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EXHIBIT 10.40
OPTION AGREEMENT
BETWEEN
ALTERA CORPORATION
AND
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.
JUNE 26, 1995
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OPTION AGREEMENT
THIS AGREEMENT is made and becomes effective as of June 26, 3995 (the
"Effective Date") by Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"), a
company organized under the laws of the Republic of China, with its registered
address at No. 121, Park Ave. 3, Science Based Industrial Park, Hsinchu,
Taiwan, and Altera Corporation, a company organized under the laws of
California, with its registered address at 2610 Orchard Parkway, San Jose,
California 95134-2020 ("Customer").
RECITALS
WHEREAS, TSMC will supply Customer with wafers pursuant to the Wafer
Supply Agreement between TSMC and Customer dated June 26, 1995, (the "Supply
Agreement"), and Customer wishes to increase the volume of wafers to be
purchased from TSMC;
WHEREAS, in order to increase its output, TSMC must accelerate its
ramp up in Fab 3 and advance the start of Fab 4;
WHEREAS, as a condition to TSMC's acceleration of these facilities,
TSMC has asked that Customer make a capacity commitment and advance payment for
the right to buy additional capacity, and Customer is willing to do so:
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
1. DEFINITIONS
(a) "Base Capacity" used in this Agreement shall mean the
annualized run rate that TSMC has previously committed to Customer, as set
forth in Exhibit B.
(b) "Customer Committed Capacity" used in this Agreement
shall mean the total capacity that Customer agrees to purchase from TSMC
pursuant to this Agreement, as set forth in Exhibit B, subject to the
applicable provisions of this Agreement and the Supply Agreement.
(c) "Option Capacity" used in this Agreement shall mean
the firm capacity commitment made by Customer pursuant to this Agreement, for
which capacity Customer agrees to pay the Option Fee as defined in Section 1(d)
below.
(d) "Option Fee" used in this Agreement shall mean the
deposit that Customer agrees to place with TSMC as the advance payment for the
Option Capacity.
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(e) "TSMC committed capacity" used in this Agreement
shall mean the total capacity that TSMC agrees to provide to Customer pursuant
to this Agreement, and as set forth in Exhibit B.
(f) "Wafer Equivalent" used in this Agreement shall mean
the number of six-inch wafers based on the equivalency factor for TSMC's 0.5
micron, single poly, triple level metal process. For details of the
equivalency factor, please refer to Exhibit A. Any and all capacity
commitments referred to in this Agreement shall be measured in Wafer
Equivalent. For an example of the application of the equivalency factor refer
to Exhibit A-1.
2. VOLUME COMMITMENT
(a) Subject to the applicable provisions of this
Agreement and the Supply Agreement, Customer agrees to purchase from TSMC, and
TSMC agrees to supply, the Customer Committed Capacity, and subject to the
payment of the Option Fee by Customer under Section 5 below, TSMC agrees to
provide to Customer the TSMC Committed Capacity, as set forth in Exhibit B. In
any calendar year, the orders placed by Customer shall first apply to fulfill
the Base Capacity portion of the Customer Committed Capacity, and then the
Option Capacity.
(b) Each month, Customer agrees to provide to TSMC a
six-month rolling forecast of the number of wafers that Customer expects to
purchase, with the volume for the first twelve weeks being frozen (i.e.,
Customer must purchase all of the quantity forecast for delivery in the first
twelve weeks of the forecast). The forecast must be based on wafers out or
deliveries expected to be made by TSMC.
(c) TSMC will use its reasonable effort to cause its fabs
to be capable of producing wafers of more advanced specifications, as set forth
in the TSMC Technology Road Map attached as Exhibit C.
3. WAFER PRICE
(a) The wafer price for the Customer Committed Capacity
shall not be more than TSMC's average wafer prices to optionees (i.e.,
customers that are parties to option agreements similar to this Agreement) for
the same or comparable technology, same wafer fab and the same period of time.
Customer shall have the right at any time, but no more frequently than once per
year, on at least thirty days prior written notice, to have an independent
party acceptable to TSMC (such acceptance not to be unreasonably delayed or
withheld) examine TSMC's records relating to the above pricing. Any price
change will apply to unfilled or future orders only.
(b) The parties shall negotiate in good faith each year
the wafer prices for the Customer Committed Capacity of the following year in
coordination with the annual negotiation under the Supply Agreement. In the
course of such negotiations, TSMC shall make available relevant information in
its possession regarding wafer market prices and TSMC's average wafer prices
for the same or comparable technology in the same fab. If no agreement on
these prices is reached by the
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parties within three months following written notice of request for negotiation
by either party (the "Negotiation Request"), the parties agree to submit the
dispute to the binding arbitration pursuant to Section 13 below, and under such
circumstances, neither party shall have the right to terminate this Agreement
under Section 7 below.
4. OTHER PURCHASE TERMS AND CONDITIONS
The Supply Agreement will apply to all purchases of wafers by Customer
from TSMC, except that the provisions of this Agreement will supersede the
Supply Agreement with respect to the subject matter hereof.
5. OBLIGATION TO PAY OPTION FEE FOR OPTION CAPACITY
(a) Customer agrees to pay to TSMC the Option Fee in the
amount of *** *** for the right to purchase the
Option Capacity pursuant to this Agreement, which TSMC hereby agrees to supply.
The Option Fee is set forth in Exhibit D, and shall be paid in cash by no later
than every June 30 during the term of this Agreement for the Option Capacity of
the following year. Except that TSMC exercises its first right of refusal or
Customer assigns its purchase rights and obligations, pursuant to Section 6
below, the Option Fee, once paid, shall be non-refundable except as provided in
Section 7(d), but will be credited against payments due for wafers purchased by
Customer from the Option Capacity provided by TSMC under this Agreement.
(b) Customer further agrees to deliver to TSMC, within
seven (7) days following the Effective Date, four (4) promissory notes each in
an amount of the Option Fee due every year, and payable to TSMC or order on
each June 30, which promissory notes are in the form of Exhibit E. The
promissory notes shall be returned by TSMC to Customer within seven (7) days
upon receipt of the corresponding Option Fee by TSMC.
(c) Neither the payment of the Option Fee nor the
delivery of the promissory notes shall prejudice Customer's right to any
damages or other remedy to which Customer may be entitled by law.
6. FAILURE TO PURCHASE THE OPTION CAPACITY; FIRST RIGHT OF
REFUSAL.
(a) If in any calendar year, for any reason, Customer is
not able to use or purchase all or a portion of the Customer Committed Capacity
of that year, or any other year(s) during the term of this Agreement, Customer
shall promptly notify TSMC of such in writing and first offer TSMC such
Capacity or portion thereof for sales to any third parties. TSMC may, at its
option, accept such offer, in whole or in part, within thirty (30) days
following Customer's notification, and if TSMC so accepts, or if TSMC, in fact,
sells such Capacity or portion thereof to-third parties, the corresponding
Option Fee, if paid, will be returned without interest (notwithstanding Section
6(b)).
***CONFIDENTIAL TREATMENT REQUESTED
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In the event that TSMC decides not to accept such offer, Customer may assign
its right to purchase the Option Capacity or portion thereof for all or part of
the remaining term of this Agreement to any third parties acceptable to TSMC
(such acceptance not to be unreasonably delayed or withheld), within two months
upon TSMC's written notice that it will not accept such offer, and if Customer
fails to do so, Customer shall remain liable for the Option Fee for the
remaining term of this Agreement under Section 5 above, and so long as Customer
continues to pay the Option Fee it shall (regardless of any prior notification)
retain the right to purchase the Option Capacity pursuant to this Agreement.
(b) Any of Customer's rights or obligations set forth in
Section 6(a) shall not affect its obligation to pay the Option Fee pursuant to
Section 5 above, except that if the right to purchase all or part of the Option
Capacity is assigned to any third parties acceptable to TSMC pursuant to
Section 6(a) above, such third parties shall then have the exclusive obligation
to pay the corresponding Option Fee and abide by the applicable terms and
conditions of this Agreement.
7. TERM AND TERMINATION
(a) The term of this Agreement shall commence from the
Effective Date, and continue until December 31, 1999.
(b) Termination by TSMC for Customer's Failure to Pay the
Option Fee. TSMC may terminate this Agreement if Customer fails to pay the
Option Fee pursuant to Section 5 above, and does not cure or remedy such breach
within thirty (30) days of receiving written notice of such breach.
(c) Termination for Other Breach or for Bankruptcy.
Either party may terminate this Agreement if, (i) the other party breaches any
material provisions of this Agreement (other than the breach of Section 5
above), and does not cure or remedy such breach within sixty (60) days of
receiving written notice of such breach, or (ii) becomes the subject of a
voluntary or involuntary petition in bankruptcy or any proceeding relating to
insolvency, receivership or liquidation, if such petition or proceeding is not
dismissed with prejudice within sixty (60) days after filing.
(d) Effect of Termination. Both parties shall remain
liable to the other party for any outstanding and matured rights and
obligations at the time of termination, including all outstanding payments of
the Option Fee applicable to the used Option Capacity and for the wafers
already ordered and/or shipped to customer. In the event Altera terminates
this Agreement pursuant to Section 7(c) or Section 16, any advance payment of
the Option Fee applicable to the unused and/or unprovided Option Capacity shall
be refunded and any promissory notes therefor shall be returned.
8. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special,
incidental or consequential damages (including loss of profits and loss of use)
resulting from, arising out of or in connection with its performance or failure
to perform under this Agreement, or resulting from, arising out of or in
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connection with the production, supply, and/or purchase and sale of the wafers,
whether due to a breach of contract, breach of warranty, tort, or negligence,
or otherwise.
9. BOARD APPROVAL
Customer shall obtain the approval of its Board of Directors of this
Agreement, and submit to TSMC, at the time of executing this Agreement, an
authentic copy of its Board resolution authorizing the representative
designated below to execute this Agreement.
10. NOTICE
All notices required or permitted to be sent by either party to the
other party under this Agreement shall be sent by registered mail postage
prepaid, or by personal delivery, or by fax. Any notice given by fax shall be
followed by a confirmation copy within ten (10) days. Unless changed by
written notice given by either party to the other, the addresses and fax
numbers of the respective parties shall be as follows:
To TSMC:
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
No. 121, Park Avenue 3
Science-Based Industrial Park
Hsinchu, Taiwan
Republic of China FAX: 886-35-781545
To Customer:
ALTERA CORPORATION
2610 Orchard Parkway
San Jose, California 95134-2020
USA FAX: 408-894-8000
11. ENTIRE AGREEMENT
This Agreement, including Exhibits A-E, constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous understandings,
agreements, dealings and negotiations, oral or written, regarding the subject
matter hereof. No modification, alteration or amendment of this Agreement
shall be effective unless in writing and signed by both parties. No waiver of
any breach or failure by either party to enforce any provision of this
Agreement shall be deemed a waiver of any other or subsequent breach, or a
waiver of future enforcement of that or any other provision.
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12. GOVERNING LAW
This Agreement will be governed and interpreted as set forth in
Section 18.0 of the Supply Agreement.
13. ARBITRATION
If the parties fail to agree on wafer prices within three months of
any Negotiation Request given pursuant to Section 3, each party shall submit a
written proposal to the other within 15 days following said three month period
setting forth proposed prices and reasons in support thereof. If upon a review
of these proposals, the parties are unable to reach agreement on the prices
within 30 days following said three month period, the matter will be submitted
to arbitration under the rules of the American Arbitration Association, but
subject to the following special provisions. The arbitration shall be
conducted by a panel of three arbitrators, one appointed by each party, and the
third selected by the two appointed arbitrators. The arbitrators shall decide
which proposal is the most reasonable and the selected proposal shall thereupon
become binding on both parties. The arbitrators shall not select any other
prices nor decide any other issue, unless otherwise agreed in writing by both
parties. All other disputes shall be resolved in accordance with Section 20.0
of the Supply Agreement.
14. ASSIGNMENT
This Agreement shall be binding on and inure to the benefit of each
party and its successors, and except that Customer may assign its purchase
rights and obligations under this Agreement pursuant to Section 6 above,
neither party shall assign any of its rights hereunder, nor delegate its
obligations hereunder, to any third party, without the prior written consent of
the other.
15. CONFIDENTIALITY
Neither party shall disclose the existence or contents of this
Agreement except as required by Customer's assignment of rights and obligations
under this Agreement to any third parties pursuant to Section 6 above, in
confidence to its advisers, as required by applicable law, or otherwise with
the prior written consent of the other party.
16. FORCE MAJEURE
Neither party shall be responsible for delays or failure in
performance resulting from acts beyond the reasonable control of such party.
Such acts shall include but not be limited to acts of God, war, riot, labor
stoppages, governmental actions, fires, floods, and earthquakes. If such
delays or failures on the part of either party continue for a period of more
than one hundred twenty (120) days, the other party may terminate this
Agreement upon written notice, subject to Section 7(d).
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IN WITNESS WHEREOF, the parties, have executed this Agreement as of
the date first stated above.
TAIWAN SEMICONDUCTOR ALTERA CORPORATION
MANUFACTURING CO., LTD.
By: /S/DONALD BROOKS By: /S/RODNEY SMITH
---------------------------------- ----------------------------------
Donald Brooks Rodney Smith
President President
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EXHIBIT A
***CONFIDENTIAL TREATMENT REQUESTED***
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EXHIBIT A-1
*** CONFIDENTIAL TREATMENT REQUESTED ***
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EXHIBIT B
CUSTOMER/TSMC COMMITTED CAPACITY
Unit: Wafer Equivalent
1996 1997 1998 1999
---- ---- ---- ----
Base Capacity *** *** *** ***
X% of Base Capacity *** *** *** ***
X =
Option Capacity *** *** *** ***
TSMC Committed Capacity *** *** *** ***
(Base Capacity + Option Capacity)
Customer Committed Capacity *** *** *** ***
(X% Base Capacity + Option Capacity)
* ***
*** CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT C
*** CONFIDENTIAL TREATEMENT REQUESTED ***
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EXHIBIT D
OPTION FEE
OPTION CAPACITY OPTION FEE
YEAR (UNIT: WAFER EQUIVALENT) (UNIT: US$) DUE DATE
--------------------------------------------------------------------------------
1996 *** *** June 30, 1995
1997 *** *** June 30, 1996
1998 *** *** June 30, 1997
1999 *** *** June 30, 1998
*** CONFIDENTIAL TREATMENT REQUESTED ***
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EXHIBIT E
STANDARD FORM OF PROMISSORY NOTE
Amount US$ __________________ Due Date __________________
The undersigned ________________________ (the "Maker"), unconditionally
(except as otherwise provided in the Option Agreement between TSMC and Maker
dated __________________) promises to pay to Taiwan Semiconductor Manufacturing
Co., Ltd. or its order the sum of U.S. Dollars ________________________
($_________________), plus interest calculated from the due date stated herein
to the date of full payment at the rate of 10% per annum on any unpaid portion
of the principal amount stated herein, and said payment will be made at
______________________ (Place of Payment).
This Note shall be governed in all respects by the laws of the State of
California, U.S.A.
The Maker of this Note agrees to waive protests and notice of whatever
kind.
Issuer Date __________________
Issuer Date __________________
Maker's Signature: ____________________________
Maker's Address: ______________________________
_______________________________________________
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