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PURCHASE AGREEMENT
BY AND BETWEEN
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.,
AS SELLER
AND
ANALOG DEVICES, INC.,
ALTERA CORPORATION,
AND
INTEGRATED SILICON SOLUTIONS, INC.,
AS BUYERS
________________________________________________________________________________
PURCHASE AGREEMENT
<PAGE> 2
EX. 10.2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C>
<C>
ARTICLE 1 DEFINITIONS AND RULES OF INTERPRETATION.............................. 2
1.1 Definitions.......................................................... 2
1.2 Rules of Interpretation.............................................. 8
ARTICLE 2 TERM................................................................. 8
2.1 Term................................................................. 8
2.2 Automatic Extension.................................................. 8
2.3 Termination of Manufacturing Agreement............................... 9
ARTICLE 3 WAFER SUPPLY; FOUNDRY OUTPUT RIGHTS AND
OBLIGATIONS.......................................................... 9
3.1 Facilities........................................................... 9
3.2 Manufacturing Capability............................................. 9
3.3 Production Availability.............................................. 9
3.4 ADI's, Altera's and ISSI's Maximum and Minimum Purchase Rights
and Obligations...................................................... 10
3.5 Take-Or-Pay Obligation for Unused Minimum Purchase Share............. 11
ARTICLE 4 PRODUCTION PLANNING.................................................. 12
4.1 Forecasts............................................................ 12
4.2 Production Qualification............................................. 13
ARTICLE 5 OTHER AGREEMENTS RELATING TO PRODUCTION.............................. 14
5.1 Quantity Requirement................................................. 14
5.2 Accelerate Supply.................................................... 14
5.3 Modifications to Existing Processes or Specifications................ 14
5.4 Additions or Substitutions of Products............................... 15
5.5 Vendor Information................................................... 15
5.6 Process Records...................................................... 15
5.7 Trademarks........................................................... 15
5.8 Mask Set Protection.................................................. 16
5.9 Rights to Inspect and Monitor Production............................. 16
5.10 Obtain Grant of Non-exclusive Manufacturing Rights................... 16
5.11 Unique Processes, Methods or Materials............................... 17
5.12 Adjustment in Capacity Rights and Obligations........................ 17
5.13 Certain Terms Applicable to Test Wafers.............................. 17
5.14 Sales Engineering Support............................................ 18
5.15 Supplemental Wafer Supply Arrangements............................... 18
5.16 Certain Terms Applicable to Risk Wafers Run on a Qualified Process... 19
5.17 Sale of Risk Wafers.................................................. 19
</TABLE>
i
PURCHASE AGREEMENT
<PAGE> 3
EX. 10.2
<TABLE>
<CAPTION>
PAGE
<C>
<C>
ARTICLE 6 PURCHASES............................................................ 19
6.1 Purchase Orders...................................................... 19
6.2 Price................................................................ 20
6.3 Invoice.............................................................. 22
6.4 Payment.............................................................. 22
6.5 No Limitation On Buyer's Pricing..................................... 22
ARTICLE 7 DELIVERY............................................................. 22
7.1 Delivery............................................................. 22
7.2 Shipments F.O.B. ................................................... 22
7.3 Packaging and Ship Date.............................................. 22
7.4 Partial Shipments.................................................... 22
7.5 Failure to Meet Delivery Dates....................................... 22
7.6 Force Majeure........................................................ 23
ARTICLE 8 INCOMING TEST; ACCEPTANCE AND RETURNS ............................... 23
8.1 Incoming Testing..................................................... 23
8.2 Acceptance........................................................... 23
8.3 Returns.............................................................. 23
ARTICLE 9 PRODUCT WARRANTY..................................................... 23
9.1 TSMC's Warranty...................................................... 23
9.2 Limited Warranty..................................................... 24
9.3 TSMC's Inspection Rights............................................. 24
ARTICLE 10 LIMITATION ON DAMAGES; CONTRACTUAL
LIMITATIONS PERIOD.................................................. 24
10.1 Limitation on Damages................................................ 24
10.2 Contractual Limitations Period....................................... 25
ARTICLE 11 INDEMNITIES.......................................................... 25
11.1 Infringement of Intellectual Property Rights......................... 25
11.2 Personal Injury Indemnity. ......................................... 26
11.3 Product Liability. .................................................. 26
11.4 General Indemnity Provisions......................................... 27
</TABLE>
ii
PURCHASE AGREEMENT
<PAGE> 4
Exhibit 10.2
<TABLE>
<CAPTION>
PAGE
<C>
<C>
ARTICLE 12 FORCE MAJEURE........................................................ 28
12.1 Force Majeure........................................................ 28
12.2 Notification......................................................... 28
12.3 Response to Force Majeure............................................ 28
12.4 Limitations on Applicability of Force Majeure........................ 28
ARTICLE 13 GOVERNMENTAL INTERVENTION............................................ 28
13.1 Governmental Intervention............................................ 28
ARTICLE 14 DEFAULT AND TERMINATION.............................................. 29
14.1 Events of Default.................................................... 29
14.2 Remedies for Default................................................. 30
14.3 Effective Date of Termination........................................ 31
14.4 Rights and Remedies Following Termination............................ 31
14.5 Remedies Cumulative, Concurrent and Non-Exclusive.................... 31
ARTICLE 15 PROPRIETARY INFORMATION.............................................. 32
15.1 Proprietary Information.............................................. 32
15.2 Other Confidentiality Agreements..................................... 32
15.3 Confidentiality Agreements for Specific Persons...................... 32
15.4 Third Party Request for Information.................................. 32
15.5 Reporting Loss, Theft or Misappropriation............................ 33
ARTICLE 16 EXPORT COMPLIANCE.................................................... 33
16.1 Compliance With Export Administration Regulations.................... 33
16.2 U.S. Export Licenses................................................. 33
16.3 Republic of China Export Regulations................................. 34
ARTICLE 17 DISPUTE RESOLUTION; ARBITRATION ..................................... 34
17.1 Negotiation Between Executives....................................... 34
17.2 Mediation............................................................ 34
17.3 Claims Subject to Arbitration........................................ 34
17.4 Venue................................................................ 35
17.5 Selection of Arbitrator and Determination of Controversies........... 35
17.6 Arbitration Award and Judicial Review................................ 36
17.7 Consolidation and Joinder............................................ 36
</TABLE>
iii
PURCHASE AGREEMENT
<PAGE> 5
Exhibit 10.2
<TABLE>
<CAPTION>
PAGE
<C>
<C>
ARTICLE 18 GENERAL PROVISIONS................................................... 37
18.1 Severability......................................................... 37
18.2 Neutral Interpretation; Waiver of Conflict........................... 37
18.3 Notices.............................................................. 37
18.4 Time of the Essence.................................................. 37
18.5 Governing Law........................................................ 37
18.6 Entire Agreement..................................................... 37
18.7 Waiver; Amendment.................................................... 37
18.8 Cooperation.......................................................... 38
18.9 Counterparts......................................................... 38
18.10 Exhibits and Schedules............................................... 38
18.11 Attorneys' Fees...................................................... 38
18.12 Date of Performance.................................................. 38
18.13 Survival............................................................. 38
18.14 Assignment; Parties Bound............................................ 38
18.15 Third-Party Beneficiaries............................................ 39
18.16 Governing Language of Agreement...................................... 39
18.17 Consent to Jurisdiction and Service of Process....................... 39
18.18 Authorized Representatives........................................... 39
18.19 Relationship of the Parties.......................................... 39
18.20 Manufacturing Agreement.............................................. 40
</TABLE>
iv
PURCHASE AGREEMENT
<PAGE> 6
LIST OF EXHIBITS
Exhibit "A" -- Pricing Schedule
Exhibit "B" -- Product Qualification Plan
Exhibit "C" -- Quality and Reliability Specifications
Exhibit "D" -- Wafer Equivalents
Exhibit "E" -- Production Ramp-Up Plan
Exhibit "F" -- Buyer's Purchase Forecast
Exhibit "G" -- Design Rule and Parametric Information
Exhibit "H" -- Inspection and Testing Methods
Exhibit "I" -- Addresses for Notices
Exhibit "J" -- Form of Confidentiality Agreement
Exhibit "K" -- Method for Apportioning the Unused Minimum Purchase
Allocation
Exhibit "L" -- Form of Confidentiality Agreement Between a Buyer and Its
Customer
Exhibit "M" -- Form of Indemnity
v
PURCHASE AGREEMENT
<PAGE> 7
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is entered into as of the
Effective Date, by and among Taiwan Semiconductor Manufacturing Co., Ltd.,
incorporated in Taiwan, Republic of China, as seller hereunder ("TSMC"), and
Analog Devices, Inc. ("ADI"), incorporated in Massachusetts; Altera Corporation
("Altera"), incorporated in California; and Integrated Silicon Solutions, Inc.
("ISSI"), incorporated in Delaware; as buyers hereunder (each of whom is
individually referred to as a "Buyer," and two or more of whom are collectively
referred to as "Buyers"). TSMC, ADI, Altera and ISSI each are individually
sometimes referred to as a "Party", and two or more of them are collectively
sometimes referred to as "Parties".
RECITALS:
This Agreement is made with reference to the following facts and
circumstances:
A. Each capitalized term used herein (i) if defined herein, has the
meaning specified in these Recitals, in Article 1 below, or elsewhere
parenthetically herein or (ii) if not defined herein, has the meaning specified
(A) in the instrument or document that is referenced where the term is
introduced herein or (B) in the LLC Agreement, if no instrument or document is
so referenced.
B. TSMC is in the business of (i) manufacturing integrated circuits to
its customers' specifications; and (ii) selling its entire output to customers.
C. Each Buyer has been, and currently is, a customer of TSMC, and TSMC
has made, and currently is making, integrated circuits to each Buyer's
specifications at TSMC's existing wafer-fabrication plants.
D. In order to increase its output, TSMC has expanded its manufacturing
capacity by subcontracting with its Affiliate, TSMC Development, Inc., a
Delaware corporation ("TSMC Development"), to have integrated circuits made for
TSMC pursuant to that certain Manufacturing Agreement dated as of February 16,
1996 (the "Manufacturing Agreement").
E. Under the Manufacturing Agreement, (i) TSMC Development has agreed
to construct, or cause the construction of, a semiconductor wafer-fabrication
plant and related improvements in Camas, Washington (the "Foundry") for the
purpose of manufacturing integrated circuits; (ii) TSMC Development has agreed
to offer the entire Calculated Installed Capacity of the Foundry for purchase by
TSMC for a three (3) year period (as such period may be extended pursuant to
Section 2.2); and (iii) TSMC has agreed to purchase a minimum of eighty-five
percent (85%) of such Calculated Installed Capacity for said period, with the
optional ability to purchase up to one hundred percent (100%) of the Foundry's
Calculated Installed Capacity.
F. Each Buyer desires to purchase a portion of its TSMC-supplied
requirements for integrated circuits from the Foundry's Calculated Installed
Capacity. Accordingly, each of the Buyers
PURCHASE AGREEMENT
<PAGE> 8
desires to secure for itself a minimum and maximum percentage of Calculated
Installed Capacity of the Foundry.
G. TSMC is willing to sell, and each Buyer is willing to purchase, a
percentage of the Foundry's Calculated Installed Capacity upon and subject to
the terms and conditions set forth in this Agreement.
H. TSMC Development has entered into that certain Limited Liability
Company Agreement dated as of even date herewith (the "LLC Agreement"), with
ADI, Altera, ISSI, and each of the other persons or entities identified on the
signature page of the LLC Agreement as a third party investor, for the purpose
of forming WaferTech, LLC, a Delaware limited liability company, which will
construct, own and operate the Foundry. In connection with the formation of
WaferTech, LLC, TSMC Development has assigned its rights and duties under the
Manufacturing Agreement to WaferTech, LLC by written instrument dated as of even
date herewith.
I. The Parties intend that this Agreement shall be operative so long
as the Manufacturing Agreement is in effect, and that this Agreement shall
terminate upon termination of the Manufacturing Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
terms, covenants and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS AND RULES OF INTERPRETATION
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following words and expressions shall have the meaning set forth
below.
1.1.1 "AAA" means the American Arbitration Association.
1.1.2 "AFFILIATE" of a Party means any corporation, limited
liability company, partnership or other business enterprise:
(a) Which owns or controls, directly or
indirectly, fifty percent (50%) or more of the voting rights
with respect to the election of directors or managers, or
which has practical control directly or indirectly, of the
Party;
(b) Of which fifty percent (50%) or more of
the voting rights with respect to the election of directors or
managers is owned or controlled, directly or indirectly, by,
or which is under the practical control directly or indirectly
of, the Party; or
(c) Of which fifty percent (50%) or more of
the total voting rights with respect to the election of
directors or managers is owned or controlled, directly or
indirectly, by, or which is under the practical control
directly or indirectly of, any
2
PURCHASE AGREEMENT
<PAGE> 9
corporation, limited liability company, partnership or other
business enterprise described by subsections (a) or (b) above.
Any corporation, limited liability company, partnership or other business
enterprise which would at any time be an Affiliate of a Party by reason of the
foregoing, shall be considered an Affiliate for purposes hereof only for so long
as the foregoing conditions are met. For purposes hereof, no Party shall be
considered an Affiliate of any other Party.
1.1.3 (a) "BASIC PURCHASE SHARE" of a Buyer at a given time
means the Buyer's "Adjusted Percentage Interest" expressed as a decimal fraction
(between zero and one inclusive).
(b) For purposes of paragraph (a), if no Percentage Interest
is held by any Person as a result of a grant under the Company's Executive
Incentive Plan, then the "Adjusted Percentage Interest" of a Buyer at a given
time means:
(i) the Buyer's Percentage Interest in effect pursuant
to the LLC Agreement at such time;
increased by
(ii) any prior reduction in the Buyer's Percentage
Interest attributable to operation of (A) the penultimate sentence of
Section 3.3.1.1 to the extent that (I) the Buyer has failed to
contribute that part of the Missing Capital that is not contributed by
any other Person and such failure reduces the capital contribution the
Buyer would otherwise have made and the total capital contributions
that the parties to the LLC Agreement would otherwise have made or (II)
any part of the Missing Capital is contributed by a member of the LLC
that is not an existing Party and does not become a Party at the time
of the contribution, (B) clause (i) of Section 3.3.1.4 of the LLC
Agreement, (C) Section 3.3.2.1 of the LLC Agreement, where the Buyer
failed to make an Additional Capital Contribution and such failure was
not a Dilution Event, (D) the last sentence of Section 3.3.2.2 of the
LLC Agreement, (E) Section 3.5.4 of the LLC Agreement, where the Buyer
failed to guarantee the Company's debt and such failure was not a
Dilution Event, or (F) clause (i) of Section 10.5 of the LLC Agreement;
and reduced by
(iii) any prior increase in the Buyer's Percentage
Interest attributable to operation of (A) the penultimate sentence of
Section 3.3.1.1 to the extent that (I) another party to the LLC
Agreement has failed to contribute that part of the Missing Capital
that is not contributed by any other Person and such failure reduces
the total capital contributions that the parties to the LLC Agreement
would otherwise have made or (II) any part of the Missing Capital is
contributed by a member of the LLC that is not an existing Party and
does not become a Party at the time of the contribution, (B) clause (i)
of Section 3.3.1.4 of the LLC Agreement, (C) Section 3.3.2.1 of the LLC
Agreement, where another party to the LLC Agreement failed to make an
Additional Capital Contribution and such failure was not a Dilution
Event, (D) the last sentence of Section 3.3.2.2 of the LLC Agreement,
(E) Section 3.5.4 of the LLC Agreement, where another party to the LLC
Agreement failed to guarantee the Company's debt and such failure was
not a Dilution Event, or (F) clause (i) of Section 10.5 of the LLC
Agreement.
3
PURCHASE AGREEMENT
<PAGE> 10
(c) For purposes of paragraph (a), if any Percentage Interest
is held by a Person as a result of a grant under the Company's Executive
Incentive Plan, then the "Adjusted Percentage Interest" of a Buyer at a given
time means the quotient of (i) the quantity described as the "Adjusted
Percentage Interest" in paragraph (b) divided by (ii) (A) one minus (B) the
total Percentage Interests held by all Persons as a result of grants under the
Company's Executive Incentive Plan.
(d) On the Effective Date, the Basic Purchase Share for
Altera is 0.18; for ADI, 0.18; and for ISSI, 0.04.
1.1.4 "BUSINESS DAY" means a day, other than Saturday or
Sunday, on which banking institutions are open for business in Seattle,
Washington and San Jose, California.
1.1.5 "CALCULATED INSTALLED CAPACITY" means the physical
production capacity of the Foundry from time to time based on the installed
capital equipment which is actually in service, as determined in the reasonable,
good faith judgment of the Company's industrial engineers. The Foundry's
production capacity at any time shall take into account production of Risk
Wafers, Test Wafers, and Proven Products. The determination of Calculated
Installed Capacity may be adjusted from time to time based on the skills,
training and other organizational abilities of the Company. Since the number of
Wafers that can be produced at the Foundry depends on the Wafer Specifications,
the Calculated Installed Capacity shall be calibrated in "Wafer Equivalents."
1.1.6 "COMPANY" means WaferTech, LLC.
1.1.7 "CLAIM" means a claim, demand, cause of action, loss,
damage, liability, fine, penalty, cost or expense (including reasonable
attorneys' fees and litigation costs).
1.1.8 "COMMENCEMENT OF PRODUCTION" means the date upon which
the Foundry is deemed to have commenced manufacturing operations, which date
shall be the date, as certified in writing by TSMC to the Buyers, that TSMC
determines, in the exercise of its reasonable judgment, that one or more
Products have attained the status of a Proven Product.
1.1.9 "COMMENCEMENT OF PURCHASE RIGHTS" means the later of (a)
the Commencement of Production or (b) the date on which the Company achieves the
capability of producing Products at an aggregate yield rate of *** Wafer
Equivalents per month for a period of thirty (30) consecutive days, as
determined by TSMC in the exercise of its reasonable judgment, or if there is an
objection from one or more Buyers, as such date is fixed by the Company's board
of directors.
1.1.10 "DESIGN RULES" means the design rules and parametric
information for a particular Process.
1.1.11 "DEVICES" means good dies of a Buyer's integrated
circuits that are topologically identical (or similar) to those manufactured by
or for a Buyer.
1.1.12 "EFFECTIVE DATE" means June 25, 1996.
1.1.13 "EVENT OF DEFAULT" has the meaning given in Section
14.1.
4
PURCHASE AGREEMENT
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Commission by Altera Corporation on
August 14, 1996. The omitted portions have been filed separately with the
Commission.
<PAGE> 11
1.1.14 "FORCE MAJEURE" means any one or more of the following
to the extent outside of the reasonable control of a Party: acts of war declared
or undeclared, nationalization, expropriation, civil unrest or other public
disturbance, fire, storm, flood, typhoon, tidal wave, hurricane, cyclone or
other severe weather conditions, earthquake, or other Acts of God, legal
restraints, governmental or like interference, judicial action, accidental
damage to equipment, inability of the Foundry to deliver Proven Products to TSMC
under the Manufacturing Agreement due to a Force Majeure event defined in the
Manufacturing Agreement, as well as any other cause outside the reasonable
control of a Party. "Force Majeure" also includes the failure to obtain such
license(s) and other governmental approvals as are required by United States law
or other applicable law for any equipment, technical information, Proprietary
Information, Intellectual Property Rights, Processes, or Products to be provided
pursuant to the terms of this Agreement.
1.1.15 "INTELLECTUAL PROPERTY RIGHTS" means (a) all patent
rights and all right, title and interest in and to all letters patent and
applications for letters patent, and all other government-issued or -granted
indicia of invention ownership, including any reissue, division, term
extensions, continuation or continuation-in-part applications; (b) all
copyrights and all other literary property and author rights, and all right,
title and interest in and to all copyrights, copyright registrations,
certificates of copyrights and copyrighted interests; (c) all trademarks, trade
names and service marks, and all rights, title and interest in and to all
applications, certifications and registrations therefor; (d) all mask work
rights, mask work applications, and mask work registrations; (e) all rights,
title and interest in and to all trade secrets and trade secret rights; and (f)
all licenses or license rights with respect to the foregoing.
1.1.16 "MAXIMUM PURCHASE SHARE" of a Buyer at a given time
means, the product of (i) 1.5 times (ii) the Buyer's Basic Purchase Share at
such time. On the Effective Date, ADI's Maximum Purchase Share is 0.27, Altera's
Maximum Purchase Share is 0.27, and ISSI's Maximum Purchase Share is 0.06.
1.1.17 "MEDIATION" has the meaning given in section 17.2.
1.1.18 "MINIMUM PURCHASE SHARE" of a Buyer at a given time
means the product of (i) 0.85 times (ii) the Buyer's Basic Purchase Share at
such time. On the Effective Date, ADI's Minimum Purchase Share is 0.153,
Altera's Minimum Purchase Share is 0.153, and ISSI's Minimum Purchase Share is
0.034.
1.1.19 "MONTH" means (a) a calendar month that lies entirely
within the Purchase Period, or (b) in the case of a calendar month that lies
partially within the Purchase Period, the part of that month that so lies.
1.1.20 "OBLIGATION PERIOD" means, with respect to each Buyer,
the period (a) commencing on either (i) the Commencement of Purchase Rights, or,
(ii) if later, the date on which the Foundry first achieves Process
Qualification for a Process and Production Qualification for a Product of use to
the Buyer, provided the Buyer designates a Process for Process Qualification and
a Product for Production Qualification on or before Commencement of Production,
such Product to be substantially the same as one already being purchased by the
Buyer from another foundry of TSMC or of an Affiliate of TSMC at the time of
designation, and (b) ending on the termination or expiration hereof.
5
PURCHASE AGREEMENT
<PAGE> 12
1.1.21 "PERCENTAGE INTEREST" has the meaning given in
Subsection 1.1.51 of the LLC Agreement.
1.1.22 "PERSON" means a natural person, partnership (whether
general or limited), limited liability company, trust, estate, association,
corporation, custodian, nominee or any other individual or entity in its own or
any representative capacity, in each case whether domestic or foreign.
1.1.23 "PRICING SCHEDULE" means the prices at which TSMC shall
sell Proven Products, Test Wafers, and Risk Wafers to Buyers in accordance
herewith. The initial Pricing Schedule will be established in accordance with
Subsection 6.2.3(a) and shall be updated as provided in Subsections 6.2.3(b) and
6.2.3(c). Each such Pricing Schedule will be deemed to be attached hereto as
Exhibit "A".
1.1.24 "PROCESS" means the process used to manufacture
Products, or have Products manufactured, which may either be a Buyer's process,
TSMC's process, or the Company's process, including those processes that are
disclosed to the Company under (a) the Technology License and Assistance
Agreement, dated February 20, 1996, originally entered into between TSMC
Development and TSMC Technology, Inc. and assigned by TSMC Development to the
Company pursuant to the Assignment and Assumption dated as of the date hereof
and (b) the Advanced Process License Agreement, dated April 10, 1996, originally
entered into between TSMC Development and TSMC International Investment Ltd. and
assigned by TSMC Development to the Company pursuant to the Assignment and
Assumption.
1.1.25 "PROCESS QUALIFICATION" means the process flow, Design
Rules and SPICE models established by TSMC or the Company (as the case may be)
which, in the reasonable judgment of TSMC or the Company define a Process that
will achieve a level of quality, consistency and reliability necessary to mass
produce Products at Wafer yields acceptable to TSMC and the Company.
1.1.26 "PRODUCT QUALIFICATION PLAN" is that certain plan for
producing a Product with a Buyer's mask sets using a Qualified Process, which
will be agreed to by TSMC and the Buyer who decides to order the Product in
question, acting in conjunction with the Company, reduced to writing and signed
by TSMC, the ordering Buyer and the Company, and shall be deemed to be attached
hereto as Exhibit "B".
1.1.27 "PRODUCTION QUALIFICATION" has the meaning given in
Subsection 4.2.4.
1.1.28 "PRODUCTION RAMP-UP PLAN" means that certain ramp-up
schedule prepared by TSMC in conjunction with the Company, which delineates the
projected production of the Foundry expressed in Wafer Equivalents by Month and
calendar year within the schedule. The initial Production Ramp-up Plan is
attached hereto as Exhibit "E". In March and September of each calendar year
during the Purchase Period (or more frequently at the option of TSMC), TSMC
shall issue to Buyers a projection, consistent with the Business Plan of the
Calculated Installed Capacity of the Foundry for each Month of the next six-
(6-) Month period from July to December (in the case of a projection issued in
March) or from January to June (in the case of a projection issued in
September). With the exception of the Calculated Installed Capacity calculation,
the ramp-up figures contained in the Production Ramp-Up Plan, expressed in Wafer
Equivalents per Month, shall not vary from the ramp-up plan set forth in the
Business Plan (as such term is defined in Subsection 1.1.11 of the LLC
6
PURCHASE AGREEMENT
<PAGE> 13
Agreement), as the Business Plan may be amended from time to time in accordance
with the LLC Agreement.
1.1.29 "PRODUCTS" means Devices, Wafers and Units, as the case
may be.
1.1.30 "PROPRIETARY INFORMATION" means any information that is
controlled by a Party and is identified as proprietary and confidential and that
is disclosed by one Party to another under this Agreement. Written Proprietary
Information shall be clearly marked or labeled "PROPRIETARY" or "CONFIDENTIAL."
All oral disclosures of Proprietary Information shall be identified as such
prior to disclosure and confirmed, in writing, by the disclosing Party within
thirty (30) days of the oral disclosure.
1.1.31 "PROVEN PRODUCT" means a Product manufactured using a
Qualified Process that has verified functionality and yield and otherwise meets,
and continues to meet, the Product Qualification Plan as demonstrated in one or
more Qual Lot Runs.
1.1.32 "PURCHASE ORDER" means an order or other release
document issued by a Buyer to TSMC in accordance herewith for the purpose of
purchasing Proven Products, Risk Wafers or Test Wafers.
1.1.33 "PURCHASE PERIOD" means that period of time beginning
with the Commencement of Purchase Rights and ending with the termination or
expiration of this Agreement.
1.1.34 "QUAL LOT RUN" means manufacture of one or more Wafer
lots using a Qualified Process to verify a Buyer's mask sets.
1.1.35 "QUALIFIED PROCESS" means a Process that has achieved
Process Qualification in the reasonable judgment of TSMC.
1.1.36 "QUALITY AND RELIABILITY SPECIFICATIONS" means the
quality and reliability specifications, as well as other standards or
requirements, that the Parties deem necessary, as agreed to by TSMC and those
Buyers who intend to order a Proven Product. Once the Quality and Reliability
Specifications have been agreed to with respect to each Proven Product, they
shall be reduced to writing and signed by TSMC and such Buyers, and shall
constitute the acceptance standards to be used by a Buyer for Proven Products,
and shall be deemed to be attached hereto as Exhibit "C".
1.1.37 "QUARTER" means (a) a calendar quarter that lies
entirely within the Purchase Period, or (b) in the case of a calendar quarter
that lies partially within the Purchase Period, the part of that quarter that so
lies.
1.1.38 "RISK WAFER" means a Wafer containing a non-Proven
Product and which has been run on either a Qualified Process or on a Process
that is not-yet qualified. Except as otherwise expressly provided herein with
respect to manufacturing defects (including, by way of illustration but without
limitation, Section 5.16), the Buyer takes full technical and financial
responsibility for, and assumes all risks related to design and other defects in
a Risk Wafer.
1.1.39 "TERM" means the term of this Agreement in accordance
with the provisions of Article 2 below.
7
PURCHASE AGREEMENT
<PAGE> 14
1.1.40 "TEST WAFER" means a Wafer that has been produced in a
Qual Lot Run.
1.1.41 "UNIT" means a Device which has been packaged and
marked in accordance with the requirements provided by a Buyer and accepted by
TSMC and the Company.
1.1.42 "WAFER ACCEPTANCE CRITERIA" have the meaning given in
Section 5.13.
1.1.43 "WAFER" means an eight inch (8") diameter silicon wafer
containing integrated circuits.
1.1.44 "WAFER EQUIVALENT" has the meaning set forth in the
equivalency factor table attached hereto as Exhibit "D".
1.2 RULES OF INTERPRETATION. For the purpose of this Agreement:
1.2.1 Unless the context otherwise requires, (a) "or" is not
exclusive (i.e., it means either or both); (b) words in the singular include the
plural and vice versa; (c) words in the masculine gender include the feminine
and neuter gender and vice versa; (d) words such as "herein," "hereinafter,"
"hereto," "hereby," and "hereunder," when used in this Agreement, refer to this
Agreement as a whole, unless the context otherwise requires; and (e) forms of
the verb "include" are not limiting.
1.2.2 References to Articles and Sections are to Articles and
Sections of this Agreement unless stated otherwise. Article and Section headings
used in this Agreement are for convenience of reference only and shall not be
used in construing or interpreting this Agreement.
1.2.3 References herein to any agreement, schedule or other
instrument shall, unless the context otherwise requires (or the definition
thereof otherwise specifies), be deemed references to the same as it may from
time to time be amended, modified or extended.
1.2.4 Technical words and phrases not otherwise defined in
this Agreement shall have the meaning generally assigned to them in the
semiconductor foundry industry.
ARTICLE 2
TERM
2.1 TERM. Unless sooner terminated pursuant to Section 2.3 or other
early termination provisions hereof or unless extended pursuant to Section 2.2,
this Agreement shall be effective upon the Effective Date and shall continue in
effect through the close of business on the calendar day immediately preceding
the third anniversary of the Commencement of Production.
2.2 AUTOMATIC EXTENSION.
2.2.1 If Calculated Installed Capacity does not equal or
exceed thirty thousand (30,000) Wafer Equivalents per month by December 31,
2000, as determined by the Company in the exercise of its reasonable judgment,
then this Agreement shall be extended automatically for an additional one year
period, terminating upon the close of business on the calendar day immediately
preceding the fourth anniversary of the Commencement of Production.
8
PURCHASE AGREEMENT
<PAGE> 15
2.2.2 If TSMC desires to exercise its optional extension
rights under the Manufacturing Agreement, it shall notify the Buyers in writing
of this fact at least sixty (60) days prior to the date that TSMC intends to do
so. Each Buyer shall have thirty (30) days from the date it is deemed to have
received such notice under Section 18.3 to notify TSMC in writing whether each
Buyer desires to continue to purchase Proven Products, Risk Wafers and Test
Wafers under this Agreement during the option extension period or whether each
Buyer declines to do so. If any one of the Buyers notifies TSMC that it declines
to continue purchasing Proven Products, Risk Wafers and Test Wafers under this
Agreement, then TSMC will not exercise the applicable extension option under the
Manufacturing Agreement. Failure of a Buyer to respond to TSMC in writing within
said thirty (30) day period shall constitute such Buyer's consent to continue
purchasing Proven Products, Risk Wafers and Test Wafers under this Agreement for
the extension period in question. If all Buyers either notify TSMC that they
desire to continue purchasing Proven Products, Risk Wafers and Test Wafers as
aforesaid, or are deemed to have consented to do so, then TSMC shall exercise
its optional extension rights under the Manufacturing Agreement, and this
Agreement shall be extended for a period equal to the extended term of the
Manufacturing Agreement. TSMC shall give Buyers written notice of TSMC's
exercise of its optional extension rights under the Manufacturing Agreement
within ten (10) days following the date that it has exercised such extension
rights, which notice shall specify the termination date of this Agreement, as so
extended.
2.2.3 Upon automatic extension of this Agreement under either
Subsection 2.2.1 or 2.2.2, all terms and conditions of this Agreement shall
continue in full force and effect.
2.3 TERMINATION OF MANUFACTURING AGREEMENT. This Agreement shall
terminate automatically upon termination of the Manufacturing Agreement by lapse
of time or otherwise.
ARTICLE 3
WAFER SUPPLY; FOUNDRY OUTPUT RIGHTS AND OBLIGATIONS
3.1 FACILITIES.
3.1.1 TSMC shall promptly notify Buyers in writing of the date
upon which the Foundry has achieved Commencement of Production.
3.1.2 TSMC shall notify Buyers in writing at least sixty (60)
days in advance of the date on which TSMC expects the Foundry to achieve
Commencement of Purchase Rights and shall keep Buyers apprised of any expected
delay in such achievement.
3.2 MANUFACTURING CAPABILITY. During the Purchase Period, the
Calculated Installed Capacity of the Foundry is anticipated to increase as shown
in the initial Production Ramp-Up Plan attached hereto as Exhibit "E". TSMC
shall exert commercially reasonable efforts to cause the Company to ramp
production in accordance with the schedule set forth on Exhibit "E" (as Exhibit
"E" is updated from time to time); provided, however, there is no guarantee that
actual Foundry production will achieve the projected production levels or the
Calculated Installed Capacity set forth in the initial or any subsequent
Production Ramp-Up Plans, either at the time indicated therein or at any time.
3.3 PRODUCTION AVAILABILITY.
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PURCHASE AGREEMENT
<PAGE> 16
3.3.1 During the Obligation Period applicable to each Buyer,
TSMC shall have an obligation to make available to each Buyer a quantity of
Products ranging between its Minimum Purchase Share and its Maximum Purchase
Share of Calculated Installed Capacity.
3.3.2 During the Obligation Period applicable to each Buyer,
each Buyer shall have the right to purchase Products in amounts up to its
Maximum Purchase Share of Calculated Installed Capacity in accordance with
Subsection 3.4.1, and each Buyer shall be obligated to purchase only its Minimum
Purchase Share of Calculated Installed Capacity in accordance with Subsection
3.4.2.
3.3.3 In the event that TSMC cannot provide each Buyer with
the quantity of Products set forth in a Buyer's Purchase Orders accepted by TSMC
for any given Quarter during the Obligation Period (a "Quarterly Order Deficit")
due to inability or failure of the Company to deliver to TSMC those Products
that TSMC has ordered from the Company or due to Force Majeure, then the
following shall apply: (a) where the Company has been unable or fails to supply
TSMC for reasons other than Force Majeure, TSMC shall not be deemed to be in
default hereunder so long as TSMC can make up the Quarterly Order Deficit in the
following Quarter from Products supplied by the Company; and (b) where TSMC's
failure to fill the Buyer's Purchase Orders is due to Force Majeure, the
affected Buyer shall be excused from its purchase obligations to the extent that
the Buyer placed orders for Products in amounts equal to or greater than the
units of Products that TSMC is able to deliver for the Quarter in question, and
TSMC shall only invoice the Buyer for the actual number of units TSMC is able to
ship for the Quarter in question. With respect to clause (a) of this Subsection
3.3.3, to the extent that TSMC is unable to make up the Buyer's Quarterly Order
Deficit in the succeeding Quarter, TSMC shall be responsible for any damages
sustained by such Buyer, subject to the limitation on damages set forth in
Article 10 below. With respect to clause (b) of this Subsection 3.3.3, TSMC
shall have no liability or obligation whatsoever to an affected Buyer where
TSMC's inability to fill a Buyer's Purchase Order is due to an event of Force
Majeure.
3.3.4 As used in this Article 3, "Quarter" refers to a Quarter
covered (or partially covered) by each Buyer's six (6) Month forecast described
in Section 4.1.2 or 4.1.3.
3.4 ADI'S, ALTERA'S AND ISSI'S MAXIMUM AND MINIMUM PURCHASE RIGHTS AND
OBLIGATIONS.
3.4.1 During the Obligation Period applicable to each Buyer,
such Buyer shall have the right to purchase a maximum percentage of Calculated
Installed Capacity in any given Quarter determined by multiplying such
Calculated Installed Capacity as shown in the applicable Production Ramp-Up Plan
times each Buyer's respective Maximum Purchase Share; and
3.4.2 During the Obligation Period applicable to each Buyer,
such Buyer shall have the obligation to purchase a minimum percentage of
Calculated Installed Capacity in any given Quarter determined by multiplying
such Calculated Installed Capacity as shown in the applicable Production Ramp-Up
Plan times each Buyer's respective Minimum Purchase Share. In each Quarter,
unless the applicable Buyer and TSMC otherwise agree, a Buyer's minimum purchase
obligation is subject to the following limitation: a Buyer's minimum purchase
obligation in any given Month may not deviate more than *** from the
preceding Month's purchase obligation, unless Month-to-Month percentage
deviations shown in the applicable Production Ramp-Up Plan exceed ***, in which
case a Buyer's minimum purchase obligation in any given Month may not deviate
more than the Month-to-Month percentage deviation shown in the applicable
Production Ramp-Up Plan. If a Buyer requests an
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PURCHASE AGREEMENT
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Commission by Altera Corporation on August 14, 1996.
The omitted portions have been filed separately with the Commission.
<PAGE> 17
increase in the Month-to-Month *** percentage deviation, TSMC agrees to
reasonably negotiate such increase with such Buyer in good faith, provided,
however, that each Buyer recognizes that TSMC's flexibility in negotiating an
increase in the Month-to-Month *** percentage deviation may be limited by
commitments to other Buyers and TSMC's other customers.
3.4.3 A Buyer's purchase of Risk Wafers, Test Wafers, and
Proven Products shall be taken into account for purposes of (a) the Buyer's
satisfying its minimum purchase obligation under Subsection 3.4.2 and (b) TSMC's
satisfying the Buyer's maximum purchase right under Subsection 3.4.1.
3.5 TAKE-OR-PAY OBLIGATION FOR UNUSED MINIMUM PURCHASE SHARE.
3.5.1 During each Quarter of the Obligation Period applicable
to each Buyer, such Buyer agrees that it shall purchase Products from TSMC in
accordance with Subsection 3.4.2. If in any Quarter during its Obligation Period
a Buyer (a "Defaulting Buyer") is unable to purchase the Products in accordance
with Subsection 3.4.2 (the "Unused Minimum Purchase Allocation"), such
Defaulting Buyer shall give TSMC and all other Buyers written notice (a "UMPA
Notice") no later than ninety (90) days before the date that the Products in
question are to begin manufacture in accordance with the Defaulting Buyer's six
(6) Month rolling forecast. TSMC and the other Buyers (collectively, the
"Non-Defaulting Parties") shall each have a right of first refusal to take the
Unused Minimum Purchase Allocation, provided they exercise such right by written
notice to the Defaulting Buyer and the other Non-Defaulting Parties within
thirty (30) days following receipt of the Defaulting Buyer's written notice (the
"RFR Deadline"). The apportionment of the Unused Minimum Purchase Allocation
among the Non-Defaulting Parties electing to take any part of it shall be
determined by the method set forth in Exhibit "K" hereto, unless the
Non-Defaulting Parties agree to another procedure at the time. If the
Non-Defaulting Parties exercise their rights of first refusal, then the
Defaulting Buyer shall be excused from any Bill-Back Charges (as defined below)
applicable to that portion of the Unused Minimum Purchase Allocation that the
Non-Defaulting Parties elect to take; subject, however, to the last sentence of
this Subsection 3.5.1. If the Non-Defaulting Parties elect not to take (or fail
timely to elect) any part of the Unused Minimum Purchase Allocation, then the
Defaulting Buyer shall have no later than sixty (60) days following delivery of
its UMPA Notice to identify in writing third parties ready, willing and able to
purchase from TSMC the unelected part of the Unused Minimum Purchase Allocation.
So long as (a) TSMC approves such third parties or any other third parties
(collectively, "Such Third Parties"), which approval shall not be unreasonably
withheld or delayed (provided, that in no event shall Such Third Parties be
"Prohibited Persons", as that term is defined in the LLC Agreement), (b) Such
Third Parties purchase all of the unelected part of the Unused Minimum Purchase
Allocation within sixty (60) days after the date that the Defaulting Buyer
identifies Such Third Parties to TSMC in writing, and (c) Such Third Parties pay
the invoice price in full to TSMC within thirty-five (35) days after the date of
invoice, then the Defaulting Buyer shall be exonerated from any Bill-Back
Charges applicable to the Unused Minimum Purchase Allocation. A Buyer's
take-or-pay obligation shall be measured on a Quarter- by-Quarter basis;
accordingly, for a Defaulting Buyer to avoid Bill-Back Charges applicable to a
particular Quarter's Unused Minimum Purchase Allocation, either the
Non-Defaulting Parties or Such Third Parties must have committed to purchase the
Defaulting Buyer's Unused Minimum Purchase Allocation during the Quarter in
which the Defaulting Buyer is unable to purchase Products in accordance with
Subsection 3.4.2.
3.5.2 If any part of the Unused Minimum Purchase Allocation
(a) is not taken by the Non-Defaulting Parties in accordance with Subsection
3.5.1 and (b) (i) is not sold to third parties or (ii)
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PURCHASE AGREEMENT
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Commission by Altera Corporation on August 14, 1996.
The omitted portions have been filed separately with the Commission.
<PAGE> 18
is not paid for by purchasing third parties in accordance with that Subsection,
then the Defaulting Buyer shall compensate TSMC for such part of the Unused
Minimum Purchase Allocation at the full price for the Products in question, less
any avoided costs (the "Bill-Back Charge"). TSMC shall invoice any Bill-Back
Charges once each Quarter during the Purchase Period, and within 30 days
following the end of the Purchase Period by lapse of time or otherwise. Any
Defaulting Buyer shall pay the Bill-Back Charge within thirty (30) days after
the date of invoice (the "Payment Date"). Any Bill-Back Charge not received by
TSMC within thirty-five (35) days after the date of invoice shall bear interest
from the Payment Date until paid in full by the Defaulting Buyer to TSMC at the
annual rate equal to 5% above the prime or reference rate for commercial
borrowing announced by Bank of America N.T.& S.A., as such rate changes from
time-to-time; provided, however, that in no event shall such interest rate
exceed the highest rate permissible under applicable law. For the purpose of
computing the Bill- Back Charge, the maximum Calculated Installed Capacity shall
not be deemed to exceed *** Wafer Equivalents per month. The damage
limitation excluding lost profits set forth in Section 10.1 shall in no way be
deemed to limit or qualify the calculation of the Bill-Back Charge or a Buyer's
liability therefor.
3.5.3 The provisions of Sections 3.5.1 and 3.5.2 shall be
TSMC's sole remedy under this Agreement for any failure by the Buyers to
purchase their respective minimum quantities of Calculated Installed Capacity in
any Quarter as set forth in Subsection 3.4.2.
ARTICLE 4
PRODUCTION PLANNING AND QUALIFICATION
4.1 FORECASTS.
4.1.1 On or before April 1, 1998, Buyers shall deliver to TSMC
their initial forecasts of Buyers' anticipated purchases of Products during the
first six (6) Months following the Commencement of Purchase Rights. The Parties
recognize that these initial forecasts are provisional in nature because no
Process has achieved Process Qualification. Such initial forecasts shall be
deemed to be attached hereto as Exhibit "F."
4.1.2 Each Buyer shall, at the time of TSMC's notice of
Commencement of Purchase Rights, provide TSMC with a six (6) Month purchase
forecast according to the Foundry's projected output by Month set forth in the
initial Production Ramp-Up Plan, with Product-mix shown by Process and by
geometry. The first fourteen (14) weeks of such forecast shall be firm with
respect to the quantity of the Proven Products to be purchased or ordered within
said period.
4.1.3 Each Month during the Purchase Period, Buyers shall
provide TSMC in writing with a six (6) Month rolling forecast of the respective
Buyers' requirements for Products, with Product-mix shown by Process and by
geometry. The first fourteen (14) weeks of such forecast shall be firm with
respect to the quantity of Products to be purchased or ordered within said
period. If the Company's standard production lead time for a particular Process
or Product exceeds twelve (12) weeks, the Buyers' forecast with respect to such
Process or Product shall be firm for the Company's standard production lead time
plus two weeks. Unless the applicable Buyer and TSMC otherwise agree, the linear
rate deviation for each Buyer's forecast for a given Month shall be *** of
the preceding Month's forecast, unless Month-to-Month percentage deviations
shown in the applicable Production Ramp-Up Plan exceed ***, in which case a
Buyer's monthly forecast may not deviate more than the Month-to-Month percentage
deviation shown in the applicable Production Ramp-Up Plan.
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PURCHASE AGREEMENT
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Commission by Altera Corporation on August 14, 1996.
The omitted portions have been filed separately with the Commission.
<PAGE> 19
The foregoing linear rate deviation applicable to Buyer's monthly forecast
relates to the overall quantity of Products set forth in the forecast and not to
any one Process or to any specific Product. If a Buyer requests an increase in
the Month-to-Month *** percentage deviation, TSMC agrees to reasonably negotiate
such increase with such Buyer in good faith, provided, however, that each Buyer
recognizes that TSMC's flexibility in negotiating an increase in the
Month-to-Month *** percentage deviation may be limited by commitments to other
Buyers and TSMC's other customers.
4.2 PRODUCTION QUALIFICATION.
4.2.1 TSMC shall advise the Buyers concerning each Process to
be loaded at the Foundry for use in the manufacture of Products. TSMC then shall
cause the Company to engage in Process Qualification. Once TSMC has determined,
in its reasonable judgement, that a Process has achieved Process Qualification,
such Process shall be a Qualified Process. TSMC shall promptly notify the Buyers
when a Process becomes a Qualified Process.
4.2.2 For each Product a Buyer desires to order, TSMC shall
cause the Company to furnish Design Rules for the applicable Process, which
shall be deemed attached hereto as Exhibit "G". For each Product a Buyer desires
to order, TSMC and the Buyer who intends to order the Product in question (the
"Relevant Buyer") shall further agree, in conjunction with the Company, to a
Product Qualification Plan. Once TSMC and the Relevant Buyer have agreed, in
conjunction with the Company, to a Product Qualification Plan, it shall be
reduced to writing and signed by TSMC, the Relevant Buyer and the Company and
shall be deemed to be attached hereto as Exhibit "B". TSMC and the Relevant
Buyer also shall agree, in conjunction with the Company, to the Quality and
Reliability Specifications, which shall be reduced to writing and signed by
TSMC, the Relevant Buyer and the Company and shall be deemed to be attached
hereto as Exhibit "C".
4.2.3 Upon a Buyer's request, TSMC will cause the Company to
designate a mask vendor, to whom a Buyer shall provide device database tapes and
to whom TSMC shall cause the Company to provide mask alignment and test
structure databases, or the Buyer will provide mask sets or portions thereof.
Buyer shall bear all costs and expenses of producing the mask sets necessary for
the manufacture of Products under this Agreement.
4.2.4 Using a Buyer's mask sets and the Design Rules, TSMC
shall cause the Company to perform one or more Qual Lot Runs. TSMC will provide
each Buyer with such amount of Test Wafers produced in such Qual Lot Runs as
such Buyer may require for its qualification at the purchase prices specified in
the Pricing Schedule. Within ninety (90) days following receipt of the Test
Wafers, each Buyer shall inform TSMC in writing of whether or not such Test
Wafers meet the applicable Quality and Reliability Specifications, and if
notification is in the affirmative, full qualification for that Product is
completed. If TSMC does not receive notification from the Buyers during the time
period specified in the preceding sentence, full qualification for that Product
shall be deemed accomplished. In the event that the Test Wafers do not meet the
Quality and Reliability Specifications, TSMC and the Relevant Buyers will work
together in good faith to achieve full qualification for that Product. The
successful completion of the procedures outlined in Subsections 4.2.1 through
4.2.4, inclusive, is herein referred to as "Production Qualification".
4.2.5 Prior to the completion of full Production Qualification
for each Product, each Buyer may, by giving at least seven (7) Business Days
notice to TSMC, terminate the production of any Test Wafers specified in
Subsection 4.2.4 or Risk Wafers, and TSMC will cause the Company to do so
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PURCHASE AGREEMENT
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Commission by Altera Corporation on August 14, 1996.
The omitted portions have been filed separately with the Commission.
<PAGE> 20
following the completion of the Process steps at which such Test Wafers or Risk
Wafers reside at the time TSMC receives such notice. The terminating Buyer shall
pay TSMC for all the Test Wafers or Risk Wafers so affected, and the prices for
such Test Wafers or Risk Wafers shall be the respective purchase prices
specified in the Pricing Schedule, equitably prorated based on the completed
stage of production.
4.2.6 Once Production Qualification has been achieved for a
Product, such Product is a Proven Product, and TSMC will proceed to cause the
Company to produce that Proven Product pursuant to Purchase Orders issued by
Buyers and accepted by TSMC under Section 6.1 below.
ARTICLE 5
OTHER AGREEMENTS RELATING TO PRODUCTION AND SUPPLY
5.1 QUANTITY REQUIREMENT. Subject to the Buyers' Maximum Purchase
Shares, TSMC agrees to use commercially reasonable efforts to cause the Company
to meet all the quantity requirements of the Buyers for Products.
5.2 ACCELERATE SUPPLY. It is anticipated that from time to time there
may be instances where an accelerated lead and cycle time is required to serve
the needs of a Buyer, and in such instances, TSMC shall, upon mutually agreed
upon terms and conditions, use commercially reasonable efforts to cause the
Company to accelerate the schedule of production for Proven Products or Risk
Wafers and/or increase the manufacturing volume in order to meet that Buyer's
needs.
5.3 MODIFICATIONS TO EXISTING PROCESSES OR SPECIFICATIONS. If a Buyer
desires that TSMC cause the Company to make modifications to a Qualified Process
or to the Quality and Reliability Specifications, such Buyer shall give TSMC
written notice thereof, and within a reasonable amount of time after TSMC's
receipt of Buyer's notice, TSMC shall confer with the Company and thereafter
notify the Buyer in writing of any additional costs associated with making such
modifications (including, without limitation, retooling costs), any adjustments
in price, production, delivery schedule, and any other terms and conditions of
this Agreement that are necessary to make such modifications (collectively, the
"Modification Costs"). Within thirty (30) days of its receipt of TSMC's written
notification of any such Modification Costs, such Buyer shall either agree in
writing to accept the obligation to pay TSMC or the Company (as the case may be)
any such Modification Costs or the Buyer may, in the exercise of its sole and
absolute discretion, withdraw its request that such modifications be made. TSMC
and the Company shall not incur any Modification Costs on behalf of a Buyer
unless and until TSMC has received Buyer's written agreement to pay the
Modification Costs. In addition to the foregoing requirement, any such requested
modifications must be acceptable to TSMC and the Company and further must pass
the Production Qualifications procedures set forth in Section 4.2. If a
requested modification is unacceptable to TSMC or the Company, or if it fails to
pass the qualifications procedures set out in Section 4.2, then TSMC will
instruct the Company to continue to manufacture the Proven Product in question
in accordance with the existing Qualified Process and/or the existing Quality
and Reliability Specifications, in which event the notifying Buyer shall be
obligated to continue to purchase such Proven Product as so manufactured. Once a
Buyer has agreed to pay Modification Costs, such Buyer shall pay to TSMC or to
the Company (as the case may be) all such Modification Costs within thirty (30)
days of TSMC's invoice therefor. If TSMC or the Company (as the case may be)
does not receive full payment of Modification Costs within thirty-five (35) days
after the date of invoice, the invoice price shall bear interest from the date
of invoice until paid in full at the
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PURCHASE AGREEMENT
<PAGE> 21
annual rate equal to 5% above the prime or reference rate for commercial
borrowing announced by Bank of America N.T.& S.A., as such rate changes from
time-to-time; provided, however, that in no event shall such interest rate
exceed the highest rate permissible under applicable law.
5.4 ADDITIONS OR SUBSTITUTIONS OF PRODUCTS. If a Buyer desires that
TSMC cause the Company to add or substitute a similar Product type using a
Qualified Process (i.e., one that has not been assigned a current product model
number) such Buyer shall give TSMC written notice thereof. Within a reasonable
amount of time after TSMC's receipt of a Buyer's notice, TSMC shall confer with
the Company and thereafter notify the Buyer in writing of any additional cost
associated with adding or substituting a similar Product type (the "Additional
Costs"). Within thirty (30) days of its receipt of TSMC's written notification
of Additional Costs, such Buyer shall either agree in writing to accept the
obligation to pay TSMC or the Company (as the case may be) all such Additional
Costs or the Buyer may, in the exercise of its sole and absolute discretion,
withdraw the request for such addition or substitution. TSMC and the Company
shall not incur any Additional Costs on behalf of the Buyer unless and until
TSMC has received Buyer's written agreement to pay the Additional Costs and TSMC
and the Buyer have agreed upon the purchase price for such similar Product type.
Thereafter, TSMC shall use commercially reasonable efforts to cause the Company
to produce such similar Product type as requested, subject to such similar
Product type achieving Production Qualification under the procedures set forth
in Section 4.2. Once a Buyer has agreed to pay Additional Costs, such Buyer
shall pay to TSMC or to the Company (as the case may be) all such Additional
Costs within thirty (30) days of TSMC's invoice therefor. If TSMC or the Company
(as the case may be) does not receive full payment of Additional Costs within
thirty-five (35) days after the date of invoice, the invoice price shall bear
interest from the date of invoice until paid in full at the annual rate equal to
5% above the prime or reference rate for commercial borrowing announced by Bank
of America N.T.& S.A., as such rate changes from time-to-time; provided,
however, that in no event shall such interest rate exceed the highest rate
permissible under applicable law.
5.5 VENDOR INFORMATION. Upon Buyer's written request, TSMC shall cause
the Company to provide Buyer with (a) Process control information, including but
not limited to: Process and electrical test yield results, current Process
specifications, calibration schedules and logs for equipment, environmental
monitor information for air, gasses and DI water, documentation or operator
qualification and training, documentation of traceability through the Company's
operation, Process verification information, and the Company's trouble reports
with respect to Process control information; and (b) a status of
work-in-process.
5.6 PROCESS RECORDS. TSMC shall cause the Company to maintain, for a
period of five (5) years from the date that any Qualified Process was performed
to produce Proven Products, accurate records describing in detail such Qualified
Process on a by-die-lot basis. TSMC shall cause the Company to give each Buyer
the right, at any time during the Company's normal business hours and upon
reasonable notice, to inspect and make copies of any of the Company's Qualified
Process records.
5.7 TRADEMARKS. With respect to trademarks, the Parties agree as
follows:
5.7.1 Except as authorized in Subsection 5.7.2, TSMC shall
not, at any time, in any place, or in any manner, utilize the trademarks of the
Buyers, nor any name or logo confusingly similar thereto, in connection with
TSMC's business activities, or in the manufacture, use, sale or other
disposition of Products, or in any other way whatsoever. TSMC shall exert
commercially reasonable efforts to cause the Company to comply with the
prohibitions set forth in this Subsection 5.7.1.
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PURCHASE AGREEMENT
<PAGE> 22
5.7.2 To the extent and only to the extent required by any
Buyer, such Buyer may give TSMC and the Company written authorization to
symbolize or otherwise mark Proven Products with the authorizing Buyer's
trademarks or other proprietary logos.
5.7.3 The Buyers shall not, at any time, in any place, or any
manner, utilize the trademarks of TSMC, its Affiliates, or the Company, or any
name or logo confusingly similar thereto, in connection with the Buyers'
business activities, or the use, sale or other disposition of Products, or in
any other way whatsoever.
5.8 MASK SET PROTECTION. TSMC shall cause the Company to protect all
mask sets, whether transferred from a Buyer or obtained by TSMC or the Company
from a mask vendor of a Buyer, as trade secrets of each Buyer in accordance with
the confidentiality provisions of (a) Article 15 hereof, and (b) any license or
confidentiality agreement entered into between TSMC and a Buyer or any Affiliate
thereof. Any masks generated by TSMC or the Company from Buyer's database tapes
shall be the property of Buyer. When any mask set is no longer usable by the
Company for the purposes hereof, or upon the termination or expiration hereof,
TSMC shall cause the Company either to immediately return such mask set to the
appropriate Party, or upon such Party's written instructions, to destroy such
mask set and provide such Party with written certification of such destruction.
The Parties understand that mask sets, if not used for a specified period of
time, will be handled in accordance with the Company's idle mask policy then in
effect. TSMC agrees, upon written request of a Buyer, to cause the Company to
disclose its idle mask policy to such Buyer.
5.9 RIGHTS TO INSPECT AND MONITOR PRODUCTION. TSMC shall cause the
Company to grant to each Buyer (a) the right to inspect and monitor production
at the Foundry, (b) the right to maintain one or more resident representatives
at the Foundry for the purpose of insuring compliance with the Quality and
Reliability Specifications applicable to Proven Products and otherwise aiding
the Buyer in exercising its rights under this Section, (c) the right to conduct
quality and yield audits of the Foundry, and (d) the right to perform monitoring
tests and to recommend disposition/corrective action, to the same extent, and
subject to the same terms and conditions, that TSMC enjoys such rights under the
Manufacturing Agreement with the Company. At the request of a Buyer, TSMC shall
provide such Buyer with a copy of those provisions of the Manufacturing
Agreement that confer such rights upon TSMC. Subject to a Buyer's end customer
signing a confidentiality agreement with the Company substantially in the form
of Exhibit "J," TSMC shall cause the Company to grant to each Buyer's end
customers the right to inspect the Foundry, to conduct quality audits of the
Foundry, and to review Design Rules at the Foundry.
5.10 OBTAIN GRANT OF NON-EXCLUSIVE MANUFACTURING RIGHTS. To the extent
that the proposed manufacture of any Products ordered by the Buyers hereunder
requires, in the reasonable judgment of TSMC and/or the Company, the grant of
non-exclusive Intellectual Property Rights (including, by way of illustration
but without limitation, a non-exclusive grant in mask work rights, copyrights,
patents, utility models or design rights and applications for any of the
foregoing) to avoid infringement resulting from manufacture or sale of such
Products, the Buyers agree to obtain and grant to TSMC and/or the Company
non-exclusive rights in such Intellectual Property Rights relating to ordered
Products, whether by way of non-exclusive license, sublicense, have-made rights
or otherwise, for the sole purpose of manufacturing such Products for sale to
the respective Buyers. Any such grant of non-exclusive Intellectual Property
Rights shall not confer the right on TSMC or the Company to grant rights to
others under any of the foregoing (unless expressly provided for in the granting
instrument). Notwithstanding the foregoing, a Buyer may decline to obtain a
license in such Intellectual
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Property Rights if the Buyer executes and delivers to TSMC a written
indemnification agreement substantially in the form of Exhibit "M" attached
hereto, whereby the Buyer agrees to indemnify, defend and hold TSMC and the
Company harmless from any Claims of infringement or misappropriation asserted by
holders of such Intellectual Property Rights. TSMC will neither deliver nor
cause the delivery of Proven Products, Test Wafers or Risk Wafers unless and
until the Buyers have (a) obtained and granted the necessary non-exclusive
Intellectual Property Rights to TSMC and/or the Company; or (b) executed and
delivered to TSMC such indemnity agreement. The provisions of this Section 5.10
shall not apply to any Process covered by the Company's indemnification
obligations assigned to Buyers under Subsection 11.1.1 below.
5.11 UNIQUE PROCESSES, METHODS OR MATERIALS. If a Buyer desires that
TSMC cause the Company to load a Process, method or materials at the Foundry
that is unique to a Buyer (i.e., one that (a) in the case of a Process, deviates
from a Qualified Process that is then in use at the Foundry, and (b) in the case
of a method and materials, deviates from methods and materials then in use or
production at the Foundry), such Buyer shall give TSMC written notice thereof.
If TSMC agrees to cause the Company to load a unique Process, method or
materials at the Foundry, then within a reasonable amount of time after TSMC's
receipt of Buyer's notice, TSMC shall confer with the Company and thereafter
notify the Buyer in writing of any additional costs associated with such unique
Process, method or materials, including, without limitation, purchase part and
work-in-process inventory, supplies, tooling, and any equipment that is specific
to such unique Process, method or materials (collectively, "Unique Costs").
Within thirty (30) days of its receipt of TSMC's written notification of Unique
Costs, such Buyer shall either agree in writing to accept the obligation to pay
TSMC or the Company (as the case may be) all such Unique Costs or the Buyer may,
in the exercise of its sole and absolute discretion, withdraw the request for
such unique Process, method or materials. TSMC and the Company shall not incur
any Unique Costs on behalf of a Buyer unless and until TSMC has received Buyer's
written agreement to pay such Unique Costs. Once a Buyer has agreed to pay
Unique Costs, such Buyer shall pay to TSMC or to the Company (as the case may
be) all such Unique Costs within thirty (30) days of TSMC's invoice therefor. If
TSMC or the Company (as the case may be) does not receive full payment of Unique
Costs within thirty-five (35) days after the date of invoice, the invoice price
shall bear interest from the date of invoice until paid in full at the annual
rate equal to 5% above the prime or reference rate for commercial borrowing
announced by Bank of America N.T.& S.A., as such rate changes from time-to-time;
provided, however, that in no event shall such interest rate exceed the highest
rate permissible under applicable law.
5.12 ADJUSTMENT IN CAPACITY RIGHTS AND OBLIGATIONS. Unless otherwise
agreed in writing by the Parties, any adjustment in the Buyers' Percentage
Interests which results in a change in their Adjusted Percentage Interests (as
defined in Subsection 1.1.3), shall not become effective for purposes of the
Buyers' Basic Purchase Shares until the thirteenth (13th) week after the date
upon which the adjustment in Percentage Interests occurs pursuant to the LLC
Agreement, and unless agreed otherwise by TSMC and each Buyer under a Purchase
Order, no such adjustment in Percentage Interests, when so effective, shall
operate to cancel, amend or otherwise affect any Purchase Orders accepted by
TSMC prior to the date that such adjustment in Percentage Interests is so
effective.
5.13 CERTAIN TERMS APPLICABLE TO TEST WAFERS. The provisions of Section
6.2 through 6.5, inclusive, and Article 7 respecting Proven Products shall be
equally applicable to Test Wafers. There is no product warranty under Article 9
for Test Wafers unless TSMC and the applicable Buyer agree to such warranty in
writing prior to shipment. If TSMC and the applicable Buyer do enter into such a
written product warranty, then Test Wafers covered by such warranty shall be
treated as Proven
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Products under the provisions of Article 9. Additionally, Test Wafers covered by
such written product warranty shall be treated as Proven Products under Article
8. If Test Wafers are not covered by a written product warranty, then TSMC shall
provide (or cause the Company to provide) the applicable Buyers with the
Company's Wafer acceptance test parameters and outgoing visual acceptance
criteria (such parameters and criteria, collectively, the "Wafer Acceptance
Criteria"). If on delivery of Test Wafers to such Buyer, the Test Wafers fail an
incoming test under the Wafer Acceptance Criteria, such Test Wafers shall be
deemed to be defective. Any such defective Test Wafers may be returned within
120 days of Buyer's receipt thereof to TSMC in care of the Foundry, F.O.B. the
Foundry, and if such defective Test Wafers are indeed defective and not caused
by Abuse and Misuse (as defined below), then TSMC shall, at its option, either
repair, replace or credit Buyer for such defective Test Wafers; and furthermore,
TSMC shall return any such Test Wafers repaired or replaced to the applicable
Buyer, transportation prepaid, and shall reimburse the Buyer for the
transportation charges paid by Buyer for returning such defective Test Wafers to
TSMC. Any dispute regarding whether Test Wafers fail an incoming test under the
applicable Wafer Acceptance Criteria or whether Test Wafers have been subjected
to Abuse and Misuse shall be resolved in accordance with Article 17.
5.14 SALES ENGINEERING SUPPORT. TSMC shall provide the Buyers with
sales engineering support in respect to all Purchase Orders placed hereunder in
the same manner and to the same extent as TSMC provides engineering sales
support in respect to Products manufactured at TSMC's existing
semiconductor-wafer fabrication plants. The cost of such sales engineering
support is included in the prices quoted in the Pricing Schedule. TSMC, at its
election, may provide such sales engineering support through any of its
Affiliates.
5.15 SUPPLEMENTAL WAFER SUPPLY ARRANGEMENTS. Under that certain
Technology License and Assistance Agreement (as that term is defined in the LLC
Agreement) and that certain Advanced Process License Agreement (as that term is
defined in the LLC Agreement), Affiliates of TSMC have agreed to provide the
Company with as-yet-to-be-developed process technologies no later than such
process technologies are reduced to practice and released into production at
other semiconductor-wafer fabrication plants owned by TSMC or its Affiliates. In
the event that any of these as-yet-to-be-developed process technologies are in
fact reduced to practice and released into production at any such other
semiconductor-wafer fabrication plants during the Purchase Period before being
loaded at the Foundry, and the Company notifies TSMC that it desires to load
such new process technologies at the Foundry, then any Buyer that intends to
have Wafers manufactured at the Foundry using such new process technologies may
place orders on TSMC until such new process technologies are loaded at the
Foundry for the purpose of having Risk Wafers or Test Wafers manufactured at
those other semiconductor-wafer fabrication plants owned by TSMC or its
Affiliates at which such new process technologies have been loaded. For any such
Buyers, TSMC shall provide the Design Rules for the new process technologies.
The terms and conditions of said sale of such Risk Wafers or Test Wafers
(including, without limitation, price, delivery, and the granting of
non-exclusive Intellectual Property Rights that relate to manufacture or sale of
Products produced using the new process technology), shall be documented by
separate purchase agreements or wafer supply agreements which shall be
negotiated in good faith by and between TSMC and those Buyers who desire to have
early access to new process technologies that are intended to be loaded at the
Foundry. Any such separate purchase or wafer supply agreements shall contain, as
a general proposition, terms and conditions customarily contained in TSMC's
standard purchase or wafer supply agreements.
5.15.2 A Buyer's purchase of Risk Wafers or Test Wafers
pursuant to Subsection 5.15.1 shall be taken into account for purposes of (a)
the Buyer's satisfying its minimum
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PURCHASE AGREEMENT
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purchase obligation under Subsection 3.4.2 and (b) TSMC's satisfying the Buyer's
maximum purchase right under Subsection 3.4.1.
5.16 CERTAIN TERMS APPLICABLE TO RISK WAFERS RUN ON A QUALIFIED
PROCESS. For any Risk Wafers run on a Qualified Process ("RWRQPs"), TSMC shall
provide (or cause the Company to provide) the applicable Buyers with the
Company's Wafer Acceptance Criteria (as that term is defined in Section 5.13).
If on delivery of RWRQPs to such Buyer, the RWRQPs fail an incoming test under
the Wafer Acceptance Criteria, such RWRQPs shall be deemed to be defective. Any
such defective RWRQPs may be returned within one hundred twenty (120) days of
Buyer's receipt thereof to TSMC in care of the Foundry, F.O.B. the Foundry, and
if such defective RWRQPs are indeed defective and not caused by Abuse and Misuse
(as defined below), then TSMC shall, at its option, either repair, replace or
credit Buyer for such defective RWRQPs; and furthermore, TSMC shall return any
such RWRQPs repaired or replaced to the applicable Buyer, transportation
prepaid, and shall reimburse the Buyer for the transportation charges paid by
Buyer for returning such defective RWRQPs to TSMC. Any dispute regarding whether
RWRQPs fail an incoming test under the applicable Wafer Acceptance Criteria or
whether RWRQPs have been subjected to Abuse and Misuse shall be resolved in
accordance with Article 17.
5.17 SALE OF RISK WAFERS. TSMC shall sell Risk Wafers if so requested
by a Buyer, subject to the negotiation of a mutually acceptable risk start
agreement.
ARTICLE 6
PURCHASES
6.1 PURCHASE ORDERS.
6.1.1 Subject to the provisions of Section 3.4 and 4.1, each
Buyer shall place Purchase Orders for such quantities of Products according to
the current Production Ramp-Up Plan. The Purchase Orders shall (a) be open
purchase orders for fixed quantities of Products; (b) constantly cover a
fourteen (14) week period (unless the Company's standard production lead time
for a particular Product exceeds thirteen (13) weeks, in which case Purchase
Orders for such Product shall constantly cover a period that is two weeks longer
than the Company's standard production lead time for the Product in question);
(c) be placed with TSMC no later than ninety (90) days prior to the shipment
date specified in such Purchase Order; (d) constitute firm purchase obligations
on the part of each Buyer, and (e) be final, subject only to acceptance by TSMC,
which acceptance shall not be unreasonably withheld or delayed. TSMC may accept
a Buyer's Purchase Order(s) either by written acknowledgement of the Purchase
Order(s) placed or by shipment of the Products ordered. On or before seven (7)
Business Days prior to the date that the Company commences production of Proven
Products ordered by a Buyer, such Buyer may substitute other Proven Products
that have a currently-assigned product model number for those actually ordered
without incurring any administrative cost therefor.
6.1.2 TSMC shall notify a Buyer of any anticipated problems in
filling a Purchase Order within twenty-five (25) days following its receipt. To
the extent that the terms of any Purchase Order or any TSMC corresponding
quotation, order acknowledgment, or invoice conflict herewith, this Agreement
shall be controlling unless TSMC and the Buyer placing the Purchase Order
expressly agree to the contrary. To the extent that the terms of any Purchase
Order conflict with the terms of TSMC's corresponding quotation, order
acknowledgment, or invoice (the so-called "battle of the forms"),
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PURCHASE AGREEMENT
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TSMC's quotation, order acknowledgement or invoice shall be controlling unless
TSMC and the Buyer placing the Purchase Order expressly agree to the contrary.
6.2 PRICE. TSMC shall sell Proven Products, Test Wafers and Risk Wafers
to Buyer in accordance with the Pricing Schedule in effect at the time of
shipment, subject to the following:
6.2.1 The prices quoted in each Pricing Schedule shall be firm
and valid until the Pricing Schedule is amended in accordance with Subsections
6.2.3(b) or 6.2.3(c).
6.2.2 The Prices quoted in the Pricing Schedule are in U.S.
currency and net of any and all taxes and duties, including but not limited to
customs duties, sales tax, value added tax, use tax, and excise tax. Each Buyer
shall be responsible for all applicable taxes (including one or more of the
above taxes), in addition to the prices quoted in the Pricing Schedule that
relate to a Buyer's order.
6.2.3 The initial pricing, quarterly pricing and annual
pricing shall be set as follows:
(a) During the first calendar quarter of 1998, the
initial Pricing Schedule shall be established as follows: For each
Process planned for initial loading at the Foundry, TSMC shall
calculate an average price for such Process in use at all of TSMC's and
its Affiliates' Taiwanese semiconductor-wafer manufacturing plants in
the previous calendar quarter, and such average price shall be the
"Market Price" for each such Process to be used to manufacture Products
at the Foundry. Using TSMC's standard procedures for translating
pricing of Processes into pricing for Products manufactured by means of
such Processes, TSMC shall calculate a price for each Product. If the
Parties agree upon the initial prices, such prices shall be reduced to
writing and signed by the Parties, and shall be deemed to be attached
hereto as Exhibit "A" as the initial Pricing Schedule. If any one or
more of the Buyers objects to the initial pricing, TSMC and such Buyers
shall attempt to negotiate the initial pricing in good faith. If no
agreement can be reached with respect to initial prices by April 30,
1998, the Parties shall submit pricing to binding arbitration under
Section 17.3 through 17.6, inclusive; subject to the further provisions
of Subsection 6.2.3(d).
(b) Within ten (10) Business Days after the beginning
of each Quarter, TSMC shall provide each Buyer in writing with its
determination of the Market Price (based on the prior calendar quarter)
for each Process used to manufacture Products included in the Buyer's
then-current rolling six (6) Month forecasts ("TSMC's Quarterly Pricing
Report"). If the Market Price (as set forth in TSMC's Quarterly Pricing
Report) for the Process to be used to manufacture a particular Product
deviates, up or down, by more than three percent (3%) from the price of
such Process used to calculate pricing for Products shown on the
Pricing Schedule, the price for the Process and for each Product in
question shall be revised accordingly, and such revised price shall be
reduced to writing and signed by the Parties, and shall be deemed to be
attached hereto as an addendum to Exhibit "A", which shall be the new
Pricing Schedule in respect to that Product. If any one or more of the
Buyers objects to any Market Price set by TSMC in TSMC's Quarterly
Pricing Report, (the "Objecting Buyers"), then the Objecting Buyers may
request an audit of TSMC's and its Affiliates' books and records
containing information necessary to confirm TSMC's calculation of such
Market Price for each Process and Product in question. The audit shall
be conducted by Price Waterhouse & Company or by another public
accounting firm nationally recognized in the United States of America
selected by the Objecting Buyers and reasonably acceptable to TSMC.
TSMC shall cooperate in the
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audit, cause its Affiliates' to do the same, and, if requested by the
auditors, shall request any subcontractor of TSMC or a TSMC Affiliate
to likewise cooperate. The Objecting Buyers shall pay the cost of the
audit unless the audit reveals a discrepancy of more than three percent
(3%) from the Market Price in the average price of any Process and the
related Product in question, which three percent (3%) discrepancy must
result in a higher Market Price quoted by TSMC than calculated by the
auditors based on their audit of TSMC's and its Affiliates' relevant
books and records. The auditor's calculations shall be based on TSMC's
standard procedures for translating pricing of Processes into pricing
for Products manufactured by such Processes. In the event of such three
percent (3%) discrepancy, TSMC shall pay the cost of the audit, the
price for the Process in question as established by the audit shall be
the new price for such Process, and the auditors shall calculate the
pricing for Products to be manufactured using such Process based upon
TSMC's standard procedures for translating pricing of Processes into
pricing for Products manufactured by such Processes. The new prices as
established by the auditors shall be reduced to writing and signed by
the Parties and shall be deemed to be attached hereto as an addendum to
Exhibit "A", which shall be the new Pricing Schedule in respect to the
Products in question. In no event shall there be more than two (2)
audits of TSMC's Quarterly Pricing Report figures in any calendar year.
(c) The Parties shall annually renegotiate the prices
for all Processes used to manufacture Products for each succeeding
calendar year, which annual price negotiation shall commence on or
about August 1 of the then-current year. In advance of the annual price
negotiation, TSMC shall provide each Buyer in writing with its
determination of the Market Price for each Qualified Process used to
manufacture Products included in the Buyer's then-current rolling six
(6) Month forecast. Once the Parties have agreed upon the renegotiated
prices for a succeeding year, such renegotiated prices shall be reduced
to writing and signed by the Parties, and shall be deemed to be
attached hereto as Exhibit "A" as the Pricing Schedule in effect at the
beginning of such year. If no agreement can be reached with respect to
renegotiating prices by September 30 of the then-current year, the
Parties shall submit pricing to binding arbitration under Section 17.3
through 17.6, inclusive; subject to the further provisions of
Subsection 6.2.3(d).
(d) With respect to binding arbitration conducted
pursuant to Subsection 6.2.3(a) and 6.2.3(c) above, in advance of the
hearing each Party shall submit to the arbitrator and exchange with the
other Parties their last best offers with respect to pricing. In
addition to the matters set forth in Section 17.3 through 17.6, the
arbitrator shall base his award on his determination of Market Price
(as defined in Subsection 6.2.3(a) above) for each Process to be used
for manufacture of Products hereunder, and on his determination of
price for each Product manufactured by means of such Process, based on
TSMC's standard procedures for translating pricing of Processes into
pricing for Products manufactured by such Processes. The highest price
submitted by any Party for a specific Product shall be the maximum
price that the arbitrator shall be empowered to award for that Product,
and the lowest price for a specific Product submitted by any Party
shall be the minimum price that the arbitrator shall be empowered to
award for that Product. For each Product, it is understood among the
Parties that if the arbitrator awards an amount between (and including)
the minimum and maximum prices submitted by the Parties for such
Product, then the exact award amount shall be the price set for that
Product in the applicable year. The prices as so set by the arbitrator
thereafter shall be subject to quarterly adjustment as described in
Subsection 6.2.3(b) above.
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(e) All pricing for Products calculated or published
pursuant to this Section 6.2 shall be expressed as a price per Wafer.
6.3 INVOICE. Upon shipment of any Proven Products, Test Wafers or Risk
Wafers, TSMC shall invoice the sale. Applicable taxes, freight, and insurance
paid by TSMC shall be separately stated on the invoice.
6.4 PAYMENT. Unless otherwise agreed upon by TSMC and the ordering
Buyer, payment terms shall be net due thirty (30) days after the date of TSMC's
invoice (the "Invoice Payment Date"). For any invoice that is due and owing
under this Section 6.4 which is not paid within thirty-five (35) days after the
date of invoice, the invoice amount shall bear interest from the Invoice Payment
Date until paid in full at the annual rate equal to 5% above the prime or
reference rate for commercial borrowing announced by Bank of America N.T.& S.A.,
as such rate changes from time to time; provided, however, that in no event
shall such interest rate exceed the highest rate permissible under applicable
law. Any payment made hereunder shall be in U.S. dollars.
6.5 NO LIMITATION ON BUYER'S PRICING. The prices charged by TSMC to
a Buyer hereunder shall not limit in any way the prices that a Buyer may charge
its customers.
ARTICLE 7
DELIVERY
7.1 DELIVERY. TSMC agrees to make all commercially reasonable efforts
so that the Proven Products or Risk Wafers shall be delivered to Buyer's
designated delivery point in accordance with its "route and ship to"
instructions on the date(s) set forth in any Purchase Order(s) accepted by TSMC.
7.2 SHIPMENTS F.O.B. Shipments shall be made F.O.B. Buyer's designated
place of delivery point (the "F.O.B. Point") as designated in Buyer's "route and
ship to" instructions. All title and risk of loss or damage shall be borne by
TSMC from the time of the Company's delivery of Proven Products or Risk Wafers
to a common carrier at the Foundry until delivery to the F.O.B. Point.
7.3 PACKAGING AND SHIP DATE. TSMC shall package, or cause the packaging
of, the Proven Products or Risk Wafers for secure shipment according to good
manufacturing practices in consideration of the method of shipment chosen. The
date of the bill of lading or other receipt issued by the carrier shall be proof
of the date and fact of shipment of the Proven Products or Risk Wafers.
7.4 PARTIAL SHIPMENTS. Partial shipments are allowed, so long as full
shipment of the appropriate quantities are made by +/-10 days of delivery dates
specified in Purchase Orders accepted by TSMC. Such partial shipments may be
invoiced individually or in combination with all the other partial shipments
made for the same Purchase Orders.
7.5 FAILURE TO MEET DELIVERY DATES. Delivery made within +/-10 days of
the delivery dates specified in Purchase Orders accepted by TSMC are deemed
timely delivery. Buyer shall not be entitled to damages or specific performance
for any material failure by TSMC to timely meet such delivery schedules (a) when
such failure is the result of any act or omission of Buyer, its employees or
agents, or (b) except to the extent otherwise provided in Subsection 3.3.3, when
such failure is the result of the Company's failure to timely deliver Proven
Products or Risk Wafers to TSMC where
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TSMC has timely placed purchase orders with the Company for Proven Products or
Risk Wafers ordered by Buyers hereunder and the Company's failure to deliver is
not attributable to the acts or omissions of TSMC, its employees or agents. TSMC
shall not be liable for any penalty or any indirect, special, incidental or
consequential damages imposed upon or incurred by a Buyer as a result of failure
of TSMC to timely deliver Proven Products or Risk Wafers.
7.6 FORCE MAJEURE. Whenever any actual or potential event of Force
Majeure that reasonably can be anticipated (e.g., a labor dispute) delays or
threatens to delay the timely performance of any delivery under a Purchase
Order, TSMC shall promptly give notice thereof to the impacted Buyer. Whenever
any actual or potential event of Force Majeure reasonably can be anticipated to
delay or threaten to delay a Buyer's ability to accept delivery under a Purchase
Order, such Buyer shall promptly give notice thereof to TSMC.
ARTICLE 8
INCOMING TEST; ACCEPTANCE AND RETURNS
8.1 INCOMING TESTING. TSMC, the Buyers ordering Proven Products in
question, and the Company shall agree upon inspection and testing methods, which
shall be signed by TSMC and such Buyers, and attached hereto as Exhibit "H".
Each Buyer may perform incoming inspection and testing on each shipment of
Proven Products received hereunder in accordance with the agreed-upon inspection
and testing methods. If such Proven Products fail to conform to the applicable
Quality and Reliability Specifications, or otherwise fail the inspection and
testing standards set forth on Exhibit "H", the Buyer shall have the right to
return such Proven Products to TSMC for rework or replacement at no cost to
Buyer or for credit in accordance with the terms and conditions of Section 9.1
below. Except as otherwise provided in Section 5.16, Risk Wafers may not be
returned.
8.2 ACCEPTANCE. Buyers shall accept all conforming tenders of Proven
Products delivered under this Agreement, and shall notify TSMC in writing,
within (a) thirty (30) days following the delivery of any Proven Products whose
individual dies have been functionally probed or (b) sixty (60) days following
the delivery of any other Proven Products, as to either acceptance or rejection
thereof. If no notification indicating rejection is received by TSMC within the
above time period, then such Proven Products shall be deemed accepted. Except as
otherwise provided in Section 5.16, Risk Wafers must be accepted.
8.3 RETURNS. Defective Proven Products (either detected by incoming
inspection and testing or during the warranty period) shall be returned to TSMC
in accordance with the terms and conditions of Section 9.1 below.
ARTICLE 9
PRODUCT WARRANTY
9.1 TSMC'S WARRANTY. TSMC warrants that the Proven Products delivered
hereunder shall meet the Quality and Reliability Specifications and shall be
free from defects in materials and workmanship under normal use for a period of
one (1) year from the date of shipment. If, during the one year period, (a) TSMC
is notified promptly in writing upon discovery of any defect in the Proven
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Products, including a detailed description of the alleged defect, (b) such
Proven Products are returned to TSMC in care of the Foundry, F.O.B. the Foundry,
and (c) such Proven Products are indeed defective and not caused by accident,
abuse, misuse, neglect, improper installation or packaging, repair or alteration
by someone other than TSMC, or improper testing or use contrary to any
instructions given by TSMC (collectively, "Abuse or Misuse"), then TSMC shall,
at its option, either repair, replace, or credit a Buyer for such defective
Proven Products. TSMC shall return any Proven Products repaired or replaced
under this warranty to a Buyer transportation prepaid, and shall reimburse a
Buyer for the transportation charges paid by the Buyer for returning such
defective Proven Products to TSMC in care of the Foundry. The performance of
this warranty shall not act to extend the one-year warranty period for any
Proven Products repaired or replaced beyond that period applicable to such
Proven Products as originally delivered. There is no warranty for Risk Wafers.
Unless otherwise expressly agreed to the contrary by Seller and a Buyer in
writing prior to shipment, there is no warranty for Test Wafers.
9.2 LIMITED WARRANTY. THE WARRANTIES HEREIN (A) ARE EXCLUSIVE AND
STATED IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS, STATUTORY, OR IMPLIED,
INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED; AND (B)
NEITHER ASSUME NOR AUTHORIZE ANY OTHER PARTY TO ASSUME FOR TSMC ANY OTHER
LIABILITIES IN CONNECTION WITH THE MANUFACTURE OR SALE OF PROVEN PRODUCTS. THE
WARRANTIES SHALL NOT APPLY TO ANY PROVEN PRODUCTS WHICH HAVE BEEN SUBJECTED TO
ABUSE OR MISUSE (AS DEFINED IN SECTION 9.1 ABOVE).
9.3 TSMC'S INSPECTION RIGHTS. Notwithstanding the provisions of Section
9.1 above, prior to any return of allegedly defective Proven Products by a Buyer
pursuant to Section 9.1, such Buyer shall first afford TSMC (and the Company if
the Company so desires) the opportunity, upon TSMC's request, to inspect the
allegedly defective Proven Products at such Buyer's facilities. If TSMC thereby
determines that the allegedly defective Proven Products are defective or
non-conforming with the applicable Quality and Reliability Specifications, or
that such alleged defects are caused by defects in material or workmanship of
the Company or TSMC, as the case may be, then the Buyer shall be entitled to
repair, replacement or credit under Section 9.1. If TSMC determines that such
allegedly defective Proven Products are not defective or conform with the
applicable Quality and Reliability Specifications, the disagreement with respect
to defectiveness or non-conformity shall be resolved pursuant to Article 17.
Inspection and determination by TSMC (and by the Company, if applicable) under
this Section shall not be unreasonably withheld or delayed.
ARTICLE 10
LIMITATION ON DAMAGES; CONTRACTUAL LIMITATIONS PERIOD
10.1 LIMITATION ON DAMAGES.
10.1.1 WITH THE EXCEPTION OF ANY LOSS, LIABILITY, DAMAGE OR
OBLIGATION ARISING OUT OF OR RELATING TO DISCLOSURE OF PROPRIETARY INFORMATION
IN VIOLATION OF ARTICLE 15, NO PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE (INCLUDING, WITHOUT LIMITATION, LOSS
OF PROFITS OR LOSS OF USE) SUFFERED BY ANY OTHER PARTY ARISING FROM OR RELATING
TO A PARTY'S PERFORMANCE, NON-
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PERFORMANCE, BREACH OF OR DEFAULT UNDER A COVENANT, WARRANTY, REPRESENTATION,
TERM OR CONDITION HEREOF. EXCEPT AS SPECIFICALLY PROVIDED IN THE PRECEDING
SENTENCE, EACH PARTY WAIVES AND RELINQUISHES CLAIMS FOR INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES. NOTWITHSTANDING SUCH WAIVER AND
RELINQUISHMENT, WITH RESPECT TO ANY LOSS, LIABILITY, DAMAGE OR OBLIGATION
ARISING OUT OF OR RELATING TO DISCLOSURE OF PROPRIETARY INFORMATION IN VIOLATION
OF ARTICLE 15, A PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGE (INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS OR LOSS OF
USE) SUFFERED BY ANY OTHER PARTY ARISING FROM OR RELATING TO A PARTY'S
NON-PERFORMANCE, BREACH OF OR DEFAULT UNDER SAID ARTICLE 15.
10.1.2 NO PARTY SHALL HAVE THE RIGHT TO RECOVER PUNITIVE
DAMAGES FROM ANY OTHER PARTY, AND EACH PARTY HEREBY WAIVES AND RELINQUISHES ANY
AND ALL PUNITIVE DAMAGE CLAIMS.
10.1.3 THE LIMITATIONS ON LIABILITY AND DAMAGES SET FORTH IN
SUBSECTIONS 10.1.1 AND 10.1.2 APPLY TO ALL CAUSES OF ACTION THAT MAY BE ASSERTED
HEREUNDER, WHETHER SOUNDING IN BREACH OF CONTRACT, BREACH OF WARRANTY, TORT,
PRODUCT LIABILITY, NEGLIGENCE OR OTHERWISE.
10.2 CONTRACTUAL LIMITATIONS PERIOD. Any arbitration, litigation,
judicial reference, mediation, or other legal proceeding involving the Parties
shall be commenced within two (2) years after the accrual of the cause of
action, except (a) for arbitration, litigation, judicial reference, mediation,
or other legal proceedings in respect to claims for indemnification hereunder,
which claims shall be commenced within the statutory limitations period provided
by applicable law; and (b) where there is an affirmative misrepresentation of a
material fact that was relied upon and the relying Party was entitled to rely
thereon, or where a Party fraudulently concealed the existence of a cause of
action, the claims shall be commenced within two (2) years of the date that the
aggrieved Party discovered the material facts giving rise to the cause of
action.
ARTICLE 11
INDEMNITIES
11.1 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.
11.1.1 TSMC assigns to the Buyers (and to each of them) TSMC's
rights, remedies and interests in, to, or under Section 11.1 of the
Manufacturing Agreement, pursuant to which and subject to whose terms TSMC is
indemnified by the Company against Claims based solely on an allegation that a
Process that is normally specified and used by the Company in the manufacture of
a Proven Product or RWRQPs directly infringes a third party's Intellectual
Property Rights. This assignment is made without recourse against TSMC.
11.1.2 Each Buyer acknowledges that the Company shall have no
liability for any Claim (a) where infringement is attributable, in whole or in
part, to (i) the Company's compliance with or implementation of any of the
Buyer's instructions, specifications, designs, mask works, utility models or
requirements, (ii) a Process (insofar as a Process or any part thereof has been
specified by the Buyer
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and supplied by TSMC or such Buyer to the Company and the deviation of the
Buyer's specifications from the Company's normal specifications causes direct or
contributory infringement), or (iii) other information or materials provided by
the Buyer and supplied by TSMC or such Buyer to the Company for the performance
of this Agreement; or (b) relating to Risk Wafers that are not run on a
Qualified Process. Each Buyer shall indemnify, defend, protect and hold TSMC and
the Company harmless from and against any and all such Claims, provided that
TSMC complies with the provisions of Section 11.4 below and that the Company
complies with the provisions of the Manufacturing Agreement that are comparable
to Section 11.4 below.
11.1.3 If the court or a settlement enjoins the use of a
Process by the Company, or if, in TSMC's or the Company's opinion, a Process is
likely to become the subject of a claim of infringement, then the Party
providing the Process shall have the option to modify such Process so that it
becomes non-infringing, substitute a substantially equivalent non-infringing
Process, or obtain the right to continue using such Process. If the curative
actions described in the preceding sentence cannot be accomplished within a
reasonable period of time, the Company or TSMC shall have the right to decline
to continue to manufacture or sell Proven Products or Risk Wafers using such
Process.
11.1.4 The foregoing states the entire and exclusive remedies
of each Buyer for infringement of a third party's Intellectual Property Rights
by the Proven Products, Test Wafers, Risk Wafers or the Processes used to
manufacture any Products furnished hereunder. TSMC shall not be liable to any
Buyer for any third-party Claim for the type of Intellectual Property Rights
infringement described in Subsections 11.1.1 or 11.1.2.
11.2 PERSONAL INJURY INDEMNITY. Each Buyer shall indemnify, defend,
protect and hold TSMC harmless against any and all Claims arising out of injury
or death of any of such Buyer's personnel assigned to work at the Foundry, or
while performing tasks at the Foundry pursuant hereto or any other agreement or
instrument to which a Buyer and TSMC are parties in connection herewith,
notwithstanding that such personnel are in TSMC's or the Company's care, custody
or control while at the Foundry, provided that this indemnity shall not apply in
any instance in which such Claims are based upon the gross negligence or willful
misconduct of TSMC or its employees or agents.
11.3 PRODUCT LIABILITY.
11.3.1 Except as otherwise expressly provided herein:
(a) TSMC and the Company shall have no liability
under this Agreement or otherwise for any product liability Claim with
respect to any of the Proven Products, Risk Wafers or Test Wafers,
whether such product liability Claim is based on alleged defects in the
design, manufacture, or packaging of Proven Products, Risk Wafers or
Test Wafers or on any other adverse conditions.
(b) Buyers (and each of them), on behalf of
themselves and any of their Affiliates that purchase or resell Proven
Products, Risk Wafers or Test Wafers, hereby waive, release and
discharge TSMC and the Company from and against any and all Claims
arising from or relating to product liability, including, without
limitation, Claims based on alleged defects in the design, manufacture
or packing of Proven Products, Risk Wafers or Test Wafers or on any
other adverse conditions. The foregoing waiver, release and discharge
is intended to
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extend to any and all product liability Claims of any kind or
character, whether fixed or contingent, known or unknown.
11.3.2 TSMC's and the Company's sole and exclusive liability
and obligation with respect to any defective Proven Product and any Test Wafers
covered by a written product warranty shall be as set forth in Section 9.1.
TSMC's and the Company's sole and exclusive liability and obligation with
respect to defective Test Wafers not covered by a written product warranty shall
be as set forth in Section 5.13. TSMC's and the Company's sole and exclusive
liability and obligation with respect to defective RWRQPs shall be as set forth
in Section 5.16.
11.3.3 Each Buyer shall indemnify, defend, protect and hold
TSMC and/or the Company, as the case may be, harmless against any and all
product liability Claims brought by third parties, including, without
limitation, any of Buyer's customers or any ultimate end users of any product,
system or subsystem into which a Proven Product, Test Wafer or Risk Wafer (or
any part thereof) has been incorporated. The foregoing shall not apply, however,
to the extent any such Claims result from the negligence or willful misconduct
of TSMC and/or the Company.
11.4 GENERAL INDEMNITY PROVISIONS. Each Party's indemnification
obligations hereunder shall be subject to the following provisions:
11.4.1 Indemnitor's indemnification obligations also shall
extend to any one or more of indemnitee's officers, directors, managers,
shareholders, members, employees, and agents.
11.4.2 Each Party's indemnification obligations hereunder
shall survive the early termination or expiration of the Term for the remainder
of the statutory limitations period governing actions on a written agreement.
11.4.3 Each Party's obligation to indemnify any other Party
hereunder shall be conditioned upon:
(a) Indemnitee's giving indemnitor prompt notice in
writing of any Claims giving rise to the obligation to indemnify and of
which indemnitee is aware;
(b) Indemnitee's permitting indemnitor, through
counsel of indemnitor's choice and reasonably acceptable to indemnitee,
to defend against, contest or settle the same; and
(c) Indemnitee's reasonably cooperating with
indemnitor and reasonably providing indemnitor with information and
assistance to enable indemnitor to defend, contest or settle same.
11.4.4 Unless expressly provided to the contrary, the
indemnification provisions herein shall be interpreted and construed as
indemnifying indemnitee against indemnitee's negligence, whether active or
passive.
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ARTICLE 12
FORCE MAJEURE
12.1 FORCE MAJEURE. Subject to the limitations set forth in Section
12.4, should a Party be prevented from performing its obligations hereunder due
to a Force Majeure event, that Party shall not be liable to the other Parties
for any delay or failure of performance caused by such event; nor shall the
Party subject to such event be deemed to have committed an Event of Default
hereunder. Notwithstanding the foregoing, a Force Majeure event shall not excuse
a Party's obligation to pay money. However, a monetary obligation shall be
suspended until cessation of such Force Majeure event if, and only if, the Force
Majeure event actually and directly renders physically impossible a Party's
payment of money due hereunder.
12.2 NOTIFICATION. The Party prevented or delayed by an event of Force
Majeure in the performance of any obligation hereunder shall promptly notify the
affected Party or Parties of the occurrence of any Force Majeure event by cable,
telex or telecopier.
12.3 RESPONSE TO FORCE MAJEURE. Should the delay caused by a Force
Majeure event continue for more than ninety (90) days, the Parties shall settle
the problem of further performance of this Agreement through good faith
negotiations as soon as possible with the objective of restructuring the
relationship among them to minimize the effects of such event. If the Parties
cannot agree on a mutually acceptable solution within one hundred twenty (120)
days of a Party's request for such negotiations, any Party that is not subject
to the Force Majeure event may terminate this Agreement by notice to the other
Parties. If the Party giving notice of termination is a Buyer, the termination
shall be effective only as to such Buyer, and this Agreement shall continue in
full force and effect among TSMC and the non-terminating Buyers. Notwithstanding
the foregoing, no Buyer shall be permitted to terminate this Agreement due to
the Buyer's inability to pay for its Minimum Purchase Share or to otherwise meet
its financial obligations due to a continuing Force Majeure event.
12.4 LIMITATIONS ON APPLICABILITY OF FORCE MAJEURE. This Article shall
be void and inapplicable to any Party (a) if it fails to use reasonable
diligence to remedy any Force Majeure event that prevents or delays that Party's
performance hereunder by continuously pursuing such actions as that Party
reasonably can take under the circumstances; and (b) in the event of a strike,
lockout or other labor disruption, if the Party is found by the National Labor
Relations Board or other governmental agency having jurisdiction to have caused
such strike, lockout or labor disruption or if such Party refuses to enter into
bargaining with respect to such strike, lockout or labor disruption.
ARTICLE 13
GOVERNMENTAL INTERVENTION
13.1 GOVERNMENTAL INTERVENTION. Should any government or agency thereof
at any time during the Term hereof take any action which is material and adverse
to a Party or make recommendations to the Parties or any of them requiring
directly or indirectly, formally or informally, alteration or modification of
any term or condition hereof, or of the performance of the Parties hereunder,
including refusal to grant any necessary government approval, in a manner which
is material and adverse to one Party, then, if said one Party makes written
request (the "Requesting Party") to the
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other Parties w