Manufacturing And Tech Support

Exhibit 10.56


MANUFACTURING and TECHNICAL SUPPORT AGREEMENT


This Manufacturing Agreement (the "Agreement") is entered into as of the 11/th/ of June, 2001, by and between RF Monolithics, Inc., a corporation duly organized under the laws of the State of Delaware, having its principal place of business at 4347 Sigma Road, Dallas, TX, 75244, U.S.A. (hereinafter referred to as "Company") and Morioka Seiko Instruments Inc. (MSI) a corporation duly organized and existing under the laws of Japan with its principal place of business at 61-1, Aza Itabashi Shizukuishi-cho Iwate-gun, Iwate 020-0596 Japan (hereinafter referred to as "Contractor").


RECITALS


WHEREAS, Company desires to enter into an agreement with Contractor for certain manufacturing and production services for Products (defined below), whereby Contractor will Manufacture (as defined below) for Company certain Products at the Factory (as defined below) in accordance with the Specifications and instructions of Company; and


WHEREAS, Contractor is willing to Manufacture the Products for Company and provide such services under the terms and conditions set forth below.


NOW THEREFORE, in consideration of the premises and mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows:


1. General Definitions. The terms set forth below in this Section 1 shall have the meanings ascribed to them below:


Allowable Assembly Yield: means the yield below which yield Contractor may be required to pay Company for 50% of the standard cost of Materials supplied by Company, not including Die, for the number of failed units below the Allowable Assembly Yield. The circumstances determining when payment is required are defined in Section 2.1(e)(ii). The Allowable Assembly Yield is determined by the Assembly Yield monthly average for the first three months following Production Start Up of a Generic Product Family.


Affiliate: with respect to any Person, means any Person that directly or indirectly controls, is controlled by or is under common control with such Person.


Annual Review Process: means the process conducted by Company and Contractor to review commitments for the coming year concerning Product pricing, production levels, quality and service levels. This process normally occurs during Company's first fiscal quarter (the three months ended November 30), to review the previous year's performance.


Approved Vendor: shall have the meaning defined in Section 2.1(d) hereof.


Approved Vendor List: shall have the meaning defined in Section 2.1(d) hereof.


Assembly Outs: means the number of units, which pass from the last operation of the assembly process, as depicted in the typical process flow Schedule A, Typical Process Flow Chart, to the first operation of the test portion of the manufacturing process, as depicted in Schedule B, Typical Test Flow Chart.


Assembly Yield: means the ratio, expressed as a percentage, of the number of Products (Units) started in the assembly flow (typically at Die mount) to the number of Assembly Outs minus the


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number of Product units found to be defective at Fine and Gross Leak Test and the number of Product units found to be defective at Test Final Visual Inspection.


AY = (AO-FI)/AS Where:
"AY" is the Assembly Yield;
"AS" is the number of products started in the assembly flow;
"AO" is the number of Assembly Outs;
"FI" is equal to the number of Product units found to be defective at Fine
and Gross Leak Test plus the number of Product units found to be defective
at the Test Final Visual Inspection.


Best Efforts: means a party's efforts in accordance with reasonable commercial practice and/or consistent with its past practice.


Consignment: means property, including but not limited to equipment, Die and Materials, that is owned by the Company that is used by the Contractor to fulfill the purposes of this Agreement.


Defective Unit: means Products returned from Company's customers that do not meet specification due to assembly processing problems. Reference Section 2.2(b).


Die: means the chips that Company provides Contractor, either in sliced or wafer form. This includes Die and transistors and integrated circuits that Company may provide on a Consignment basis to Contractor.


Electrical Test: means a verification of the electrical functions of Products.


FCA: Shall mean Free Carrier as defined in Incoterms 2000 as published by the International Chamber of Commerce.


Factory: means the Contractor's manufacturing facility for Products located 61-1, Aza Itabashi Shizukuishi-cho Iwate-gun, Iwate 020-0596 Japan.


Fine and Gross Leak Test: The test for hermeticity after Electrical Test, as depicted in the typical test flow in Schedule B.


Finished Goods: means any Product that is 100% complete, tested, and packed in a shipping carton awaiting shipment to Company.


Finishing Materials: Tubes, tape-and-reel, labels, tickets and shipping cartons used to ship Finished Goods per Company Specifications


Generic Product Family: all Products assembled by the same process and test sequence, as depicted in the typical process flow of Schedule A and as depicted in the typical test flow chart of Schedule B.


Improvements: shall mean any invention, information, development, technology or modification, of any nature or form, and any part or combination of parts, or method of using or manufacturing such part or combination of parts, developed during the term of this Agreement, which would improve a Product, including, without limitation, any development that use of which affects the Products in any of the following ways:
reduces product costs;
improves performance;


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improves handling in the manufacturing process;
broadens applicability;
increases marketability, or
improves appearance.


Joint Intellectual Property: shall have the meaning defined in Section 15.3 hereof.


Manufacture: shall mean the complete process of assembly and test of the Products into Finished Goods as required under this Agreement.


Manufacture Defect: means any defect which is attributable to the Manufacture of a Product by Contractor under this Agreement.


Materials: shall mean all raw materials, Finishing Materials and Die/wafers required by Contractor to Manufacture the Products.


New Products: means new items or variations of current Products that the Company and the Contractor have agreed in writing to be covered by this Agreement.


Order: means Purchase Order issued by the Company.


Other Support Services: shall have the meaning defined in Section 2.3 hereof.


Person: means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, government or agency or subdivision thereof or any other entity.


Product: means the Products manufactured according to process and test flows provided from time-to-time by Company and similar to the typical flows of Schedule A and Schedule B. From time-to-time the description of Products may be amended by change requests and New Products agreed to by Company and Contractor in accordance with Section 2.1(c).


Production Start Up: means the time of initial shipments of a Generic Product Family as requested by the initial Weekly Start Schedule for that Generic Product Family.


Provided Equipment: means any equipment, including but not limited to, manufacturing and test equipment; supplies, Materials, and documentation which Company provides to Contractor for use in providing services under this Agreement and for which Company retains title of ownership.


Purchase Order: the ordering document provided by Company that specifies the Product, services, prices and Product volumes that the Contractor is to Manufacture.


Quarterly Operations Reviews: means the process conducted by Company and Contractor to review yields, cycle times, delivery performance, quality metrics and cost reduction roadmaps. This process normally occurs within 3 weeks of the end of the Company's fiscal quarter (Nov. 30, Feb. 28, May 31, Aug. 31).


Shipping Date: means the date on which the finished Product is delivered to the freight forwarder designated by Company.


Specifications: shall mean drawings, criteria, and documented specifications including but not limited to Process Flow Chart, Test Flow Chart and mount-bond diagram. Additional Specifications will be issued by Company in similar form as additional Products are added to this Agreement.


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Test Final Visual Inspection: means a quality control visual inspection immediately following Fine and Gross Leak Test, as depicted in the typical test flow in Schedule B.


Test Yield: means the ratio, expressed in percentage, of the number of Products (Units) started at Electrical Test to the number meeting Specifications after Electrical Test, as depicted in the typical test flow in Schedule B.


Transfer: shall mean permission to use Company's intellectual property to the extent permitted by the Agreement.


Value Added: the price for Materials and assembly/test services for the Product supplied by Contractor.


Weekly Start Schedule: shall have the meaning defined in Section 2.6 hereof.


WIP Inventory: means the work-in-progress inventory of Product at the Contractor.


Workweek: shall be seven (7) calendar days beginning on Monday and ending on Sunday.


2. Services.


2.1 Contract Manufacturing Services:


(a) General. Contractor covenants and agrees to Manufacture the Products that Company requests it to Manufacture at the Factory utilizing the tools, machinery, equipment, fixtures and computer systems of Contractor and any other Provided Equipment. Contractor agrees that the Manufacture of Products hereunder shall be carried out in a good and workmanlike manner in compliance with the Specifications and instructions of Company provided to Contractor in writing from time to time as specified herein. Contractor shall have available to Manufacture the Products all facilities, employees, equipment, spare parts, computer systems and any other items required to Manufacture the Products. Company shall provide to Contractor all Specifications, manuals and other relevant Technical Information necessary to Manufacture the Products.


(i) Contractor may use its standard processes, so long as they conform to the Company's Specifications and quality requirements.


(ii) Contractor shall assemble and test Product using Material procured from suppliers on the Approved Vendor List or provided on a Consignment basis, for an initial period, from Company and Die provided on a Consignment basis from Company and under manufacturing processes approved by Company. Any change to Manufacturing processes, Materials, or outsourcing services directly affecting Products shall be approved in writing by Company prior to implementation by Contractor.


(iii) Contractor agrees to provide manufacturing and production services to meet Company's Manufacturing requirements in accordance with Section 2.6 and 2.7. Changes to forecast shall not affect Product pricing, unless mutually agreed in writing by parties.


(iv) Contractor shall obtain, at its own expense, capital equipment and tooling required to manufacture the Product. The parties shall work together to specify and identify appropriate equipment and tools. However, Contractor, at its sole discretion, shall determine the final configuration and quantity of equipment and tooling obtained, so long as such decisions are consistent with meeting Company's specifications and performance criteria.


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(b) Change Requests. Company shall have the right at any time to make changes in drawings, designs, Specifications, Materials, packaging, quantities, time and place of delivery and method of transportation. If any such changes cause an increase or decrease in the cost or the time required for performance of the order, Contractor shall notify Company in writing (stating the amount of the increase or decrease), within five (5) days, after receipt of such notice. There will be no change in manufacturing and production service until accepted, in writing, by the Contractor. If such notice is timely given, an equitable adjustment shall be made, and the Purchase Order shall be modified in writing accordingly. Contractor agrees to accept any such changes and proceed with the performance of this Agreement, subject to this paragraph.


(i) Changes to Specifications by Company will be made according to Company's Engineering Change Procedure (000-0101-001) (the "Change Procedure"). The Contractor will approve all changes relating to Products manufactured at Contractor according to the Change Procedure.


(ii) If Contractor proposes to change the Specifications with respect to any Product, it shall provide the Company written notice thereof and shall implement such changes only upon written consent from the Company. In no event shall the Contractor ship other than strictly in accordance with the Specifications or amendments thereto, which the Company has approved in writing.


(c) New Products. Company may from time to time request Contractor to Manufacture, and perform prototype and pilot testing for any future versions of the Product developed after the date of this Agreement by Company (each a "New Product"). Such request shall be accompanied by all Specifications and other relevant documentation necessary to Manufacture the New Product. Upon receipt of such information, Contractor shall provide to Company the price to perform prototype and pilot assembly and test for such New Product and the estimated time schedule required to implement the Manufacture of the New Product. Contractor shall not be obligated to Manufacture or perform any services hereunder with respect to such price and time schedule for implementation. Company and Contractor agree to negotiate price, volumes and Production Start Up schedules for New Products, should Contractor agree to Manufacture the New Product.


(d) Approved Vendor List. With respect to each component part comprising Materials, Contractor shall maintain a list of suppliers recommended by Company to supply such part (the "Approved Vendor List"). Company may remove any supplier from or add any supplier to the Approved Vendor List with respect to any component part comprising Materials by giving notice thereof to Contractor. A supplier or vendor not on the Approved Vendor List shall not provide material or services for the Manufacture of the Product without the Company's written authorization. Contractor may request removal or addition of supplier to Approved Vendor List. Company will qualify at the request of Contractor additional suppliers who meet Company's standards and will not unreasonably disqualify a proposed supplier. Once Contractor qualifies a second source, Company will respond in a timely manner to give Contractor adequate time to meet its schedule requirements.


(e) Yields. Parties understand and agree that production yields are a primary driver for Manufacturing cost effectiveness. Company shall provide Die, which are consistent with Specifications established by Company, in sufficient quantity to meet Manufacturing requirements. Both Company and Contractor will work together to increase production yields. Yield improvement and cost reduction goals will be established and evaluated at the Quarterly Operations Reviews.


(i) Company outgoing testing and inspection of Materials supplied by Company and incoming test and inspection by Contractor will be in place to ensure the Die, packages and assembly Materials are in Specification as they are introduced to the Contractor's assembly Factory.


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(ii) The Assembly Yield is primarily the responsibility of Contractor. The Contractor is liable for the Materials supplied by Company, according to the definition of Allowable Assembly Yield, during the fourth through sixth months following Production Start Up. Beginning month seven (7) after Production Start Up, Contractor shall be responsible for procurement of all Materials required to Manufacture the Product except Die. Contractor shall provide the types of Material and the quantity of each Material to replace the Material provided by Company to Manufacture the Product, as depicted in Schedule C, the Material Provision Schedule.


(iii) The Test Yield is a shared responsibility of Contractor and Company. Contractor is responsible for yield loss at Electrical Test due to assembly processing defects. Company is responsible for yield loss at Electrical Test not due to assembly defects.


(iv) The Test Final Visual Inspection Yield is the responsibility of Contractor.


(v) Should either party incur unacceptable yield loss, based on monthly average yield, either party may request a failure analysis to determine the cause of such failures. The requesting party shall bear the cost of the analysis. However, if the analysis establishes that the unacceptable yield loss is due primarily to the non-requesting party, the non-requesting party shall reimburse the requesting party for the cost of the analysis.


(f) Annual Review Process. Company and Contractor shall meet annually to review performance to the Agreement (Annual Review Process). Such review shall include, but not be limited to, review of Contractor's performance to Company's Specifications and quality and service standards, review of Product pricing, and cost reductions.


(g) Quarterly Operations Review Process. Company and Contractor shall conduct Quarterly Operations Reviews. Such meetings shall include, but not be limited to, review of Contractor's Product yields, cycle times, delivery performance, quality metrics and cost reduction roadmaps. The meeting may be scheduled to combine with other reviews, such as the annual review, or may be held via conference telephone call or video conference. Production yield improvement and cost reduction goals will be established and progress toward these goals will be reviewed quarterly.


2.2 Return Services


(a) Company will be the recognized source for the Product and will be the sole contact for third parties with Product problems related to Company's customers. Company will issue all warranties to third parties for the Product, but will be entitled to exercise its rights under paragraph 2.2.(b) against Contractor as to any defects specified therein.


(b) Product returns will be authorized by Company which will perform the initial failure analysis on the units. Those units indicating a defect due to assembly processing (Defective Unit) will be transmitted to Contractor (material review board) for confirmation of failure analysis at Contractor's expense and corrective action by the Contractor. Contractor's sole responsibility and liability as a result of any such defect shall be to provide compensation to Company for the amount charged to Company for each Defective Unit. Company will provide Contractor with an example of "initial failure analysis"


2.3 Other Support Services. From time-to-time during the term of this Agreement, Company may request Contractor to perform Other Support Services such as but not limited to the purchase of assembly Materials, previously consigned by Company, and the drop shipment of Product to Company customers. In connection with the performance of any Other Support Services, Company shall issue a Purchase Order for the services which Company desires Contractor to perform. Contractor shall notify the Company within five (5) working days of their intent to provide the requested service and accept the Purchase Order. If


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Contractor intends to provide the requested service, Contractor shall furnish Company the estimated time schedule to implement or complete the services and the estimated cost to Company in excess of the Purchase Order issued for the service. If such service results in modification to the cost of the Product, the Purchase Order covering that product may be modified to reflect the cost change. All prices and deliverables to be furnished by the Contractor with respect to such services shall be mutually agreed to in writing by Company and Contractor.


2.4 Data. Contractor will periodically supply the Company with reasonably requested data including, but not limited to yields, inventories and production status. The frequency and format of the reporting will be agreed upon by the Company and Contractor. As a minimum, Contractor will supply the Company with a detailed inventory and/or a periodic physical inventory of all consigned raw material and Die inventory on hand as of the last day of the prior month on the third working day of each month.


2.5 Purchase Orders. Company shall provide Contractor with a Purchase Order for Manufacture of Product for six (6) month's requirement in advance. Contractor agrees to acknowledge Company's Purchase Order within two (2) business days from receipt by facsimile or other electronic means. Thereafter, the Purchase Order shall come into force and effect from the date of such acknowledgement. Contractor as well as Company, shall be bound by all terms and conditions set forth in the Purchase Order by the Contractor consistent with the terms and conditions herein agreed upon. However, the Weekly Start Schedule will determine quantities and Shipping Dates. In the event of any disagreement between the Purchase Order and the Agreement, the terms of the Agreement shall prevail.


2.6 Production and Shipping Dates. Four (4) days before the start of the work week, Company shall provide Contractor with a Weekly Start Schedule and Shipping Dates with a lead time reasonably acceptable to Contractor. The estimated cycle time is two Workweeks after schedule start date of the Die. Each Weekly Start Schedule will show start quantities by line, Shipping Dates, and priorities. Contractor agrees to allocate sufficient Manufacturing capacity for the Manufacture of Products to meet Company's Production and Shipping Dates, and all Material acquired by Contractor to meet Company's Production and Shipping Dates will be covered by the Buy-Back provisions of this Agreement. Company agrees to supply Materials, including Die, a minimum of one day prior to the associated starts at the Contractor. Contractor will not start more Product than required by the Weekly Start Schedule without written approval from the Company.


2.7 Forecast and Buy-Back Guarantee. Company shall endeavor to provide monthly a three (3) month rolling forecast and quarterly a twelve (12) months rolling forecast of Products to be Manufactured by Contractor under this Agreement. Contractor shall acknowledge in writing, within one week of receipt, acceptance of Company's three (3) month forecast or provide written notice to Company of limited Factory capacity. Company agrees to buyback, at cost, all Manufacturing related Materials inventory purchased by Contractor should Company fail to Order forecasted quantities based on 100% of forecasted Materials for the three month period and such failure to order is in no way attributable to Contractor. The Company will not be required to buy back any Materials beyond the third month of the twelve (12) month forecast. Notwithstanding the above, Contractor will attempt to divert Materials to other manufacturing uses so as to minimize this excess inventory cost to Company.


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------------------------------------------------------------------------------------------------------------------------------------ Schedules Purpose of Schedule Variations ------------------------------------------------------------------------------------------------------------------------------------ Purchase Order Authorizes Only by changes, in writing, from
(Contractor), Shipment Company
(Company), Receiving
(Contractor) and Invoicing
(Company) Payment


==================================================================================================================================== ====================================================================================================================================


Weekly Start Schedule Provide weekly start schedule with The volume and line items are
delivery dates and priorities. firm.


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


Three Month Forecast Provided for Material and labor Volume for first month is firm,
planning. but line items may change.
Second month may change from
previous forecast no more than +/-
25%. Third month may change from
previous forecast no more than +/-
50%.


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Twelve Month Forecast Provided for space, equipment and First three months are as above,
labor planning. but all other is for planning
purposes only. -----------------------------------------------------------------------------------------------------------


3. Technology Support


3.1 Technical Guidance For various technical guidance in accordance with relative provisions set forth herein, Company shall make available to Contractor the consulting services of engineering and manufacturing specialists of Company (hereinafter called "Engineers") to assist Contractor in the manufacture in the Factory using Know-How furnished by Company hereunder.


3.2 Dispatch of Engineers Company shall dispatch Company's Engineers, at the request of Contractor, to Contractor's premises in the Factory on the following terms and conditions:


In the case of technical assistance outside Company's premises by Company's Engineers, Contractor shall reimburse the salary of the Engineers and all of Company's out of pocket travel, meals, lodging and related expenses. (One man work-day is the equivalent of eight consecutive ho ...