Foundry Agreement - Semiconductor Manufacturing International Corporation

Exhibit 10.1


CONFIDENTIAL


FOUNDRY AGREEMENT This Foundry Agreement is entered into as of August 31, 2007 (the " Effective Date" ), by and between Semiconductor Manufacturing International Corporation, a Cayman Islands company, on behalf of itself and its Affiliates, including without limitation the Facilities (as defined below) (" SMIC" ), and Spansion LLC, a limited liability company organized in the State of Delaware, on behalf of itself and its Affiliates (" Spansion" ). In consideration of the mutual covenants and conditions contained herein, the Parties agree as follows: 1. DEFINITIONS

The following terms shall have the following meanings under the Agreement:

1.1 " Affiliate" shall mean, with respect to any entity, any other entity that directly or indirectly Controls, is Controlled by or under common Control with such entity.

1.2 " Capacity Plan" has the meaning set forth in Section 10.2.

1.3 " Charge Trapping Storage Technology" has the meaning set forth in Section 3.3.

1.4 " Confidential Information" means any information obtained by one Party from the other in connection with this Agreement which is in written, graphic, machine readable or other tangible form and is marked " Confidential" , " Proprietary" or in some other manner to indicate its confidential nature. Confidential Information may also include oral information disclosed by one Party to the other pursuant to this Agreement, provided that such information is designated as confidential at the time of disclosure and either has previously been provided in an appropriately marked writing or is reduced to a written summary by the disclosing Party, within thirty (30) days after its oral disclosure, which is marked in a manner to indicate its confidential nature and delivered to the receiving Party. Such Confidential Information includes, but is not limited to, technical information transferred hereunder, and all copies and derivatives thereof, and information received as a consequence of rendering or receiving technical assistance, owned or controlled by either Party, which relates to its past, present or future activities with respect to the subject matter of this Agreement, provided that if such Confidential Information is disclosed by one of the Parties to the other Party in written and/or graphic or model form, or in the form of a computer program or data base, or any derivation thereof, the disclosing Party must designate it as confidential, in writing, by an appropriate legend, together with the name of the Party so disclosing it, such as Spansion Confidential Proprietary or SMIC Confidential Proprietary Information.

1.5 " Contract Wafers" means Wafers manufactured by SMIC for Spansion, including unsorted Wafers, qualification Wafers, test Wafers, Risk Start Wafers and un-diced Wafers, the individual Die which are Spansion Products and which are manufactured using the applicable Spansion Process.

1.6 " Control" shall mean: (a) the legal, beneficial, or equitable ownership, directly or indirectly, of at least 50% of the aggregate of all voting equity interests in an entity; (b) the right to appoint, directly or indirectly, a majority of the board of directors; (c) the right to control, directly or indirectly, the management or direction of the entity by contract or corporate governance document.

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1.7 " Die" means an individual integrated circuit or components which when completed create an integrated circuit.

1.8 " Facilities" means the SMIC physical manufacturing and managed facility located at [*******], and such other facilities owned or controlled by SMIC as may be qualified by Spansion (and specifically approved by Spansion in writing) to produce Contract Wafers for Spansion. 1.9 " Foundry Services" has the meaning set forth in Section 2.1. 1.10 " Gross Die per Wafer" means the total quantity of Die candidates on each Wafer, whether or not the Die is operational when the Wafer has completed the manufacturing process.

1.11 " Improvements" means with respect to any Technology, all discoveries, innovations, improvements, enhancements, derivative works, or modifications of or to such Technology.

1.12 " Intellectual Property Rights" means any and all: (a) copyrights, mask work rights, trademarks, and patents; (b) rights relating to innovations, know-how, trade secrets, and confidential, technical, and non-technical information; (c) moral rights, author' s rights, and rights of publicity; and (d) other industrial, proprietary and intellectual property related rights anywhere in the world, and all applications for, renewals and extensions of the foregoing now or hereafter filed, regardless of whether or not such rights have been registered with the appropriate authorities in such jurisdictions in accordance with the relevant legislation. 1.13 " Jointly Developed Technology" means any New Technology that is written, created, or otherwise made or acquired not solely by one or more employees of one Party but is created jointly by employees or contractors of Spansion together with employees or contractors of SMIC during and in the course of the transactions contemplated by this Agreement provided that: (a) with respect to copyrightable material, each contributing Party prepared the work with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole; (b) with respect to inventions subject to patent protection, each contributing Party made some original contribution to the inventive thought and to the final solution; and (c) with respect to matter subject to trade secret protection, each contributing Party made substantial contributions to such matter.

1.14 " Lot" means a group of Contract Wafers which are processed simultaneously. Each Lot will be assigned a specific alpha/numeric identification that distinguishes it from any other group that contains the same type of Die so that each Lot can be separately identified. 1.15 " Minimum Yield" means, with respect to a particular Sorted Contract Wafer, the minimum acceptable Yield for such Sorted Contract Wafer as set forth in the corresponding Product Supplement.


[*******] Confidential treatment requested.


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1.16 " Net Die per Wafer" means the total quantity of Die on a Sorted Contract Wafer that pass the Probe Program and the requirements of Section 5.2 applicable to that Sorted Contract Wafer.

1.17 " New Technology" means Technology developed under this Agreement during the Term by or for either party that does not constitute (i) an Improvement to the Pre-Existing Spansion Technology; (ii) an Improvement to the Pre-Existing SMIC Technology or (iii) Charge Trapping Storage Technology.

1.18 " Non-Performance" means the inability of SMIC to completely fulfill Spansion production Purchase Orders within SMIC' s standard order leadtime.

1.19 " Probe Program" means the specific set of electrical and mechanical tests provided by Spansion when necessary.

1.20 " Process Specifications" mean the technical specifications provided by Spansion for the Spansion Process as further described and delivered as set forth in the applicable Process Supplement. 1.21 " Process Supplement" means a written exhibit to this Agreement in a form substantially as attached hereto as Exhibit A1, duly executed by the Parties that sets forth the particular terms and conditions pursuant to which a specific Spansion Process will be implemented at the Facilities and which exhibit is sequentially identified (i.e., as Exhibit A1 , Exhibit A2 ) for each such Spansion Process and, as applicable, sets forth or includes as an attachment: (a) a description of the particular Spansion Process to be implemented and the specifications therefore; (b) the particular Facilities at which the Spansion Process is to be implemented; (c) the implementation schedule and/or implementation milestones; (d) any Foundry Services not otherwise set forth herein to be provided; (e) the Technology to be provided by the Parties; and (f) any fees, reimbursements or cost allocations in connection with such implementation other than as set forth herein.

1.22 " Product Specifications" mean the technical specifications provided by Spansion for the Spansion Product as further described and delivered as set forth in the applicable Product Supplement. 1.23 " Product Supplement" means a written exhibit to this Agreement in a form substantially as attached hereto as Exhibit B1, as may be duly executed by the Parties from time to time that sets forth particular terms and conditions pursuant to which specific Contract Wafers will be provided pursuant to this Agreement and which exhibit is sequentially identified (i.e., as Exhibit B1 , Exhibit B2 ) for each such Contract Wafer and, as applicable, sets forth or includes as an attachment: (a) a description of the particular Spansion Product to be manufactured on the Contract Wafers to be provided and the specifications therefore; (b) the applicable Spansion Process to be used; (c) any Foundry Services not otherwise set forth herein to be provided; (d) the applicable Probe Program (or process for determining such program); (e) the Quality Standards; (f) the implementation schedule; (g) any SMIC qualification plan, qualification acceptance criteria and SMIC loading plan; (h) the applicable Target Yield and Minimum Yield; (i) any Technology to be provided by the Parties; and (j) the pricing for the Contract Wafers.


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1.24 " Purchase Order" has the meaning set forth in Section 11.1.

1.25 " Quality Standards" has the meaning set forth in Section 4.1. 1.26 " Risk Start Wafers" means any fab wafer lot started before all acceptable technology or product qualification tests including reliability and quality have been completed.

1.27 " Scrap" means any Wafer or Die, in any stage of completion, without regard to its ability to function, that is not in conformance with the requirements of this Agreement for Contract Wafers to be sold to Spansion.

1.28 " Sorted Contract Wafer" means Contract Wafers that have been sorted in accordance with the terms of Section 5.2 and the applicable Product Supplement. 1.29 " Spansion Product" means a proprietary integrated circuit product of Spansion set forth on a Product Supplement (including all Technology embodied in and related to the functionality of such device except as may be called out in a Product Supplement) that conforms to the applicable Product Specification and the logic design or architecture provided to SMIC by Spansion hereunder, including all updates thereto.

1.30 " Spansion Process" means the proprietary wafer manufacturing process of Spansion set forth on a Process Supplement (i.e., the process for converting a raw Wafer into a finished Wafer, including Wafer preparation and Wafer processing), but not including: (a) Technology related to the circuitry contained within, or the functionality of, the Spansion Product so produced on a Die by such manufacturing and process technology, such as, by way of example only, the memory cell, program/erase algorithms, layout design or architecture of the circuitry of the memory device or circuitry and (b) SMIC Technology .

1.31 " Spansion Process Technology" shall include process technology (including Spansion Process), electrical design rules, process design rules, process qualification, Product(s) qualification, certain manufacturing process and methodology, if any, and any and all license rights including without limitation, have made rights, to manufacture the Spansion Contract Wafers, Sorted Contract Wafers and Spansion Product, in all cases as transferred by Spansion to SMIC pursuant to this Agreement. 1.32 " Target Yield" means, with respect to a particular Sorted Contract Wafer, the Target Yield for such Sorted Contract Wafer as set forth in the applicable Product Supplement, subject to post qualification confirmation and adjustment.

1.33 " Technology" means any and all technical information, specifications, drawings, records, documentation, works of authorship or other creative works, ideas, algorithms, models, databases, ciphers/keys, systems architecture, network protocols, research, development, and manufacturing information, software (including object code and source code), application programming interfaces (APIs), innovations, logic designs, circuit designs, technical data, processes and methods.


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1.34 " Wafer" means the direct material substrate (raw material) which as a result of the semiconductor fabrication process is incrementally transformed to consist of several operational integrated circuit products in unpackaged form.

1.35 " Yield" means the percentage represented by Net Die per Wafer divided by Gross Die per Wafer.

2. SERVICES TO BE PROVIDED

2.1 Foundry Services . Subject to the terms of this Agreement and unless Spansion otherwise agrees in writing, SMIC shall (a) manufacture solely for, and sell and deliver to, Spansion the Contract Wafers, Sorted Contract Wafers and Spansion Product, as applicable, using 300mm manufacturing processes, or such other manufacturing processes as agreed upon from time to time, (b) at Spansion' s request, perform mask-making (and photolithography optimization), (c) perform Wafer probe testing and other associated manufacturing tasks including performing failure analysis, process engineering, and pre-production testing, qualification and optimization activities, as further described below, (d) transport and deliver Contract Wafers to Spansion' s chosen assembly, test, marking and packaging facilities and obtain and maintain all necessary import/export and customs clearances for such Contract Wafers; and (e) cooperate with Spansion to successfully conclude the other activities agreed upon by the Parties in writing and set forth in any Process Supplement or Product Supplement (collectively, the " Foundry Services" ). SMIC agrees to perform the Foundry Services in accordance with the terms and conditions of this Agreement. SMIC is obligated to follow direction given by Spansion as to the manufacture of Contract Wafers including direction regarding systems, data, or the movement of Contract Wafers. SMIC shall be obligated to follow the discipline, procedures, and system requirements as if it was an internal Spansion fab. Except as otherwise agreed in writing by the Parties, Spansion will be responsible for product design, assembly, final test, marking, packaging, distribution and sales of the Spansion Products and may perform or arrange for mask-making.

2.2 Site Restriction . All manufacturing of Contract Wafers will take place at the Facilities. If SMIC desires to manufacture Contract Wafers at another facility or transfer any Spansion Process Technology to another SMIC facility, it will give Spansion at least one hundred and eighty (180) days prior notice of the relocation to the new facility. If Spansion agrees to the transfer, the parties will mutually agree to a reasonable transition plan to avoid adverse impact on Spansion' s revenue stream. If Spansion notifies SMIC within ninety (90) days of its reasonable objection to the new location, SMIC will not transfer the manufacture of such materials to the new facility. Failure of the part of SMIC to give Spansion reasonable assurances of avoidance of an adverse impact on Spansion' s revenue stream shall be a basis for reasonable objection by Spansion to any such move. If an agreed upon transfer occurs, all transferred Contract Wafers and manufacturing processes will be re-qualified to the extent necessary. If the transfer to another facility occurs solely for SMIC' s convenience or for other causes not directly related to Spansion interests, SMIC shall bear the costs of the transfer. Any assistance by Spansion requested by SMIC which Spansion agrees to or deemed necessary by Spansion for any such transfer shall be paid for by SMIC at Spansion' s cost plus [*******].


[*******] Confidential treatment requested.


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2.3 Outsourcing/Delegation . SMIC may engage its Affiliates or third parties to perform certain ancillary Foundry Services (such as mask-making, wafer probe testing, Wafer transport, product engineering and support), provided, however, that SMIC shall: (a) actively oversee and monitor the provision of such ancillary Foundry Services; (b) remain primarily liable to Spansion for such Affiliates or third parties; (c) indemnify and hold Spansion harmless from any failure on the part of any SMIC' s Affiliates or such third parties to comply with the terms and conditions of this Agreement; and (d) not engage any affiliate or third party to provide Foundry Services in which such third party would receive or have access to any Spansion Confidential Information (or matter from which such information could be derived) unless (i) Spansion has approved such Affiliate or third party in writing, and (ii) such Affiliate or third party has agreed in writing to confidentiality obligations with respect to such Confidential Information which are at least as protective as those set forth herein. For the avoidance of doubt, SMIC shall not outsource or delegate to any Affiliate or third party the manufacture of Contract Wafers without Spansion' s permission nor shall this section otherwise alter SMIC' s obligation to manufacture Contract Wafer' s solely at the Facilities.

2.4 Execution of Supplements . From time to time during the Term of this Agreement, the Parties may execute one or more Process Supplements or Product Supplements as further described below. Each such Process Supplement or Product Supplement shall be subject to the terms and conditions set forth in this Agreement as if fully set forth therein, unless and to the extent the Parties expressly agree otherwise in writing. No Process Supplement or Product Supplement shall be binding upon either Party unless and until executed by the duly authorized representatives of each of the Parties. For avoidance of doubt, in the event of a conflict between the terms of this Agreement and any Process Supplement or Product Supplement, the terms of the applicable Process Supplement or Product Supplement shall control.

3. PROCESS TECHNOLOGY AND ASSISTANCE

3.1 Process Technology . Spansion desires to have SMIC manufacture the Contract Wafers at the Facilities using certain Spansion Process Technology, provided the Facilities meet Spansion' s specifications. To this end, the Parties shall execute from time to time during the term individual Process Supplements substantially in the form set forth in Exhibit A1 for each Spansion Process (e.g., for a particular process node) to be implemented at the Facilities. The initial Process Supplement will be provided by Spansion within fifteen (15) days after execution of this Foundry Agreement and attached hereto as Exhibit A1 .

(a) Process Specifications. With respect to each Process Supplement, Spansion shall deliver the specifications listed and described in the Process Supplement in accordance with the time schedule provided in such Process Supplement. Without limiting the foregoing, SMIC will contribute necessary technical resources and manpower for successfully establishing the Spansion Process at SMIC within the schedule set forth in such Process Supplement. SMIC agrees to use its best efforts to achieve the milestones or execute statements of work that may be identified in Process Supplements or as otherwise mutually agreed. If SMIC fails to meet the scheduled dates or milestones in a Process Supplement, SMIC shall provide Spansion with a recovery plan to meet future scheduled dates or milestones.


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(b) Phase-In Projects . SMIC agrees to implement each Spansion Process at the applicable Facilities in accordance with the program schedule set forth in the corresponding Process Supplement. Each Party shall promptly provide the other with notice as soon as possible after it has reason to believe it will be unable to timely deliver any required deliverable together with the reason for such delay and the date on which such Party reasonably expects to deliver any such required deliverable. The Parties agree that this Section shall not be construed to relieve a Party of its obligation to continue in the performance of its responsibilities notwithstanding any delay by the other Party.

3.2 Contract Wafer Technology . SMIC will use the Spansion Process Technology solely for performing Foundry Services relating to the manufacture of Contract Wafers for Spansion. The Parties will use the procedures set forth in the applicable Process Supplement and Product Supplement to implement Spansion' s Process Technology at SMIC, or agree upon changes to the Product Specifications, as appropriate. After a process for manufacturing Contract Wafers has been qualified, all changes to the qualified process will be made consistent with Spansion' s process change procedure. SMIC will not make any modifications to the Spansion Process Technology without Spansion' s prior written approval, unless specifically provided in a Process Supplement or Product Supplement. If SMIC needs to modify the Spansion Process Technology as implemented at the Facilities, SMIC will obtain the prior written approval of Spansion. A baseline will be established for each relevant process, with revision control, which will serve as the reference for all process changes.

3.3 Intellectual Property Rights . Notwithstanding anything to the contrary in this Agreement, in the event SMIC provides services to Spansion hereunder resulting in the conception, creation, or reduction to practice by SMIC, solely or in collaboration with others, of writings, software, drawings, designs, copyrightable material, mask works, inventions, improvements, developments, or discoveries (" Enhancements" ) during the course of this Agreement which relate in any manner to any nonvolatile memory technology employing a charge trapping mechanism that uses, by way of example and not limitation, one or more layers of nitride, oxidized nitride, oxide, or any other material as a charge trapping material, including without limitation the film itself and the associated process steps to form such charge trapping mechanism, including any processes or business related thereto (collectively referred to as " Charge Trapping Storage Technology" ), such Enhancements to the Charge Trapping Storage Technology shall be the sole property of Spansion as provided in Section 13.

3.4 Spansion Technology Improvements by SMIC . SMIC shall provide Spansion with prompt written notice with respect to any Technology or Intellectual Property Rights conceived, developed, or reduced to practice by or on behalf of SMIC that constitutes a Charge Trapping Storage Technology or an Improvement under Section 13.1(d). Thereafter, at Spansion' s request, SMIC shall make available to Spansion appropriate personnel with suitable knowledge and understanding of such Technology or Intellectual Property Rights to describe and explain such Technology or Intellectual Property Rights to designated Spansion personnel and to otherwise provide such Spansion personnel with sufficient information and materials to enable Spansion to implement and practice such Technology or Intellectual Property Rights. No Improvement by SMIC shall be implemented in the Spansion Process Technology without the prior written consent of Spansion.


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4. PRE-PRODUCTION QUALIFICATION AND ACCEPTANCE

4.1 Qualification Process . Spansion shall verify the applicable Spansion Process as implemented at the designated Facilities for all Contract Wafers, and shall agree upon the parametric, electrical, process flow, quality, and reliability specifications, as well as other standards or requirements that may be necessary for manufacturing the Contract Wafers as provided in the applicable Product Supplements (the " Quality Standards" ). Thereafter, Spansion and SMIC will execute the qualification plan for such Contract Wafers as set forth in the applicable Product Supplement.

4.2 Risk Start Wafers . Risk Start Wafers may be started and completed at the request of either party. The price of Risk Start Wafers will be shared by the parties. If Risk Start Wafers meet the applicable quality specifications and standards, Spansion shall pay the then current wafer price for Contract Wafers. If Risk Start Wafers fail to meet the applicable quality specifications and standards, the parties shall share the expense of such Risk Start Wafers with the party initiating the request for Risk Start Wafers bearing [*******] and the other party bearing [*******] of the then current wafer price for Contract Wafers. If Risk Start Wafers fail to meet the applicable quality specifications and standards, and both parties agreed to the production of Risk Start Wafers, then the parties shall share the expense of such Risk Start Wafers with each party bearing fifty percent (50%) of the then current wafer price for Contract Wafers. SMIC shall comply with all instructions regarding Risk Start Wafers. Risk Start Wafers shall be handled in the same manner as Contract Wafers absent specific instructions with the exception of shipping. Such Risk Start Wafers are not to be shipped until all qualification tests have been completed and a shipping instruction is given to SMIC by Spansion.

4.3 Qualification Sample Lots . SMIC will produce and transfer to Spansion the number of qualification sample Lots of the Contract Wafers as set forth in the applicable Product Supplement. Spansion will evaluate each Lot of qualification samples and will, using the acceptance criteria set forth in the Product Supplements, issue a notice of approval or disapproval of the qualification Lots within ninety (90) days of Spansion' s receipt of such Contract Wafers. If Spansion rejects qualification sample Lots, the Parties will jointly cooperate in developing a corrective action plan. Based on such plan, SMIC will manufacture additional Lots of sample qualification Wafers for Spansion' s evaluation. Spansion may purchase all qualification Wafers that are subsequently determined to meet the Product Specifications. SMIC shall not be entitled to ship production quantities of Lots to Spansion until SMIC receives written notice of qualification of the sample Contract Wafers from Spansion. 4.4 Pre-Production Termination . At any time prior to qualification, Spansion may terminate fabrication of any qualification Contract Wafers by giving SMIC written notice, which shall specify whether such Contract Wafers should be delivered to Spansion or scrapped. Upon receipt of such notice, SMIC will stop related fabrication at the conclusion of the manufacturing step in process. Following such termination SMIC may invoice Spansion pro-rata based on percentage of completion for such qualification Contract Wafers.


[*******] Confidential treatment requested.


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4.5 Process Establishment and Yield . After notice of process qualification has been sent by Spansion to SMIC:

(a) The Spansion Process may be further refined only with Spansion' s prior written approval. SMIC will obtain written approval of Spansion before making any modifications to the manufacturing process, materials, or tooling, subject to the process change procedures set forth in the Process Supplement. (b) The Parties shall confirm the Target Yield and Minimum Yield for the Contract Wafers as set forth in applicable Product Supplements. Compliance with the Target Yield standards is a performance obligation of SMIC under this Agreement. Without limiting the foregoing, Spansion shall have the right to reject any individual Contract Wafer or its entire Lot which do not meet the Minimum Yield.

5. PRODUCTION QUALITY, RELIABILITY AND CONTROL

5.1 Quality Culture . SMIC agrees that the Facilities will become ISO/TS 16949:2002 qualified within six (6) months of the Effective Date of this Agreement and that SMIC will drive a quality culture within the Facilities. SMIC' s quality systems shall include online statistical process control (SPC) with statistically valid limits in accordance with industry standard best practices. SMIC will establish a culture which responds to established limits and will notify Spansion immediately of any violation, trend toward violation, or deviation of an established SPC limit, including without limitation any in process test failures. SMIC will stop the manufacturing line if these limits are found to be outside acceptable tolerances. SMIC will drive excellence in quality with continuous improvement methods.

SMIC will maintain a mutually acceptable " documented quality system," such as an ISO9002 certified qualified program or equivalent, at each SMIC Facility, and will make such documented quality system available for Spansion' s review. SMIC' s documented quality system will include, but is not limited to, program ...