WAFER SUPPLY AGREEMENT

Exhibit 10.21

 

WAFER SUPPLY AGREEMENT

 

This Agreement (“Agreement”) is made and entered into as of this 29th day of June, 2005 (the “Effective Date”), by and between:

 

(1)	POWER INTEGRATIONS INTERNATIONAL LTD., a Cayman Islands corporation having its principal place of business at P.O. Box 219, Strathvale House, North Church Street, George Town, Grand Cayman, Cayman Islands (“POWER INTEGRATIONS”);

 

and

 

(2)	MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., a corporation duly organized under the laws of Japan, acting through its Semiconductor Company having its principal place of business at 1 Kotari-yakemachi, Nagaokakyo City, Kyoto 617-8520, Japan (“COMPANY”).

 

WITNESSETH:

 

WHEREAS, COMPANY is engaged in providing wafer foundry services for semiconductor companies; and

 

WHEREAS, POWER INTEGRATIONS is engaged in the design, development, marketing and sale of various integrated circuit products for use in power conversion applications; and

 

WHEREAS, POWER INTEGRATIONS desires to acquire from COMPANY the fabrication and supply of wafers of certain integrated circuit products, and COMPANY is willing to supply such wafers to POWER INTEGRATIONS within the agreed upon production capacity of COMPANY.

 

Page 1 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

NOW, THEREFORE, in consideration of the mutual covenants of the parties contained herein, POWER INTEGRATIONS and COMPANY hereby agree as follows:

 

Article 1: (Definitions)

 

When used throughout this Agreement, each of the following terms shall have the meaning indicated below:

 

1.1 COMMON SPECIFICATION(S): The specifications for the production, delivery and acceptance of the WAFERS which will be provided by PI.

 

1.2 CONFIDENTIAL INFORMATION: Technical information, or other non-public information relating to PI or SUPPLIER, whether in a human readable or machine-readable form and whether recorded on paper, tape, diskette or any other media, which is disclosed by the disclosing party to the receiving party and, subject to Section 1.3 (“CONFIDENTIAL MANUFACTURING INFORMATION”), (i) which is designated in writing, by appropriate legend, as confidential or, (ii) if disclosed orally is identified as confidential information at the time of disclosure and a summary of which is confirmed in writing within thirty (30) days after oral disclosure designated, by appropriate legend, as confidential. Notwithstanding the foregoing, all information generated by the activities and actions of SUPPLIER under this Agreement on PI’s behalf (other than SUPPLIER IMPROVEMENTS and SUPPLIER’S CONFIDENTIAL INFORMATION made solely and independently by SUPPLIER without use of any of PI’s CONFIDENTIAL INFORMATION) and any information, including all PI INTELLECTUAL PROPERTY, received by SUPPLIER shall also be considered PI’s CONFIDENTIAL INFORMATION.

 

1.3 CONFIDENTIAL MANUFACTURING INFORMATION: All of PI’s CONFIDENTIAL INFORMATION, whether in written, electronic, oral or other form, relating to the PI PROCESS and conveyed by any means including, without limitation, during a meeting between the parties, by phone, letter, email or facsimile, whether or not declared or marked confidential and whether or not it is subsequently described in writing.

 

Page 2 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

1.4 ENGINEERING PRODUCTION: The production by SUPPLIER of WAFERS for engineering development.

 

1.5 INDIVIDUAL SALES CONTRACTS: Individual contracts of sale and purchase of the WAFERS that will be concluded between SUPPLIER and PI pursuant to this Agreement.

 

1.6 INTELLECTUAL PROPERTY RIGHTS : Copyrights, patent rights, trade secret rights, moral rights, mask work rights and all other intellectual or proprietary rights of any kind.

 

1.7 MASK SPECIFICATIONS: The specifications for the production, delivery and acceptance of the MASK TOOLING SETS.

 

1.8 MASK TOOLING SETS: Those mask tooling sets made by or for SUPPLIER for use in making WAFERS pursuant to this Agreement.

 

1.9 PI: POWER INTEGRATIONS and any of its SUBSIDIARIES.

 

1.10 PI IMPROVEMENTS : Any modification or change, made during the term of this Agreement, to the PI INTELLECTUAL PROPERTY, unless such modification or change is a SUPPLIER IMPROVEMENT.

 

1.11 PI INTELLECTUAL PROPERTY: The PI PROCESS, the COMMON SPECIFICATIONS, the MASK TOOLING SETS and the mask databases therefor, the PI IMPROVEMENTS, and all know-how related to the foregoing. PI INTELLECTUAL PROPERTY is PI’s CONFIDENTIAL INFORMATION.

 

1.12 PI PROCESS: PI’s process technologies, which are implemented in the SUPPLIER wafer fabrication facility to produce the WAFERS, and of which the detailed specification is specified in the COMMON SPECIFICATIONS, plus all PI IMPROVEMENTS.

 

Page 3 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

1.13 PILOT PRODUCTION: The production by SUPPLIER of WAFERS for the purpose of evaluation by PI.

 

1.14 PRODUCTS: Any and all integrated circuit products of PI manufactured in accordance with the PI PROCESS.

 

1.15 SUBSIDIARY: Any corporation, company or other entity in which SUPPLIER or PI, as the case may be, owns and/or controls, directly or indirectly, now or hereafter, more than fifty percent (50%) of the outstanding shares of stock entitled to vote for the election of directors or their equivalents regardless of the form thereof (other than any shares of stock whose voting rights are subject to restriction); provided, however, that any entity which would be a SUBSIDIARY by reason of the foregoing shall be considered a SUBSIDIARY only so long as such ownership or control exists. SUPPLIER shall each enter into separate written agreements (each a “SUBSIDIARY Agreement”) with each of their respective SUBSIDIARIES who wish to exercise any rights under this Agreement, binding the SUBSIDIARY to the terms and conditions of this Agreement. A SUBSIDIARY shall maintain its status as a SUBSIDIARY under this Agreement only for so long as such SUBSIDIARY has a SUBSIDIARY Agreement in force and effect. SUPPLIER guarantees the performance of its respective SUBSIDIARIES under this Agreement, and will indemnify and hold PI harmless from any costs, damages, or liabilities incurred by PI arising out of a breach by a SUBSIDIARY of any of the terms and conditions of this Agreement and/or SUBSIDIARY Agreements.

 

1.16 SUPPLIER: COMPANY and any of its SUBSIDIARIES.

 

1.17 SUPPLIER IMPROVEMENTS: Any modification or change, made during the term of this Agreement, to the PI INTELLECTUAL PROPERTY that (i) are made solely by SUPPLIER without use of any of PI’s CONFIDENTIAL

 

Page 4 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

INFORMATION, and (ii) SUPPLIER has a substantial use for other than manufacturing or incorporation into PRODUCTS, and (iii) are based solely on the SUPPLIER PROCESS.

 

1.18 SUPPLIER PROCESS: SUPPLIER’S standard process technology steps, from SUPPLIER owned technologies, developed exclusively by SUPPLIER and implemented in the SUPPLIER wafer fabrication facility to produce the WAFERS.

 

1.19 VOLUME PRODUCTION: The production by SUPPLIER of WAFERS for the volume production of PRODUCTS.

 

1.20 WAFER(S): Non-probed silicon wafers manufactured by SUPPLIER for PI in accordance with the COMMON SPECIFICATION.

 

1.21 WAFER TYPE . The different types of WAFERS (e.g., size, processing, location of manufacture) as defined by the COMMON SPECIFICATION.

 

Article 2: (Foundry Commitment and Forecasts)

 

2.1 SUPPLIER agrees to commit to PI the foundry capacity (“FOUNDRY CAPACITY”) as set forth in Exhibit A (SUPPLIER FOUNDRY CAPACITY and PRICING). Annually, PI will provide SUPPLIER with a non-binding [* * * *] forecast of WAFER orders by WAFER TYPE (“PI ANNUAL FORECAST”). Annually during the Term of this Agreement and in advance of the beginning of SUPPLIER’S fiscal year, SUPPLIER and PI will jointly review the PI ANNUAL FORECAST and SUPPLIER’S FOUNDRY CAPACITY for the upcoming SUPPLIER fiscal year. Annually, at the beginning of SUPPLIER’S fiscal year during the Term of this Agreement, SUPPLIER will commit a FOUNDRY CAPACITY for the current SUPPLIER fiscal year, at each of the SUPPLIER’S plants making WAFERS for PI, in an amount no less than [* * * *] Percent ([* * * *]%) of PI’s total WAFER purchases by WAFER TYPE during the previous SUPPLIER fiscal year; provided, however, that the committed FOUNDRY CAPACITY for the first fiscal year shall

 

Page 5 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

not exceed the Minimum Capacity for the fiscal year 2005 provided in Exhibit A. During the SUPPLIER fiscal year, SUPPLIER shall accept up to a [* * * *] percent ([* * * *]%) upside request over the current FOUNDRY CAPACITY, by WAFER TYPE, upon a [* * * *] month written advance notice from PI, unless the current FOUNDRY CAPACITY represents [* * * *] percent ([* * * *]%) of SUPPLIER’S total capacity in which case such advance notice shall be a [* * * *] month written notice. SUPPLIER can request PI to negotiate to reduce the committed FOUNDRY CAPACITY, by WAFER TYPE, for the then current SUPPLIER fiscal year, if SUPPLIER and PI determine that PI will not order at least [* * * *] percent ([* * * *] %) of the PI ANNUAL FORECAST by WAFER TYPE. Any negotiated reduction in FOUNDRY CAPACITY must be agreed to by PI in writing. Notwithstanding the foregoing, SUPPLIER’s maximum committed FOUNDRY CAPACITY is [* * * *] WAFERS per month.

 

2.2 PI shall provide SUPPLIER, on or before a mutually agreed day of each calendar month, a written [* * * *] month forecast (“PI MONTHLY FORECAST”) of the quantity of the WAFERS of each PRODUCT to be manufactured and delivered during the Term of this Agreement. Such forecast shall be in conformity with the FOUNDRY CAPACITY.

 

2.3 PI must order the exact quantity of WAFERS per each PRODUCT forecasted in the first month, and at least the quantity of WAFERS by WAFER TYPE forecasted in the second month, of the PI MONTHLY FORECAST unless SUPPLIER agrees to any change. PI may revise the quantity for each of the last [* * * *] months of each PI MONTHLY FORECAST without penalty or charge.

 

Article 3: (Sale and Purchase of WAFERS; MASK TOOLING SETS)

 

3.1 PI shall purchase WAFERS from SUPPLIER and SUPPLIER shall sell such WAFERS to PI.

 

Page 6 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

3.2 PI shall submit to SUPPLIER a purchase order (the “PO”) for the WAFERS in accordance with the terms and conditions of this Agreement. All such PO’s shall be accepted by SUPPLIER unless the PO cannot be met for reasons beyond SUPPLIER’s control. SUPPLIER shall issue a written confirmation within [* * * *] business days of receipt of the PO. Upon SUPPLIER’S confirmation, the PO terms of total quantity, delivery date, delivery location and pricing shall constitute an INDIVIDUAL SALES CONTRACT which will be deemed to incorporate all of the terms and conditions of this Agreement. Subject to the restrictions of Section 2.3, for any INDIVIDUAL SALES CONTRACT, the quantity of WAFERS ordered for each PRODUCT, within a WAFER TYPE, can be modified by PI by written notice received by SUPPLIER at least [* * * *] weeks before the starting date of fabrication of such WAFERS, so long as the total quantity of WAFERS is not less than the original quantity ordered for that WAFER TYPE.

 

3.3 The mask databases for creating MASK TOOLING SETS for WAFERS of any PRODUCT shall be supplied by PI to SUPPLIER in a timely manner. SUPPLIER shall immediately notify PI in detail of any defects or non-conformity in the MASK TOOLING SETS caused by the mask databases. Upon such notice, PI shall either provide corrected mask databases and pay for corrected MASK TOOLING SETS or, notwithstanding any other provision of this Agreement, PI can cancel the INDIVIDUAL SALES CONTRACT for the affected WAFERS, upon written notice to SUPPLIER, without any liability except for affected WAFER work in progress (“WIP”) and inventory.

 

3.4 SUPPLIER will produce or procure the MASK TOOLING SETS for the WAFERS in accordance with the MASK SPECIFICATIONS. SUPPLIER shall submit the MASK SPECIFICATIONS to PI for prior approval. The cost of production or procurement of the MASK TOOLING SETS shall be paid by PI and the MASK TOOLING SETS shall be owned by PI. The price to PI for the MASK TOOLING SETS shall be SUPPLIER’S cost to produce or procure them, and shall

 

Page 7 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

be commercially reasonable. If PI determines that the price or quality of the MASK TOOLING SETS is not acceptable then, at PI’s option, the SUPPLIER will procure the MASK TOOLING SETS from a vendor specified by PI. SUPPLIER will produce or procure the MASK TOOLING SETS within [* * * *] working days after the receipt of the mask database from PI. Upon request from PI, SUPPLIER will produce or procure the MASK TOOLING SETS on an expedited basis.

 

Article 4: (INTELLECTUAL PROPERTY RIGHTS)

 

4.1 PI is and shall remain the sole and exclusive owner of all rights (including INTELLECTUAL PROPERTY RIGHTS), title and interest in and to the PI INTELLECTUAL PROPERTY. PI grants SUPPLIER a limited, non-transferable, non-exclusive, royalty free license, without the right to sublicense, in the PI INTELLECTUAL PROPERTY for the sole purpose of using it internally to manufacture WAFERS. Notwithstanding any other statement in this Agreement, the foregoing license shall not survive expiration or termination of this Agreement. SUPPLIER may not (i) use the PI INTELLECTUAL PROPERTY for any purpose other than to manufacture WAFERS, or (ii) license it to any third party.

 

4.2 PI shall be the sole and exclusive owner of all right, title and interest in the PI IMPROVEMENTS. SUPPLIER hereby irrevocably and unconditionally transfers and assigns to PI all of SUPPLIER’S right, title and interest worldwide in the PI IMPROVEMENTS. SUPPLIER will promptly disclose to PI in writing all PI IMPROVEMENTS upon their creation. SUPPLIER shall take all reasonable actions in a timely manner, at PI’s expense, to assist PI in perfecting and enforcing its rights in the PI IMPROVEMENTS. Such actions shall include but not be limited to execution of assignments, patent applications and other documents. Subject to all of the terms and conditions of this Agreement, PI hereby grants to SUPPLIER a non-exclusive, irrevocable, perpetual, royalty-free, non-transferable, worldwide, right and license to use, modify, reproduce, (but sub-license only to a SUPPLIER SUBSIDIARY) the PI IMPROVEMENTS only for SUPPLIER’S

 

Page 8 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

development and manufacture of SUPPLIER’s products. Notwithstanding the foregoing, no license is granted to the PI IMPROVEMENTS for the purpose of SUPPLIER providing foundry service or other benefit to a third party.

 

4.3 In the event that any portion of Section 4.2 is declared invalid or illegal according to any applicable law, (a) SUPPLIER hereby waives and agrees never to assert such right, title and interest, including any moral rights or similar rights, against PI or PI’s licensees and (b) the parties hereby modify such portion, effective upon such declaration, in such manner as shall secure for PI an exclusive, irrevocable, perpetual, worldwide, fully paid and royalty-free license under all INTELLECTUAL PROPERTY RIGHTS, with rights to sublicense through one or more level(s) of sublicensee(s), to use, modify, reproduce, create derivative works of, distribute, publicly perform and publicly display by all means now known or later developed, and otherwise exploit in any manner, such rights in the PI IMPROVEMENTS, to the maximum extent permitted by applicable law.

 

4.4 SUPPLIER shall be the sole and exclusive owner of all right, title and interest in the SUPPLIER IMPROVEMENTS. SUPPLIER hereby grants to PI a non-exclusive, irrevocable, perpetual, royalty-free, non-transferable, worldwide, right and license to use, modify, reproduce, create derivative works of, distribute, publicly perform and publicly display by all means now known or later developed, and otherwise exploit in any manner all SUPPLIER IMPROVEMENTS as part of the PI PROCESS and any modifications thereto. Without any consent of SUPPLIER, PI may sublicense the foregoing license for the SUPPLIER IMPROVEMENTS to PI’s SUBSIDIARY so long as the sublicense provides for the protection of SUPPLIER’S CONFIDENTIAL INFORMATION on terms not less protective than those set forth in this Agreement. SUPPLIER will promptly disclose to PI in writing all SUPPLIER IMPROVEMENTS upon their creation.

 

4.5 SUPPLIER agrees not to use the PI INTELLECTUAL PROPERTY or any license under this Agreement, in whole or in part, or any knowledge gained by SUPPLIER through producing WAFERS, to develop an equivalent or competing process to the PI PROCESS, or other product or service that would compete with PI.

 

Page 9 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

Article 5: (WAFER Production)

 

5.1 ENGINEERING PRODUCTION

 

5.1.1 For ENGINEERING PRODUCTION, PI may place an order with SUPPLIER for WAFERS up to a maximum of [* * * *] WAFERS for each WAFER TYPE, or any other quantity agreed to in writing by the parties. SUPPLIER will use its [* * * *] to ship WAFERS in ENGINEERING PRODUCTION to PI as quickly as possible but no more than [* * * *] working days after availability of the MASK TOOLING SETS.

 

5.1.2 Any output of the ENGINEERING PRODUCTION will be shipped to PI immediately upon completion. If the WAFERS output is less than [* * * *] percent ([* * * *] %) of the ordered quantity, SUPPLIER will inform PI of the output quantity of the WAFERS and if PI requires to have the shortage covered, SUPPLIER will re-input the WAFERS to cover the shortage of quantity at no additional cost to PI.

 

5.2 PILOT PRODUCTION

 

5.2.1 For the PILOT PRODUCTION, PI may place an order with SUPPLIER for a minimum of [* * * *] WAFERS per each PRODUCT, or any other quantity agreed to in writing by the parties.

 

5.2.2 SUPPLIER will ship to PI WAFERS in PILOT PRODUCTION of each PRODUCT within [* * * *] working days after availability of MASK TOOLING SETS for such PRODUCT.

 

5.2.3 The output of the PILOT PRODUCTION will be shipped to PI if such WAFERS output is at least [* * * *] percent ([* * * *]%) of the ordered quantity.

 

Page 10 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

If the WAFERS output is less than [* * * *] percent ([* * * *]%) of the ordered quantity, SUPPLIER will inform PI of the output quantity of the WAFERS and if PI requires to have the shortage covered, SUPPLIER will re-input the WAFERS to cover the shortage of quantity at no additional cost to PI.

 

5.3 VOLUME PRODUCTION

 

5.3.1 For VOLUME PRODUCTION, PI shall place a PO with SUPPLIER for a minimum of [* * * *] WAFERS per each PRODUCT, or any other quantity agreed to in writing by the parties. The delivery date of the PO shall be in accordance with the VOLUME PRODUCTION cycle time for WAFERS as specified by the SUPPLIER but such cycle time shall not exceed [* * * *] days.

 

5.3.2 For VOLUME PRODUCTION, SUPPLIER will ship the WAFERS ordered by PI by the delivery date in the INDIVIDUAL SALES CONTRACT. SUPPLIER shall use reasonable efforts to deliver the WAFERS earlier than such delivery date.

 

5.3.3 SUPPLIER will ship orders in quantities not less than [* * * *] percent ([* * * *] %) of the quantities ordered of each PRODUCT.

 

Article 6: (Delivery)

 

6.1 The terms of delivery of the WAFERS shall be FOB Japan (as such term is defined in Incoterms 2000).

 

6.2 The title and risk of loss relating to the WAFERS delivered by SUPPLIER to PI shall transfer from SUPPLIER to PI at such time and point as provided in Incoterms 2000 relating to such FOB terms. PI shall have the right to designate a freight forwarder, subject to SUPPLIER’S reasonable approval.

 

6.3 SUPPLIER will deliver the WAFERS within the number of calendar days specified in the INDIVIDUAL SALES CONTRACT. In the event that

 

Page 11 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

SUPPLIER foresees a delay in the delivery schedule of the WAFERS, SUPPLIER shall make a best effort to correct any delay and SUPPLIER shall promptly notify PI of such delay and submit to PI the new delivery schedule. PI will have the right to cancel, without liability, the INDIVIDUAL SALES CONTRACT for the delayed WAFERS if the delay is greater than [* * * *] days and the delay is not due to PI’s instruction.

 

6.4 SUPPLIER shall pack the WAFERS in accordance with the packing standards defined in the COMMON SPECIFICATIONS.

 

6.5 SUPPLIER shall collect PCM data (“PCM DATA”), as defined in the COMMON SPECIFICATIONS, on the manufactured WAFERS. SUPPLIER will send the PCM DATA electronically to PI before the WAFERS are received by PI. The PCM DATA will be accurate and complete for all WAFERS and sent in a mutually agreed upon format.

 

6.6 If PI determines, in consultation with SUPPLIER, that the WAFERS currently being manufactured will not meet the PRODUCTS requirements, PI can, notwithstanding any other provision of this Agreement, cancel the INDIVIDUAL SALES CONTRACT for the affected WAFERS without any liability except for the affected WAFER WIP and inventory, upon written notice to SUPPLIER.

 

Article 7: (Test and Inspection)

 

7.1 PI shall conduct incoming inspection of the WAFERS, by WAFER TYPE, to determine the WAFERS’ conformance to the COMMON SPECIFICATIONS. The PCM DATA is required for the incoming inspection of the WAFERS and the omission, inaccuracy or other defect in the PCM DATA will in itself be sufficient cause to reject the WAFERS. This inspection shall be regarded as final in terms of quality, quantity and other conditions of the WAFERS supplied to PI, which are subject to SUPPLIER’S warranty as defined in Section 11.1. All WAFERS passing the incoming inspection will be accepted by PI.

 

Page 12 of 32

 

CONFIDENTIAL TREATMENT REQUESTED

7.2 PI shall notify SUPPLIER which of the WAFERS have been accepted by PI within [* * * *] days after receipt of the WAFERS by PI. Should PI fail to notify SUPPLIER within the said [* * * *] days, the WAFERS shall be deemed to have been accepted by PI. PI will owe SUPPLIER payment only for the quantity of WAFERS that have been accepted by PI. PI may return non-accepted WAFERS at Supplier’s cost and risk after obtaining a return authorization number from SUPPLIER in writing. PI shall provide SUPPLIER with a report specifying the reason for such rejection. SUPPLIER shall provide either a refund, or a replacement lot of the Wafers within [* *