any of the Transactions. There is no Order, or proposed Order that if issued or otherwise put into effect, would be reasonably likely to have an adverse affect on Carlyle’s ability to comply with or perform any covenant or obligation under any of the Transactional Agreements.

 

4.              COVENANTS OF THE PARTIES.

 

4.1           Conduct of Business.

 

(a)            During the period commencing on the date of this Agreement and ending on the earlier to occur of (a) the Closing or (b) the termination of this Agreement (the “ Pre-Closing Period ”), Conexant shall and shall cause Newport Fab LLC to, except as expressly contemplated by this Agreement, or as consented to in writing by Carlyle (which consent will not be unreasonably withheld or delayed) conduct the Wafer Fabrication Operations in the ordinary course of business, and substantially in accordance with past practice and will use its reasonable efforts not to take any action that would adversely affect the Wafer Fabrication Operations or the Contributed Assets. Without limiting the generality of the foregoing, Conexant shall not and shall cause each of its Affiliates not to, except (i) as set forth on Schedule 4.1, (ii) as specifically contemplated by this Agreement, (iii) as consented to in writing by Carlyle (which consent will not be unreasonably withheld or delayed), or (iv) except where wholly unrelated to the Wafer Fabrication Operations or the Contributed Assets:

 

(i)             enter into, extend, materially modify, terminate or renew any Transferred Contract except in the ordinary course of business;

 

(ii)            sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose of or encumber any material Contributed Asset, or any interests therein, except in the ordinary course of business;

 

(iii)          except as otherwise required by applicable Legal Requirements, take any action with respect to the grant of any bonus, severance or termination pay, other than pursuant to written policies or agreements of any of the Conexant Group Companies or their Affiliates in effect on the date hereof, or with respect to any increase of benefits payable under its severance or termination pay policies or agreements in effect on the date hereof or increase in any material respect the compensation or fringe benefits of any employee (other than increases required under the Collective Bargaining Agreement) or pay any benefit not required by any existing Employee Plan, agreement or policy;

 

(iv)           make any change in the key management structure of the employees employed primarily in the Wafer Fabrication Operations, including, without limitation, the hiring of additional officers or management employees or the termination of existing officers or management employees other than pursuant to offers of employment made

 

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by Conexant or its Affiliates prior to the date hereof (which offers have been disclosed to Carlyle) or otherwise in the ordinary course of business;

 

(v)             except in the ordinary course of business, adopt, enter into or amend any Employee Plan, agreement (including, without limitation, any collective bargaining or employment agreement), trust, fund or other arrangement for the benefit or welfare of any Wafer Fabrication Operations Employee;

 

(vi)           fail to expend funds for budgeted capital expenditures or commitments set forth on Schedule 4.1(a)(vi) in accordance with customary practices;

 

(vii)          fail to maintain the Contributed Assets in substantially their current state of repair, excepting normal wear and tear, or fail to replace consistent with the Conexant Group Companies’ past practices inoperable, worn-out or obsolete or destroyed Contributed Assets;

 

(viii)         make any material income tax election or settlement or compromise with tax authorities affecting the Contributed Assets, the Membership Interests, or the Assumed Liabilities;

 

(ix)           intentionally do any other act that would be reasonably likely to cause any representation or warranty of Conexant in this Agreement to be or become untrue in any material respect;

 

(x)            fail to keep available the services of and maintain good relations with its current Wafer Fabrication Operations Employees, suppliers, customers, licensors and other persons having business relationships with the Wafer Fabrication Operations;

 

(xi)           fail to keep in full force and effect all insurance policies in effect as of the date of this Agreement covering the Contributed Assets;

 

(xii)          enter into any agreement or otherwise become obligated to do any action that would materially and adversely affect the Wafer Fabrication Operations or the Contributed Assets; or

 

(xiii)        permit or cause Newport Fab LLC to distribute or transfer to Conexant or any of its Affiliates any assets or property (other than cash).

 

(b)            Notwithstanding anything herein to the contrary, Conexant shall, within seven (7) days of the date hereof, prepare and present to Carlyle a proposed plan to reduce the fixed costs associated with the Wafer Fabrication Operations by at least ten percent (10%) during the Pre-Closing Period (the “Cost Reduction Plan” ). Conexant and Carlyle shall negotiate in good faith regarding the Cost Reduction Plan, and Conexant shall take steps to implement any portions of the Cost Reduction Plan agreed to by Carlyle. In the event that Carlyle does not agree to a cost-reduction measure reflected in the Cost Reduction Plan, then Conexant shall not be obligated or permitted to take any action with respect to such measure.

 

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(c)            The Company and Conexant shall, prior to the Closing and within the time periods required by all applicable Legal Requirements, file all applications and any other documents required to be submitted or filed prior to the Closing with the appropriate Governmental Bodies, and seek to obtain all applicable consents and approvals required to be obtained prior to the Closing by the appropriate Governmental Bodies, and take all other actions necessary to effect the transfer of, or issuance of replacement permits for, the Wafer Fabrication Operations Permits. After the Closing, the Company and Conexant shall, within the time periods required by all applicable Legal Requirements, file all applications and any other documents required to be submitted or filed after the Closing with the appropriate Governmental Bodies, and seek to obtain all applicable consents and approvals required to be obtained after the Closing by the appropriate Governmental Bodies, and take all other actions necessary to effect the transfer of, or issuance of replacement permits for, the Wafer Fabrication Operations Permits. During the Pre-Closing Period and for a period of six (6) months thereafter, the Company and Conexant shall use their commercially reasonable efforts in assisting each other with complying with the obligations set forth in the two preceding sentences. Notwithstanding the foregoing, Conexant shall not be obligated to transfer to the Company a specific Wafer Fabrication Operations Permit if any such transfer would violate applicable Legal Requirements. Neither party shall be liable to the other party for any costs, fees, penalties or other liabilities resulting from the failure of such party to take any action required to be taken by the other party in order for the Company to obtain replacement permits for the Wafer Fabrication Operations Permits. Notwithstanding the foregoing, the Company and Conexant shall each pay 50% of all costs (including application and permitting fees) associated with the Company obtaining any replacement permits for the Wafer Fabrication Operations Permits. Neither party shall have any Liability due solely to a failure by the other party to take any action, which is required to be taken exclusively by such other party, in order for the Company to obtain, assume or become the named party on such replacement permits for the Wafer Fabrication Operations Permits.

 

(d)            During the Pre-Closing Period and for a period of six (6) months after the Closing, Conexant and the Company shall use their commercially reasonable efforts to transfer or assign, or cause to be transferred or assigned, the Transferred Contracts as provided in the Newport Fab Contribution Agreement and to negotiate replacement contracts for the Shared Contracts. The Company shall pay the first $100,000 for all costs (including attorneys fees) associated with the Specialtysemi Group Companies negotiating replacement contracts for the Shared Contracts following Closing. Thereafter, the Company and Conexant shall each pay 50% of such costs; provided that Conexant shall not be required to pay any such costs with respect to the platform technology contracts listed on Schedule 2.5(g) under the heading “CAD Licenses” (which costs shall be borne by the Company). Notwithstanding anything herein to the contrary, Conexant shall not be obligated to transfer any Shared Contracts.

 

4.2           Access to Information.   From the date hereof through the Closing, Conexant shall, and shall cause their respective officers, directors, and employees to afford Carlyle and its authorized representatives, during normal business hours and upon reasonable notice to the Conexant Group Companies and in a manner that will not unduly interfere with the operation of the Wafer Fabrication Operations, complete access at all reasonable times to the Contributed Assets for the purpose of inspecting the same, and to the officers and employees of Conexant, and shall, as Carlyle may reasonably request, furnish Carlyle and its authorized representatives all financial, operating, and other data and information that is related to the Wafer Fabrication

 

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Operations or the Contributed Assets reasonably requested by Carlyle, except to the extent that such access would violate any Legal Requirement to which the Conexant Group Companies, their employees or the Contributed Assets are subject.

 

4.3           Filings and Consents.   Conexant and Carlyle shall use commercially reasonable efforts to ensure that: (i) all filings, notices and Consents required to be made, given and obtained in order to consummate the Transactions and the transactions contemplated by the Newport Fab Contribution Agreement are made, given and obtained on a timely basis; (ii) during the Pre-Closing Period, Conexant and Carlyle and their respective Representatives cooperate with one another, and prepare and make available such documents and take such other actions as the other may request in good faith, in connection with any filing, notice or Consent that the other is required to make, give or obtain.

 

4.4           No Solicitation.   During the period (the “No-Solicitation Period” ) commencing as of the date of this Agreement and ending on the earlier to occur of (a) the termination of this Agreement and (b) the Closing, Conexant shall not and shall cause Newport Fab LLC and Conexant’s and Newport Fab LLC’s respective Representatives not to, directly or indirectly, (i) enter into, solicit, initiate or continue any discussions or negotiations with, or encourage or respond to any inquiries or proposals by, or participate in any negotiations with, or provide any information to, or otherwise cooperate in any other way with, any Person, other than Carlyle and its Representatives, concerning any sale, lease, or license of all or any substantial portion of the Wafer Fabrication Operations or the Contributed Assets, or (ii) provide any nonpublic information regarding the Contributed Assets or the Wafer Fabrication Operations to any Person in response to any proposal described in clause (i) above, provided however , that Conexant shall not be prohibited from providing nonpublic information regarding the Contributed Assets or the Wafer Fabrication Operations to any Person who is considering the acquisition of all or substantially all of the assets of Conexant or the acquisition of beneficial ownership of 50% or more of the capital stock of Conexant, provided that such third party enters into a non-disclosure agreement with Conexant which provides that the Company is a third party beneficiary of those provisions contained in such non-disclosure agreement that relate to the non-disclosure of nonpublic information related to the Wafer Fabrication Operations or the Contributed Assets. Conexant shall promptly notify Carlyle of the material terms of any inquiry, proposal, or offer received by the Conexant Group Companies during the No-Solicitation Period from any Person (other than the Company or Carlyle) solely related to the acquisition, lease, license or transfer of all or a material portion of the Contributed Assets or the Wafer Fabrication Operations including, without limitation, the identity of the prospective purchaser or soliciting party, except to the extent that any such notification would violate any existing agreement of Conexant. Notwithstanding the foregoing, Conexant shall have no obligation to disclose to any Person the existence of any inquiry, proposal or offer received by Conexant relating to the acquisition of all or substantially all of the assets of Conexant or the acquisition of beneficial ownership of 50% or more of the capital stock of Conexant.

 

4.5           Notification.   During the Pre-Closing Period, each of Conexant and Carlyle shall promptly notify the other parties to this Agreement in writing of: (i) the discovery by it of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a breach of any representation or warranty made by it in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after

 

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the date of this Agreement and that would cause or constitute a breach of any representation or warranty made by it in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any breach of any covenant or obligation of it; and (iv) any event, condition, fact or circumstance that may make the timely satisfaction of any of the conditions set forth in Section 4 impossible or unlikely.

 

4.6           Bulk Transfer Laws.   Carlyle and the Company hereby acknowledge that the Conexant Group Companies have not taken, and do not intend to take, any action required to comply with any applicable bulk sale or bulk transfer Legal Requirements or similar Legal Requirements, and each of Carlyle and the Company hereby waive compliance by the Conexant Group Companies with any applicable bulk sale or bulk transfer Legal Requirements of any jurisdiction in connection with the contribution of the Contributed Assets to Newport Fab LLC or the transactions contemplated hereby.

 

4.7           Publicity.   Each of Conexant, Carlyle and the Company shall ensure that, during the Pre-Closing Period: (i) neither it nor any of its Representatives issues or disseminates any press release or other publicity or otherwise makes any disclosure of any nature (to any supplier, landlord, or creditor of Conexant, Carlyle or the Company or to any other Person other than a Representative of the party making such disclosure) regarding any of the Transactions or the existence or terms of this Agreement, except to the extent that any of the Conexant Group Companies, Carlyle or the Company is required by any Legal Requirement to make any such disclosure (it being understood that Conexant shall (A) issue a press release following the execution hereof which shall have been approved by Carlyle and (B) file one or more reports on Form 8-K with the Securities Exchange Commission); and (ii) if it is required by any Legal Requirement to make any such disclosure, it shall advise the other parties to this Agreement, at least seven (7) business days before making such disclosure, of the nature and content of the intended disclosure.

 

4.8           Reasonable Best Efforts.   During the Pre-Closing Period, each of Conexant, the Company and Carlyle shall, and Conexant shall cause Newport Fab LLC to, use its reasonable best efforts to cause the conditions set forth in Sections 5 and 6 to be satisfied on a timely basis. Each of Conexant, the Company and Carlyle shall also negotiate in good faith and use their reasonable best efforts to reach agreement concerning the forms of the License Agreements, Real Property Lease Agreements, IT Services Agreement, Transition Services Agreement, the Employee Matters Agreement, and the Warrant.

 

4.9           Environmental Matters.   In the event that at any time after the Closing Date, the conduct of the Wafer Fabrication Operations ceases, then the Company shall be required to (i) either (1) remove all Contributed Assets from the physical facilities in which the Contributed Assets reside or (2) if such assets are not removed from the physical facilities in which they reside, to remove all Hazardous Materials from the Contributed Assets, and (ii) to obtain all Governmental Authorizations required to be obtained as a result of the cessation of operations, except for any Governmental Authorizations required to be obtained in connection with Environmental Conditions existing prior to the Closing Date that relate solely to ground-water or soil contamination (such actions collectively referred to as the “Decommission Plan” ). The

 

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Company shall be responsible for and shall bear all fees, costs, expenses and other Liabilities incurred in connection with the Decommission Plan.

 

4.10         Tax Matters.

 

(a)            The Company, Carlyle and Conexant each agrees (i) that the contribution of the Membership Interests to the Company will be treated and reported for income tax purposes as a contribution by Conexant of the Contributed Assets to the Company in exchange for the consideration specified in Section 1.3(a)(i) (the “Section 351 Transfer” ), (ii) not to take any action that would cause the Section 351 Transfer not to qualify under Section 351 of the Code, (iii)to report the transactions contemplated under Sections 1.1, 1.2, 1.3 and 1.4 of this Agreement as one which qualifies under Section 351 of the Code in the filing of all Tax Returns (including reporting the portion of the consideration received in exchange for the Contributed Assets other than the stock of the Company as “boot” under Section 351) and (iv) to report to each other any communication from the Internal Revenue Service which challenges in any way such characterization of this transaction. The parties further agree that they will continue to report the Section 351 Transaction as one that so qualifies under Section 351 of the Code notwithstanding any contrary communication from the Internal Revenue Service and, each party will defend such qualification in an audit, tax review or tax-litigation challenging such qualification. Without limiting the generality of the foregoing (i) the parties shall file with their respective Tax Returns for the taxable year in which the transactions described in this Agreement are consummated (which Tax Returns shall be timely filed (including extensions)) the statement required by Treasury Regulation § 1.351-3(a), and shall deliver a copy of such statements to the other parties within thirty (30) days thereafter and (ii) the Company shall file with its Tax Return for the taxable period which includes the Closing Date (which Tax Return shall be timely filed by the Company (including extensions)) the statement required by Treasury Regulation § 1.351-3(b). Conexant, Carlyle and the Company shall also maintain such permanent records as are required by Treasury Regulation § 1.351-3(c).

 

(b)            Within sixty (60) days after the Closing, Conexant shall deliver to the Company: (i) all of the cost and other basis information relating to the Contributed Assets and Assumed Liabilities for federal income tax purposes reasonably required for the Company to prepare the statement required by Treasury Regulation § 1.351-3(b)(2), (ii) the gain, if any, recognized by Conexant in the Section 351 Transfer with respect to each item of tangible and intangible property included in the Contributed Assets, (iii) a complete and correct list of the income tax basis of each item of tangible and intangible property included in the Contributed Assets, (iv) the year of acquisition of each such item of tangible or intangible property, (v) the depreciable life of each such item of tangible or intangible property and (vi) the amount and method of depreciation with respect to each such item of tangible or intangible property.

 

(c)            The Company and Conexant agree to retain all records relating to the Taxes of the Wafer Fabrication Operations or the Contributed Assets for all taxable periods ending on or prior to the Closing Date or which include the Closing Date until ninety days after the expiration of the statute of limitation (including any extensions thereof) for the taxable period or periods to which such records relate. Consistent with Section 9.1 of this Agreement, the Company and Conexant agree to provide each other with such information and assistance as is reasonably necessary, including without limitation, access to records and personnel, for the

 

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preparation of any Tax Returns or for the defense of any Tax claim or assessment that relates to the Wafer Fabrication Operations or the Contributed Assets, whether in connection with an audit or otherwise.

 

(d)            Conexant shall promptly pay after the Closing when due all Taxes for Pre-Closing Tax Periods that have given rise to, or could give rise to a lien on the Contributed Assets in the hands of the Company (or in the hands of Newport Fab LLC after the Closing Date), provided however, that, in the case of any Taxes relating to the Wafer Fabrication Operations and the Contributed Assets that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) the Closing Date, the portion of such Tax allocated to the Pre-Closing Tax Period shall, (i) in the case of any Taxes based on the value of property, such as property or ad valorem Tax, be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in the entire Taxable period, and (ii) in the case of any other Tax, such as income, sales, or gross receipts Tax, be deemed equal to the amount which would be payable if the relevant Taxable period ended on the Closing Date. The Company shall be responsible for and shall promptly pay when due any such Taxes that are not allocated to Pre-Closing Tax Periods. In the event Conexant is required by any taxing authority to pay any Taxes for which the Company is responsible pursuant to this Section 4.10, Conexant shall provide to the Company a written notice stating the amount and type of such Taxes due and the due date thereof at least fourteen (14) days prior to such due date, and the Company shall reimburse Conexant for such Taxes prior to such due date.

 

(e)            Conexant shall deliver to the Company an executed affidavit, dated not more than thirty (30) days prior to the Closing Date, in accordance with Code Section 1445(b)(2) and Treasury Regulation Section 1.1445-(b)(2), which statement certifies that Conexant is not a “foreign person” and sets forth Conexant’s name, identifying number and address. Conexant shall deliver to the Company all clearance certificates and similar documents that may be required by any state, local or other taxing authority in order to relieve the Company of any obligation to withhold or escrow any of the consideration to be paid to Conexant for the benefit of such taxing authority.

 

(f)             Conexant shall file all Tax Returns with respect to Pre-Closing Tax Periods on the basis that the aggregate adjusted tax basis of the Contributed Assets is not less than $232,574,697.25 as of January 31, 2002.

 

(g)            For a period of twelve (12) months after the Closing Date, unless the Company obtains the prior written consent of Conexant, the Company will not (i) dissolve or liquidate Newport Fab LLC, (ii) merge Newport Fab LLC with the Company or any entity that is an Affiliate of the Company prior to such merger, or (c) cause Newport Fab LLC to distribute or otherwise transfer all or substantially all of the Contributed Assets to the Company or any entity that is an Affiliate of the Company prior to such distribution or transfer.

 

4.11         Update of Schedules .  The parties acknowledge and agree that, no later than five (5) days prior to the Closing Date, Conexant may update or supplement Parts 2.1 through 2.19 of the Conexant Disclosure Schedule solely for the purpose of reflecting events or occurrences

 

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occurring after the date hereof by providing to the Company and Carlyle an updated or supplemented Conexant Disclosure Schedule (which shall be marked to show changes against the original Conexant Disclosure Schedule). Such updated parts of the Conexant Disclosure Schedule shall, solely for the purpose of Section 6.1 hereof (and not for the purpose of Section 8 hereof), be deemed to have amended the relevant parts of the Conexant Disclosure Schedule unless the events or occurrences reflected in such updated or supplemented parts of the Conexant Disclosure Schedule have or would reasonably be expected to have a Conexant Material Adverse Effect.

 

4.12         GE Capital Lease Reimbursement.   Conexant shall, within 30 days of receiving any invoice therefor from the Company from time to time, pay to the Company an amount equal to fifty percent (50%) of all lease and other payments actually paid by the Specialtysemi Group Companies under that certain equipment lease agreement dated March 3, 2000 between General Electric Capital Corporation and Conexant for that piece of equipment known as “193A-F Micrascan Step and Scan Deep UV System” leased to Conexant.

 

4.13         Newport Fab Contribution Agreement.   Between the date hereof and the Closing Date, the Conexant Group Companies will not amend any provision of the Newport Fab Contribution Agreement and neither of the Conexant Group Companies will waive, release or compromise any right under the Newport Fab Contribution Agreement.

 

4.14         TSMC License Agreement.   Between the date hereof and the Closing Date, the Conexant Group Companies will not and following the Closing, Conexant will not, amend any provision of the TSMC License Agreement or waive, release or compromise any right under the TSMC License Agreement if such amendment, waiver, release or compromise would affect, limit or restrict any right of, or create any obligation of, the Specialtysemi Group Companies, including, without limitation, any rights with respect to the Transferred Intellectual Property or the Licensed Intellectual Property.

 

5.              CONDITIONS PRECEDENT TO CONEXANT’S OBLIGATION TO CLOSE .

 

Conexant’s obligation to contribute the Membership Interests to the Company and to take the other actions required to be taken by Conexant at the Closing is subject to the satisfaction, as of the Closing, of each of the following conditions (any of which may be waived by Conexant, in whole or in part, in writing):

 

5.1           Accuracy of Representations.   All of the representations and warranties made by Carlyle in this Agreement shall be accurate in all material respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties specifically speak as of an earlier date, in which case such representations and warranties shall be accurate in all material respects as of such earlier date).

 

5.2           Performance of Obligations.

 

(a)            Each of the Transactional Agreements shall have been executed by each of the parties thereto (other than Conexant) and delivered to Conexant; and

 

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(b)            All of the covenants and obligations that the Company and Carlyle are required to comply with or to perform at or prior to the Closing (considered collectively), and each of said covenants and obligations (considered individually), shall have been duly complied with and performed in all material respects.

 

5.3           Governmental Approvals.   All Wafer Fabrication Operations Permits that are required to be issued in Newport Fab LLC’s name as of the Closing Date in order for Newport Fab LLC to be able to conduct the Wafer Fabrication Operations in the manner in which the Conexant Group Companies conducted such operations as of immediately prior to the Closing Date without violating applicable Legal Requirements shall have been issued in Newport Fab LLC’s name.

 

5.4           Governmental Proceedings.   No Governmental Body shall have commenced any Proceeding (i) involving any material challenge to, or seeking material damages or other material relief in connection with, any of the Transactions, or (ii) that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions.

 

5.5           Receipt of Consideration.   Conexant shall have received the consideration and other items it is entitled to receive pursuant to Section 1.3.

 

5.6           Certificates.   Carlyle shall have furnished Conexant with such certificates of its duly authorized officers to evidence compliance with the conditions set forth in Section 5.1 and, to the extent applicable to Carlyle, Section 5.2(b), and the Company shall have furnished Conexant with such certificates of its duly authorized officers to evidence compliance with the conditions set forth in Section 5.2(b) to the extent applicable to the Company.

 

5.7           Agreements to be Delivered.   The form of each of the License Agreements, the Real Property Lease Agreements, the IT Services Agreement and the Transition Services Agreement executed and delivered by Carlyle or the Company at Closing shall be acceptable to Conexant.

 

5.8           Warrant .

 

The form of Warrant to be delivered by Conexant at Closing shall be acceptable to Conexant, and all consents and approvals required for the issuance of the Warrant and the shares issuable upon exercise of the Warrant shall have been obtained to the reasonable satisfaction of Conexant.

 

6.              CONDITIONS PRECEDENT TO CARLYLE’S OBLIGATION TO CLOSE.

 

Carlyle’s obligation to contribute to the Company the cash contribution described in Section 1.2 and to take the other actions required to be taken by Carlyle at the Closing is subject to the satisfaction, as of the Closing, of each of the following conditions (any of which may be waived by Carlyle, in whole or in part, in writing):

 

6.1           Accuracy of Representations.   Subject to, and as modified by the update or supplement to the Conexant Disclosure Schedule contemplated by, Section 4.11, all of the representations and warranties made by Conexant in this Agreement and the Newport Fab

 

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Contribution Agreement shall be accurate in all material respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties specifically speak as of an earlier date, in which case such representations and warranties shall be accurate in all material respects as of such earlier date).

 

6.2           Performance of Obligations.

 

(a)            Each of the Transactional Agreements shall have been executed by each of the parties thereto (other than Carlyle or the Company) and delivered to Carlyle; and

 

(b)            all of the covenants and obligations that Conexant is required to comply with or to perform at or prior to the Closing, under this Agreement and the Newport Fab Contribution Agreement shall have been duly complied with and performed in all material respects.

 

6.3           Governmental Proceedings. No Governmental Body shall have commenced any Proceeding (i) involving any material challenge to, or seeking material damages or other material relief in connection with, any of the Transactions or the transactions contemplated by the Newport Fab Contribution Agreement, or (ii) that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions.

 

6.4           Consents and Replacement Contracts.   Each of the Consents identified on Schedule 6.4(a) shall have been obtained and each of the Contracts listed on Schedule 6.4(a) shall have been assigned to Newport Fab LLC pursuant to the Newport Fab Contribution Agreement and shall be in full force and effect, and the Specialtysemi Group Companies shall have entered into Contracts replacing the Shared Contracts listed on Schedule 6.4(b) on terms acceptable to Carlyle.

 

6.5           Governmental Approvals.   All Wafer Fabrication Operations Permits that are required to be issued in one or more of the Specialtysemi Group Companies’ names as of the Closing Date in order for the Specialtysemi Group Companies to be able to conduct the Wafer Fabrication Operations in the manner in which the Conexant Group Companies conducted such operations as of immediately prior to the Closing Date without violating applicable Legal Requirements shall have been issued in one of the Specialtysemi Group Companies’ names.

 

6.6           Material Adverse Effect. There shall not have occurred (and be continuing) any event, condition, or occurrence that has resulted in, or would reasonably be expected to result in, a Conexant Material Adverse Effect.

 

6.7           Inventory.   The raw material and work-in-process Inventory held by Newport Fab LLC shall have a book value, determined in accordance with the calculation reflected on Schedule 6.7, of no less than $8,000,000. Conexant shall provide to Carlyle a detailed schedule, certified as true and correct by an officer of Conexant, reflecting the Inventory held by Newport Fab LLC as of the Closing Date, including a breakdown between wafer fabrication and probe of the following items: (i) the number of wafers included in such Inventory, (ii) the raw material value of such wafers and (iii) any labor and overhead allocations.

 

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6.8           Employment.

 

(a)            The Employment Agreements shall be in a form acceptable to Carlyle and shall have been executed by the Persons listed on Schedule 6.8(a);  and

 

(b)            At least 75% of the Wafer Fabrication Operations Employees shall have accepted offers of employment by the Specialtysemi Group Companies.

 

6.9           Company Bank Account.   A checking account shall have been established for the Company.

 

6.10         Certificates.   Conexant shall have furnished Carlyle with such certificates of its duly authorized officers and others to evidence compliance with the conditions set forth in Sections 6.1, 6.2(b), and 6.7.

 

6.11         Agreements to be Delivered.   The form of each of the License Agreements, the Real Property Lease Agreements, the IT Services Agreement, the Employee Matters Agreement and the Transition Services Agreement executed and delivered by Conexant at the Closing shall be acceptable to Carlyle.

 

6.12         Conveyancing Documents.   The documents and instruments executed and delivered by Conexant and Newport Fab LLC to effect the Newport Fab Contribution shall be delivered to Carlyle and such documents shall be in a form reasonably acceptable to Carlyle.

 

6.13         Warrant. The form of Warrant to be delivered by Conexant at the Closing shall be acceptable to Carlyle, and all consents and approvals required for the issuance of the Warrant and the shares issuable upon exercise of the Warrant shall have been obtained to the reasonable satisfaction of Carlyle.

 

7.              TERMINATION.

 

7.1           Termination Events. This Agreement may be terminated prior to the Closing:

 

(a)            by Conexant or Carlyle if the Closing has not taken place on or before April 30, 2002 (the “ Termination Date ”) (other than as a result of any failure on the part of the terminating party to comply with or perform its covenants and obligations under this Agreement);

 

(b)            by the mutual written consent of Conexant and Carlyle;

 

(c)            by Conexant if there is a material breach of any representation or warranty set forth in Section 3 hereof or any covenant or agreement to be complied with or performed by Carlyle pursuant to the terms of this Agreement, provided that Conexant may not terminate this Agreement prior to the Closing for such breach unless Carlyle has failed to cure such breach within thirty (30) days of receiving notice of such breach; or

 

(d)            by Carlyle if there is a material breach of any representation or warranty set forth in Article 2 hereof or any covenant or agreement to be complied with or performed by Conexant pursuant to the terms of this Agreement, provided tha