Document:

Exhibit
10.23

 

* Omitted and filed separately with the SEC
pursuant to a confidential treatment request

 

ADVANCE
PRODUCTION PAYMENT AGREEMENT

THIS ADVANCE PAYMENT AGREEMENT (“this Agreement”), is entered into this
March 17, 1997, by and among SEIKO EPSON CORPORATION, a Japanese
corporation having its principal place of business at 3-5, Owa 3-chome,
Suwa-shi, Nagano-ken 392, Japan (“Epson”), S MOS Systems Inc.,
a California corporation, having a place of business at 150 River Oaks Parkway,
San Jose, California 95134-1951, U.S.A. (“SMOS”) and Lattice
Semiconductor Corporation, a Delaware corporation, having a place of business
at 5555 N.E. Moore Ct., Hillsboro, Oregon 97124-6421, U.S.A. (“Lattice”).

 

1.      Background.

 

1.1   Epson

 

Epson is in the business of
designing, manufacturing, testing and selling semiconductor devices, among
other products.  Epson manufactures such
semiconductor devices at its plant located at 281 Fujimi, Fujimi-machi,
Suwa-gun, Nagano-ken 399-02, Japan (the “Fujimi Facility”) and its plant located
at 166-3 Jurizuka, Sakata-shi, Yamagata-ken 998-01, Japan (the “Sakata Facility”).

 

1.2   SMOS

 

SMOS is an affiliate of
Epson and is Epson’s authorized distributor in the United States for
semiconductor devices.  SMOS is in the
business of designing, testing and selling semiconductor devices.  SMOS conducts its business at its office
located at 150 River Oaks Parkway, San Jose, CA 95134-1951, U.S.A.

 

1.3   Lattice

 

Lattice is in the business
of designing, developing, manufacturing and marketing and selling both high-
and low-density E2-CMOS® programmable logic devices and related development
system software.

 

1.4   Scope of Agreement

 

Epson and SMOS have an ongoing business relationship
with Lattice whereby Epson fabricates semiconductor devices for Lattice.  The parties entered into an advance
production payment agreement dated July 5, 1994 for development and manufacture
of 0.8-0.5 micron, 2-3 metal layer, 6 inch CMOS semiconductor
wafers.  The parties desire to expand
their relationship.  Specifically, Lattice
desires to develop and sell high performance, advanced architecture
semiconductor devices, and Epson desires to construct [*], 8 inch wafer
CMOS process line installed in the Site (as hereafter defined) in order to
fabricate such 

 

 

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

semiconductor wafers and
distribute them to Lattice through SMOS. 
Accordingly, the parties agree that Lattice will pay to Epson an advance
production payment (“APP”) only to be used as a credit to purchase the Products
from Epson through SMOS over a specified period of time in accordance with this
Agreement.  The Products shall be first
sold to SMOS from Epson, and then be sold to Lattice from SMOS under the terms
and conditions of the Purchase Agreement (as hereafter defined).  (In the event that SMOS has fallen into a
situation where it is unable to play the role required under this Agreement for
any reason specifically prescribed in this Agreement or any other reason, Epson
and Lattice will mutually consult about the substitute form of the transaction
contemplated herein.)

 

1.5   Position of SMOS

 

Notwithstanding any
provision herein to the contrary, Lattice, Epson and SMOS acknowledges that
although this Agreement is executed by each of such three (3) parties, SMOS is
a party hereto solely for the purpose to evidencing its role, as the
intermediary through which, under the terms of the Purchase Agreement, the
Products to be sold to Lattice by Epson will be sold, and to evidence SMOS’S
agreement to such an arrangement.  SMOS
shall under no circumstances have any rights under this Agreement (it being
understood, however, that this Article 1.5 shall not in any way affect the
rights of SMOS under the Purchase Agreement). 
In particular, and without limiting the generality of the foregoing,
SMOS shall have no rights under Article 14 of this Agreement (i.e., any
reference to party or parties to this Agreement shall be deemed to be only to
Epson and Lattice unless specifically prescribed therein), and Epson and
Lattice may amend this Agreement in any respect.  Epson agrees to cause SMOS to comply with all
of the terms of this Agreement and the Purchase Agreement.  Any material breach of the Purchase Agreement
shall constitute a material breach to this Agreement for the purpose of
Article 14.4 of this Agreement.

 

2.      Definitions

 

2.1         “APP” will mean the
advance production payment of Ten Billion, Four Hundred and Sixty Nine Million
and Seven Hundred Thousand Japanese Yen (JPY10,469,700,000) to be made by
Lattice to Epson in the manner described in Article 4.  If the parties agree, in accordance with
Article 4.4, on additional APP, the definition of “APP” hereof shall be
interpreted to include such additional APP.

 

2.2         “Equipment” will mean
the semiconductor fabrication equipment that Epson will install in the New
Facility for purposes of fabricating New Facility Wafers.

 

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2.3         “Existing Agreements”
will mean those contracts for the development, fabrication, testing and/or sale
of semiconductor devices between Epson and Lattice in effect as of the date of
this Agreement.

 

2.4         “Free Wafers” will
have the meaning ascribed to it in Article 8.

 

2.5         “Fujimi Facility”
will have the meaning ascribed to it in Article 1.1.

 

2.6         “New Facility” will
mean the [*], 8 inch wafer CMOS process line constructed at the Site using the
Equipment.

 

2.7         “New Facility Wafers”
will mean the semiconductor wafers to be fabricated by Epson for Lattice at the
New Facility.

 

2.8         “Price” will have the
meaning ascribed to it in Article 10.1.

 

2.9         “Products” will mean
those specific types of New Facility Wafers fabricated using the same masks and
the same process flow and identified by the same series or product name or
number.  The Products will be ordered,
fabricated, delivered and sold pursuant to the terms and conditions of Purchase
Agreement(s).  The Products which the
parties desire to fabricate at the New Facility will be agreed by and between
Epson and Lattice, referring to the Process Road Map for Lattice attached
hereto as Exhibit B, which may be reviewed and amended from time to time
by mutual agreement of the parties.  The
parties acknowledge however, that the final determination of what Products will
be fabricated may depend on the results of joint development and product
qualification.

 

2.10   “Purchase Agreement(s)”
will mean the agreements by and between SMOS and Lattice pursuant to which SMOS
agrees to sell and Lattice agrees to purchase the Products.  It is the intention of the parties to execute
the Purchase Agreement, the terms of which shall be negotiated and agreed
between SMOS and Lattice, after the execution of this Agreement.

 

2.11   “Projected Completion
Schedule” will have the meaning ascribed to it in Article 3.1.2.

 

2.12   “Purchase Commitment”
will have the meaning ascribed to it in Article 7.1 and Exhibit D
attached hereto.

 

2.13   “Sakata Facility”
will have the meaning ascribed to it in Article 1.1.

 

2.14   “Site” will mean that
portion of the Sakata Facility where the New Facility will be constructed.

 

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2.15   “Supply Commitment”
will have the meaning ascribed to it in Article 6.1 and Exhibit D.

 

2.16   “[*] Process” will
mean the [*], 8 inch wafer, CMOS process owned, licensed or developed by Epson
which will be used at the New Facility. 
The [*] Process will include (a) all process flow, process steps,
process conditions, and modifications thereto, used to manufacture
semiconductor wafers at the New Facility as well as (b) all methods,
formulae, procedures, technology and know-how associated with such process
steps and process conditions.  The [*]
Process will not include any methods, formulae, procedures, technology or
know-how licensed or received from Lattice under this Agreement, the Existing
Agreements or other agreements executed between the parties in the future
unless otherwise agreed in writing.  If
the parties find it necessary or convenient to document process flow for any
Product, such documentation will be signed by the parties and attached to the
appropriate Purchase Agreement as an exhibit.

 

2.17   “Subsidiary” will
mean any corporation, partnership, joint venture or other legal entity which
agrees in writing to be bound by the terms and conditions of this Agreement and
more than fifty percent (50%) of whose ownership rights are controlled directly
or indirectly by Epson or Lattice, as the case may be, but only so long as such
control exists.

 

3.      Construction
and Representation.

 

3.1   Construction of the New Facility

 

3.1.1        Location and Costs

Epson hereby agrees, subject to its receipt of the
full amount of  the APP as provided in
Article 4.1 to construct the New Facility at  the Site and to install the Equipment
therein.

 

3.1.2        Completion Schedule

The projected completion schedule for the construction
of the New Facility (the “Projected Completion Schedule”) is set forth in Exhibit A
attached hereto.  In the event Epson has
reason to believe that any item in the Projected Completion Schedule designated
as a “Construction Milestone” will be delayed by more than thirty (30) calendar
days, Epson will promptly notify Lattice in writing and (a) explain the
reason for the delay, (b) describe the estimated amount of time that
construction will be delayed and (c) describe the action that Epson will
take to minimize the delay.

 

3.1.3        Business Interruption Insurance

Epson will use its best efforts to obtain business
interruption insurance coverage for the New Facility once the construction of
the New Facility is

 

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complete.  The
insurance will cover at least such risks as are usually insured against by
companies engaged in the manufacture of semiconductor devices in Japan.  Epson will maintain such business
interruption insurance coverage during the term of this Agreement.  Epson will furnish to Lattice, upon written
request, full information concerning the business interruption insurance
coverage.

 

3.1.4        First Shipment Delay

In the event that the first mass production of the
first Product is expected to be delayed beyond the process road map described
in the latest version of Exhibit B, firstly, the shipment of such Product
shall be made by utilizing existing facilities in the Sakata Facility subject
to successful completion of the relevant process at such existing
facility.  Such alternative shipment
shall not be applied for off-setting the APP. 
Epson shall provide regular action plans for the cure of the delay, and
make monthly progress reports to Lattice. 
If no cure is achievable by the beginning of October 1998, and if the
delay is not caused by Lattice, then Epson shall, in addition to the Free
Wafers as prescribed in Article 8 hereof, provide additional free wafers
[*].

 

3.1.5        Design Requirements  

Epson acknowledges that Lattice may require certain safety
and security requirements for semiconductor fabrication facilities, and Epson
agrees to work with Lattice to incorporate such requirements into the design of
the New Facility to the extent reasonably requested by Lattice and commercially
feasible.

 

3.2   Representations of Epson 

In order to induce Lattice
to enter into this Agreement and to make the APP hereunder, Epson hereby
represents and warrants that:

 

3.2.1        Corporate Status

Epson (a) is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation,
(b) has the corporate power to own or lease its assets and to transact the
business in which it is currently engaged and (c) is in compliance with
all requirements of law except to the extent that the failure to comply
therewith will not materially affect the ability of Epson to perform its
obligations under this Agreement.

 

3.2.2        Corporate Authority  

(a) Epson has the corporate power, authority and
legal right to execute, deliver and perform this Agreement and has taken as of
the date hereof all necessary corporate action to execute this Agreement,
(b) the person executing this Agreement has actual authority to do so on
behalf of Epson and (c) there are

 

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no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements, either written, oral or implied, that
prohibit execution of this Agreement.

 

3.2.3        Ownership of the Site  

Epson has such right, title and interest in and to the
Site and the structures located thereon as is required to permit the operation
of the Site as currently conducted and contemplated to be conducted under this
Agreement.

 

3.2.4        No Material Litigation

No litigation, investigation or administrative
proceeding is presently pending, or to the knowledge of Epson, threatened
against Epson which, if adversely determined, would materially affect Epson’s
ability to carry out the terms and conditions of this Agreement.  If such material litigation, investigation or
administrative proceeding is commenced against Epson, Epson shall notify
Lattice thereof within thirty (30) days of the commencement.

 

3.3   Representation of SMOS  

In order to induce Lattice
to enter into this Agreement and to make the APP hereunder, SMOS hereby
represents and warrants that:

 

3.3.1        Corporate Status

SMOS (a) is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation,
(b) has the corporate power to own or lease its assets and to transact the
business in which it is currently engaged and (c) is in compliance with
all requirements of law except to the extent that the failure to comply
therewith will not materially affect the ability of SMOS to perform its
obligations under this Agreement.

 

3.3.2        Corporate Authority  

(a) SMOS has the corporate power, authority and
legal right to execute, deliver and perform this Agreement and has taken as of
the date hereof all necessary corporate action to execute this Agreement,
(b) the person executing this Agreement has actual authority to do so on
behalf of SMOS and (c) there are no outstanding assignments, grants,
licenses, encumbrances, obligations or agreements, either written, oral or
implied, that prohibit execution of this Agreement.

 

3.3.3        No Material Litigation  

No litigation, investigation or administrative
proceeding is presently pending, or to the knowledge of SMOS, threatened
against SMOS which, if adversely determined, would materially affect SMOS’s
ability to carry out the terms and conditions of this Agreement.  If such material litigation, investigation or

 

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administrative proceeding is commenced against SMOS,
SMOS shall notify Lattice thereof within thirty (30) days of the commencement.

 

3.4   Representations of Lattice 

In order to induce Epson to enter into this Agreement
and to make the Supply Commitment, Lattice hereby represents and warrants that:

 

3.4.1        Corporate Status  

Lattice is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation,
(b) has the corporate power to own or lease its assets and to transact the
business in which it is currently engaged and (c) is in compliance with
all requirements of law except to the extent that the failure to comply
therewith will not materially affect the ability of Lattice to perform its
obligations under this Agreement.

 

3.4.2        Corporate Authority 

(a) Lattice has the corporate power, authority
and legal right to execute, deliver and perform this Agreement and has taken as
of the date hereof all necessary corporate action to execute this Agreement,
(b) the person executing this Agreement has actual authority to do so on
behalf of Lattice and (c) there are no outstanding assignments, grants,
licenses, encumbrances, obligations or agreements, either written, oral or
implied, that prohibit execution of this Agreement.

 

3.4.3        No Material Litigation 

No litigation, investigation or administrative
proceeding is presently pending, or to the knowledge of Lattice, threatened
against Lattice which, if adversely determined, would materially affect Lattice’s
ability to carry out the terms and conditions of this Agreement.  If such material litigation, investigation or
administrative proceeding is commenced against Lattice, Lattice shall notify
Epson thereof within thirty (30) days of the commencement.

 

4.      APP

 

4.1   APP

Lattice shall pay to Epson an amount equal to Ten
Billion, Four Hundred sixty nine Million and Seven Hundred Thousand Japanese
Yen (JPY10,469,700,000) (“APP”), which APP will be credited against certain
future purchases by Lattice of New Facility Wafers as provided in
Article 5.  Lattice will pay the
whole amount of APP in accordance with the payment schedule described in
Exhibit C hereof.

 

4.2   Payment Method

 

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All payments made by Lattice to Epson will be in
immediately available funds and will be made by wire transfer in Japanese Yen
to the following bank account of Epson at:

 

[*]

For the Account of Seiko
Epson Corporation.

 

4.3   Non-Refund of APP

The APP will not be refundable except as provided in
Articles 6.4.1 or 14.8.

 

4.4   Additional APP

Epson acknowledges that Lattice may wish to pay to
Epson additional APP of Sixty Million U.S. Dollars (US$60,000,000), to be
converted to, and paid in Japanese Yen using U.S. dollar/Japanese Yen exchange
rate prevailing in Tokyo, as published in Nihon Keizai Shinbun (Nikkei
Newspaper), as at the end of a month immediately preceding the month during
which the parties execute an amendment to this Agreement to effectuate such
additional APP.  Lattice will notify
Epson by the end of 1999, or when the unused APP balance becomes less than Five
Billion, Two Hundred Thirty Four Million, Eight Hundred and Fifty Thousand
Japanese Yen (JPY5,234,850,000), whichever occurs first, whether or not it
wishes to pay such additional APP.  If
Lattice so wishes to pay to Epson additional APP, Lattice’s additional APP
shall be deemed to be a part of the APP for all purposes hereunder, including
but not limited to the same Price, procedure to offset from the additional APP,
and Free Wafers.  The specific terms for
such additional APP, including payment terms, term of this Agreement and the
additional Supply/Purchase Commitment shall be determined and added as an
addendum to this Agreement within ninety (90) days of Lattice’s first
notification stated above.

 

5.      Credit
of APP

 

5.1   Credit of APP

The Purchase price of all New Facility Wafers
purchased by Lattice under the Purchase Agreement will be credited against the
amount of the APP until the aggregate Japanese Yen value of all New Facility
Wafers (excluding the Free Wafers) purchased and received by Lattice,
calculated pursuant to Article 5.2, equals or exceeds the amount of the
APP.  The criteria and time required for
wafer acceptance by Lattice will be described in the Purchase Agreement.

 

5.2   Calculation of Aggregate Credit Value

The amount of APP will be offset and reduced on
Japanese Yen to Japanese Yen basis, at the end of each calendar month of this
Agreement, by an amount equal to

 

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the Price for the New Facility Wafers multiplied by
the total number of New Facility Wafers (excluding the Free Wafers) shipped to
Lattice pursuant to thePurchase Agreement during the calendar month, with
adjustment of the increase pursuant to the methods provided in the Purchase
Agreement, however under no circumstances shall the APP balance be increased,
except as provided for in Article 14.8 of this Agreement.  Further, any wafer provided to Lattice under
Article 6.4.1 from alternative facility, besides the New Facility, shall
not be used to offset the APP.

 

5.3   Invoices

Epson will cause SMOS to provide Lattice with invoices
under the Purchase Agreement which, for the purpose of APP application, specify
the purchase price of the New Facility Wafers. 
Also, SMOS shall provide Lattice and Epson with the monthly report
describing, among others, the outstanding balance of the APP (after the
application of all prior offsets, reductions and credits) as of the
commencement of the month subject to the invoices, the number of New Facility
Wafers shipped to Lattice during that calendar month and the applied Price, and
the outstanding balance of the APP as of the end of such calendar month.  Such report shall be signed by the respective
responsible person at Epson, SMOS and Lattice, provided that Lattice shall not
be required to sign any such report unless it is satisfied with the accuracy
and completeness thereof.  Lattice may,
for its signature, review all invoices and reports for inaccuracies and if any
such inaccuracies are found and confirmed by Epson and SMOS, Lattice may
request to make corrections to these invoices and reports.

 

5.4   Obligation after Completion of Off-Setting
the APP

Lattice will be required to pay for all New Facility
Wafers in accordance with the Purchase Agreements once the Advance Payment has
been fully offset and reduced.  Lattice
will make the payments to Epson in Japanese Yen based on the Price.  Further, Epson will be required to fulfill
the Supply Commitment and Lattice will be required to fulfill the Purchase
Commitment until Lattice has purchased [*] New Facility Wafers.  After Lattice has purchased this fixed volume
of the New Facility Wafers, during the effective period of this Agreement,
Epson and Lattice will continue to make efforts to supply and purchase at the
rate to be mutually agreed under fair and competitive prices to be determined
between the parties.

 

6.      Supply
Commitment

 

6.1   Contents of Supply Commitment

It is the intent of Lattice to purchase and Epson to
supply New Facility Wafers until a total of [*] New Facility Wafers have been
supplied to Lattice by Epson through SMOS and received and accepted by Lattice
(“Supply Commitment”).

 

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The Supply Commitment and the supply schedule thereof
are set forth in Exhibit D.  The
Supply Commitment herein shall remain in effect until Lattice has received and
accepted a total of [*] New Facility Wafers (exclusive of the Free Wafers)
through SMOS from Epson under this Agreement. 
Dealing of New Facility Wafers rejected by Lattice for any reason shall
be as described in the Purchase Agreement. 
The Supply Commitment for a particular month may be modified as
specifically set forth in this Agreement, but under no circumstances shall the
aggregate Supply Commitment of [*] New Facility Wafers be reduced.

 

6.2   Purchase Agreements

The Supply Commitment will apply to Products covered
by the Purchase Agreements.  The parties
anticipate that such Purchase Agreements will apply to Products distributed by
Lattice which require fabrication using the [*] Process.

 

6.3   Excess Capacity

Epson will use its best efforts to provide Lattice,
through SMOS, with excess capacity of the New Facility if Lattice requires so
in the manner specified below.  In this
case, APP shall be applied to Lattice’s orders of New Facility Wafers in excess
of the Supply Commitment of the month. 
Also, the Free Wafers prescribed in Article 8 shall be provided for
such excess volume of the New Facility Wafers.

 

First, in the event that Lattice desires to purchase
New Facility Wafers in excess of the Purchase Commitment, Lattice will specify
in writing the amount of capacity required, the Product(s) it desires to
purchase and the date from which such capacity is required, and notify Epson of
it through SMOS.

 

Second, Epson will then
determine how much capacity is available and notify Lattice of its
determination through SMOS.  Epson will
give Lattice priority over third parties for excess capacity of the New Facility
except to the extent that Epson is already obligated to provide such third
parties with capacity.

 

Third, the parties will
then mutually agree upon a preliminary excess capacity allocation.  Any excess capacity allocated under this
Article 6.3 will be applied to the Supply Commitment and to the Purchase
Commitment.

 

In order to provide
Lattice with first priority for unused capacity using the specific process for
Lattice, Epson agrees to give Lattice monthly written notice of any unused
capacity using the specific process for Lattice for the next [*], and to
provide Lattice with the first right to reserve such unused capacity for any
New Facility Wafers which Lattice desires to purchase in excess of the Purchase
Commitment.  Lattice will have a reasonable
time to elect to reserve such excess capacity. 
The parties acknowledge that “specific process for Lattice” above refers
to Lattice’s [*] process, and that Epson’s capacity plan at the time of
executing this Agreement shows that approximately [*] of total production
capacity of the New

 

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Facility will be for [*]
process, subject to change by then-current production plan of Epson.  Epson will notify Lattice if the capacity set
aside for [*] process will change by [*] of the total capacity.

 

6.4   Failure
to Meet Supply Commitment

 

6.4.1        Failure Due to Epson  

In the event that (a) Epson fails to fulfill the
Supply Commitment by the end of any month during the term of this Agreement or
(b) Epson has reason to believe that it will be unable to fabricate the
Supply Commitment by the end of such month, then Epson will take the following
measures:

 

First, Epson will promptly
notify Lattice in writing and describe the nature of the difficulty.

 

Second, Epson will use
its best efforts to remedy the difficulty in an expeditious manner by the end
of the second full month following the month in which Epson is unable to meet
the Supply Commitment (in other words, the third month including the month in
which the difficulty occurs).

 

Third, Epson will use its
best efforts to make available during the above referenced three (3) month
period sufficient capacity at the Sakata Facility, the Fujimi Facility or Epson’s
other qualified facility to cover the deficiency between the Supply Commitment
and the actual capacity subject to completion of product qualification.  The parties acknowledge, however, that Epson
cannot guarantee the use of such alternative capacity.

 

Fourth, if Epson’s
inability to fulfill the Supply Commitment is due to force majeure prescribed
in Article 15.14, Epson will use its best efforts to make available
alternative capacity at the Sakata Facility and/or Fujimi Facility.  The parties acknowledge, however, that Epson
cannot guarantee the use of existing capacity at the Sakata Facility or Fujimi
Facility.

 

Notwithstanding any
provision of this Agreement to the contrary, in the event that Epson fails to
fulfill the Supply Commitment (including any failure by virtue of the action or
inaction of SMOS or any of the deficiency within the three (3) month period
referenced above), such failure shall constitute a material breach of this
Agreement and Epson, SMOS and Lattice shall discuss the relief of such breach
prior to Lattice’s termination of this Agreement based on the right permitted
in Article 14.4 (which termination may be made without the notice and cure
period contemplated by Article 14.4).

 

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6.4.2        Failure Due to Lattice  

Notwithstanding anything contained in
Article 6.4.1 to the contrary, in the event that Epson fails to fulfill
the Supply Commitment in any  month due
to (a) design defects in Products caused by Lattice, (b) design
changes requested by Lattice, (c) process flow changes requested by
Lattice or (d) any other reason caused by Lattice, Epson will only be
required to make reasonable efforts to fulfill the Supply Commitment in such
month.  Provisions concerning Lattice’s
failure to fulfill its Purchase Commitment are set forth in Article 7.2.

 

6.4.3        Failure Due to Both Parties  

Notwithstanding anything contained in Article 6.4.1,
6.4.2 or 7.1 to the contrary, in the event that Epson fails to fulfill the
Supply Commitment and Lattice fails to fulfill the Purchase Commitment due to
difficulties caused jointly by Lattice and Epson, the parties will mutually
agree in writing upon a fair and equitable solution.

 

6.4.4        Failure Due to Catastrophe

In the event that any fire, flood, earthquake,
explosion or any other catastrophe prevents Epson from fabricating New Facility
Wafers for Lattice, (a) Epson will immediately implement the measures
required by Article 6.4.1, (b) Epson will permit Lattice to inspect
the New Facility, and (c) the parties will begin good faith negotiations
to agree on a corrective action plan.

 

7.      Purchase
Commitment.

 

7.1   Content of Purchase Commitment  

Lattice intends to purchase each month the number of
New Facility Wafers (the “Purchase Commitment”) equal to the Supply Commitment
until [*] wafers have been purchased. 
Lattice will not be required to fulfill the Purchase Commitment in the
event that Epson fails to fulfill the Supply Commitment in the manner specified
in Article 6.4.1.  Instead, subject
to the terms of the Purchase Agreement, Lattice will be required to purchase
those New Facility Wafers that Epson is able to fabricate up to the Purchase Commitment
for each month.  Lattice will not be
required to fulfill the Purchase Commitment in the event of difficulties caused
by both Epson and Lattice.  Instead, the
parties will mutually agree in writing upon a fair and equitable solution.

 

7.2   Sale of Unused Capacity

In the event that Lattice is unable to fulfill the
Purchase Commitment in any month for reasons not due to Epson, Epson will use
its best efforts to sell unused capacity to other customers, or to allocate
unused capacity for the fabrication of Epson products during such month.  Further, the Supply Commitment for such month
will be reduced to the same extent that Lattice is unable to fulfill the

 

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Purchase Commitment. 
When Lattice desires to increase its monthly purchases after Epson has
sold or otherwise allocated unused capacity, then Epson will use its best
efforts to increase capacity for Lattice to the Supply Commitment in an
expeditious manner.  The parties will
mutually agree upon the specific rate at which Epson will be required to ramp
up capacity to the Supply Commitment.

 

8.      Free
Wafers

As a consideration for
Lattice’s payment of APP, Epson shall provide Lattice with [*] free wafers of a
Product (“Free Wafers”) through SMOS pursuant to the Purchase Agreement for
every [*] New Facility Wafers ordered by Lattice after the execution of this
Agreement [*] until Epson has supplied [*] New Facility Wafers (excluding the
Free Wafers).

 

9.      Fabrication,
Purchase and Sale

 

9.1   General Terms and Conditions  

The terms and conditions for the prototype wafer
fabrication, wafer fabrication, order and acceptance, shipping, insurance and
warranty for the Products will be set forth in the Purchase Agreements.  The parties have agreed to certain order and
forecast systems as described in Exhibit F, which will be incorporated in
the Purchase Agreement.  The parties
acknowledge that a best estimation and target of defect densities as at the
date of this Agreement is set forth in Exhibit H attached hereto, which
will be reviewed and amended from time to time by the parties hereto, and will
be incorporated into all Purchase Agreements.

 

9.2   Start of Production

Qualification testing for the Products will be
conducted in the manner specified in the Purchase Agreement.  Once any Product has been qualified, Epson
will begin mass production of such Product in the manner specified by the Purchase
Agreement.

 

9.3   Turn Around Time

The parties acknowledge that the lead time for
shipment of New Facility Wafers, defined as the time from Lattice’s purchase
order release until delivery of New Facility Wafers, known as “turn around time”,
is of the essence, and agree that the parties shall set annual target turn
around time and make their joint efforts to achieve such target in accordance
with Exhibit I.

 

10.    Wafer
Pricing and Payment.

 

10.1 Determination of Price

 

13

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

The general method for determining the price of
Products (“Price”) shall be as set forth in Exhibit E.  Epson agrees that at any time the Prices to
Lattice [*].  The Price herein shall be
applicable until Lattice has completed the purchase of [*] New Facility Wafers
under the terms of this Agreement.

 

10.2 Shipping, Insurance, Taxes, Duties and Other
Fees

Epson will deliver the Products on a C.I.F., San Jose
basis, and SMOS will deliver such Products to Lattice on an F.O.B., San Jose
basis.  Bearing of sales, use, excise, ad
valorem, withholding or other taxes or duties that may be applicable to
purchase of the Products by Lattice shall be prescribed in the Purchase
Agreement.

 

10.3 Payment

Other than through offset of the APP, Lattice will not
be required to pay for any New Facility Wafers delivered under this Agreement
or any Purchase Agreement until the APP has been fully offset and reduced.  Once the APP is fully offset and reduced,
Lattice will be required to pay Epson in the manner specified in the Purchase
Agreement based on the Price until Lattice has completed the purchase of [*]
New Facility Wafers under the terms of this Agreement.

 

11.    Technical
Cooperation and Support

 

The parties desire to
engage in various types of joint development and technical cooperation
activities required to fabricate Products and to effectuate the terms and
conditions of this Agreement.  The
parties, including SMOS, will discuss such joint development possibilities, and
will conclude appropriate agreement(s).

 

12.    Intellectual
Property Rights

 

All intellectual property
rights clauses relating to the [*] Process and
the Products will be set forth in the Purchase Agreement.  Lattice agrees that any indemnity or warranty
that Lattice expressly provides to Epson or SMOS under the Purchase Agreement
will be fully enforceable by Epson even though Epson has not executed the
Purchase Agreement.  Furthermore, Epson
agrees that any indemnity or warranty that Epson or SMOS purports to provide to
Lattice under the Purchase Agreement will be fully enforceable by Lattice even
though Epson has not executed the Purchase Agreement.  In the event that any claims for intellectual
property rights infringements described in the Purchase Agreement prevent the
parties from fulfilling the Supply Commitment and the Purchase Commitment, the
parties will mutually agree on a fair and equitable solution without affecting
in any way the right of either party to terminate this Agreement for cause
pursuant to Article 14.4 as a consequence of failure of the other party to
fulfill this Agreement and the Purchase Agreement as the case may be.  The parties acknowledge that the covenants
contained in this Article 12 are an essential part of this Agreement.

 

14

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

13.    Confidential
Information.

 

13.1 Definitions.

“Confidential Information” means technical information,
specifications, data, drawings, designs or know-how, prices, order volumes,
forecasts, financial information, strategic plans, and other important business
information disclosed between Epson and Lattice, or SMOS and Lattice in
connection with this Agreement. 
Confidential Information includes information or material that is
expressly covered by confidentiality provisions of Existing Agreements or the
Purchase Agreement, it being understood that such provisions will apply.

 

13.2 Marking.

If Confidential Information is provided in a tangible
form, it will be marked as confidential or proprietary.  If Confidential Information is provided
orally, it will be treated as confidential and proprietary if it is treated as
confidential or proprietary at the time of disclosure by the disclosing party
and described as such in a writing provided to the other party within thirty
(30) days of the oral disclosure, which writing will be marked as confidential
or proprietary.  Material that is not
marked as required by this Article 13.2 will not be deemed Confidential
Information.

 

13.3 Restrictions
on Use.

During the term of this Agreement and for a period of
[*] years following disclosure of any Confidential Information, the receiving
party will: (a) hold the Confidential Information in confidence using the
same degree of care that it normally exercises to protect its own proprietary
information but no less than a reasonable degree of care, (b) restrict
disclosure and use of Confidential Information solely to those employees
(including any contract employees or consultants) of such party on a
need-to-know basis, and not disclose it to other employees or parties, and
(c) restrict the number of copies of Confidential Information to the
number required to carry out its obligations under this Agreement.

 

13.4 Exceptions to Confidentiality Obligations.

Neither party will use or disclose the other party’s
Confidential Information except as permitted by this Agreement.  The receiving party, however, will have no
obligations concerning the disclosing party’s Confidential Information if the
disclosing party’s Confidential Information:

 

a)                                      is made public before the disclosing
party discloses it to the receiving party;

 

15

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

b)                                     is made public after the disclosing party
discloses it to the receiving party (unless its publication is a breach of this
Agreement or any other agreement between Epson and Lattice);

 

c)                                      is rightfully in the possession of the
receiving party before the disclosing party discloses it to the receiving
party;

 

d)                                     is independently developed by the
receiving party without the use of the Confidential Information, if such
independent development is supported by documentary evidence; or

 

e)                                      is rightfully obtained by the receiving
party from a third party who is lawfully in possession of the information and
not in violation of any contractual, legal or fiduciary obligation to the
disclosing party with respect to the information.

 

Each party may disclose
any Confidential Information to the extent that such party has been advised by
counsel that such disclosure is necessary to comply with laws or regulations
provided that such party shall give the other party reasonable advance notice
of such proposed disclosure, shall use its best efforts to secure confidential
treatment of such Confidential Information, and shall advise the other party in
writing of the manner of the disclosure.

 

13.5 Return of Confidential Information.  

Upon termination of this Agreement, a party who has
received Confidential Information from the other party pursuant to this
Agreement will return, within fourteen (14) days of the disclosing party’s
request for return, all Confidential Information that was obtained or learned
by the receiving party from the disclosing party, or delivered to the receiving
party, together with all copies, excerpts and translations thereof.

 

14.    Term
and Termination of Agreement.

 

14.1 Term.

The term of this Agreement will extend from the date
first written above until the latest of (a) Epson’s completion of the
supply of, and receipt and acceptance by Lattice of, [*] New Facility Wafers in
total [*], (b) the completion of off-setting APP, or (c) March 31,
2003, unless terminated earlier pursuant to Article 14.2, 14.3 or
14.4.  After the expiration of this
Agreement, Epson and Lattice shall continue to make efforts to supply and
purchase a certain volume of wafers per month under fair and competitive prices
to be determined between the parties.

 

14.2 Termination.

 

16

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

Either party may terminate or suspend this Agreement
immediately and without liability (except for the terms provided in
Articles 14.5 and 14.6) upon written notice to the other party if any one
of the following events occurs;:

 

a)                                      the other party files a voluntary
petition in bankruptcy or otherwise seeks protection under any law for the
protection of debtors;

 

b)                                     a proceeding is instituted against the
other party under any provision of any bankruptcy laws which is not dismissed
within ninety (90) days;

 

c)                                      the other party is adjudged bankrupt;

 

d)                                     a court assumes jurisdiction of all or a
substantial portion of the assets of the other party under a reorganization
law;

 

e)                                      a trustee or receiver is appointed by a
court for all or a substantial portion of the assets of the other party;

 

f)                                        the other party becomes insolvent, ceases
or suspends all or substantially all of its business;

 

g)                                     the other party makes an assignment of
the majority of its assets for the benefit of creditors; or

 

h)                                     the other party fails to pay all or a
substantial portion of its debts as they become due or admits in writing its
inability to pay all or a substantial portion of its debts as they become due;
or

 

i)                                         force majeure, as prescribed in
Article 15.14, becomes in effect and performance of the obligations under
this Agreement will not be restored within six (6) months after such force
majeure’s occurrence.

 

14.3 Termination due to Acquisition or Sale of
Assets.

In the event that a direct competitor or one party
acquires, through merger, consolidation, acquisition or otherwise, an interest
in excess of fifty percent (50%) of the voting securities or assets of the
other party, or such other party transfers all or substantially all of its
business to which this Agreement relates to a direct competitor of such party,
the non-acquiring or non-transferring party will be permitted, upon written
notice to the other party, to require that the transactions contemplated by
this Agreement and the Purchase Agreements be phased out and terminated at a
rate not to exceed, [*] of the business existing at the time of the acquisition
or transfer according to the following schedule:

 

17

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

	
  A

  	
  B

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  

 

 

 

A — Time elapsed since
acquisition or transfer of assets

 

 

B — Level to which
business may be phased out measured as a percentage of business existing at the
time of the acquisition or transfer of assets

 

Alternatively, the
business may be phased out and terminated under this Article 14.3 in a
manner otherwise agreed upon in writing by the parties.

 

14.4 Termination for Cause.

If either party fails to perform or violates any
material obligation of this Agreement, then, sixty (60) days after providing
written notice to the breaching party specifying the default (the “Default
Notice”), the non-breaching party may terminate this Agreement, without
liability, unless:

 

a)                                      the breach specified in the Default
Notice has been cured within the sixty (60) day period; or

 

b)                                     the default reasonably required more than
sixty (60) days to correct, and the defaulting party has begun substantial
corrective action to remedy the default within such sixty (60) day period and
diligently pursues such action, in which event, the non-breaching party may not
terminate or suspend this Agreement unless one hundred twenty (120) days has
expired from the date of the Default Notice without such corrective action
being completed and the default remedied.

 

14.5 Termination by Epson.

In the event that Epson terminates this Agreement
pursuant to this Article 14, then, unless otherwise agreed upon in
writing, Epson may offset and reduce the APP to cover all direct material and
labor costs for work in process rendered

 

18

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

unusable by termination and will ship such work in
process to Lattice, at Lattice’s expense, if requested to do so.  Upon such termination, Epson shall refund the
remaining portion of APP (reduced by the amount of any such offset and
reduction to cover direct material and labor costs for work in process rendered
unusable by the termination) no later than thirty (30) business days after the
date of termination.

 

14.6 Termination by Lattice.

In the event that Lattice terminates this Agreement
pursuant to this Article 14, then, unless otherwise agreed in writing,
Lattice may either (a) request that Epson refund the remaining portion of
APP (from which Epson may offset and reduce to cover all direct material and
labor costs for work in process rendered unusable by the termination) and then
Epson will refund the remaining portion of APP (as so offset and reduced) or
(b) request Epson to complete all work in process and ship them under
normal terms and conditions, and then Epson will refund the remaining portion
of APP (excluding, without limitation, the costs and expenses which have arisen
in connection with completing all work in process and shipping thereof), with
in either such case such refund to be paid upon the earlier of:

 

(a)  receipt of
sufficient funding from a financial institution or other source for purposes of
paying the refund, or

 

(b)  thirty (30)
days from the date of termination.

 

14.7 Retention of Rights after Termination.

Notwithstanding anything contained in this
Article 14 to the contrary, in the event that either party is entitled to
terminate this Agreement pursuant to Articles 14.2 (f), (g) or (h) or
either party is subject to a bankruptcy, reorganization or liquidation
proceeding, the other party may elect to (a) retain its rights in this
Agreement existing immediately prior to termination pursuant to
Article 14.2 (f), (g) or (h) or the initiation of such proceeding or (b) treat
any such proceeding or attempted rejection of this Agreement by a bankruptcy
trustee as an event of termination. 
Unless otherwise provided, in the event of such termination, Epson shall
refund the remaining portion of the APP in accordance with Article 14.5 or
14.6 as applicable.

 

14.8 Reconciliation.

In the event of termination that results in a refund
of the APP balance pursuant to Article 14 (or would result in such a
refund if the APP balance were increased by the net return material account
balances, if any, under the Purchase Agreement), Epson shall cause SMOS to
bring current the APP, Free Wafers and return material account balances as
provided for in the Purchase Agreement in order to reconcile the account with
Lattice, and to refund the mutually agreed net amount.

 

14.9 Survival of Obligations.

The following Articles will survive any expiration,
termination or cancellation of this Agreement and the parties will continue to
be bound by the terms and conditions thereof: 12, 13, 14, and 15.

 

19

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

15.    Miscellaneous.

 

15.1 Order of Precedence.

In the event of any conflicts between this Agreement
and any Purchase Agreement, any purchase orders, acceptances, correspondence,
memoranda, listing sheets or other documents forming part of an order for the
Products placed by Lattice and accepted by SMOS (or Epson), priority will be
given first to this Agreement, second to the Purchase Agreements, third to SMOS’s
or Epson’s acceptance, fourth to Lattice’s order and then to any other
documents.  In no event, however, will
either party’s standard terms and conditions be applicable to the transactions
between Lattice and SMOS (or Epson) unless expressly accepted in writing by the
other party.

 

15.2 Governing
Law.

This Agreement shall be governed by and construed in
accordance with the laws of California, U.S.A. without reference to conflict of
law principles.

 

15.3 Dispute Resolution.

 

15.3.1      Meeting of Executives.  

In the event that any dispute or disagreement between
the parties as to any provision of this Agreement arises, prior to taking any
other action, the matter will be referred to responsible executives of the
parties for consideration and resolution. 
Any party may commence such proceedings by delivering a written request
to the other party for a meeting of such responsible executives.  The other party will be required to set a
date for the meeting to be held within thirty (30) days after receipt of such
request and the parties agree to exercise their best efforts to settle the
matter amicably.

 

15.3.2      Location of Meeting.  

In the event that Epson initiates the proceedings
described in Article 15.3.1, the first meeting will be held Hillsboro,
Oregon and all subsequent meetings will alternate between Tokyo, Japan, and
Hillsboro, Oregon.  In the event that
Lattice initiates the proceedings described in Article 15.3.1, the first
meeting will be held in Tokyo, Japan and all subsequent meetings will alternate
between Hillsboro, Oregon and Tokyo, Japan.

 

15.3.3      Demand for Arbitration.  

Any dispute relating to and/or arising out of this
Agreement will be decided exclusively by binding arbitration under procedures
which ensure efficient and speedy resolution. 
Such an arbitration may be commenced by either party involved in the
dispute (i) after the expiration of a sixty (60) day period following the
written request to resolve the dispute, and/or (ii) at such earlier time
as any party involved repudiates and/or refuses to continue with its

 

20

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

obligations to negotiate in good faith.  The arbitration hearing will be conducted in
the State of Hawaii, and will be in the English language (with translators and
interpretations as reasonable for the presentation of evidence and/or conduct
of the arbitration).  Notwithstanding anything
to the contrary, any party may apply to any court of competent  jurisdiction for interim injunctive relief as
may be allowed under applicable law with respect to irreparable harm which
cannot be avoided and/or compensated by such arbitration proceedings, without
breach of this Article 15.3.3 and without any abridgement of the powers of
the arbitrators.  The arbitration will be
conducted under the Rules of the Asia Pacific Arbitration Center.  Notwithstanding anything to the contrary,
(i) the arbitrators will have the power to order discovery to the extent
they find such discovery necessary to achieve a fair and equitable result and
(ii) the arbitrators shall require pre-hearing exchange of documentary
evidence to be relied upon by each of the respective parties in their
respective cases in chief, and pre-hearing exchange of briefs, witness lists,
and summaries of expected testimony.

 

The arbitrators will make
their decision in writing.

 

15.3.4      Arbitrators.  

The arbitration will be conducted by three (3)
arbitrators.  No person with a beneficial
interest in the dispute under arbitration may be an arbitrator.  The parties will make reasonable efforts to
select arbitrators with experience in the field of computers and law.

 

15.3.5      Binding Effect.  

The decision or award rendered or made in connection
with such arbitration will be binding upon the parties and judgment thereon may
be entered in any court having jurisdiction and/or application may be made to
such court for enforcement of such decision or award.  However, the arbitrators will not have the
authority to create any licenses.  They
will only be permitted to enforce licenses which the parties have otherwise
agreed to in the Agreement or the Existing Agreements.

 

15.3.6      Expenses.  

The expenses of the arbitrators will be shared equally
by the parties; each party will otherwise be responsible for the costs and
attorney’s fees incurred by it; provided, however, if the arbitrators appointed
in Article 15.3.4 find that the position of the non-prevailing party or
parties in such arbitration was without substantial justification or was
frivolous, the arbitrators may assess all of the costs and expenses together
with reasonable attorney’s fees against the non-prevailing party or parties.

 

15.4 Consequential Damages.  

 

21

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES (INCLUDING
LOST PROFITS) WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL
THEORY REGARDLESS OF WHETHER SUCH PARTY HAD ACTUAL OR CONSTRUCTIVE NOTICE OF
SUCH DAMAGES; PROVIDED, HOWEVER, THIS LIMITATION WILL NOT APPLY IF THE DAMAGES
OCCUR AS A RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF EITHER PARTY IN
THE PERFORMANCE OF THEIR RESPONSIBILITIES UNDER THIS AGREEMENT.

 

15.5 Assignment.

Neither party will assign, transfer or otherwise
dispose of this Agreement in whole or in part without the prior consent of the other
party in writing, and such consent will not be unreasonably withheld.  Except in the case set forth in
Article 14.3, above, this Agreement may be assigned to any Subsidiary or
to a successor who has acquired a majority of the business or assets of the
assigning party.

 

15.6 Public Announcements.

Neither party will publicly announce the execution or
existence of this Agreement or disclose the terms and conditions of this
Agreement without first submitting the text of such announcement to the other
party and receiving the approval of the other party of such text, which
approval, unless public disclosure is required by a court or a government
agency, may be withheld for any reason. 
However, Lattice may disclose the existence and the terms of this
Agreement in any document legitimately required to be filed with the Securities
and Exchange Commission (and may file a copy of this Agreement required
legitimately with such filing) or in accordance with generally accepted
accounting procedures under the rules of the Securities and Exchange Commission
or the National Association of Securities Dealers Automated Quotations stock
market.

 

15.7 Notice
and Communications.

Any notices required or permitted to be given
hereunder will be in English and be sent by (i) registered airmail or
(ii) cable, facsimile or telex to be confirmed by registered airmail,
addressed to:

 

22

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

To
Epson:

 

281
Fujimi, Fujimi-machi, Suwa-gun

Nagano-ken
399-02, Japan

Attn:
Nobuo Hashizume,

Director and
Corporate General Manager

Semiconductor
Operations Division

Tel:  81-266-61-1211

Fax:  81-266-61-1270

 

To
SMOS:

 

150
River Oaks Parkway, San Jose, CA 95134-1951

U.S.A.

Attn:
Tadakatsu Hayashi, President and CEO

Tel:  1-408-922-0200

Fax:  1-408-922-0238

 

To
Lattice:

 

5555
N.E. Moore Ct., Hillsboro, Oregon,

97124-6421,
U.S.A.

Attn:
Cyrus Tsui

Chairman,
President and Chief Executive Officer

Tel:  1-503-681-0118

Fax:  1-503-681-3077

 

Any such notice will be
deemed given at the time of its receipt by the addressee.

 

15.8 Relationship
of the Parties.  

Epson and Lattice are independent contractors and
neither of them will be nor represent themselves to be the legal agent, partner
or employee of the other party for any purpose. 
Neither party will have the authority to make any warranty or
representation on behalf of the other party nor to execute any contract or
otherwise assume any obligation or responsibility in the name of or on behalf
of the other party.  In addition, neither
party will be bound by, nor liable to, any third person for any act or any
obligations or debt incurred by the other party, except to the extent specifically
agreed to in writing by the parties.

 

15.9 Waiver
and Amendment.

Failure by either party, at any time, to require
performance by the other party or to claim a breach of any provision of this
Agreement will not be construed as a waiver of any right accruing under this
Agreement, nor will it affect any subsequent breach or the effectiveness of
this Agreement or any part hereof, or

 

23

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

prejudice either party with respect to any subsequent
action.  A waiver of any right accruing
to either party pursuant to this Agreement will not be effective unless given
in writing.

 

15.10          Severability.

In the event that any provision of this Agreement will
be unlawful or otherwise unenforceable, such provision will be severed, and the
entire agreement will not fail on account thereof, the balance continuing in
full force and effect, and the parties will endeavor to replace the severed
provision with a similar provision that is not unlawful or otherwise
unenforceable.

 

15.11          Rights and Remedies Cumulative.

The rights and remedies provided herein will be
cumulative and not exclusive of any other rights or remedies provided by law or
otherwise.

 

15.12          Headings.

The Article headings in this Agreement are for
convenience only and will not be considered a part of, or affect the
interpretation of, any provision of this Agreement.

 

15.13          Governing Language.

This Agreement and all communications pursuant to it
will be in the English language.  If
there is any conflict between the English version and any translated version of
this Agreement, the English version will govern.

 

15.14          Force Majeure.

Except as otherwise expressly provided for herein, no
party will be liable in any manner for failure or delay in fulfillment of all
or part of this Agreement directly or indirectly owing to any causes or
circumstances beyond its control, including, but not limited to, acts of God,
governmental order or restrictions, war, war-like conditions, hostilities,
sanctions, revolutions, riot, looting, strike, lockout, plague or other
epidemics, fire and flood.

 

15.15          Counterparts.

This Agreement may be executed in any number of
counterparts, and all such counterparts will together constitute but one
Agreement.

 

15.16          Integration.

This Agreement sets forth the entire agreement and
understanding between the parties as to its subject matter and supersedes all
prior agreements, understandings and memoranda between the parties, except for
the Existing Agreements.  No amendments
or supplements to this Agreement will be effective for any purpose except by a
written agreement signed by the parties.

 

24

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

15.17          Government Approvals; Export
Control Laws.

Epson will file all reports and notifications that may
be required to be filed with any agency of the Government of Japan in order to
allow the performance of this agreement according to its terms.  Lattice will file all reports and
notifications that may be required to be filed with any agency of the
Government of  U.S.A. in order to allow
the performance of this Agreement according to its terms.  Neither party will transmit indirectly or
directly any Products or technical information contained in the Confidential
Information except in accordance with applicable Japanese and United States
export control laws, regulations and procedures.

 

25

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

IN WITNESS WHEREOF, the parties have signed this
Agreement as of the date first above written.

 

LATTICE SEMICONDUCTOR
CORPORATION

 

	
  By:

  	
  /s/ CYRUS TSUI

  
	
  Name: Cyrus Tsui

  
	
  Title: Chairman,
  President and Chief Executive Officer

  

 

SEIKO EPSON CORPORATION

 

	
  By:

  	
  /s/ NOBUO
  HASHIZUME

  
	
  Name: Nobuo
  Hashizume

  
	
  Title: Director
  and Corporate General Manager

  
	
  Semiconductor Operations Division

  

 

S MOS Systems, Inc.

 

	
  By:

  	
  /s/ TADAKATSU
  HAYASHI

  
	
  Name: Tadakatsu
  Hayashi

  
	
  Title: President
  and CEO

  

 

 

26

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

EXHIBIT A

“Projected Completion Schedule”

EXHIBIT B

“Process Road Map for Lattice”

EXHIBIT C

“Payment Schedule”

EXHIBIT D

“New Facility Production Capacity and

Supply/Purchase Commitment”

EXHIBIT E

Price Determination Procedure”

“APP Offset Procedure”

“[*]”

EXHIBIT F

“Forecast System”

EXHIBIT G

“Epson’s [*] Technology Road Map and [*] Process”

EXHIBIT H

“Defect Density Goal”

EXHIBIT I

“Turn Around Time”

 

27

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

EXHIBIT A

NEW FACILITY
START-UP SCHEDULE

 

*Above schedule is for Epson new facility
general start-up plan.

 

28

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

EXHIBIT
B

 

PROCESS
ROAD MAP FOR LATTICE

 

[*]

 

29

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT C

Payment Schedule

[*]

 

30

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT D

New Facility
Production Capacity Plan and Supply/Purchase Commitment

[*]

 

31

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT E

Price
Determination Procedure

[*]

 

32

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

APP Offset Procedure

[*]

 

[*]

 

33

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT F

Forecast System

[*]

 

 

34

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

EXHIBIT G

EPSON’s [*] Technology Road Map

[*]

 

35

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EPSON’s [*] Process (1/2)

 

[*]

 

 

36

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

 

EPSON’S [*] Process (2/2)

 

[*]

 

 

37

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT H

Defect Density Goal

[*]

 

38

 

* Omitted and filed separately with
the SEC pursuant to a confidential treatment request

EXHIBIT I

Turn Around Time

[*]

 

39EXHIBIT
10.27

ADDENDUM NO. 1 TO

AUTHORIZED
DISTRIBUTOR AGREEMENT

This Addendum supplements and modifies the Authorized
Distributor Agreement with an Effective Date of June 29, 2004 between
Envoy Data Inc. (“Distributor”) and Wave Systems Corp. (“Wave Systems”).

1.    Background.   Dell Inc. has entered into an arrangement
with Distributor under which Distributor distributes third-party software
authorized by Dell to be distributed with or for Dell computers. Wave Systems
has obtained approval from Dell for certain of its software products to be
distributed with or for Dell computers. This Addendum contains the terms and
conditions under which Distributor will distribute such software of Wave
Systems. Except as otherwise specifically mentioned, this Addendum shall only
apply to the distribution of Wave Systems’ Security Products as defined below.

2.    Definitions.   In addition to the definitions in the
Authorized Distributor Agreement the following definitions shall apply to this
Addendum.

“Client Product” means the Product designated as
Client Product in Attachment 1 hereto.

“Dell” means Dell Inc. and its subsidiaries.

“Distributor Agreement” means the Authorized
Distributor Agreement, referenced above, which this Addendum supplements.

“End User” means a person or entity that acquires
Security Products for its own use and not for resale or distribution.

“Gold Master” means a CD-ROM which contains a copy of
the Client Product in object-code form, a click-through End User license
agreement, and a readme electronic file containing installation and use
instructions and links for on-line help. Such Gold Master will be suitable for
use in making copies of the Client Product and such associated text files.

“Security Products” refers to both the Client Product
and the Server Product.

“License Management Codes”  means unique numbers which can be assigned to
a copy of software equipped with the License Management Tool to prevent copying
of that copy of the software.

“License Management Tool”
means software designed to prevent unauthorized copying of software.

“Server Product” means the Product designated in
Attachment 1 as Server Product.

3.    Distribution of Security
Products.

a.           Distributor
is hereby authorized by Wave Systems to distribute the Security Products solely
to Dell and to End Users in accordance with the terms of the Distributor
Agreement as supplemented and modified by this Addendum.

b.           Promptly
after full execution of this Addendum, Wave Systems will deliver to Distributor
a Gold Master for the Client Product, the License Management Tool, a quantity
of License Management Codes as determined by Wave Systems, artwork for CD-ROM
sleeves, and artwork for CD-ROM disks.

c.           Distribution
of the Client Product may be accomplished via the Internet electronic network
and via CD-ROMs. Distribution of the Server Product may be accomplished
only via CD-ROMs which will be provided by Wave Systems pursuant to purchase
orders placed by Distributor.

 1
 

d.           All
Security Products distributed by Distributor must include an operating copy of
the License Management Tool and License Management Code, both of which will be
provided and paid for by Wave Systems. Wave Systems will periodically supply
Distributor with additional License Management Codes as needed. Distributor
will not directly or indirectly attempt to disable or bypass the License
Management Tool or the embedded End User license agreement.

e.           Distributor
may arrange for competent and reliable contractors to replicate the Client
Product from the Gold Master to CD-ROMs for distribution hereunder provided (i) Distributor
has entered into Replication Services Agreement with such contractors, (ii) Distributor
has promptly provided a copy of such executed agreements to Wave Systems, and (iii) Distributor
promptly ceases doing business with any contractor who violates the terms of
such agreements.

4.    Submission of Orders.

a.           Upon
execution of this Agreement and on or before January 1 of each year during
the term of this Addendum, Distributor will provide Wave Systems with a
purchase order for the calendar year’s requirements of Client Product, although
no quantity need be stated. Quantities will be determined in accordance with
the monthly POS Reports.

b.           Server
Product will be provided by Wave Systems on CD-ROMs to Distributor pursuant to
purchase orders placed from time to time by Distributor.

5.    License Fees.   The license fee to Distributor for the
Security Products shall be 40 percent off of Wave Systems’ then current list
price.

6.    Records, POS Reports, and Audits.

a.           Distributor
shall maintain complete and accurate accounting records, in accordance with
sound accounting practices, to support and document all license fees due Wave
Systems hereunder. Such records shall contain at a minimum the name and contact
information for each End User or Dell entity purchasing a license for a
Security Product from Distributor, the type of delivery (Internet or CD-ROM),
the type of Security Product (Client Product or Server Product) the date of
license sale, the number of copies of the Security Product licensed hereunder,
and any refunds or returns. Such records shall be retained for a period of at
least three years after the fees to which such records relate have been accrued
and have been paid.

b.           Within
five days after the end of each month, Distributor will remit to Wave Systems
the license fees due on copies of Client Product delivered by Distributor to End
Users and Dell entities during the immediately preceding month, and provide
Wave Systems with a POS Report, in a format reasonably acceptable to Wave
Systems, specifying the number of copies of Client Product that Distributor
delivered, the number of copies of the Client Product that were returned by End
Users or Dell entities, and the calculation of the amount due Wave Systems
pursuant to this Agreement. The POS Report shall also specify the name and
contact information for each End User or Dell entity purchasing a license for a
Security Product from Distributor. For each such customer the POS Report shall
show the type of delivery (Internet or CD-ROM), the type of Security Product
(Client Product or Server Product), and the date of license sale, the number of
copies of the Security Product licensed hereunder, and any refunds or returns.

c.           Upon
written request from Wave Systems at least ten days in advance, Distributor
shall provide reasonable access to Distributor’s records referred to in Section 6a
by an independent accounting firm chosen and compensated by Wave Systems for
the purpose of audit. Such audit shall take place during Distributor’s normal
business hours and shall not occur more frequently than twice each calendar
year. Such accounting firm shall be required to sign an agreement protecting
Distributor’s confidential information and shall be authorized to report to
Wave Systems only the 

 2
 

amount of license fees due.
In the event that such an audit discloses an underpayment of more than five
percent, then Distributor shall pay the costs of such audit.

7.    Term and Termination.   This Addendum shall have the
same term as the Distributor Agreement and can be terminated separately under Section 13
of the Distributor Agreement.

8.    Change to Arbitration Clause.   For all purposes, the
first sentence in Section 14f of the Distributor Agreement is changed to
delete the word “Maryland” and substitute “California.”

9.    Effect of Addendum.   To the extent this Addendum is
inconsistent with the Distributor Agreement, this Agreement shall prevail with
respect to Security Products and with respect to all products just for Section 8
hereof. This effective date of this Addendum shall be the latter of the dates
on which it is signed below.

10. Change of Authorized Distribution Agreement
(ADA) participants name. For all purposes of use, and references, within the
ADA, Envoy Data Inc. will be changed to Envoy Data Corporation.

	
  ENVOY DATA CORP.

  	
   

  	
  WAVE SYSTEMS CORP.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Authorized Signature

  	
   

  	
  Authorized Signature

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print Name and Title

  	
   

  	
  Print Name and Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Date

  	
   

  

 

 3

ATTACHMENT 1

SECURITY PRODUCTS

1.                 Client
Product:

Wave Part Number
14-000033 Wave ETS Enterprise Security - Dell Edition 1.0

Dell SKU A0436206, Envoy Part Number ENV-14-000033,
Synnex SKU 1037412

Wave’s ETS Enterprise Security includes TPM-based
applications for file and folder encryption, password and personal data
management, multi-factor authentication, key archive management, secure Windows
logon, digital signature. Furthermore, wizards are included to use Wave’s
TCG-Enabled CSP for adding hardware security to Outlook and Outlook Express
email, Microsoft Encrypting File System (EFS), and 802.1x authentication.

Price: $19.99

2.                 Server
Product:

Wave Part Number
14-000016 Key Transfer Manager Enterprise Server AD 2.0

Dell SKU A0428504, Envoy Part Number ENV-14-000016,
Synnex SKU 1032709-6

For server-based key management of trusted platforms,
KTM Enterprise Server AD provides the capability to securely store and/or
migrate protected keys from one TPM-enabled system to another according to
security policies defined on the server.  This product also protects the enterprise’s
secure data by being able to recover from security hardware malfunction. Integration
with Microsoft Active Directory benefits IT administrators by incorporating
Active Directory policy and authentication functions and by providing a
consistent management interface.

Price $9,999.00

ATTACHMENT 2

REPLICATION SERVICES AGREEMENT

This Agreement, dated                                   ,
is entered into by and between the Envoy Data Inc. with its principal office
located at 2090 E. University Drive, Suite 112, Tempe, AZ 85281, and                                     
(“Replicator”), a  [check one] [ ] corporation incorporated in
                       
[state]; [  ] partnership or limited liability company; [  ]
individual or sole proprietorship, with its principal office located at                                                                                                                                                             .

1.   DEFINITIONS

a.      “Authorized Trademarks”
means the trademarks, trade names, and logos to be used on the CD-ROMs
containing the Software and on the Packaging.

a.      “Packaging”
means all CD-ROM sleeves and collateral materials, if any, provided from time
to time to Replicator by Envoy, including user manuals, templates, overlays,
quick reference guides, brochures, data sheets, and registration cards.

c.      “Product”
means the Software and Packaging together.

d.     “Replication Services”
means the services to be performed by Replicator pursuant to this Agreement.

e.      “Software” means the executable object code for Envoy’s
software provided to Replicator by Envoy from time to time pursuant to this
Agreement.

2.                 REPLICATION
SERVICES

Envoy hereby
retains Replicator to perform the following Replication Services in accordance
with written orders placed with Replicator from time to time by Envoy.

a.      arrange
for the reproduction of text and graphics provided by Envoy onto the
non-recorded side of the CD-ROMs;

b.     replicate
the Software onto the CD-ROMs;

c.      reproduce
the Packaging;

d.     provide
Envoy with samples of the CD-ROMs and Packaging for review and approval;

e.      combine
the Software and Packaging;

f.      deliver the Products to Envoy.

3.                 DELIVERABLES
FROM ENVOY

To facilitate the
performance of the Replication Services by Replicator, Envoy shall provide
Replicator with the following materials and shall periodically update such
materials as deemed necessary by Envoy:

a.      camera-ready
text and graphics for reproduction onto the non-recorded side of a CD-ROM;

b.     a master
copy of the Software on a CD-ROM and updated master copies as needed by
Replicator to comply with orders received from Envoy; and

c.      copies of the Packaging for use by Replicator or a camera-ready
version of the Packaging for reproduction.

4.                 PAYMENT
FOR SERVICES

Replicator’s fees for
performing the Replication Services are specified in Exhibit A. Added to
those fees will be any applicable taxes, customs duties, insurance charges, and
freight charges incurred in shipping to the specified destination. Replicator
may change its fees upon thirty-days advance notice to Envoy. Payment terms are
also listed on Exhibit A.

5.                 RECORDS

a.      Replicator
shall maintain records in the English language showing the number of Products
replicated. Such records shall be maintained for a period of at least two years
after the transaction to which they pertain was consummated.

b.     Such records shall be made available at Replicator’s place of
business for inspection and copying by Envoy, its customers or suppliers, and
their representatives during Replicator’s normal business hours upon at least
ten-days advance written notice.

6.                 ENVOY’S
REPRESENTATIONS AND WARRANTIES

a.      Envoy
represents that it has the right and authority to enter into this Agreement and
to grant Replicator the rights to replicate the Software and Packaging granted
in this Agreement.

b.     THE FOREGOING IS THE ONLY WARRANTY MADE BY
ENVOY. ENVOY SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.

7.                 REPLICATOR’S
REPRESENTATIONS AND WARRANTIES

a.      Replicator
represents that it has the right and authority to enter into this Agreement.

b.     Replicator
represents and warrants that it will accurately replicate the Software and
Packaging and that all CD-ROMs containing any portion of the Software that are
delivered by Replicator to Envoy will not contain any viruses, worms, or other
code that is specifically designed damage or interfere with any end user’s
software or date.

c.      Replicator
agrees to replace and assume two-way transportation charges for Products for
which Replicator performs replication services that are returned to Envoy due
to defects in the media or replication process, provided such Products are
returned within one year from the time of shipment made by Replicator.

d.     Replicator
agrees to refrain from providing the Software or Packaging to anyone but Envoy
or a third party authorized by Envoy in writing to receive the Software and/or
Packaging. Replicator further agrees to refrain from attempting to decrypt, disassemble,
decompile, or otherwise derive the source code of the Software.

e.      Replicator acknowledges that the Software and the Authorized
Trademarks are the property of Envoy or Envoy’s licensors. Replicator shall not
use, duplicate, or disseminate the Software or Authorized Trademarks except as
specifically provided in this Agreement.

8.                 AUTHORIZED
TRADEMARKS

Replicator shall have the
right to use the Authorized Trademarks on the CD-ROMs and on the Packaging
solely as permitted by Envoy. Replicator shall not use the Authorized
Trademarks in any other manner unless authorized by Envoy in writing.

9.                 SUBCONTRACTING

Replicator may subcontract
to third parties such portions of the reproduction, printing, and packaging of
the Software and Packaging as Replicator may, in its discretion, determine;
provided, however, that Replicator remains primarily liable for the performance
of any such subcontractor and that any replication of the Software may be
subcontracted only to parties which have been previously approved by Envoy and
which agree in writing to be bound by the provisions of Sections 7b, 7d, 7e,
10, 11b, 12, and 14c of this Agreement.

10.          CONFIDENTIALITY

Replicator acknowledges
that, from time to time, it may be exposed to certain confidential information
of Envoy concerning the Software, such as proposed new versions of the
Software, the identity of Envoy’s suppliers and customers, and Envoy’s
unannounced marketing plans for Products (“Confidential Information”). Replicator
agrees that it will take appropriate steps to protect such Confidential
Information from unauthorized disclosure, that it will not disclose such
Information to any third party, and that it will not use any Confidential
Information other than as authorized by this Agreement without the prior
written consent of Envoy. Replicator’s obligations with respect to Confidential
Information shall continue until such information becomes publicly known other
than by breach of this Agreement by Replicator.

11.          INDEMNIFICATION

a.      Envoy
will defend, indemnify, and hold Replicator harmless from and against any and
all liabilities, losses, damages, including reasonable out-of-pocket costs and
expenses associated with any claim or action brought against Replicator for
actual or alleged breach of Envoy’s warranties hereunder.

b.     Replicator
shall indemnify and hold Envoy harmless from and against any and all
liabilities, losses, damages, costs, including reasonable out-of-pocket costs
and expenses associated with any claim or action brought against Envoy that may
arise from Replicator’s alleged breach of any of its representations or
warranties or alleged improper or unauthorized replication, packaging, or
delivery of the Software or Packaging.

c.      Indemnification under this Section 11 shall be contingent
upon the party seeking indemnification giving the indemnifying party prompt
written notification of a claim, as well as information, reasonable assistance,
and exclusive authority to evaluate, defend, and settle such claim.

12             LIMITATION
OF LIABILITY

ENVOY’S LIABILITY TO
REPLICATOR SHALL BE LIMITED TO DIRECT DAMAGES AND, EXCEPT AS PROVIDED IN THE SECTION TITLED
“INDEMNIFICATION,” SHALL NOT EXCEED THE AMOUNT OF THE FEES PAID BY ENVOY TO
REPLICATOR HEREUNDER. IN NO EVENT WILL ENVOY BE LIABLE FOR INCIDENTAL, INDIRECT,
SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) SUFFERED BY
REPLICATOR, EVEN IF ENVOY HAS PREVIOUSLY BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.

13.          TERM
AND TERMINATION

a.      This
Agreement will continue in effect for one year from the date hereof. It will be
automatically renewed for additional one-year terms on the anniversary of that
date.

b.     Either
party may terminate this Agreement at any time, with or without cause, upon
thirty-days advance written notice to the other party.

c.      Upon termination of this Agreement for any reason, Replicator
will immediately cease duplication of the Software and Packaging and will
return to Envoy, at Replicator’s expense, the master versions of all Software
and Packaging, and all Confidential Information of Envoy. Envoy shall remit to
Replicator all fees due from Envoy within 30 days of such termination. Termination
by either party will not affect the rights of any end user who has received the
Software. Sections 6, 7, 10, 11, 12, 13c, and 14c shall survive termination of
this Agreement.

14.          GENERAL
PROVISIONS

a.      Except as
provided in Section 9, this Agreement and Replicator’s duties hereunder
may not be assigned by Replicator directly or by operation of law to any other
person, firm, or corporation without the express written approval of Envoy. Upon
written notice to Replicator, Envoy may assign this Agreement to a parent,
subsidiary, affiliate, or successor. This Agreement shall be binding upon and
inure to the benefit of permitted successors and assigns.

b.     All
notices and demands hereunder shall be in writing and shall be served by
personal service or by mail at the address of the receiving party set forth in
this Agreement (or at such different address as may be designated by such party
by written notice to the other party). All notices or demands by mail shall be
by certified or registered mail, return receipt requested, or by
nationally-recognized private express courier, and shall be deemed complete
upon receipt.

c.      This
Agreement shall be governed by and construed in accordance with the substantive
laws of the State of                  ,
excluding that body of law controlling conflicts of law. Any dispute arising
out of or relating to this Agreement, or breach thereof, shall be first
submitted to the senior management of each party for resolution. If the dispute
cannot be resolved within 30 days after such matter is referred to senior
management, then the dispute shall be submitted to binding arbitration in                  
County,                  ,
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. All discovery must be concluded within
60 days after the submission to arbitration. The decision of the arbitration
panel shall be final and may be entered as judgment in any court of competent
jurisdiction. The arbitration panel shall determine the allocation of
arbitration costs and reasonable attorneys’ fees between the parties according
to the relative merits of each party’s case. EACH PARTY HEREBY WAIVES THE RIGHT
TO TRIAL BY JURY.

d.     Each party
is acting as an independent contractor and not as an agent, partner, or joint
venturer with the other party for any purpose. Except as provided in this
Agreement, neither party shall have any right, power, or authority to act or to
create any obligation, express or implied, on behalf of the other.

e.      Neither
party shall be responsible for delays or failure of performance resulting from
acts beyond the reasonable control of such party. Such acts shall include, but
not be limited to, acts of God, strikes, walkouts, riots, acts of war,
epidemics, failure of suppliers to perform, governmental regulations, power
failures, earthquakes, or other disasters.

f.      The
titles and headings of the various sections and paragraphs in this Agreement
are intended solely for reference and are not intended for any other purpose
whatsoever or to explain, modify, or place any construction on any of the
provisions of this Agreement.

g.      No
provisions in either party’s purchase orders, or in any other business forms
employed by either party, will supersede the terms and conditions of this
Agreement, and no supplement, modification, or amendment of this Agreement
shall be binding, unless executed in writing by a duly authorized representative
of each party to this Agreement.

h.     The
parties have read this Agreement and agree to be bound by its terms, and
further agree that this Agreement (including its Exhibit A which is hereby
incorporated into and made a part of this Agreement) constitutes the complete
and entire agreement of the parties and supersedes all previous communications,
oral or written, between them relating to the license and to the subject matter
hereof. No representations or statements of any kind made by either party that
are not expressly stated herein shall be binding on such party.

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date specified above.

 

	
  ENVOY DATA INC.

  	
  REPLICATOR

  
	
  “Envoy”

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print Name and
  Title

  	
  Print Name and Title

  	
   

  
							

 

  

EXHIBIT 10.27

EXHIBIT
A

REPLICATOR’S FEES

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