<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-16617
ALTERA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0016691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Innovation Drive, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 544-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes [X] No [ ]
Number of shares of common stock outstanding at May 5, 1999: 99,131,661
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ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1999
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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ALTERA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 178,880 $ 131,029
Short-term investments 412,015 448,077
---------- ----------
Total cash, cash equivalents,
and short-term investments 590,895 579,106
Accounts receivable, net 52,167 56,138
Inventories 74,530 69,869
Deferred income taxes 70,644 69,644
Other current assets 21,539 24,776
---------- ----------
Total current assets 809,775 799,533
Property and equipment, net 151,732 152,320
Investments and other assets 172,251 141,478
---------- ----------
$1,133,758 $1,093,331
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,664 $ 14,479
Accrued liabilities 18,318 16,615
Accrued compensation 12,974 19,356
Deferred income on sales to distributors 145,620 161,160
Income taxes payable 4,700 --
---------- ----------
Total current liabilities 198,276 211,610
---------- ----------
Stockholders' equity:
Common stock 98 98
Additional paid-in capital 320,968 314,182
Retained earnings 614,416 567,441
---------- ----------
Total stockholders' equity 935,482 881,721
---------- ----------
$1,133,758 $1,093,331
========== ==========
</TABLE>
See accompanying notes to financial information.
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ALTERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 186,399 $ 157,216
--------- ---------
Costs & expenses:
Cost of sales 69,154 60,090
Research and development 17,023 14,407
Selling, general and administrative 32,320 28,138
--------- ---------
Total costs and expenses 118,497 102,635
--------- ---------
Income from operations 67,902 54,581
Interest and other income, net 4,618 152
--------- ---------
Income before income taxes and equity investment 72,520 54,733
Provision for income taxes 23,569 17,787
--------- ---------
Income before equity investment 48,951 36,946
Equity in loss of WaferTech (1,976) (1,811)
--------- ---------
Net income $ 46,975 $ 35,135
========= =========
EARNINGS PER SHARE:
Basic $ 0.48 $ 0.40
========= =========
Diluted $ 0.46 $ 0.37
========= =========
WEIGHTED AVERAGE SHARES:
Basic 97,933 88,885
========= =========
Diluted 102,687 101,961
========= =========
</TABLE>
See accompanying notes to financial information.
4
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ALTERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 46,975 $ 35,135
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in loss of WaferTech 1,976 1,811
Depreciation and amortization 7,448 7,636
Deferred income taxes (1,000) (1,500)
Changes in assets and liabilities:
Accounts receivable, net 3,971 214
Inventories (5,117) 1,625
Other assets 6,587 (5,189)
Accounts payable and accrued liabilities (2,494) (1,995)
Deferred income on sales to distributors (15,540) (1,607)
Income taxes payable 18,716 16,670
--------- ---------
Cash provided by operating activities 61,522 52,800
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (5,663) (5,228)
Net change in short-term investments 36,062 6,078
Investment in WaferTech (37,500) --
Net change in long-term investments -- 1,126
--------- ---------
Cash provided by (used for) investing activities (7,101) 1,976
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 6,276 3,792
Repurchase of common stock (12,846) (17,026)
--------- ---------
Cash used for financing activities (6,570) (13,234)
--------- ---------
Net increase in cash and cash equivalents 47,851 41,542
Cash and cash equivalents at beginning of period 131,029 22,761
--------- ---------
Cash and cash equivalents at end of period $ 178,880 $ 64,303
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 976 $ 221
</TABLE>
See accompanying notes to financial information.
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ALTERA CORPORATION
NOTES TO FINANCIAL INFORMATION
(Unaudited)
Note 1 - Interim Statements:
In the opinion of the Company, the accompanying unaudited financial data
contains all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial information included therein. This
financial data should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report to
Stockholders for the year ended December 31, 1998. Results for the interim
period presented are not necessarily indicative of results for the entire year.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Note 2 - Balance Sheet Details (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Inventories:
Purchased parts and raw materials $ 81 $ 65
Work-in-process 49,454 46,207
Finished goods 24,995 23,597
--------- ---------
$ 74,530 $ 69,869
========= =========
Property and equipment:
Land $ 20,496 $ 20,496
Building 80,572 80,338
Equipment and software 120,141 115,332
Office furniture and fixtures 10,486 10,287
Leasehold improvements 1,218 1,183
--------- ---------
232,913 227,636
Accumulated depreciation and amortization (81,181) (75,316)
--------- ---------
$ 151,732 $ 152,320
========= =========
</TABLE>
Note 3 - Common Stock Split:
On April 21, 1999, the Company declared a two-for-one stock split in the form of
a 100 percent stock dividend to holders of record of the Company's common stock
on May 4, 1999. The dividend shares will be distributed to stockholders on May
19, 1999. The pro forma earnings per share and weighted average shares
outstanding given the effect of the stock split are as follows (shares in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
EARNINGS PER SHARE:
Basic $ 0.24 $ 0.20
=========== ===========
Diluted $ 0.23 $ 0.18
=========== ===========
WEIGHTED AVERAGE SHARES:
Basic 195,866 177,770
=========== ===========
Diluted 205,374 203,922
=========== ===========
</TABLE>
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ALTERA CORPORATION
NOTES TO FINANCIAL INFORMATION (continued)
(Unaudited)
Note 4 - Earnings Per Share:
Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period and excludes the dilutive effect of stock options. Diluted earnings
per share gives effect to all dilutive potential common shares outstanding
during a period. In computing diluted earnings per share, the tax benefit
resulting from employee stock transactions and the average stock price for the
period are used in determining the number of shares assumed to be purchased from
exercise of stock options.
A reconciliation of basic and diluted earnings per share is presented below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Basic:
Net income $ 46,975 $ 35,135
======== ========
Weighted average common shares outstanding 97,933 88,885
======== ========
Basic earnings per share $ 0.48 $ 0.40
======== ========
Diluted:
Net income $ 46,975 $ 35,135
Convertible notes interest, net of income taxes and capitalized interest -- 2,232
-------- --------
$ 46,975 $ 37,367
======== ========
Weighted average common shares outstanding 97,933 88,885
Dilutive stock options 4,754 4,086
Assumed conversion of notes -- 8,990
-------- --------
Weighted average common shares outstanding 102,687 101,961
======== ========
Diluted earnings per share $ 0.46 $ 0.37
======== ========
</TABLE>
Note 5 - Common Stock Repurchase:
In March 1999, the Company repurchased 260,000 shares of common stock for an
aggregate cost of $12.8 million. The repurchased shares were retired upon
acquisition. Since the inception of the repurchase program through March 31,
1999, the Company has repurchased a total of 2,370,000 shares.
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ALTERA CORPORATION
NOTES TO FINANCIAL INFORMATION (continued)
(Unaudited)
Note 6 - Convertible Subordinated Notes:
In June 1995, the Company issued $230.0 million of convertible subordinated
notes (the "Notes") due in June 2002 and bearing an interest rate of 5.75%,
payable semiannually. The Notes were convertible into shares of the Company's
common stock at a price of $25.59 per share. On May 15, 1998, the Company called
for the redemption of the Notes effective June 16, 1998. As a result,
substantially all of the Notes were converted into 8,988,649 shares of common
stock with the remaining Notes redeemed at a price of $1,033.06 per $1,000
principal amount of the Notes. Total semi-annual interest paid on the Notes
during 1998 was $6.5 million. The unamortized debt issuance costs as of the
redemption date of approximately $3.1 million was recorded as a reduction to
additional paid-in-capital.
Note 7 - New Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
accounting and reporting on derivative instruments for periods beginning after
June 15, 1999 and early adoption is permitted. SFAS No. 133 requires that all
derivative instruments be recognized in the balance sheet as either assets or
liabilities and measured at fair value. Furthermore, SFAS No. 133 requires
current recognition in earnings of changes in the fair value of derivative
instruments depending on the intended use of the derivative and the resulting
designation. The Company expects that its adoption of SFAS No. 133, which will
become effective in fiscal year 2000, will not have a material effect on the
Company's financial statements.
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ALTERA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales. Sales during the first quarter of 1999 were $186.4 million,
18.6% higher than the $157.2 million reported for the same period last year.
Sales in the first quarter of 1999 increased from the same period last year
primarily due to increases in sales of New and Mainstream products, which were
partially offset by lower sales of Mature products. Sales of New products
increased to $40.0 million in the first quarter of 1999 from $8.9 million in the
first quarter of 1998 while sales of Mainstream products increased to $69.9
million from $43.2 million. During the same periods, sales of Mature products
decreased to $60.2 million from $90.2 million. Management expects that the
decline in sales of the Mature products, which presently comprise approximately
32.3% of the Company's revenue base, will continue. The Company's ability to
maintain or increase sales in the future is dependent on sales of New and
Mainstream product families increasing more rapidly than the decline in sales of
Mature product families. While management is optimistic that New and Mainstream
product sales will increase, there can be no assurances that New and Mainstream
product sales growth will offset the decline in sales of Mature products.
Sales during the first quarter of 1999 increased over the comparable
quarter a year ago in North America, Japan and Asia Pacific, while sales in
Europe declined slightly. Sales during the first quarter of 1999 as compared to
the first quarter of 1998 from North America increased to $105.2 million from
$86.9 million, Japan increased to $35.7 million from $28.1 million, and Asia
Pacific increased to $9.7 million from $5.6 million, while Europe decreased
slightly to $35.8 million from $36.6 million. The poor economic environment in
Japan and Asia Pacific may limit the Company's future sales of its products in
these regions, particularly in the communications segment. As the economic
environment in Japan and Asia Pacific remains unfavorable, the Company's overall
sales may be adversely impacted as a result.
Product Categories. In the third quarter of 1998 the composition of the
Company's product categories was changed and prior data reported here have been
restated to reflect those changes. New products now consist of the Company's
3.3-volt (or lower) families, are manufactured on a 0.35-micron (or finer)
geometry and are made up of the FLEX 10KA/10KE, FLEX 6000/6000A, MAX 7000A/7000B
and APEX families. Mainstream products now include the MAX 7000S, MAX 9000 and
FLEX 10K families. Mature products now consist of the Classic, MAX 5000, MAX
7000 and FLEX 8000 families. Other products include Tools, FLASHlogic,
Configuration Devices, MPLDs, and FSPs.
Gross Margin. The gross margin as a percentage of sales of 62.9% was up
from 61.8% in the same period a year ago. The increase was primarily
attributable to higher margins earned on the increasing mix of the Company's New
products.
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Yields measured as a total for all product families increased in the
first quarter of 1999 over the same period a year ago primarily due to improved
yields on FLEX 10K and FLEX 10KA products. In addition, the Company achieved
additional cost reductions on its FLEX 10KA family through new wafer process
technologies (die shrinks). The Company continues to spend significant research
and development resources to improve production yields on both new and
established products. Difficulties in production yields can often occur when the
Company is beginning production of new products or transitioning to new
processes. These difficulties can potentially result in significantly higher
costs and lower product availability. Management expects to continue to
introduce new and established products using new process technologies and may
encounter similar start-up difficulties during the transition to such process
technologies. Further, production throughput times vary considerably among the
Company's wafer suppliers, and the Company may experience delays from time to
time in processing some of its products which also may result in higher costs
and lower product availability.
Research and Development. Research and development expenditures were
$17.0 million in the first quarter of 1999, which is higher than the $14.4
million for the same period a year ago. Relative to the same period a year ago,
expenses increased primarily as a result of increased headcount, spending on
masks and wafers and outside development services. This increased spending
relates to the development of new products including FLEX 10KA/10KE, MAX
7000A/7000B and APEX, as well as the Quartus software. The research and
development expenditures include expenditures for labor, prototype and
pre-production costs, development of process technology, development of software
to support new products and design environments, and development of new
packages. As a percentage of sales, research and development expenditures were
9.1% and 9.2% for the first quarters of 1999 and 1998, respectively.
Historically, the level of research and development expenditures as a percentage
of sales has fluctuated in part due to the timing of the purchase of masks and
wafers used in development and prototyping of new products. The Company expects
that, in the long term, research and development expenses will increase in
absolute dollars but may fluctuate as a percentage of sales.
The Company expects to continue to make significant investments in the
development of FLEX 10KA/10KE, MAX 7000A/7000B, APEX and Quartus software.
During the first quarter of 1999, the Company shipped its newest family of
devices, APEX, and its new fourth generation software design tool, Quartus. APEX
devices utilize a new architecture for programmable logic and address higher
density designs. APEX devices are exclusively supported by the Company's new
software design tool, Quartus. The commercial success of the APEX family is
dependent on the acceptance of its use in high density designs and the
successful introduction and acceptance of the Quartus design software.
Management expects both products to be successful in the market, however, it can
give no assurances that this will be the case. The Company also continues to
focus its efforts on the development of new programmable logic chips, related
development software and hardware, and advanced semiconductor wafer fabrication
processes. However, there can be no assurance that the Company will accomplish
its goals in the development and subsequent introduction of new products and
manufacturing processes. Furthermore, there is no assurance that these products
will achieve
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market acceptance, that the new manufacturing processes will be successful, or
that the suppliers will provide the Company with the quality or quantity of
wafers and materials that the Company requires. The Company must continue to
develop and introduce new products in a timely manner to help counter the
industry's historical trend of declining prices as products mature.
Selling, General and Administrative. First quarter selling, general and
administrative expenses of $32.3 million were $4.2 million higher than the same
quarter a year ago. The increase in selling, general and administrative expenses
was mainly driven by increased personnel expenses for marketing and
administration, higher commission and incentive expenses associated with higher
sales, and increased legal expenses. Selling, general, and administrative
expenses include commission and incentive expenses, advertising and promotional
expenditures, legal expenses and salary expenses related to field sales,
marketing and administrative personnel.
Income from Operations. First quarter 1999 operating income of $67.9
million, representing 36.4% of sales, was higher than the $54.6 million for the
same period a year ago, representing 34.7% of sales. The year-to-year increase
in operating income, as a percentage of sales, was primarily due to improvements
in gross margin and to a lesser degree reduced operating expenses (selling,
general and administrative plus research and development) as a percentage of
sales.
Interest and Other Income, Net. Interest and other income was $4.6
million for the first quarter of 1999, which is higher than the $152,000 for the
same period a year ago. Interest and other income in the first quarter of 1999
increased from the same period last year primarily due to the reduction in
interest expense related to the conversion of the convertible subordinated notes
and the increase in interest income related to higher cash balances available
for investment. The increase in interest and other income was partially offset
by a $1.2 million charge attributed to the write-off of an equity investment
during the first quarter of 1999. Interest and other income mainly consists of
interest income on cash balances available for investment.
Provision for Income Taxes. The Company's effective tax rate was 32.5%
for the three months ended March 31, 1999 and 1998.
Equity Investment. In June 1996, the Company, TSMC and several other
partners formed WaferTech, LLC ("WaferTech"), a joint-venture company, to build
and operate a wafer manufacturing plant in Camas, Washington. In return for a
$140.4 million cash investment, the Company received an 18% equity ownership in
the joint-venture company and certain rights and obligations to procure up to
27% of the factory's output at market prices. In January 1999, the Company
purchased from Analog Devices, Inc. an additional 5% equity ownership interest
in WaferTech for approximately $37.5 million, increasing its ownership interest
to 23% and enabling the Company to procure up to 35% of the factory's output at
market prices. The Company accounts for this investment under the equity method
based on the Company's ability to exercise significant influence on the
operating and financial policies of WaferTech. The
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Company's equity in the net loss of WaferTech was $2.0 million for the first
quarter of 1999 as compared to $1.8 million for the same period a year ago.
Future Results. Future operating results will depend on the Company's
ability to develop, manufacture and sell complex semiconductor components and
programming software that offer customers greater value than solutions offered
by competing vendors. The Company's efforts in this regard may not be
successful. The Company plans to sustain future growth by offering programmable
chips for applications that are presently served by other ASIC vendors. These
vendors have well-established market positions and a solution that has been
proven technically feasible and economically competitive over several decades.
There can be no assurance that the Company will be successful in displacing ASIC
vendors in the targeted applications and densities. Furthermore, other
programmable logic vendors are targeting these applications and may be
successful in securing market share to the exclusion of the Company. Moreover,
standard cell technologies are increasingly used by the Company's customers to
achieve greater integration in their systems; this may not only impede the
Company's efforts to penetrate the ASIC market but may also displace the
Company's products in the applications that it presently serves. The Company's
future growth will depend on its ability to continue to expand the programmable
logic market.
The Company is highly dependent upon subcontractors to manufacture
silicon wafers and perform assembly, test and shipment to end customers. The
Company is also dependent on its wafer foundry partners to improve process
technologies in a timely manner to enhance the Company's product designs and
cost structure. Their inability to do so could have a severe negative impact on
the Company. The vast majority of the Company's products are manufactured and
shipped to customers by subcontractors located in Asia, principally Japan,
Taiwan, Korea, the Philippines, Hong Kong and Malaysia. Several of these
countries are experiencing significant economic disruptions including volatile
exchange rates, rising unemployment, insolvencies and government fiscal
austerity programs. Disruptions or adverse supply conditions arising from market
conditions, political strife, labor disruptions and other factors could have
adverse consequences on the Company's future results. Natural or man-made
disasters, normal process fluctuations and variances in manufacturing yields
could have a severe negative impact on the Company's operating capabilities. The
Company has sought to diversify its operating risk by participating in the
WaferTech joint venture to manufacture silicon wafers with other partners in
Camas, Washington. In October 1998 production began at the WaferTech joint
venture. WaferTech is currently in the initial stages of production volumes and
has yet to make a profit. Although the Company expects future WaferTech
production volumes and profitability to increase, there is currently an
oversupply of semiconductor fabrication capacity. There can be no assurances
that the worldwide supply and demand for semiconductor wafers will be such that
WaferTech will make a profit and that WaferTech will not continue to have an
adverse impact on the Company's operating results.
Also, a number of factors outside of the Company's control, including
general economic conditions and cycles in world markets, exchange rate
fluctuations or a lack of growth in the Company's end markets
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could adversely impact future results. An important component of the Company's
growth, the networking equipment market, has been growing at a slower rate in
recent years. Should this trend continue, the Company's growth in future years
may be limited.
Because of the foregoing and other factors that might affect the
Company's operating results, past financial performance should not be considered
an indicator of future performance, and investors should not use historical
trends to anticipate future results. In addition, the cyclical nature of the
semiconductor industry and other factors have resulted in a highly volatile
price of the Company's common stock.
Liquidity and Capital Resources
During the first quarter of 1999, the Company's cash, cash equivalents
and short-term investments increased by $11.8 million as a result of an increase
in cash and cash equivalents of $47.9 million, offset by a decrease in
short-term investments of $36.1 million.
Operating Activities. During the first quarter of 1999, the Company's
operating activities generated net cash of $61.5 million. This increase was
primarily attributable to net income of $47.0 million adjusted by non-cash items
including depreciation and amortization of $7.5 million and the equity in loss
in WaferTech of $2.0 million. In addition, positive cash flow was generated from
a decrease in accounts receivable and other assets of $10.6 million and an
increase in income taxes payable of $18.7 million. These items were partially
offset by an increase in inventories and deferred income taxes of $6.1 million
and a decrease in accounts payable, accrued liabilities and deferred income on
sales to distributors of $18.0 million.
Investing Activities. During the first quarter of 1999, the net cash
used by the Company in its investing activities was $7.1 million. The Company
invested $5.7 million mainly for manufacturing and data processing equipment and
software. Also, the Company purchased from Analog Devices, Inc. an additional 5%
equity ownership interest in WaferTech for approximately $37.5 million. Lastly,
the Company had a $36.1 million (net) reduction in short-term investments.
Financing Activities. During the first quarter of 1999, the net cash
used by the Company in its financing activities was $6.6 million. The Company
repurchased 260,000 shares of its common stock for $12.8 million, partially
offset by net proceeds of $6.3 million from the issuance of approximately
762,000 shares of common stock to employees through various option and employee
stock purchase plans.
Financial condition. The Company has historically financed its
operations primarily through cash generated from operations.
As of March 31, 1999, the Company had $590.9 million of cash, cash
equivalents and short-term investments available to finance future growth. The
Company believes the available sources of funds and
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<PAGE> 14
cash expected to be generated from operations will be adequate to finance
current operations and capital expenditures for at least the next year.
Impact of Currency and Inflation. The Company purchases the majority of
its materials and services in U.S. dollars, and its foreign sales are transacted
in U.S. dollars. However, Altera does have Japanese yen denominated purchase
contracts with Sharp Corporation of Japan for processed silicon wafers. In
recent years, the Company did not hold or purchase any foreign exchange
contracts for the purchase or sale of Japanese yen. During the first half of
1998, the Company entered into a forward exchange contract to purchase Malaysian
ringgit to meet a portion of its firm contractual commitments for the
construction of its Malaysian design and manufacturing center. At the end of the
first quarter of 1999, the Company had no open forward contracts. The Company
may choose to enter into similar contracts from time to time should conditions
appear favorable. Effects of inflation on Altera's financial results have not
been significant.
Year 2000 Compliance
Most computer programs were designed to perform data computations on
the last two digits of the numerical value of a year. When a computation
referencing the year 2000 is performed, these systems may interpret "00" as the
year 1900 and could either stop processing date-related computations or could
process them incorrectly. Computations referencing the year 2000 might be
invoked at any time, but are likely to begin occurring in the year 1999.
Pursuant to its year 2000 ("Y2K") compliance program, the Company has
undertaken various initiatives intended to ensure that its computer equipment
and software will function properly with respect to dates in the year 2000 and
thereafter. As used herein, the term "computer equipment and software" includes
systems that are commonly considered information technology ("IT") systems
(e.g., accounting, data processing and telephone systems) as well as those that
are not commonly considered IT systems (e.g., manufacturing equipment, building
and facility operations systems). In addition, the Company has also reviewed the
software products it sells, and has upgraded and will upgrade such products to
offer full Y2K compliance. Based upon its identification and assessment efforts
to date, the Company anticipates that by the end of June 1999, all computer
equipment and software that are material to Altera's internal business
operations and all software products that Altera sells will be fully compliant
with Y2K standards, specifically DISC PD-2000-1 as published by the British
Standards Institute. The Company has not incurred and does not anticipate that
it will incur material expenditures for the remediation of any Y2K issues.
The Company could be adversely impacted by Y2K issues faced by major
distributors, suppliers, customers, vendors and financial service organizations
("Third Parties") with which the Company interacts. The most reasonably likely
worst case scenario for the Company with respect to the Y2K problem is the
failure of a major distributor or supplier to be Y2K compliant such that the
distribution of Altera products or the supply of components for such products is
interrupted temporarily. This could result in the Company not being able
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to produce or distribute product for a period of time, which in turn could
result in lost sales and profits. Based solely on responses received from these
Third Parties, the Company has no reason to believe that there will be any
material adverse impact on the Company's financial condition or results of
operations relating to any Y2K issues of such Third Parties. However, if the
responses received from these Third Parties are not accurate or circumstances
change, then there could be an unforeseen material adverse impact on the
Company's financial condition and results of operations. Management will
continue to determine the impact, if any, that Third Parties who are not Y2K
compliant may have on the financial condition or results of operations of the
Company.
The Company has charged its business resumption planning committee to
evaluate Y2K business disruption scenarios, coordinate the establishment of Y2K
contingency plans, and identify and implement preemptive strategies. Contingency
plans for critical business processes will be developed by the end of June 1999.
Safe Harbor Notice
This Quarterly Report on Form 10-Q contains "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward looking statements
are generally written in the future tense and/or are preceded by words such as
"expects," "suggests," "believes," "anticipates," or "intends." The Company's
future results of operations and the other forward looking statements contained
in this Report involve a number of risks and uncertainties, many of which are
outside the Company's control. Some of these risks and uncertainties are
described in proximity to forward looking statements that are contained in the
section of this Report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Factors that could cause actual
results to differ materially from projected results include but are not limited
to risks associated with the Company's ability to achieve continued cost
reductions and maintain gross margins, the Company's ability to achieve and
maintain appropriate inventory mix and levels and respond successfully to
changes in product demand, the ability of price reductions to increase demand
and strengthen the Company's market share over the long term, successful
development and subsequent introduction of new products through investment in
research and development and application of new process technologies to old and
new product lines, market acceptance of the Company's new products and continued
demand for the Company's existing products, litigation involving intellectual
property rights, issuance of new patents and acquisition of other intellectual
property rights, the Company's ability to finance its operations and
expenditures, the ability of Third Parties to be Y2K compliant, and general
market conditions. Additional risk factors are disclosed in the Company's 1998
Annual Report on Form 10-K on file with the Securities and Exchange Commission.
15
<PAGE> 16
ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1999
PART II
OTHER INFORMATION
16
<PAGE> 17
Item 1. Legal Proceedings
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counterclaimed against the Company in Delaware, asserting defenses
and seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. Subsequently, the
Delaware case has been transferred to California. Due to the nature of the
litigation with Xilinx and because the lawsuits are still in the pre-trial
stage, the Company's management cannot estimate the total expense, the possible
loss, if any, or the range of loss that may ultimately be incurred in connection
with the allegations. Management cannot ensure that Xilinx will not succeed in
obtaining significant monetary damages or an injunction against the manufacture
and sale of the Company's MAX 5000, MAX 7000, FLEX 8000 or MAX 9000 families of
products, or succeed in invalidating any of the Company's patents. Although no
assurances can be given as to the results of these cases, based on the present
status, management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1994, Advanced Micro Devices, Inc. ("AMD") brought suit
against the Company seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by AMD. In September
1994, Altera answered the complaint asserting that it is licensed to use the
patents which AMD claims are infringed and filed a counterclaim against AMD
alleging infringement of certain patents held by the Company. In October 1997,
upon completion of trials bifurcated from the infringement claims, the District
Court ruled that the Company is licensed under all patents asserted by AMD in
the suit. In December 1997, AMD filed a Notice of Appeal of the District Court's
rulings. In April 1999, the Federal Circuit Court ruled in AMD's favor on its
appeal, finding that Altera is not licensed to AMD's patents, and remanded the
case back to the District Court for further proceedings. Altera has filed a
petition for rehearing before the Federal Circuit Court to seek an overturn of
this determination. Due to the nature of the litigation with AMD, the Company's
management cannot estimate the total expense, the possible loss, if any, or the
range of loss that may ultimately be incurred in connection with the
allegations. Management cannot ensure that AMD will not succeed in obtaining
significant monetary damages or an injunction against the manufacture and sale
of the Classic, MAX 5000, MAX 7000, FLEX 8000, MAX 9000, FLEX 10K and FLASHlogic
product families, or succeed in invalidating any of the Company's patents
remaining in the suit. Although no assurances can be given as to the results of
this case, based on its present status, management does not believe that any of
such results will have a material adverse effect on the Company's financial
condition or results of operations.
Item 5. Other Information
17
<PAGE> 18
On April 21, 1999, the Board of Directors of the Company approved a
two-for-one stock split in the form of a stock dividend. Holders of record of
the Company's common stock on May 4, 1999 will receive one additional share of
Company common stock for each share held. The market price for Altera common
stock as reported by Nasdaq will reflect the stock split beginning May 20, 1999.
In connection with the stock split, the Board of Directors of the Company also
authorized doubling from 6,000,000 to 12,000,000 the number of shares authorized
for repurchase under the Company's share repurchase program.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.53 Product Distribution Agreement with Arrow Electronics
Incorporated, effective January 26, 1999.
10.54 Product Distribution Agreement with Wyle Electronics
Incorporated, effective January 26, 1999.
27.1 Financial Data Schedule for the three months ended
March 31, 1999.
</TABLE>
(a) Reports on Form 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALTERA CORPORATION
/s/ NATHAN SARKISIAN
----------------------------------------
Nathan Sarkisian, Senior Vice President
(duly authorized officer) and Chief
Financial Officer (principal financial
officer)
Date: May 14, 1999
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 10.53 Product Distribution Agreement
Exhibit 10.54 Product Distribution Agreement
Exhibit 27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.53
DISTRIBUTION AGREEMENT
This Distribution Agreement (hereinafter referred to as the
"Agreement") is made and entered into as of this 26th day of January 1999,
between Altera Corporation, having its principal place of business at 101
Innovation Drive, San Jose, California 95134 (hereinafter referred to as
"Altera") and Arrow Electronics Incorporated, having its principal place
of business at 25 Hub Drive, Melville, New York 11747-3509, (hereinafter
referred to as "Distributor").
WITNESSETH:
WHEREAS, Altera is the owner, manufacturer, and developer of certain
Products defined below, and
WHEREAS, Distributor wishes to be appointed as a non-exclusive
distributor of the Products under the terms and conditions of this
Agreement;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Products" or "Product" means semiconductor components, programming
hardware, Software Products, and related materials that may be offered for
sale by Altera in the ordinary course of business and that have not been
excluded from the definition of Products by written notice from Altera to
Distributor.
1.2 "Sale" or "Purchase" shall also be understood to mean "License".
1.3 "Software Products" means software development tools for programmable
logic design, simulation, testing, and for programming as offered for
license by Altera in the ordinary course of business.
1.4 "Territory" means the following geographic area: The United States and
Canada.
1.5 "Trademarks" means (i) both the name "Altera" and the corresponding
stylized mark and logotype; and (ii) the trademarks, tradenames, and
service marks of the Products and the respective stylized marks and
logotypes for such trademarks, tradenames, and service marks.
2. APPOINTMENT
Altera hereby appoints Distributor and Distributor hereby accepts the
appointment, as a non-exclusive Distributor of the Products within the
Territory.
<PAGE> 2
2
3. DISTRIBUTOR RESPONSIBILITIES
3.1 Promotion and Sales Efforts. Distributor shall use its reasonable
best efforts to:
(a) Promote the sales of and distribute Products within the
Territory. Distributor shall not solicit sales of Products outside the
Territory.
(b) Obtain directly from Altera and authorized Altera distributors
100% of its requirements of Altera products.
(c) Make full use of all promotional material supplied by Altera.
(d) Maintain the total dollar value of inventory of Products at
Distributor in an amount mutually agreed to by both parties..
(e) Maintain inventories of a broad selection of Products, especially
newly introduced Products, sufficient to satisfy the needs of large and
small customers in a timely manner.
(f) Provide and maintain adequate sales facilities and sales and
support personnel in accordance with reasonable standards that from time
to time are established by Altera and that are reasonably agreed to by
Distributor.
(g) Provide and maintain Product programming facilities, equipment,
and personnel in accordance with reasonable standards that from time to
time are established by Altera and that are reasonably agreed to by
Distributor.
(h) Make available sales, engineering, and support personnel to
attend Altera sponsored training.
(i) Keep Altera informed of industry trends and competitive
conditions that may affect the sale of Altera Products.
(j) Adhere to operational policies and procedures that Altera will
publish (and revise from time to time), including the Distributor Policies
and Procedures Manual, in order to fulfill the provisions of this
Agreement, to facilitate Altera's business with Distributors, and promote
sales to customers. In the event of any inconsistency between such
published operational policies and the provisions of this Agreement, the
provisions of this Agreement shall govern.
3.2 Monthly Reporting Responsibilities. On or before the expiration of
five (5) working days after the end of each month, Distributor shall
provide a confidential report to Altera containing the following
information as well as any other information reasonably requested by
Altera from time to time:
(a) a sales report which contains the names of purchasers,
locations, part numbers, quantity and Dollar value of Products sold in
each such month; the part numbers, quantity
<PAGE> 3
3
and dollar value of any Products returned to Distributor by customers; and
any ship from stock and debit ("SSD") numbers; and
(b) an inventory report which contains a listing by part number and
quantity of all Products in stock as of the end of such month.
This monthly reporting is to be in the form of direct data transmission or
magnetic media in standard computer readable format.
3.3 Mutual Covenants.
(a) The Parties agree to conduct business in a manner that reflects
favorably at all times on the Products and the good name, goodwill and
reputation of one another. However, nothing in this paragraph shall
obligate Altera to grant Distributor any preferential treatment over other
distributors in the Territory.
(b) Neither party shall engage in deceptive, misleading, or unethical
practices that are or might be detrimental to the other party, the
Products, or the public, including, but not limited to, disparagement of
the other party or the Products and use of misleading advertising.
(c) Neither party shall make false or misleading representations with
regard to the other party and will make no representations to customers or
to the trade with respect to the specifications, features or capabilities
of the Products that are inconsistent with the literature distributed by
Altera.
3.4 Distributor's Financial Condition. Distributor is in satisfactory
financial condition, solvent and able to pay its bills when due. Altera
will have the right to establish credit limits and other financial
requirements as a condition of Distributor's right to place orders with
Altera and shall also have the right in its reasonable discretion to
change such credit limits and financial requirements at any time. In
connection with any decision by Altera to establish a credit limit for
Distributor, Distributor will furnish such financial reports and other
financial data as Altera may reasonably request as necessary to determine
Distributor's financial condition.
3.5 Compliance With Law. Each party will comply with all applicable
international, transnational, national, regional, and local laws and
regulations in performing its duties under this Agreement and in any
dealings with respect to Products.
3.6 Compliance With Export Administration Laws. In recognition of U.S. and
non-U.S. export control laws and regulations, each party agrees to obtain
any necessary export license or other documentation prior to exportation
of any Product, or technical data acquired from Altera under this
Agreement. Accordingly, neither party shall knowingly sell, export,
re-export, transfer, divert or otherwise dispose of any such Product or
technical data directly or indirectly to any person, firm or entity, or
country or countries, prohibited by the laws or regulations of the United
States or any other country. Further, Distributor shall use its
<PAGE> 4
4
reasonable best efforts to notify any person, firm or entity obtaining
such products or technical data from Distributor of the need to comply
with such laws and regulations.
3.7 Auditing. No more than twice during any year, at reasonable times and
upon reasonable prior notice, employees of Altera may (i) conduct a
physical inventory of Products in any stocking location (or, in automated
facilities, observe cycle counts and related methodology) or (ii) audit
such business records, located at Distributor's corporate headquarters as
pertain soley to the purchase of Products hereunder during any such year.
4. ALTERA'S RESPONSIBILITY
Altera will furnish Distributor without charge a reasonable supply of
Altera's current list of published suggested prices, sales literature,
books, catalogs, etc. as Altera may prepare for distribution, and shall
also provide Distributor with such technical and sales assistance as may
be necessary to assist Distributor in effectively carrying out its
obligations under this Agreement. Altera reserves the right to sell
directly to any and all customers.
5. ORDER PROCEDURE
5.1 Orders. Distributor will place individual orders for the Products from
time to time during the term of this Agreement either by means of
electronic data transmission or in written form. This Agreement shall
govern to the extent that any terms in this Agreement are inconsistent
with the terms of any agreement between Altera and Distributor relating to
electronic data transmission. Each order placed by Distributor will
contain the following minimum information: (i) identification of each
Product ordered by Product number, quantity, and price; (ii) shipping
instructions and destination; and (iii) a requested delivery date for each
Product.
5.2 Acceptance by Altera. All orders for the Products by Distributor shall
be subject to acceptance by Altera and shall not be binding until the
earlier of such acceptance or shipment, and, in the case of acceptance by
shipment, only as to the portion of the order actually shipped. Altera has
the right to refuse to accept, for any reason, any order placed by
Distributor. Altera shall use its reasonable best efforts to accept any
order for non-custom Products within ten (10) days of its receipt.
5.3 Controlling Terms. The terms of this Agreement will apply to each
order accepted or shipped by Altera under this Agreement. In the event
that any terms or conditions of sale contained in any communication
between Distributor and Altera contradict or are inconsistent with
anything contained in this Agreement, the terms and conditions of this
Agreement shall prevail. Altera's acceptance of any order from Distributor
under this Agreement is conditioned on Distributor agreeing that the terms
of this Agreement shall prevail over any additional or inconsistent terms
communicated by Distributor to Altera in any form whatsoever.
<PAGE> 5
5
5.4 Quantity. All component orders of custom Products only are subject to
an overrun or underrun of five percent (5%) of the quantity ordered which
shall constitute fulfillment of the order by Altera.
5.5 Change Orders and Cancellation by Distributor.
(a) Standard Products: All orders submitted by Distributor and
accepted by Altera are firm commitments by Distributor to buy Altera
Products. Distributor will notify Altera in a timely manner of its desire
to change any order. Altera shall have the right to deny any change order
request submitted by Distributor within ninety (90) days of the current
factory scheduled shipment date. However, within the period from thirty
(30) to ninety (90) days of the current factory scheduled shipment date,
Altera will accommodate reasonable requests for changes. Within the period
from zero (0) to thirty (30) days of current factory scheduled shipment
date, Altera will accept change orders only in extraordinary
circumstances; Altera's shall have the sole right to determine what
circumstances are extraordinary. Altera's acceptance of any change order
request within 30 days of current factory scheduled shipment shall not
obligate Altera to accept future change order requests submitted within 30
days of shipment. On an ongoing and regular basis, Distributor will use
its best efforts to reconcile its own records of orders on Altera with
Altera's records of order backlog.
(b) Custom Products: From time to time, Distributor may place orders
on Altera for Custom Product. (Custom Product is defined as Product that
is not listed in Altera's published distributor price list and/or that
requires special processing by Altera.) Once accepted by Altera, orders
for Custom Product may not be changed in any way without prior approval of
Altera. As a pre-condition to approving a request to change an order for
Custom Product, Altera may require Distributor to compensate Altera for
any costs incurred by Altera as a result of the change order.
5.6 Cancellation by Altera. Altera reserves the right to cancel any orders
placed by Distributor and accepted by Altera as set forth above, or to
refuse or delay shipment thereof, if:
(a) Distributor fails to make any payment as provided in this
Agreement or under the terms of payment set forth in any invoice or
otherwise agreed to by Altera and Distributor;
(b) Distributor fails to meet reasonable credit or financial
requirements established by Altera, including any limitations on allowable
credit;
(c) Distributor otherwise fails to comply with the terms and
conditions of this Agreement;
(d) this Agreement is terminated and the scheduled delivery would
take place after the Agreement's termination date; or
(e) circumstances beyond Altera's control prevent it from shipping
any order by the requested delivery date.
<PAGE> 6
6
Altera also reserves the right to discontinue the manufacture or
distribution of any or all of the Products at any time, and to cancel any
orders for such discontinued Products without liability of any kind to
Distributor or to any other person except as expressly set forth herein.
No such discontinuation will be deemed a termination (unless Altera so
advises Distributor) or breach of this Agreement by Altera. Altera will
attempt, but is not required, to provide Distributor with at least sixty
(60) days advance written notice of Product discontinuances in the same
manner as is provided to customers in general.
6. PAYMENT
6.1 Terms and Interest. Payment shall be made according to the terms
specified in writing by Altera. Interest shall be payable at the rate of
one-and-one-half percent (1.5%) per month or at the maximum rate permitted
by law, whichever is less, on all overdue and unpaid invoices. Altera has
the right to invoice Distributor for any unauthorized discounts or
deductions taken by Distributor, and Distributor shall make payment on
such invoices net thirty (30) days.
6.2 Method of Payment. Distributor shall make payment in Dollars as
designated by Altera or in such other method as agreed to by the parties
in writing.
6.3 Taxes, Tariffs, and Fees. Unless otherwise agreed in writing by
Altera, all prices quoted by Altera for the Products do not include any
national, state, or local sales, use, value added or other taxes, customs
duties, or similar tariffs and fees. Distributor shall be responsible and
liable for the payment of any taxes, customs duties, or other government
fees and tariffs applicable to the Products, except for taxes based on
Altera's net income, unless Distributor has provided Altera with an
exemption resale certificate in the appropriate form for the jurisdiction
to which the Products are to be directly shipped. Distributor agrees to
indemnify Altera for any claim for taxes, customs duties, or other
government fees and tariffs applicable to the Products that may be levied
on Altera.
7. SHIPMENT AND RISK OF LOSS:
7.1 Shipment. Orders issued by the Distributor will specify requested
shipment dates. Distributor will select the mode of shipment and the
carrier. Altera will pay for packing costs. Distributor will be
responsible for and pay all charges for shipping, freight, and any
insurance requested by Distributor, which charges Altera may require
Distributor to pay in advance.
7.2 Delays in Shipment. Altera will use commercially reasonable efforts to
ship products to arrive by any requested delivery dates quoted or
acknowledged. However, Altera will not be liable for any delay in shipment
or delay in performance under this Agreement due to unforeseen
circumstances or due to causes beyond its control including but not
limited to, acts of nature, acts of government, labor disputes, delays in
transportation, and delays in delivery or inability to deliver by Altera's
suppliers.
<PAGE> 7
7
7.3 Risk of Loss. All risk of loss of, or damage to, the Products will
pass to Distributor, or to such financing institution or other party or
parties as may have been designated to Altera by Distributor, upon
delivery by Altera to the carrier, freight forwarder or Distributor,
whichever first occurs. Distributor will bear the risk of loss or damage
in transit.
8. PRICES
8.1 Altera's Prices. Distributor shall purchase products at Altera's
prices as are in effect at the time the order is received from the
Distributor.
8.2 Price Changes: From time to time, Altera may decide to change the
prices for the Products.
(a) Price decreases: In the event of a price decrease by Altera,
Altera will invoice Distributor at the lower price for all orders placed
by Distributor that have not been delivered as of the effective date of
the price decrease.
(b) Price increases: In the event of a price increase, Altera will
announce to Distributor its intention to raise prices at least 30 days
before the effective date of such a price increase. All orders on Altera's
backlog as of the announcement of the price increase and scheduled for
delivery by Altera within 30 days of announcement shall be shipped at the
price that was effective before the price increase. All other orders shall
ship at the new, increased price. Distributor shall have the right to
cancel (within ten days of the announcement of a price increase) any
orders for Product for which Altera has announced a price increase.
8.3 Credit for Inventory Invoiced at Higher Price. In the event of a price
decrease, Altera shall issue a credit to Distributor in the amount of the
price decrease for all unsold Products then stocked by the Distributor
provided that Distributor satisfies the terms and conditions specified in
subparagraph 8.4 and 8.5(b) and (c).
8.4 Record Keeping for Price Decrease Credits. As a condition of Altera
issuing Distributor a credit pursuant to subparagraph 8.3, Altera must
receive an inventory report from Distributor no later than thirty (30)
days after the effective date of the price decrease. No credit will be due
Distributor if Distributor fails to furnish such inventory report within
the thirty-day period. Altera shall have the right to audit the
information provided in this report against the previous inventory reports
and subsequent resale reports. Altera may conduct such audit upon
reasonable notice during normal business hours at the Distributor's place
of business by, among other things, reviewing the Distributor's applicable
books and records. Upon verification of Distributor's claim for credit,
Altera shall issue a credit to Distributor's account.
8.5 Procedure for Submitting Claims for Credit.
<PAGE> 8
8
(a) Distributor must submit its claims for the following types of
credits within sixty days of the following:
(i) Price Discrepancies: the date of any invoice that contains
a price discrepancy; or
(ii) SSD (ship from stock debit): sales out date.
Altera will not honor any claims for credit submitted after the sixty-day
period.
(b) All claims for credit must specify the invoice number(s) to
which the claim applies.
(c) If Altera provided Distributor with a discount on its regular
prices at the time that Altera invoiced Distributor for the Products that
are the subject of a claim for credit, Altera shall subtract from the
credit the proportional amount of the prior discount.
9. STOCK ROTATION AND RETURNS
9.1 Return of Products. If Altera determines in accordance with its Stock
Rotation Policy that Distributor's inventory is overstocked with certain
Products, Distributor may return such Products to Altera pursuant to
subparagraph 9.2. Products that are obsolete or discontinued may be
returned pursuant to subparagraph 9.3 of this Agreement. Returns of
Products that are permitted in connection with the termination of this
Agreement are subject to paragraph 15. All returns require a Return
Material Authorization ("RMA").
Distributor shall bear all risk of loss or damage during shipment of
returned Products and shall ship returned Products in accordance with
Altera's reasonable instructions.
Altera will credit distributor's account in the amount of the net
price paid by Distributor for the returned Products after Altera receives
the Products and verifies their quantity and quality. All returned
Products must be unused, undamaged, and in sealed, factory-shipped boxes.
Distributor may not take any deductions from payments due to Altera before
Altera has issued a credit to Distributor; Altera will charge interest at
the rate of one-and-one-half percent (1.5%) per month or at the maximum
rate permitted by law, whichever is less, from the date that Distributor
makes any unauthorized deductions.
9.2 Procedure for Stock Rotations. At regular six-month intervals, Altera
will accept a Stock Rotation return from Distributor for the purpose of
clearing Distributor's inventory of Product that in Distributor's good
faith judgment is unlikely to be sold. Under this provision, Distributor
may return to Altera Product valued at up to 5% of Altera's net billings
to Distributor for the six months prior to the Stock Rotation. A certain
percentage of this amount may be allocated to scrap in accordance with the
guidelines established by Altera in the Distributor Policies and
Procedures Manual. As a precondition for accepting a Stock Rotation,
Altera may require that Distributor take delivery from Altera of Product
of value equal to or less than the value of the Product returned.
<PAGE> 9
9
9.3 Obsolete and Discontinued Products. Altera may render obsolete or
discontinue the manufacture and/or sale of any Product ("Discontinued
Product") and shall notify Distributor of any Discontinued Product.
Distributor shall have the right to return Discontinued Product to Altera.
Within thirty (30) days of the last date that orders will be accepted,
Distributor shall notify Altera of Distributor's intention to return any
Discontinued Product in its inventory which were purchased by Distributor
from Altera.
9.4 Administrative Procedures for Returns. Product returns to Altera
pursuant to subparagraphs 9.2, 9.3, and 15.5(c) as well as any other
Product returns to Altera are subject to the following provisions:
(a) Distributor must request and receive from Altera a Return
Material Authorization number for each return prior to shipping Product to
Altera. Altera will not unreasonably withhold return Material
Authorizations.
(b) Altera retains the right to review all line items prior to return
and approve or deny any item requested for return by Distributor. Altera
will establish and publish reasonable requirements not inconsistent with
the terms hereof for the approval of return line items, and for the
handling and packaging of Product to be returned, in order to protect the
quality of Altera Products and minimize the administrative expenses to
both parties associated with returns.
(c) Return Material Authorization numbers are valid for 60 days from
the date of issuance to Distributor. If Distributor fails to return the
Products within that 60-day period, Altera shall not be obligated to
accept the Products or to credit Distributor's account for the Products.
9.5 Defective Products. Defective or non-conforming Products shall be
subject to the warranty provision of paragraph 10 of this Agreement.
10. WARRANTIES
10.1 Altera's Warranties to Distributor.
(a) Semiconductor Products and Other Hardware Products. Altera
warrants that the Products (other than Software Products) (hereinafter
referred to as "Semiconductor Products") covered by this Agreement shall
be free from defects in materials and workmanship and shall conform to
Altera's published specifications for a period of up to one year from the
date of shipment to Distributor's customer but in no event longer than two
years from the date of shipment by Altera to Distributor. The foregoing
warranty does not apply to any Semiconductor Products that (i) have not
been stored, handled, or maintained in accordance with Altera's published
quality standards and procedures, including those set out in the
Distributor Policies and Procedures Manual, or (ii) have not been
programmed in accordance with Altera's published programming standards and
procedures, including those set out in the Distributor Policies and
Procedures Manual, or (iii) have otherwise been subject to misuse,
including static discharge, neglect, accident or modification or (iv) have
been soldered or altered and are not capable of being tested by Altera
under its normal test conditions. Altera's sole obligation to
<PAGE> 10
10
Distributor for Semiconductor Products failing to meet this warranty shall
be to replace the defective or non-conforming Semiconductor Products. This
obligation is conditioned on all of the following: (1) Distributor or
Distributor's customer providing Altera with written notice of any
nonconformity or defect within the applicable warranty period, and (2)
Distributor or Distributor's customer returning the non-conforming or
defective Semiconductor Product to Altera within 30 days of receiving
Altera's written notification to do so, and (3) Altera determining that
the Semiconductor Product is non-conforming or defective, and (4) Altera
determining that this warranty applies to the Semiconductor Product. Any
replacement of a Semiconductor Product by Altera shall carry only the
unexpired term of the original warranty.
(b) Software Products. Altera warrants that Software Products covered by
this Agreement, when properly installed and used, will perform
substantially in accordance with Altera's current Software Products
documentation for a period of up to ninety (90) days from the date of
shipment to Distributor's customer but in no event longer than one year
from the date of shipment to Distributor. Altera warrants the diskette(s)
on which Software Products are furnished to be free from defects in
materials and workmanship under normal use for a period of up to ninety
(90) days from the date of shipment to Distributor's customer but in no
event longer than one year from the date of shipment to Distributor. The
foregoing warranty does not apply to any Software Products that have been
damaged as a result of accident, abuse, misuse, neglect, or modification.
During the warranty period, (1) Altera will replace any Software Product
or diskette not meeting the foregoing warranty and which is returned to
Altera; or (2) if Altera is unable to deliver a replacement Software
Product which performs substantially in accordance with current Software
Product documentation or a diskette which is free of defects in materials
or workmanship, Distributor may return the Software Product for a credit
in the amount paid by Distributor. Any replacement Programs or diskettes
will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer.
(c) THE WARRANTIES CONTAINED IN PARAGRAPH 10 OF THIS AGREEMENT ARE THE
ONLY WARRANTIES MADE BY ALTERA WITH RESPECT TO THE PRODUCTS. EXCEPT AS
PROVIDED IN PARAGRAPH 10, ALTERA MAKES NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. THE WARRANTIES PROVIDED IN
PARAGRAPH 10 MAY BE MODIFIED OR AMENDED BY ALTERA ONLY BY WRITTEN
INSTRUMENT SIGNED BY A DULY AUTHORIZED AGENT OF ALTERA.
10.2 Distributor Shall Make No Inconsistent Warranties. Distributor shall
make no representation, guarantee or warranty on Altera's behalf to
Distributor's customers with respect to the Products that is inconsistent
with the above warranties.
11. ALTERA'S INTELLECTUAL PROPERTY RIGHTS
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11.1 Trademark Use During Agreement. During the term of this Agreement,
Distributor is authorized by Altera to use the Trademarks in connection
with Distributor's advertisement, promotion, and distribution of the
Products. Distributor shall use the Trademarks only in signs and printed
material furnished or approved in writing by an authorized representative
of Altera. Distributor shall not use the Trademarks, or any part thereof,
separately or in combination, as a part of or in connection with its firm,
trade, or corporate name. Distributor's use of the Trademarks will be in
accordance with Altera's policies in effect from time to time, including
but not limited to trademark usage and co-operative advertising policies.
11.2 Copyright, Patent, and Trademark Notices. As both a covenant by
Distributor and a condition of Altera's sale or license of the Products to
Distributor, Distributor will include on each copy of the Products that it
distributes, and on all containers and storage media, all copyright,
patent, trademark, and other notices of proprietary rights included by
Altera on the Products. Distributor agrees not to alter, erase, deface, or
overprint any such notice on anything provided by Altera.
11.3 No Distributor Rights in Altera Intellectual Property Rights.
Distributor has paid no consideration for the use of Altera's copyrights,
patents, trademarks, or trade secrets and nothing contained in this
Agreement shall give Distributor any interest in any of them. Distributor
acknowledges that Altera owns or holds a license to all copyrights,
patents, trademarks, or trade secrets related to the Products and agrees
that it will not knowingly at any time during or after this Agreement
assert or claim any interest in or do anything that may adversely affect
the validity or enforceability of any copyrights, patents, trademarks, or
trade secrets owned by or licensed to Altera (including, without
limitation, any act, or assistance to act, which may infringe or lead to
the infringement of any copyrights, patents, trademarks, or trade secrets
related to the Products). Nothing in this paragraph shall prevent
Distributor from challenging the validity of any trademark, copyright, or
patent. Distributor agrees not to attach any additional trademarks, logos,
or trade names to any Product. Distributor further agrees not to affix any
of the Trademarks to any product not manufactured or sold by Altera.
11.4 No Continuing Rights in Trademarks. Upon expiration or termination of
this Agreement, Distributor will immediately cease all display,
advertising and use of all Trademarks and will not thereafter use,
advertise, or display any name, mark or logo which is, or any part of
which is, similar to, or confusing with, any Trademark or other name,
mark, logo or designation associated with any Product.
11.5 Obligation to Protect Proprietary Information. Altera and Distributor
have entered into or shall in the future enter into a non-disclosure
agreement that shall set forth the parties' obligations to protect
proprietary information.
11.6 Notification of Suspected Infringement. Distributor agrees to notify
Altera of any known or suspected infringement of Altera's trademark, trade
secret, copyright, and patent rights that comes to Distributor's
attention. Distributor also agrees not to induce, encourage, contribute
to, or support the infringement of Altera's trademark, trade secret,
copyright, and
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patent rights or the breach of the Altera Program License Agreement by
Distributor's customers or other third parties.
11.7 Intellectual Property Indemnification.
(a) Altera shall defend any suit, proceeding, or claim of
infringement asserted against Distributor in the Territory insofar as such
suit, proceeding, or claim of infringement alleges that any Product
manufactured and supplied by Altera to Distributor infringes any duly
issued patent, registered trademark, or copyright and Altera shall pay all
damages and costs finally awarded therein against Distributor, provided
that Altera promptly is informed and furnished a copy of each
communication, notice or other action relating to the alleged infringement
and is given authority, information, and assistance (at Altera's expense)
necessary to defend or settle said suit or proceeding. Altera shall have
the absolute right to control the defense and settlement of any
infringement suit or proceeding for which Distributor seeks
indemnification under this paragraph. Altera shall not be obligated to
defend or be liable for costs and damages if the infringement arises out
of (1) Products that are manufactured by Altera in accordance with
Distributor's specifications, or (2) the Products being combined with or
added to another product, or (3) the Products being modified after
delivery to Distributor by Altera (including any programming done by
Distributor or Distributor's customer), or (4) from use of the Products,
or any part thereof, in the practice of a process. Altera's obligations
hereunder shall not apply to any infringement occurring after Distributor
has received notice of such suit or proceeding alleging the infringement
unless Altera has given written permission for such use by Distributor.
(b) If any Product manufactured and supplied by Altera to Distributor
shall be held by any court in the Territory to infringe any patent,
registered trademark, or copyright and Distributor shall be enjoined from
using the same, Altera will at its option and at its expense (1) procure
for Distributor the right to use such Product free of any liability for
infringement or (2) replace such Product with non-infringing substitute
Product or (3) refund the purchase price of such Product.
(c) If the infringement by Distributor is alleged prior to Altera's
completion of delivery of the Products, Altera may decline to make further
shipments without being in breach of this Agreement.
(d) If any suit, proceeding, or claim of infringement is asserted
against Altera in the Territory based on a claim that the goods
manufactured by Altera in compliance with Distributor's specifications and
supplied to Distributor directly infringe any duly issued patent,
registered trademark, or copyright, then Distributor shall indemnify
Altera to the same extent as specified in subparagraph 11.7(a) of this
Agreement. However, Distributor shall not be obligated to indemnify Altera
for specifications developed solely by Distributor's end customers.
(e) THE FOREGOING STATES THE SOLE AND EXCLUSIVE LIABILITY OF THE
PARTIES HERETO FOR PATENT, TRADEMARK, OR COPYRIGHT
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INFRINGEMENT AND IS IN LIEU OF ALL WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, IN REGARD THERETO.
12. SOFTWARE LICENSE
Altera grants and Distributor accepts a non-exclusive license to use and
sublicense Altera Software Products and other copyrighted materials,
including but not limited to printed materials, on the following terms
(the "License"):
12.1 The Software Products covered by this Agreement are confidential and
proprietary to Altera and its licensors, and Altera and its licensors
retain all title, copyright, patent and other proprietary rights to the
Software Products and all copies thereof.
12.2 Distributor may sublicense Altera Software Products to its customers
for use in a manner that is not inconsistent with the terms of this
Agreement. Any sublicense granted to Distributor's customers must be made
subject to the terms of the Altera Program License Agreement. Any attempt
by Distributor to sublicense Altera Software Products in contravention of
this Agreement shall be null and void.
12.3 Distributor may use Altera Software Products to perform
demonstrations of the use of Altera Products, or to train sales people in
the use of Altera Products, or to train customers in the use of Altera
Products.
12.4 Distributor may use Altera Software Products to program other Altera
Products for Distributor's customers. Distributor may not use Altera
Software Products to program non-Altera Products.
12.5 Distributor may use a single copy of any Software Product only on a
single computer or on a single network of workstations.
12.6 Distributor may make one copy of any Software Product that it has
installed on a single computer or single network of workstations at
Distributor's place of business in any computer-readable or printed form
for back-up or archival purposes only and subject to the terms of this
Paragraph 12.
12.7 Except to the extent permitted in the preceding subparagraph,
Distributor may not copy, modify, revise, alter, reverse engineer,
decompile or disassemble any Altera Software Product under any
circumstance without the prior written permission of Altera.
12.8 Distributor agrees that it will not open any sealed Altera Software
Products that are intended for sublicensing, nor will it sublicense any
unsealed Altera Software Products. Distributor will not transfer,
sublicense, or give away any copy of an Altera Software Product that was
previously installed on any computer or single network of workstations at
Distributor's place of business.
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12.9 The terms of this License shall govern with respect to Distributor's
use of Altera Software products in the event that any such terms are
inconsistent with or omitted from the Altera Program License Agreement.
13. CO-OP ADVERTISING AND PROMOTION
Altera shall establish a fund for payment of advertising, promotion, and
Product literature localization costs ("Co-op Fund") in the Territory
equal to up to one-half of one percent (1/2%) of the net purchase price of
all Products purchased by Distributor during the preceding twelve (12)
months. Funds will be accrued on a 12-month rolling basis, and those funds
not committed to projects within that period revert to Altera. Specific
projects may be proposed by either Altera or Distributor, but only
projects that have been approved in writing by Altera will be eligible for
payment from the Co-op Fund.
If advertising and promotion costs for an approved project are incurred by
Altera or any of its affiliate companies, Distributor shall reimburse
Altera for up to one-half of the cost of such project; the exact amount of
such reimbursement shall be mutually agreed upon by the parties prior to
implementation of the project. Distributor shall make such payments to
such entity as may be designated by Altera in writing for the benefit of
Altera. If advertising and promotion costs for approved projects are
incurred by Distributor, Altera shall reimburse Distributor for up to
one-half (1/2) of such costs. Altera shall finally determine the exact
amount of such reimbursement.
14. ASSIGNMENT
This Agreement shall not be assignable by either party without the prior
written approval of the other party. Except in the case of a corporate
reorganization, a change in the persons or entities who control fifty
percent (50%) or more of the equity securities or voting interest of a
party shall be considered an assignment of that party's rights.
15. TERM AND TERMINATION
15.1 Term. This Agreement shall be in force for a period of one (1) year
from the date of this Agreement, which is indicated above. Thereafter,
this Agreement shall renew automatically for subsequent periods of one (1)
year unless notice of termination is served in accordance with
subparagraph 15.2 or this Agreement is terminated without notice pursuant
to subparagraph 15.3.
15.2 Termination With Notice. At any time, either party may terminate this
Agreement without cause upon providing the other party with ninety (90)
days prior written notice.
15.3 Termination For Cause. The Agreement may be terminated without notice
under the following circumstances:
(a) If either party is or becomes insolvent or admits its inability
to pay its debts as they become due, or makes an assignment for the
benefit of creditors, or if there are initiated by or
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against either party proceedings in bankruptcy or under insolvency laws or
for reorganization, receivership or dissolution, or if either party ceases
to conduct its operations in the normal course of business, the other
party shall have the right to terminate this Agreement effective
immediately upon giving notice.
(b) If either party is in breach hereof and does not cure such
breach within thirty (30) days of receipt of notice thereof.
15.4 Waiver of Damages in Event of Termination. The right of termination,
as provided herein, is absolute. Both Altera and Distributor have
considered the possibility of expenditures necessary in preparing for
performance of this Agreement and the possible losses and damage incident
to each in the event of termination, and it is understood that neither
party shall be liable to the other for damages in any form by reason of
the termination of this Agreement at any time, other than as expressively
provided in this Agreement.
15.5 Procedures Upon Termination.
(a) Unfilled Orders. Upon termination of this Agreement, Altera may,
at its option, cancel any or all unfilled orders that were previously
accepted by Altera pursuant to subparagraph 5.2. Except in those
circumstances governed by subparagraph 5.6 of the Agreement, Altera agrees
not to cancel orders which are for Products intended for resale pursuant
to firm orders (1) that have been placed by a specific customer with
Distributor and are scheduled for delivery within 90 days of the date that
notice of termination is given and (2) that Distributor, from among its
locations, does not have inventory stock to complete. Distributor shall
notify Altera in writing of such firm orders within 30 days of the date
that notice of termination is given.
(b) Promotion. Upon termination of this Agreement, Distributor agrees
to discontinue immediately all activities as an Altera Distributor
including, without limitation, all use of the Trademarks and all
advertising of or reference to Altera Products, except as permitted
pursuant to the disposition of inventory of Products pursuant to
subparagraph 15.5(c).
(c) Disposition of Inventory. In the event Altera terminates this
Agreement without cause pursuant to subparagraph 15.2 or Distributor
terminates on the ground that Altera has breached the Agreement, Altera
will repurchase from Distributor at Distributor's option any or all unsold
non-discontinued and non-obsolete Products in Distributor's inventory at
the net price paid by Distributor. Products returned under this provision
are subject to paragraph 9.1. In the event Distributor terminates this
Agreement without cause or Altera terminates with cause pursuant to
subparagraph 15.3 above, Altera may, at its option, repurchase from
Distributor any or all unsold Altera products in Distributor's inventory
at the same price as set forth in the sentence immediately preceding. The
party terminating this Agreement shall pay all transportation charges for
Products returned to Altera.
16. LIMITATION OF LIABILITY AND INDEMNIFICATION
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In no event shall either party be liable to the other party for indirect,
special, incidental, or consequential damages as a result of any claim or
liability relating to or arising out of this Agreement. Distributor shall
indemnify Altera for any claims asserted by any third party arising out of
or relating to Distributor's breach of this Agreement, negligence, or
wrongful conduct.
17. RELATIONSHIP OF THE PARTIES
It is expressly understood and agreed that the relationship between Altera
and Distributor under this Agreement is solely that of seller and buyer.
Distributor is an independent contractor and is in no way Altera's legal
representative or agent. Distributor has no authority to assume or create
any obligation on behalf of Altera, express or implied, with respect to
Products or otherwise. Nothing contained in this Agreement shall be
construed as a limitation or restriction upon Altera in the sale or other
disposition of any Product to any person, firm or corporation or in any
territory or country.
18. GOVERNING LAW, CHOICE OF FORUM, ATTORNEYS' FEES
It is expressly agreed that the validity and construction of this
Agreement, and performance hereunder, shall be governed by the laws of the
State of California, USA. The parties agree to submit to the jurisdiction
of the courts in the State of California for the resolution of any dispute
or claim arising out of or relating to this Agreement. The parties hereby
agree that the party who does not prevail with respect to any dispute,
claim, or controversy relating to this Agreement shall pay the costs
actually incurred by the prevailing party, including any attorneys' fees.
19. WAIVER
Either party's failure to enforce at any time any of the provisions of
this Agreement, or any right with respect thereto, or to exercise any
option herein provided, shall in no way be construed to be a waiver of
such provisions, rights or options or in any way affect the validity of
this Agreement. Either party's exercise of any of its rights hereunder or
of any options hereunder under the terms or covenants herein shall not
preclude or prejudice either party from thereafter exercising the same or
any other right it may have under this Agreement, irrespective of any
previous action or proceeding taken by either party.
20. NOTICE
All notices required by this Agreement shall be sufficiently given and
effective when sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the Distributor, attention of
the General Counsel, at its principal place of business, as listed above,
or to Altera Corporation, attention General Counsel, 101 Innovation Drive,
San Jose, California 95134-1941, or to such other place or places as the
parties hereto may designate in writing. If notice is given in any other
manner, it shall be effective when received.
21. CAPTIONS
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The captions of the sections herein are intended for convenience only, and
the same shall not be determined to be interpretive of the content of such
section.
22. SEVERABLITY
If any provision, or part of a provision of this Agreement is invalidated
by operation of law or otherwise, the provision or part will to that
extent be deemed omitted and the remainder of this Agreement will remain
in full force and effect.
23. COMPLETE AGREEMENT
This Agreement supersedes and cancels any previous understanding or
agreements, whether written or oral, between the parties relating to the
subject matter hereof, including any existing distribution agreement
involving Altera semiconductor products. This Agreement supersedes but
does not cancel the Demand Creation Agreement between the parties dated
September 1, 1998. It expresses the complete and final understanding with
respect to the subject matter hereof and may not be changed in any way
except by an instrument in writing signed by authorized representatives of
both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives and to become effective as of the
day and year first written above.
ARROW ELECTRONICS INCORPORATED ALTERA CORPORATION
- ---------------------------------- ----------------------------------------
BY: BY:
- ---------------------------------- ----------------------------------------
(Name): (Name):
TITLE: TITLE:
- ---------------------------------- ----------------------------------------
DATE: DATE:
- ---------------------------------- ----------------------------------------
<PAGE> 1
EXHIBIT 10.54
DISTRIBUTION AGREEMENT
This Distribution Agreement (hereinafter referred to as the
"Agreement") is made and entered into as of this 26th day of January 1999,
between Altera Corporation, having its principal place of business at 101
Innovation Drive, San Jose, California 95134 (hereinafter referred to as
"Altera") and Wyle Electronics Incorporated, having its principal place of
business at 15370 Barrranca Parkway, Irvine, CA 92618, (hereinafter
referred to as "Distributor").
WITNESSETH:
WHEREAS, Altera is the owner, manufacturer, and developer of certain
Products defined below, and
WHEREAS, Distributor wishes to be appointed as a non-exclusive
distributor of the Products under the terms and conditions of this
Agreement;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Products" or "Product" means semiconductor components, programming
hardware, Software Products, and related materials that may be offered for
sale by Altera in the ordinary course of business and that have not been
excluded from the definition of Products by written notice from Altera to
Distributor.
1.2 "Sale" or "Purchase" shall also be understood to mean "License".
1.3 "Software Products" means software development tools for programmable
logic design, simulation, testing, and for programming as offered for
license by Altera in the ordinary course of business.
1.4 "Territory" means the following geographic area: The United States.
1.5 "Trademarks" means (i) both the name "Altera" and the corresponding
stylized mark and logotype; and (ii) the trademarks, tradenames, and
service marks of the Products and the respective stylized marks and
logotypes for such trademarks, tradenames, and service marks.
2. APPOINTMENT
Altera hereby appoints Distributor and Distributor hereby accepts the
appointment, as a non-exclusive Distributor of the Products within the
Territory.
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3. DISTRIBUTOR RESPONSIBILITIES
3.1 Promotion and Sales Efforts. Distributor shall use its reasonable best
efforts to:
(a) Promote the sales of and distribute Products within the
Territory. Distributor shall not solicit sales of Products outside the
Territory.
(b) Obtain directly from Altera and authorized Altera distributors
100% of its requirements of Altera products.
(c) Make full use of all promotional material supplied by Altera.
(d) Maintain the total dollar value of inventory of Products at
Distributor equal to or greater than two months of resales.
(e) Maintain inventories of a broad selection of Products, especially
newly introduced Products, sufficient to satisfy the needs of large and
small customers in a timely manner.
(f) Provide and maintain adequate sales facilities and sales and
support personnel in accordance with reasonable standards that from time
to time are established by Altera and that are reasonably agreed to by
Distributor.
(g) Provide and maintain Product programming facilities, equipment,
and personnel in accordance with reasonable standards that from time to
time are established by Altera and that are reasonably agreed to by
Distributor.
(h) Make available sales, engineering, and support personnel to
attend Altera sponsored training.
(i) Keep Altera informed of industry trends and competitive
conditions that may affect the sale of Altera Products.
(j) Adhere to operational policies and procedures that Altera will
publish and provide to Distributor (and revise from time to time),
including the Distributor Policies and Procedures Manual, in order to
fulfill the provisions of this Agreement, to facilitate Altera's business
with Distributors, and promote sales to customers. In the event of any
inconsistency between such published operational policies and the
provisions of this Agreement, the provisions of this Agreement shall
govern.
3.2 Monthly Reporting Responsibilities. On or before the expiration of
five (5) working days after the end of each month, Distributor shall
provide a confidential report to Altera containing the following
information as well as any other information reasonably requested by
Altera from time to time:
(a) a sales report which contains the names of purchasers,
locations, part numbers, quantity and Dollar value of Products sold in
each such month; the part numbers, quantity
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and dollar value of any Products returned to Distributor by customers; and
any ship from stock and debit ("SSD") numbers; and
(b) an inventory report which contains a listing by part number and
quantity of all Products in stock as of the end of such month.
This monthly reporting is to be in the form of direct data transmission or
magnetic media in standard computer readable format.
3.3 Mutual Covenants.
(a) The Parties agree to conduct business in a manner that reflects
favorably at all times on the Products and the good name, goodwill and
reputation of one another. However, nothing in this paragraph shall
obligate Altera to grant Distributor any preferential treatment over other
distributors in the Territory.
(b) Neither party shall engage in deceptive, misleading, or unethical
practices that are or might be detrimental to the other party, the
Products, or the public, including, but not limited to, disparagement of
the other party or the Products and use of misleading advertising.
(c) Neither party shall make false or misleading representations with
regard to the other party and will make no representations to customers or
to the trade with respect to the specifications, features or capabilities
of the Products that are inconsistent with the literature distributed by
Altera.
3.4 Distributor's Financial Condition. Distributor is in satisfactory
financial condition, solvent and able to pay its bills when due. Altera
will have the right to establish credit limits and other financial
requirements as a condition of Distributor's right to place orders with
Altera and shall also have the right in its reasonable discretion to
change such credit limits and financial requirements at any time. In
connection with any decision by Altera to establish a credit limit for
Distributor, Distributor will furnish such financial reports and other
financial data as Altera may reasonably request as necessary to determine
Distributor's financial condition.
3.5 Compliance With Law. Each party will comply with all applicable
international, transnational, national, regional, and local laws and
regulations in performing its duties under this Agreement and in any
dealings with respect to Products.
3.6 Compliance With Export Administration Laws. In recognition of U.S. and
non-U.S. export control laws and regulations, each party agrees to obtain
any necessary export license or other documentation prior to exportation
of any Product, or technical data acquired from Altera under this
Agreement. Accordingly, neither party shall knowingly sell, export,
re-export, transfer, divert or otherwise dispose of any such Product or
technical data directly or indirectly to any person, firm or entity, or
country or countries, prohibited by the laws or regulations of the United
States or any other country. Further, Distributor shall use its
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reasonable best efforts to notify any person, firm or entity obtaining
such products or technical data from Distributor of the need to comply
with such laws and regulations.
4. ALTERA'S RESPONSIBILITY
Altera will furnish Distributor without charge a reasonable supply of
Altera's current list of published suggested prices, sales literature,
books, catalogs, etc. as Altera may prepare for distribution, and shall
also provide Distributor with such technical and sales assistance as may
be necessary to assist Distributor in effectively carrying out its
obligations under this Agreement. Altera reserves the right to sell
directly to any and all customers.
5. ORDER PROCEDURE
5.1 Orders. Distributor will place individual orders for the Products from
time to time during the term of this Agreement either by means of
electronic data transmission or in written form. This Agreement shall
govern to the extent that any terms in this Agreement are inconsistent
with the terms of any agreement between Altera and Distributor relating to
electronic data transmission. Each order placed by Distributor will
contain the following minimum information: (i) identification of each
Product ordered by Product number, quantity, and price; (ii) shipping
instructions and destination; and (iii) a requested delivery date for each
Product.
5.2 Acceptance by Altera. All orders for the Products by Distributor shall
be subject to acceptance by Altera and shall not be binding until the
earlier of such acceptance or shipment, and, in the case of acceptance by
shipment, only as to the portion of the order actually shipped. Altera
shall use its reasonable best efforts in completing any open portion of a
partial shipment of an order. Altera has the right to refuse to accept,
for any reason, any order placed by Distributor. Altera shall use its
reasonable best efforts to accept any order for non-custom Products within
ten (10) days of its receipt.
5.3 Controlling Terms. The terms of this Agreement will apply to each
order accepted or shipped by Altera under this Agreement. In the event
that any terms or conditions of sale contained in any communication
between Distributor and Altera contradict or are inconsistent with
anything contained in this Agreement, the terms and conditions of this
Agreement shall prevail. Altera's acceptance of any order from Distributor
under this Agreement is conditioned on Distributor agreeing that the terms
of this Agreement shall prevail over any additional or inconsistent terms
communicated by Distributor to Altera in any form whatsoever.
5.4 Quantity. All component orders of custom Products only are subject to
an overrun or underrun of five percent (5%) of the quantity ordered which
shall constitute fulfillment of the order by Altera.
5.5 Change Orders and Cancellation by Distributor.
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(a) Standard Products: All orders submitted by Distributor and
accepted by Altera are firm commitments by Distributor to buy Altera
Products. Distributor will notify Altera in a timely manner of its desire
to change any order. Altera shall have the right to deny any change order
request submitted by Distributor within ninety (90) days of the current
factory scheduled shipment date. However, within the period from thirty
(30) to ninety (90) days of the current factory scheduled shipment date,
Altera will use its best efforts to accommodate reasonable requests for
changes. Within the period from zero (0) to thirty (30) days of current
factory scheduled shipment date, Altera will accept change orders only in
extraordinary circumstances; Altera's shall have the sole right to
determine what circumstances are extraordinary. Altera's acceptance of any
change order request within 30 days of current factory scheduled shipment
shall not obligate Altera to accept future change order requests submitted
within 30 days of shipment. On an ongoing and regular basis, Distributor
will use its best efforts to reconcile its own records of orders on Altera
with Altera's records of order backlog.
(b) Custom Products: From time to time, Distributor may place orders
on Altera for Custom Product. (Custom Product is defined as Product that
is not listed in Altera's published distributor price list and/or that
requires special processing by Altera.) Once accepted by Altera, orders
for Custom Product may not be changed in any way without prior approval of
Altera. As a pre-condition to approving a request to change an order for
Custom Product, Altera may require Distributor to compensate Altera for
any costs incurred by Altera as a result of the change order.
5.6 Cancellation by Altera. Altera reserves the right to cancel any orders
placed by Distributor and accepted by Altera as set forth above, or to
refuse or delay shipment thereof, if:
(a) Distributor fails to make any payment as provided in this
Agreement or under the terms of payment set forth in any invoice or
otherwise agreed to by Altera and Distributor;
(b) Distributor fails to meet reasonable credit or financial
requirements established by Altera, including any limitations on allowable
credit;
(c) Distributor otherwise fails to comply with the terms and
conditions of this Agreement;
(d) this Agreement is terminated and the scheduled delivery would
take place after the Agreement's termination date; or
(e) circumstances beyond Altera's control prevent it from shipping
any order by the requested delivery date.
Altera also reserves the right to discontinue the manufacture or
distribution of any or all of the Products at any time, and to cancel any
orders for such discontinued Products without liability of any kind to
Distributor or to any other person except as expressly set forth herein.
No such discontinuation will be deemed a termination (unless Altera so
advises Distributor)
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or breach of this Agreement by Altera. Altera will provide Distributor
with notice of product discontinuances in accordance with ISO Standards
Book, 01P-01454-01, as amended or updated.
6. PAYMENT
6.1 Terms and Interest. Payment shall be made according to the terms
specified in writing by Altera. Interest shall be payable at the rate of
one-and-one-half percent (1.5%) per month or at the maximum rate permitted
by law, whichever is less, on all overdue and unpaid invoices. Altera has
the right to invoice Distributor for any unauthorized discounts or
deductions taken by Distributor, and Distributor shall make payment on
such invoices net thirty (30) days.
6.2 Method of Payment. Distributor shall make payment in Dollars as
designated by Altera or in such other method as agreed to by the parties
in writing.
6.3 Taxes, Tariffs, and Fees. Unless otherwise agreed in writing by
Altera, all prices quoted by Altera for the Products do not include any
national, state, or local sales, use, value added or other taxes, customs
duties, or similar tariffs and fees. Distributor shall be responsible and
liable for the payment of any taxes, customs duties, or other government
fees and tariffs applicable to the Products, except for taxes based on
Altera's net income, unless Distributor has provided Altera with an
exemption resale certificate in the appropriate form for the jurisdiction
to which the Products are to be directly shipped. Distributor agrees to
indemnify Altera for any claim for taxes, customs duties, or other
government fees and tariffs applicable to the Products that may be levied
on Altera.
7. SHIPMENT AND RISK OF LOSS
7.1 Shipment. Orders issued by the Distributor will specify requested
shipment dates. Distributor will select the mode of shipment and the
carrier. Altera will pay for packing costs. Distributor will be
responsible for and pay all charges for shipping, freight, and any
insurance requested by Distributor, which charges Altera may require
Distributor to pay in advance.
7.2 Delays in Shipment. Altera will use commercially reasonable efforts to
ship products to arrive by any requested delivery dates quoted or
acknowledged. However, Altera will not be liable for any delay in shipment
or delay in performance under this Agreement due to unforeseen
circumstances or due to causes beyond its control including but not
limited to, acts of nature, acts of government, labor disputes, delays in
transportation, and delays in delivery or inability to deliver by Altera's
suppliers.
7.3 Risk of Loss. All risk of loss of, or damage to, the Products will
pass to Distributor, or to such financing institution or other party or
parties as may have been designated to Altera by Distributor, upon
delivery by Altera to the carrier, freight forwarder or Distributor,
whichever first occurs. Distributor will bear the risk of loss or damage
in transit.
<PAGE> 7
7
8. PRICES
8.1 Altera's Prices. Distributor shall purchase products at Altera's
prices as are in effect at the time the order is received from the
Distributor.
8.2 Price Changes: From time to time, Altera may decide to change the
prices for the Products.
(a) Price decreases: In the event of a price decrease by Altera,
Altera will invoice Distributor at the lower price for all orders placed
by Distributor that have not been delivered as of the effective date of
the price decrease.
(b) Price increases: In the event of a price increase, Altera will
announce to Distributor its intention to raise prices at least 30 days
before the effective date of such a price increase. All orders on Altera's
backlog as of the announcement of the price increase and scheduled for
delivery by Altera within 30 days of announcement shall be shipped at the
price that was effective before the price increase. All other orders shall
ship at the new, increased price. Distributor shall have the right to
cancel (within ten days of the announcement of a price increase) any
orders for Product for which Altera has announced a price increase.
8.3 Credit for Inventory Invoiced at Higher Price. In the event of a price
decrease, Altera shall issue a credit to Distributor in the amount of the
price decrease for all unsold Products then stocked by the Distributor
provided that Distributor satisfies the terms and conditions specified in
subparagraph 8.4 and 8.5(b) and (c).
8.4 Record Keeping for Price Decrease Credits. As a condition of Altera
issuing Distributor a credit pursuant to subparagraph 8.3, Altera must
receive an inventory report from Distributor no later than thirty (30)
days after the effective date of the price decrease. No credit will be due
Distributor if Distributor fails to furnish such inventory report within
the thirty-day period. Altera shall have the right to audit the
information provided in this report against the previous inventory reports
and subsequent resale reports. Altera may conduct such audit upon
reasonable notice during normal business hours at the Distributor's place
of business by, among other things, reviewing the Distributor's applicable
books and records. Upon verification of Distributor's claim for credit,
Altera shall issue a credit to Distributor's account.
8.5 Procedure for Submitting Claims for Credit.
(a) Distributor must submit its claims for the following types of
credits within sixty days of the following:
(i) Price Discrepancies: the date of any invoice that contains
a price discrepancy; or
<PAGE> 8
8
(ii) SSD (ship from stock debit): sales out date.
Altera will not honor any claims for credit submitted after the sixty-day
period.
(b) All claims for credit must specify the invoice number(s) to
which the claim applies.
(c) If Altera provided Distributor with a discount on its regular
prices at the time that Altera invoiced Distributor for the Products that
are the subject of a claim for credit, Altera shall subtract from the
credit the proportional amount of the prior discount.
9. STOCK ROTATION AND RETURNS
9.1 Return of Products. If Altera determines in accordance with its Stock
Rotation Policy that Distributor's inventory is overstocked with certain
Products, Distributor may return such Products to Altera pursuant to
subparagraph 9.2. Products that are obsolete or discontinued may be
returned pursuant to subparagraph 9.3 of this Agreement. Returns of
Products that are permitted in connection with the termination of this
Agreement are subject to paragraph 15. All returns require a Return
Material Authorization ("RMA").
Distributor shall bear all risk of loss or damage during shipment of
returned Products and shall ship returned Products in accordance with
Altera's reasonable instructions.
Altera will credit distributor's account in the amount of the net
price paid by Distributor for the returned Products after Altera receives
the Products and verifies their quantity and quality. All returned
Products must be unused, undamaged, and in sealed, factory-shipped boxes.
Distributor may not take any deductions from payments due to Altera before
Altera has issued a credit to Distributor; Altera will charge interest at
the rate of one-and-one-half percent (1.5%) per month or at the maximum
rate permitted by law, whichever is less, from the date that Distributor
makes any unauthorized deductions.
9.2 Procedure for Stock Rotations. At regular six-month intervals, Altera
will accept a Stock Rotation return from Distributor for the purpose of
clearing Distributor's inventory of Product that in Distributor's good
faith judgment is unlikely to be sold. Under this provision, Distributor
may return to Altera Product valued at up to 5% of Altera's net billings
to Distributor for the six months prior to the Stock Rotation. As a
precondition for accepting a Stock Rotation, Altera may require that
Distributor take delivery from Altera of Product of value equal to or less
than the value of the Product returned.
9.3 Obsolete and Discontinued Products. Altera may render obsolete or
discontinue the manufacture and/or sale of any Product ("Discontinued
Product") and shall notify Distributor of any Discontinued Product.
Distributor shall have the right to return Discontinued Product to Altera.
Within thirty (30) days of the last date that orders will be accepted,
Distributor shall notify Altera of Distributor's intention to return any
Discontinued Product in its inventory which were purchased by Distributor
from Altera.
<PAGE> 9
9
9.4 Administrative Procedures for Returns. Product returns to Altera
pursuant to subparagraphs 9.2, 9.3, and 15.5(c) as well as any other
Product returns to Altera are subject to the following provisions:
(a) Distributor must request and receive from Altera a Return
Material Authorization number for each return prior to shipping Product to
Altera. Altera will not unreasonably withhold return Material
Authorizations.
(b) Altera retains the right to review all line items prior to return
and approve or deny any item requested for return by Distributor. Altera
will establish and publish reasonable requirements not inconsistent with
the terms hereof for the approval of return line items, and for the
handling and packaging of Product to be returned, in order to protect the
quality of Altera Products and minimize the administrative expenses to
both parties associated with returns.
(c) Return Material Authorization numbers are valid for 60 days from
the date of issuance to Distributor. If Distributor fails to return the
Products within that 60-day period, Altera shall not be obligated to
accept the Products or to credit Distributor's account for the Products.
9.5 Defective Products. Defective or non-conforming Products shall be
subject to the warranty provision of paragraph 10 of this Agreement.
10. WARRANTIES
10.1 Altera's Warranties to Distributor.
(a) Semiconductor Products and Other Hardware Products. Altera
warrants that the Products (other than Software Products) (hereinafter
referred to as "Semiconductor Products") covered by this Agreement shall
be free from defects in materials and workmanship and shall conform to
Altera's published specifications for a period of up to one year from the
date of shipment to Distributor's customer but in no event longer than two
years from the date of shipment by Altera to Distributor. The foregoing
warranty does not apply to any Semiconductor Products that (i) have not
been stored, handled, or maintained in accordance with Altera's published
quality standards and procedures, including those set out in the
Distributor Policies and Procedures Manual, or (ii) have not been
programmed in accordance with Altera's published programming standards and
procedures, including those set out in the Distributor Policies and
Procedures Manual, or (iii) have otherwise been subject to misuse,
including static discharge, neglect, accident or modification or (iv) have
been soldered or altered and are not capable of being tested by Altera
under its normal test conditions. Altera's sole obligation to Distributor
for Semiconductor Products failing to meet this warranty shall be to
replace the defective or non-conforming Semiconductor Products. This
obligation is conditioned on all of the following: (1) Distributor or
Distributor's customer providing Altera with written notice of any
nonconformity or defect within the applicable warranty period, and (2)
Distributor or Distributor's customer returning the non-conforming or
defective Semiconductor Product to Altera within 30 days of receiving
Altera's written notification to do so, and (3) Altera determining that
the Semiconductor Product is non-conforming or
<PAGE> 10
10
defective, and (4) Altera determining that this warranty applies to the
Semiconductor Product. Any replacement of a Semiconductor Product by
Altera shall carry only the unexpired term of the original warranty.
(b) Software Products. Altera warrants that Software Products covered
by this Agreement, when properly installed and used, will perform
substantially in accordance with Altera's current Software Products
documentation for a period of up to ninety (90) days from the date of
shipment to Distributor's customer but in no event longer than one year
from the date of shipment to Distributor. Altera warrants the diskette(s)
on which Software Products are furnished to be free from defects in
materials and workmanship under normal use for a period of up to ninety
(90) days from the date of shipment to Distributor's customer but in no
event longer than one year from the date of shipment to Distributor. The
foregoing warranty does not apply to any Software Products that have been
damaged as a result of accident, abuse, misuse, neglect, or modification.
During the warranty period, (1) Altera will replace any Software Product
or diskette not meeting the foregoing warranty and which is returned to
Altera; or (2) if Altera is unable to deliver a replacement Software
Product which performs substantially in accordance with current Software
Product documentation or a diskette which is free of defects in materials
or workmanship, Distributor may return the Software Product for a credit
in the amount paid by Distributor. Any replacement Programs or diskettes
will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer.
(c) THE WARRANTIES CONTAINED IN PARAGRAPH 10 OF THIS AGREEMENT ARE
THE ONLY WARRANTIES MADE BY ALTERA WITH RESPECT TO THE PRODUCTS. EXCEPT AS
PROVIDED IN PARAGRAPH 10, ALTERA MAKES NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. THE WARRANTIES PROVIDED IN
PARAGRAPH 10 MAY BE MODIFIED OR AMENDED BY ALTERA ONLY BY WRITTEN
INSTRUMENT SIGNED BY A DULY AUTHORIZED AGENT OF ALTERA.
10.2 Distributor Shall Make No Inconsistent Warranties. Distributor shall
make no representation, guarantee or warranty on Altera's behalf to
Distributor's customers with respect to the Products that is inconsistent
with the above warranties.
11. ALTERA'S INTELLECTUAL PROPERTY RIGHTS
11.1 Trademark Use During Agreement. During the term of this Agreement,
Distributor is authorized by Altera to use the Trademarks in connection
with Distributor's advertisement, promotion, and distribution of the
Products. Distributor shall use the Trademarks only in signs and printed
material furnished or approved in writing by an authorized representative
of Altera. Distributor shall not use the Trademarks, or any part thereof,
separately or in combination, as a part of or in connection with its firm,
trade, or corporate name. Distributor's use of the Trademarks will be in
accordance with Altera's policies in effect
<PAGE> 11
11
from time to time, including but not limited to trademark usage and
co-operative advertising policies.
11.2 Copyright, Patent, and Trademark Notices. As both a covenant by
Distributor and a condition of Altera's sale or license of the Products to
Distributor, Distributor will include on each copy of the Products that it
distributes, and on all containers and storage media, all copyright,
patent, trademark, and other notices of proprietary rights included by
Altera on the Products. Distributor agrees not to alter, erase, deface, or
overprint any such notice on anything provided by Altera.
11.3 No Distributor Rights in Altera Intellectual Property Rights.
Distributor has paid no consideration for the use of Altera's copyrights,
patents, trademarks, or trade secrets and nothing contained in this
Agreement shall give Distributor any interest in any of them. Distributor
acknowledges that Altera owns or holds a license to all copyrights,
patents, trademarks, or trade secrets related to the Products and agrees
that it will not knowingly at any time during or after this Agreement
assert or claim any interest in or do anything that may adversely affect
the validity or enforceability of any copyrights, patents, trademarks, or
trade secrets owned by or licensed to Altera (including, without
limitation, any act, or assistance to act, which may infringe or lead to
the infringement of any copyrights, patents, trademarks, or trade secrets
related to the Products). Nothing in this paragraph shall prevent
Distributor from challenging the validity of any trademark, copyright, or
patent. Distributor agrees not to attach any additional trademarks, logos,
or trade names to any Product. Distributor further agrees not to affix any
of the Trademarks to any product not manufactured or sold by Altera.
11.4 No Continuing Rights in Trademarks. Upon expiration or termination of
this Agreement, Distributor will immediately cease all display,
advertising and use of all Trademarks and will not thereafter use,
advertise, or display any name, mark or logo which is, or any part of
which is, similar to, or confusing with, any Trademark or other name,
mark, logo or designation associated with any Product.
11.5 Obligation to Protect Proprietary Information. Altera and Distributor
have entered into or shall in the future enter into a non-disclosure
agreement that shall set forth the parties' obligations to protect
proprietary information.
11.6 Notification of Suspected Infringement. Distributor agrees to notify
Altera of any known or suspected infringement of Altera's trademark, trade
secret, copyright, and patent rights that comes to Distributor's
attention. Distributor also agrees not to induce, encourage, contribute
to, or support the infringement of Altera's trademark, trade secret,
copyright, and patent rights or the breach of the Altera Program License
Agreement by Distributor's customers or other third parties.
<PAGE> 12
12
11.7 Intellectual Property Indemnification.
(a) Altera shall defend any suit, proceeding, or claim of
infringement asserted against Distributor in the Territory insofar as such
suit, proceeding, or claim of infringement alleges that any Product
manufactured and supplied by Altera to Distributor infringes any duly
issued patent, registered trademark, or copyright and Altera shall pay all
damages and costs finally awarded therein against Distributor, provided
that Altera promptly is informed and furnished a copy of each
communication, notice or other action relating to the alleged infringement
and is given authority, information, and assistance (at Altera's expense)
necessary to defend or settle said suit or proceeding. Altera shall have
the absolute right to control the defense and settlement of any
infringement suit or proceeding for which Distributor seeks
indemnification under this paragraph. Altera shall not be obligated to
defend or be liable for costs and damages if the infringement arises out
of (1) Products that are manufactured by Altera in accordance with
Distributor's specifications, or (2) the Products being combined with or
added to another product, or (3) the Products being modified after
delivery to Distributor by Altera (including any programming done by
Distributor or Distributor's customer), or (4) from use of the Products,
or any part thereof, in the practice of a process. Altera's obligations
hereunder shall not apply to any infringement occurring after Distributor
has received notice of such suit or proceeding alleging the infringement
unless Altera has given written permission for such use by Distributor.
(b) If any Product manufactured and supplied by Altera to Distributor
shall be held by any court in the Territory to infringe any patent,
registered trademark, or copyright and Distributor shall be enjoined from
using the same, Altera will at its option and at its expense (1) procure
for Distributor the right to use such Product free of any liability for
infringement or (2) replace such Product with non-infringing substitute
Product or (3) refund the purchase price of such Product.
(c) If the infringement by Distributor is alleged prior to Altera's
completion of delivery of the Products, Altera may decline to make further
shipments without being in breach of this Agreement.
(d) If any suit, proceeding, or claim of infringement is asserted
against Altera in the Territory based on a claim that the goods
manufactured by Altera in compliance with Distributor's specifications and
supplied to Distributor directly infringe any duly issued patent,
registered trademark, or copyright, then Distributor shall indemnify
Altera to the same extent as specified in subparagraph 11.7(a) of this
Agreement. However, Distributor shall not be obligated to indemnify Altera
for specifications developed solely by Distributor's end customers.
(e) THE FOREGOING STATES THE SOLE AND EXCLUSIVE LIABILITY OF THE
PARTIES HERETO FOR PATENT, TRADEMARK, OR COPYRIGHT INFRINGEMENT AND IS IN
LIEU OF ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, IN REGARD THERETO.
<PAGE> 13
13
12. SOFTWARE LICENSE
Altera grants and Distributor accepts a non-exclusive license to use and
sublicense Altera Software Products and other copyrighted materials,
including but not limited to printed materials, on the following terms
(the "License"):
12.1 The Software Products covered by this Agreement are confidential and
proprietary to Altera and its licensors, and Altera and its licensors
retain all title, copyright, patent and other proprietary rights to the
Software Products and all copies thereof.
12.2 Distributor may sublicense Altera Software Products to its customers
for use in a manner that is not inconsistent with the terms of this
Agreement. Any sublicense granted to Distributor's customers must be made
subject to the terms of the Altera Program License Agreement. Any attempt
by Distributor to sublicense Altera Software Products in contravention of
this Agreement shall be null and void.
12.3 Distributor may use Altera Software Products to perform
demonstrations of the use of Altera Products, or to train sales people in
the use of Altera Products, or to train customers in the use of Altera
Products.
12.4 Distributor may use Altera Software Products to program other Altera
Products for Distributor's customers. Distributor may not use Altera
Software Products to program non-Altera Products.
12.5 Distributor may use a single copy of any Software Product only on a
single computer or on a single network of workstations.
12.6 Distributor may make one copy of any Software Product that it has
installed on a single computer or single network of workstations at
Distributor's place of business in any computer-readable or printed form
for back-up or archival purposes only and subject to the terms of this
Paragraph 12.
12.7 Except to the extent permitted in the preceding subparagraph,
Distributor may not copy, modify, revise, alter, reverse engineer,
decompile or disassemble any Altera Software Product under any
circumstance without the prior written permission of Altera.
12.8 Distributor agrees that it will not open any sealed Altera Software
Products that are intended for sublicensing, nor will it sublicense any
unsealed Altera Software Products. Distributor will not transfer,
sublicense, or give away any copy of an Altera Software Product that was
previously installed on any computer or single network of workstations at
Distributor's place of business.
12.9 The terms of this License shall govern with respect to Distributor's
use of Altera Software products in the event that any such terms are
inconsistent with or omitted from the Altera Program License Agreement.
<PAGE> 14
14
13. CO-OP ADVERTISING AND PROMOTION
Altera shall establish a fund for payment of advertising, promotion, and
Product literature localization costs ("Co-op Fund") in the Territory
equal to up to one-half of one percent (1/2%) of the net purchase price of
all Products purchased by Distributor during the preceding twelve (12)
months. Funds will be accrued on a 12-month rolling basis, and those funds
not committed to projects within that period revert to Altera. Specific
projects may be proposed by either Altera or Distributor, but only
projects that have been approved in writing by Altera will be eligible for
payment from the Co-op Fund.
If advertising and promotion costs for an approved project are incurred by
Altera or any of its affiliate companies, Distributor shall reimburse
Altera for up to one-half of the cost of such project; the exact amount of
such reimbursement shall be mutually agreed upon by the parties prior to
implementation of the project. Distributor shall make such payments to
such entity as may be designated by Altera in writing for the benefit of
Altera. If advertising and promotion costs for approved projects are
incurred by Distributor, Altera shall reimburse Distributor for up to
one-half (1/2) of such costs. Altera shall finally determine the exact
amount of such reimbursement.
14. ASSIGNMENT
This Agreement shall not be assignable by either party without the prior
written approval of the other party. Except in the case of a corporate
reorganization, a change in the persons or entities who control fifty
percent (50%) or more of the equity securities or voting interest of a
party shall be considered an assignment of that party's rights.
15. TERM AND TERMINATION
15.1 Term. This Agreement shall be in force for a period of one (1) year
from the date of this Agreement, which is indicated above. Thereafter,
this Agreement shall renew automatically for subsequent periods of one (1)
year unless notice of termination is served in accordance with
subparagraph 15.2 or this Agreement is terminated without notice pursuant
to subparagraph 15.3.
15.2 Termination With Notice. At any time, either party may terminate this
Agreement without cause upon providing the other party with ninety (90)
days prior written notice.
15.3 Termination For Cause. The Agreement may be terminated without notice
under the following circumstances:
(a) If either party is or becomes insolvent or admits its inability
to pay its debts as they become due, or makes an assignment for the
benefit of creditors, or if there are initiated by or against either party
proceedings in bankruptcy or under insolvency laws or for reorganization,
receivership or dissolution, or if either party ceases to conduct its
operations in the normal
<PAGE> 15
15
course of business, the other party shall have the right to terminate this
Agreement effective immediately upon giving notice.
(b) If either party is in breach hereof and does not cure such
breach within thirty (30) days of receipt of notice thereof.
15.4 Waiver of Damages in Event of Termination. The right of termination,
as provided herein, is absolute. Both Altera and Distributor have
considered the possibility of expenditures necessary in preparing for
performance of this Agreement and the possible losses and damage incident
to each in the event of termination, and it is understood that neither
party shall be liable to the other for damages in any form by reason of
the termination of this Agreement at any time, other than as expressively
provided in this Agreement.
15.5 Procedures Upon Termination.
(a) Unfilled Orders. Upon termination of this Agreement, Altera may,
at its option, cancel any or all unfilled orders that were previously
accepted by Altera pursuant to subparagraph 5.2. Except in those
circumstances governed by subparagraph 5.6 of the Agreement, Altera agrees
not to cancel orders which are for Products intended for resale pursuant
to firm orders (1) that have been placed by a specific customer with
Distributor and are scheduled for delivery within 90 days of the date that
notice of termination is given and (2) that Distributor, from among its
locations, does not have inventory stock to complete. Distributor shall
notify Altera in writing of such firm orders within 30 days of the date
that notice of termination is given.
(b) Promotion. Upon termination of this Agreement, Distributor agrees
to discontinue immediately all activities as an Altera Distributor
including, without limitation, all use of the Trademarks and all
advertising of or reference to Altera Products, except as permitted
pursuant to the disposition of inventory of Products pursuant to
subparagraph 15.5(c).
(c) Disposition of Inventory. In the event Altera terminates this
Agreement without cause pursuant to subparagraph 15.2 or Distributor
terminates on the ground that Altera has breached the Agreement, Altera
will repurchase from Distributor at Distributor's option any or all unsold
non-discontinued and non-obsolete Products in Distributor's inventory at
the net price paid by Distributor. Products returned under this provision
are subject to paragraph 9.1. In the event Distributor terminates this
Agreement without cause or Altera terminates with cause pursuant to
subparagraph 15.3 above, Altera may, at its option, repurchase from
Distributor any or all unsold Altera products in Distributor's inventory
at the same price as set forth in the sentence immediately preceding less
a five (5%) percent handling charge to be deducted by Altera from any
credit to be issued to Distributor. The party terminating this Agreement
shall pay all transportation charges for Products returned to Altera.
<PAGE> 16
16
16. LIMITATION OF LIABILITY AND INDEMNIFICATION
In no event shall either party be liable to the other party for indirect,
special, incidental, or consequential damages as a result of any claim or
liability relating to or arising out of this Agreement. Distributor shall
indemnify Altera for any claims asserted by any third party arising out of
or relating to Distributor's breach of this Agreement, negligence, or
wrongful conduct.
17. RELATIONSHIP OF THE PARTIES
It is expressly understood and agreed that the relationship between Altera
and Distributor under this Agreement is solely that of seller and buyer.
Distributor is an independent contractor and is in no way Altera's legal
representative or agent. Distributor has no authority to assume or create
any obligation on behalf of Altera, express or implied, with respect to
Products or otherwise. Nothing contained in this Agreement shall be
construed as a limitation or restriction upon Altera in the sale or other
disposition of any Product to any person, firm or corporation or in any
territory or country.
18. GOVERNING LAW, CHOICE OF FORUM, ATTORNEYS' FEES
It is expressly agreed that the validity and construction of this
Agreement, and performance hereunder, shall be governed by the laws of the
State of California, USA. The parties agree to submit to the jurisdiction
of the courts in the State of California for the resolution of any dispute
or claim arising out of or relating to this Agreement. The parties hereby
agree that the party who does not prevail with respect to any dispute,
claim, or controversy relating to this Agreement shall pay the costs
actually incurred by the prevailing party, including any attorneys' fees.
19. WAIVER
Either party's failure to enforce at any time any of the provisions of
this Agreement, or any right with respect thereto, or to exercise any
option herein provided, shall in no way be construed to be a waiver of
such provisions, rights or options or in any way affect the validity of
this Agreement. Either party's exercise of any of its rights hereunder or
of any options hereunder under the terms or covenants herein shall not
preclude or prejudice either party from thereafter exercising the same or
any other right it may have under this Agreement, irrespective of any
previous action or proceeding taken by either party.
20. NOTICE
All notices required by this Agreement shall be sufficiently given
and effective when sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to Distributor, attention
President, Wyle Electronics Incorporated, Corporate Offices, 15370
Barranca Parkway., Irvine, California 92618, or to Altera Corporation,
attention General Counsel, 101 Innovation Drive, San Jose, California
95134-1941, or to such other place or
<PAGE> 17
17
places as the parties hereto may designate in writing. If notice is given
in any other manner, it shall be effective when received.
21. CAPTIONS
The captions of the sections herein are intended for convenience only, and
the same shall not be determined to be interpretive of the content of such
section.
22. SEVERABLITY
If any provision, or part of a provision of this Agreement is invalidated
by operation of law or otherwise, the provision or part will to that
extent be deemed omitted and the remainder of this Agreement will remain
in full force and effect.
23. COMPLETE AGREEMENT
This Agreement supersedes and cancels any previous understanding or
agreements, whether written or oral, between the parties relating to the
subject matter hereof, including any existing distribution agreement
involving Altera semiconductor products. This Agreement supersedes but
does not cancel the Demand Creation Agreement between the parties dated
April 1, 1998. It expresses the complete and final understanding with
respect to the subject matter hereof and may not be changed in any way
except by an instrument in writing signed by authorized representatives of
both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives and to become effective as of the
day and year first written above.
WYLE ELECTRONICS INCORPORATED ALTERA CORPORATION
- ------------------------------------ ---------------------------------------
BY: BY:
- ------------------------------------ ---------------------------------------
(Name): (Name):
TITLE: TITLE:
- ------------------------------------ ---------------------------------------
DATE: DATE:
- ------------------------------------ ---------------------------------------
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0
<COMMON> 98
<OTHER-SE> 935,384
<TOTAL-LIABILITY-AND-EQUITY> 1,133,758
<SALES> 186,399
<TOTAL-REVENUES> 186,399
<CGS> 69,154
<TOTAL-COSTS> 69,154
<OTHER-EXPENSES> 49,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 72,520
<INCOME-TAX> 23,569
<INCOME-CONTINUING> 46,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,975
<EPS-PRIMARY> 0.48<F1>
<EPS-DILUTED> 0.46
<FN>
<F1>For purposes of this Exhibit, Primary means Basic.
</FN>
</TABLE>
