OPTION AGREEMENT
BETWEEN
PMC-SIERRA, INC.
AND
SIERRA SEMICONDUCTOR CORPORATION
AND
TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.
NOVEMBER 6, 1996
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
TABLE OF CONTENTS
1. TERMINATION OF THE OPTION AGREEMENTS 3
2. DEFINITIONS 4
3. VOLUME COMMITMENT 5
4. WAFER PRICE 5
5. OTHER PURCHASE TERMS AND CONDITIONS 6
6. FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY;
FIRST RIGHT OF REFUSAL 6
7. TERM AND TERMINATION 8
8. BOARD APPROVAL 8
9. LIMITATION OF LIABILITY 8
10. NOTICE 9
11. ENTIRE AGREEMENT 9
12. GOVERNING LAW 10
13. ARBITRATION 10
14. ASSIGNMENT 10
15. CONFIDENTIALITY 10
16. FORCE MAJEURE 11
17. OBLIGATION OF FUTURE PURCHASE 11
EXHIBIT A 12
EXHIBIT B 13
EXHIBIT C 14
OPTION AGREEMENT
----------------
THIS AGREEMENT is made and becomes effective as of November 6,1996 (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 Xx. 00 0, Xxxx Xxx. 0, Xxxxxxx-Xxxxx Industrial Park, Hsinchu,
Taiwan, and Sierra Semiconductor Corporation ("Sierra), a company organized
under the laws of California, with its registered address at 0000 Xxxx Xxxxx,
Xxx Xxxx, XX 00000 and PMC-Sierra Inc. ("PMC-Sierra"), a company organized under
the laws of California, with its registered address at 000-0000 Xxxxxx Xxxxx,
Xxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx X0X 0X0 (collectively referred to as
"Customers").
RECITALS
WHEREAS, TSMC currently supplies Customers with wafers and Customer
wishes to increase the volume of wafers to be purchased from TSMC;
WHEREAS, in order to increase its output, TSMC must accelerate
[REDACTED] and advance [REDACTED];
WHEREAS, as a condition to TSMC's acceleration of these facilities,
TSMC has asked Customers to make capacity commitments and certain advance
payment under two option agreements;
WHEREAS, the parties intend to terminate the two option agreements and
enter into a new option agreement for the purposes set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. TERMINATION OF THE OPTION AGREEMENTS
Sierra and TSMC agree to terminate the Option Agreement between Sierra and TSMC
dated November 6, 1995 upon the Effective date hereof. PMC-Sierra and TSMC agree
to terminate the Option Agreements between PMC-Sierra and TSMC dated November 6,
1995 upon the Effective Date hereof. Any rights and obligations accrued prior to
the termination of these two agreements, excluding the option fees due
thereunder, shall remain effective.
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
2. DEFINITIONS
(a) "Base Capacity" used in this Agreement shall mean the capacity
that TSMC agrees to provide, and Customers agree to purchase,
in addition to the Option Capacity, pursuant to this
Agreement.
(b) "Customers Committed Capacity" used this Agreement shall mean
the total capacity that Customers agree to purchase from TSMC
pursuant to this Agreement, and is set forth in Exhibit B.
(c) "Option Capacity" used in this Agreement shall mean the firm
capacity commitment made by Customers pursuant to this
Agreement, for which Capacity Customer agrees to pay TSMC
liquidated damages at [REDACTED] per Wafer Equivalent for any
unused capacity pursuant to Subsection 6(a).
(d) "Option Fee" used in this Agreement shall mean the deposit, US
[REDACTED] in total, that Customers have placed with TSMC
upon the execution hereof for liquidated damages upon
Customer's failure to purchase the Option Capacity.
(e) "TSMC Committed Capacity" used in this Agreement shall mean
the total capacity that TSMC agrees to provide to Customers
pursuant to this Agreement, and is set forth in Exhibit B.
(f) "Wafer Equivalent" used in this Agreement shall mean the
number of wafers based on the [REDACTED]. 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.
(g) "Customers" mean either Sierra or PMC-Sierra, or both Sierra
and PMC-Sierra together, as the case may be, when both of them
are principally liable for the performance of the duties or
obligations hereunder as one party; in which case, Sierra and
PMC-Sierra are jointly and severally liable of the obligations
of Customers hereunder. However, Sierra and PMC-Sierra may
individually exercise its rights hereunder when the term
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
"Sierra" and "PMC-Sierra" is used; which shall be construed, neither
joint, nor joint and several, but several. In order to determine the role and
responsibility of each Sierra and PMC-Sierra as a party "Sierra and PMC-Sierra"
hereunder and further clarify and define their respective rights, duties and
obligations hereunder, Sierra and PMC-Sierra shall immediately after the
execution of this Agreement, enter into an agreement between them.
3. VOLUME COMMITMENT
(a) Customers agree to purchase from TSMC the Customers Committed
Capacity, and subject to the payment of the Option Fee by
Customers 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 Customers shall
first apply fulfill the [REDACTED] portion of the Customers
Committed Capacity, and then the [REDACTED] portion thereof.
(b) Each month, Customers agree to provide to TSMC a six-month
rolling forecast of the number of wafers that Customers will
purchase, with the volume for the first [REDACTED] weeks being
frozen (i.e., Customers must purchase all of the quantity
forecast for the delivery in the first [REDACTED] 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.
4. WAFER PRICE
(a) The wafer prices for the Option Capacity shall [REDACTED].
In the event the wafer prices for the Customers Committed
Capacity do not comply with the preceding sentence, TSMC will
make proper price changes for the unfilled orders, upon
Customers' notice in writing.
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
(b) The parties shall negotiate in good faith each year the wafer
prices for the Option Capacity for the following year, and if
no agreement may be reached by the parties before October each
year, 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.
5. OTHER PURCHASE TERMS AND CONDITIONS
(a) Within ninety (90) days upon execution hereof, the parties
agree to use their best efforts to negotiate and enter into a
Wafer Production Agreement for the purchase of wafers
hereunder.
(b) Upon the execution hereof, TSMC will return to Customers the
two promissory notes already made to TSMC.
6. FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY; FIRST RIGHT OF
REFUSAL
(a) Customers shall notify TSMC of Customers' annual total wafer
requirement from outside sources for the subsequent year by
every November, and shall notify TSMC of any changes therefrom
during the applicable year. TSMC has the right to conduct
audits on Customers' annual total wafer requirements with a
thirty (3 0) days written notice to Customers.
Customers have the right to Carry forward any portion of the
Customers Committed Capacity in the years [REDACTED] through
[REDACTED] to the year [REDACTED] with a [REDACTED] written
notice, provided that the Customers' annual orders to TSMC
represents at least[REDACTED] of the Customers [REDACTED]
wafer requirement from outside sources. In no event can any
Customers Committed Capacity be carried forward beyond the
year of [REDACTED]. If in the year [REDACTED] Customers are
not able to use the Customers Committed Capacity that may have
been carried forward into the year [REDACTED] during the years
[REDACTED] though [REDACTED] or if Customers fail to carry any
portion of the Customers Committed Capacity to the year
[REDACTED] herein, Customers shall promptly notify TSMC of
such in writing and first offer TSMC such capacity for sales
to any third parties. TSMC may, at its option, accept such
offer, in whole or in part, within [REDACTED] days following
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
Customers' notification, and if TSMC so accepts, the
corresponding Option Fee will be returned without interest. In
the event that TSMC decides not to accept such offer,
Customers may assign this Agreement (including the right to
purchase the Customers Committed Capacity for the remaining
term of this Agreement) to any third parties acceptable to
TSMC, within [REDACTED] upon TSMC's written notice that it
will not accept such offer, and if Customers fail to do so,
TSMC shall have the right to withhold the corresponding Option
Fee at [REDACTED] as liquidated damages from the Option Fee,
and TSMC is entitled to sell or use any such unused capacity
thereafter.
In the event Customers' annual orders to TSMC represents lower
than [REDACTED] of the Customers [REDACTED] wafer requirement
from outside sources, [REDACTED] of the Customers Committed
Capacity for that particular year can be carried forward to
the year [REDACTED]. If in such calendar year, for any reason,
Customers are not able to use or purchase all or a portion of
the Customers Committed Capacity, Customers shall promptly
notify TSMC of such in writing and first offer TSMC such
capacity for sales to any third parties. TSMC may, at its
option, accept such offer, in whole or in part, within
[REDACTED] following Customers' notification, and if TSMC so
accepts, the corresponding Option Fee at [REDACTED] will be
returned without interest. In the event that TSMC decides not
to accept such offer, Customers may assign this Agreement
(including the right to purchase the Customers Committed
Capacity for the remaining term of this Agreement) to any
third parties acceptable to TSMC, within [REDACTED] upon
TSMC's written notice that it will not accept such offer, and
if Customers fails to do so, TSMC shall have the right to
withhold the corresponding Option Fee at[REDACTED] as
liquidated damages from the Option Fee, and TSMC is entitled
to sell or use any such unused capacity thereafter.
(b) If any portion of this Agreement or the whole Agreement is
assigned to any third parties acceptable to TSMC pursuant to
this Subsection 6(a) above, such third parties shall abide by
the terms and conditions of this Agreement and TSMC will
return to Customers the Option Fee corresponding to
[REDACTED].
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
7. TERM AND TERMINATION
(a) The term of this Agreement shall commence from the Effective
Date, and continue until [REDACTED], or the date of total
consumption of the Option Fee, whichever is earlier. In the
event that any of the Customers Committed Capacity is carried
forward to the year of [REDACTED] pursuant to Subsection 6(a),
this Agreement shall be extended to [REDACTED].
(b) TERMINATION FOR OTHER BREACH OR FOR BANKRUPTCY Either party
may terminate this Agreement if, 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 ninety (90) 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.
(c) EFFECT OF TERMINATION
The parties shall remain liable to the other party for any
outstanding and matured rights and obligations at the time of
termination.
8. BOARD APPROVAL
Customers shall obtain the approval by their Boards of
Directors of this Agreement, and submit to TSMC, at the time
of executing this Agreement, an authentic copy of it's board
resolution authorizing the representative designated below to
execute this Agreement.
9. LIMITATION OF LIABILITY
In no event shall any 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 either party's performance or failure to
perform under this Agreement, or resulting from, arising out
of or in connection with either party's producing, supplying,
and/or sale of the wafers, whether due to a breach of
contract, breach of warranty, tort, negligence, or otherwise.
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
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.
Xx. 000, Xxxx Xxxxxx 0
Xxxxxxx-Xxxxx Xxxxxxxxxx Xxxx
Xxxxxxx, Xxxxxx
Xxxxxxxx of China FAX: 000-00-000000
To Customers:
PMC-SIERRA INC.
000-0000 Xxxxxx Xxxxx
Xxxxxxx, X.X. Xxxxxx X0X 0X0 FAX: 000-000-0000
Sierra Semiconductor Corporation
0000 Xxxx Xxxxx
Xxx Xxxx, XX 00000 FAX: 000-000-0000
11. ENTIRE AGREEMENT
This Agreement, including Exhibits A-C, 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
all 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.
12. GOVERNING LAW
This Agreement will be governed by and interpreted in
accordance with the laws of the Republic of China.
13. ARBITRATION
Each party will make best efforts to resolve amicably any
disputes or claims under this Agreement among the parties. In
the event that a resolution is not reached among the parties
within thirty (30) days after written notice by any party of
the dispute or claim, the dispute or claim shall be finally
settled by binding arbitration in Taipei under The Rules of
Arbitration of the International Chamber of Commerce by three
(3) arbitrators appointed in accordance with such rules. The
arbitration proceeding shall be conducted in English. Judgment
on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
14. ASSIGNMENT
This Agreement shall be binding on and inure to the benefit of each
party and its successors, and except that Customers may assign this
Agreement under 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
The parties shall keep in strict confidence the existence and contents
of this Agreement, and take best precaution possible to prevent any
unauthorized disclosure or use thereof. Both parties agree that no
disclosure of this Agreement or any matter relating hereto may be made
without the disclosing party first providing the proposed disclosure to
the other party two weeks in advance for consent and reasonable
changes. In the event disclosure is required by laws or governmental
regulations, the disclosing party shall provide the opportunity to
protest, participate in preparing disclosure or make reasonable changes
hereto.
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 limited to acts of God, war, riot, labor
stoppages, governmental actions, fires, floods, and earthquakes.
17. OBLIGATION OF FUTURE PURCHASE
Customers agree to contract TSMC to manufacture [REDACTED] of its total
wafers requirement above and beyond any contractual commitments in place as of
the [REDACTED], including the Customers Committed Capacity requirement of this
Agreement. Upon completion of the capacity obligations of this Agreement, be it
[REDACTED], or [REDACTED] in the case that some of the Customers Committed
Capacity is carried forward from the years [REDACTED], and into the year of
[REDACTED], Customers commit to contract TSMC to manufacture no less than
[REDACTED] of its total wafer requirement. In the year prior to the expiration
hereof, the parties agree to negotiate in good faith to enter into a new
agreement under which Customers agree to contract TSMC to provide a minimum of
[REDACTED] of Customers' total wafer requirements, provided that TSMC is able to
continue to offer competitive technology, pricing, quality and delivery.
IN WITNESS WHEREOF, the parties, have executed this Agreement as of the
date first stated above.
TAIWAN SEMICONDUCTOR PMC-SIERRA CORPORATION
MANUFACTURING CO., LTD.
BY:/s/ Xxxxxx Xxxxxx BY: /s/ Xxxxx X. Xxxxxx
--------------------------- -----------------------
Xxxxxx Xxxxxx Xxxxx X. Xxxxxx
President C.E.O.
SIERRA SEMICONDUCTOR
CORPORATION
BY: /s/ Xxxxx X. Xxxxxx
-------------------------
Xxxxx X. Xxxxxx
C.E.O.
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
EXHIBIT A
EQUIVALENCY FACTOR TABLE
[REDACTED]
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
EXHIBIT B
CUSTOMERS'/TSMC
COMMITTED CAPACITY
[REDACTED]
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
EXHIBIT C
TSMC CMOS TECHNOLOGY ROADMAP
[CHART OMITTED]
"The Confidential Portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission".
