UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
__ EXCHANGE ACT OF 1934
For the quarterly period ended February 23, 1997
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: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
-------- ----------
(State of incorporation) (I.R.S. Employer Identification Number)
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090
-----------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 721-5000
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 the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title of Each Class Outstanding at February 23, 1997
------------------- --------------------------------
Common stock, par value $0.50 per share 140,745,443
(Page 1)
NATIONAL SEMICONDUCTOR CORPORATION
INDEX
Part I. Financial Information Page No.
--------
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months and Nine Months
Ended February 23, 1997 and February 25, 1996 3
Condensed Consolidated Balance Sheets (Unaudited)
as of February 23, 1997 and May 26, 1996 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended
February 23, 1997 and February 25, 1996 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Part II. Other Information
Legal Proceedings 16
Exhibits and Reports on Form 8-K 16-17
Signature 18
(Page 2)
PART I. FINANCIAL INFORMATION
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- ------- -------- --------
Net sales $680.5 $600.3 $1,908.1 $2,010.7
Operating costs and expenses:
Cost of sales 425.2 368.7 1,249.8 1,165.0
Research and development 93.3 96.9 279.7 270.5
Selling, general and
administrative 111.5 112.1 311.9 370.1
Restructuring of operations - - 256.3 -
------ ------ -------- -------
Total operating costs
and expenses 630.0 577.7 2,097.7 1,805.6
------ ------ -------- -------
Operating income(loss) 50.5 22.6 (189.6) 205.1
Interest income, net 2.3 4.1 4.6 9.9
Other income, net 4.3 4.0 4.6 20.0
------ ------ -------- -------
Income(loss) before
income taxes 57.1 30.7 (180.4) 235.0
Income tax provision(benefit) 14.3 7.7 (45.1) 58.7
------ ------ -------- -------
Net Income(loss) $ 42.8 $ 23.0 $ (135.3) $ 176.3
====== ====== ======== =======
Earnings per share:
Primary $ .30 $ .17 $ (.97) $1.30
Fully diluted $ .30 $ .17 $ (.97) $1.26
Weighted average shares:
Primary 143.8 137.8 139.0 131.1
Fully diluted 150.0 137.8 139.0 142.6
Income(loss) used in primary
earnings per common share
calculation(reflecting
preferred dividends,
if applicable) $ 42.8 $ 23.0 $(135.3) $ 170.7
Income(loss) used in fully
diluted earnings per share
(reflecting adjustment for
interest on convertible
notes when dilutive) $ 44.3 $ 23.0 $(135.3) $ 180.1
See accompanying Notes to Condensed Consolidated Financial Statements
(Page 3)
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Feb. 23, May 26,
1997 1996
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 383.8 $ 442.4
Short-term marketable investments 46.7 61.9
Receivables, net 329.1 281.2
Inventories 241.7 325.7
Deferred tax assets 140.4 71.1
Fairchild property and equipment
held for disposition 126.1 -
Other current assets 60.7 73.7
------- -------
Total current assets 1,328.5 1,256.0
Property, plant and equipment 2,054.8 2,516.7
Less accumulated depreciation 789.7 1,208.6
------- -------
Net property, plant and equipment 1,265.1 1,308.1
Long-term marketable investments 5.3 11.7
Other assets 85.7 82.2
------- -------
Total assets $2,684.6 $2,658.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 30.2 $ 21.5
Accounts payable 269.1 255.6
Accrued expenses 306.5 235.1
Income taxes 170.4 164.6
------- -------
Total current liabilities 776.2 676.8
Long-term debt 374.3 350.5
Deferred income taxes 9.3 12.1
Other non-current liabilities 40.0 41.4
------- -------
Total liabilities 1,199.8 1,080.8
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock 70.4 68.4
Additional paid-in capital 973.1 926.9
Retained earnings 441.3 581.9
------- -------
Total shareholders' equity 1,484.8 1,577.2
------- -------
Total liabilities and shareholders' equity $2,684.6 $2,658.0
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
(Page 4)
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions) Nine Months Ended
--------------------
Feb. 23 Feb. 25,
1997 1996
------- -------
Cash flows from operating activities:
Net Income(loss) $(135.3) $ 176.3
Adjustments to reconcile net income(loss)
with net cash provided by operations:
Depreciation and amortization 206.4 169.4
Gain on investments (1.0) (5.2)
Tax benefit associated with stock options 10.0 12.8
In-process research and development charge 10.6 11.4
Loss on disposal of equipment 3.4 2.6
Write-down of inventory 15.1 -
Restructuring charges 256.3 -
Other, net (3.3) (4.1)
Changes in certain assets and liabilities, net:
Receivables (47.9) (11.4)
Inventories 68.9 (78.0)
Other current assets 13.0 (39.9)
Accounts payable and accrued expenses 0.8 (74.4)
Current and deferred income taxes (66.3) 17.7
Other non-current liabilities (1.4) (1.9)
------- -------
Net cash provided by operating activities 329.3 175.3
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (446.6) (423.1)
Proceeds from sale of equipment - 24.6
Proceeds from the sale and maturity of
marketable investments 904.7 578.2
Purchase of marketable investments (889.5) (630.1)
Proceeds from sale of net assets of DynaCraft, Inc. - 70.0
Proceeds from sale of investments 5.0 7.8
Business acquisition (15.4) (19.2)
Purchase of investments and other, net (12.2) (10.7)
------- -------
Net cash used by investing activities (454.0) (402.5)
------- -------
Cash flows from financing activities:
Proceeds from issuance of convertible subordinated
notes, less issuance costs - 253.3
Proceeds from the issuance of debt 52.2 42.0
Repayment of debt (19.7) (20.9)
Issuance of common stock, net 33.6 29.3
Purchase of treasury stock - (63.0)
Payment of preferred dividends - (5.6)
------- -------
Net cash provided by financing activities 66.1 235.1
------- -------
Net change in cash and cash equivalents (58.6) 7.9
Cash and cash equivalents at beginning of period 442.4 420.3
------- -------
Cash and cash equivalents at end of period $ 383.8 $ 428.2
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements
(Page 5)
Note 1. Summary of Significant Accounting Policies
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments necessary to present fairly
the financial position and results of operations of National
Semiconductor Corporation and its subsidiaries ("National" or the
"Company"). Interim results of operations are not necessarily
indicative of the results to be expected for the full year. This report
should be read in conjunction with the consolidated financial statements
and notes thereto included in the annual report on Form 10-K for the
fiscal year ended May 26, 1996.
Property, plant and equipment: Effective the beginning of fiscal
1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which requires recognition
of impairment of long-lived assets in the event the net book value of
such assets exceeds the future undiscounted cash flows attributable to
such assets. SFAS No. 121 also requires, among other provisions, that
long-lived assets and certain identifiable intangibles that are to be
disposed of, which are not covered by Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," be reported at the
lower of the asset's carrying amount or its fair value less cost to
sell. Adoption of SFAS 121 had no material impact on the carrying
values of the Company's assets. In connection with the Company's
announcement that it had formed the Fairchild Semiconductor organization
("Fairchild") and was pursuing a sale or partial financing of all or a
portion of the Fairchild businesses and related assets, the Company
recorded a $189.1 million charge to write down related assets held for
sale to estimated fair value less cost to sell (see Note 5).
Note 2. Components of Inventories
The components of inventories were:
(in millions) Feb. 23, May 26,
1997 1996
------- -------
Raw materials $ 25.6 39.1
Work in process 172.4 208.5
Finished goods 43.7 78.1
----- ------
Total inventories $ 241.7 $ 325.7
======= =======
Note 3. Other income, net
Components of other income,
net were:
(in millions) Three Months Ended Nine Months Ended
------------------ ------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- -------- -------- --------
Net intellectual property income $ .3 $ 2.5 $ 2.0 $ 13.3
Gain on sale of investments, net 4.0 - 1.0 5.2
Other - 1.5 1.6 1.5
------- ------- ------- -------
Total other income, net $ 4.3 $ 4.0 $ 4.6 $ 20.0
======= ======= ======= =======
(Page 6)
Note 4. Statement of Cash Flows Information
(in millions)
Nine Months Ended
------------------
Feb. 23, Feb. 25,
1997 1996
-------- --------
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid for:
Interest $ 15.4 $ 3.7
Interest on tax settlements .1 12.1
Income taxes 4.5 22.8
Supplemental schedule of non-cash investing
and financing activities:
- ------------------------
Issuance of stock for employee benefit plans $ 3.2 $ 4.3
Tax benefit for employee stock option plans 10.0 12.8
Retirement of treasury stock - 119.1
Unrealized gain (loss) on available-for-sale
securities (5.3) (4.7)
Unearned compensation charge relating to
restricted stock issuance 8.1 -
Amortization of unearned compensation charge 1.4 -
Note 5. Restructuring of Operations
One-time Charge:
In June 1996, the Company announced the formation of the Fairchild
Semiconductor organization ("Fairchild") to consist of the Company's
family logic, memory and discrete product lines and indicated it was
pursuing a sale or partial financing of all or a portion of the
Fairchild businesses. Included in the results of operations for the
nine months ended February 23, 1997, is a $275 million one-time charge
that the Company recorded in the first quarter in connection with this
reorganization. The one-time charge included a restructuring charge of
$256.3 million for the write down of Fairchild assets to estimated fair
value, costs associated with staffing reductions and other exit costs
necessary to reduce the Company's infrastructure in both Fairchild and
the remaining National core business areas. The Company expects to have
reduced its work force by approximately 1,400 employees in manufacturing
support, selling, general and administrative areas of both the Fairchild
and National core business organizations by the time it completes all
activities connected with the Fairchild divestiture. Of the
restructuring charge, approximately $67 million represents cash charges
and $189 million represents fixed asset write downs and other non-cash
items. The remaining components of the $275 million one-time charge
have been recorded in cost of sales and consist of $15.1 million to
write down certain Fairchild inventory to net realizable value and $3.6
million for other cost reduction activities.
As part of the restructuring noted above, the Company recorded charges
of $177.7 million and $11.4 million to write down certain fixed assets
of Fairchild and the National core businesses, respectively, to
estimated fair value in contemplation of the sale or partial financing
of all or a portion of the Fairchild businesses and related assets. The
adjustments to the carrying value of these assets held for disposal were
determined based on estimated fair value of the individual businesses of
Fairchild on the expected date of disposal. The Fairchild assets
include land, building and building improvements, and equipment
associated with its 4-inch, 5-inch and 6-inch wafer fabrication
operations in South Portland, Maine, its 6-inch wafer fabrication
operation in Salt Lake City, Utah and its assembly and test operations
in Penang, Malaysia and Cebu, Philippines. The carrying amount of these
assets at February 23, 1997 was $126.1 million. The National core
business assets written down in connection with this action primarily
include software and leasehold improvements. The Company also expects to
pay approximately $5.2 million in retention bonuses to certain Fairchild
employees. These employee bonuses will be expensed to operations
ratably over the employee's service period up through the final date of
disposition.
(Page 7)
The following table provides a summary of the one-time charge:
Fairchild National
Semiconductor Core Total
Organization Businesses Company
(in millions) ------------- ---------- -------
Restructuring of Operations:
Write down of assets to
estimated fair value $177.7 $11.4 $189.1
Staffing reductions and severance 18.6 36.6 55.2
Other exit costs 9.8 2.2 12.0
------- ------ -------
206.1 50.2 256.3
Other:
Cost of sales 15.1 3.6 18.7
------- ------ -------
$221.2 $53.8 $275.0
======= ====== =======
As a result of the work force reduction actions that occurred in the
first nine months of fiscal 1997, the Company paid $15.7 million of
severance to approximately 450 terminated employees. To date the
Company has also paid $1.1 million for other exit costs. Included in
accrued liabilities at February 23, 1997 is $50.4 million related to
remaining severance and other costs of restructuring activities that are
related to the realignment of the Company's selling, general and
administrative expenses.
The following table provides detail of the net book value of the
Fairchild property and equipment held for disposition:
Fairchild Businesses
---------------------------------------
(in millions) Logic Memory Discrete Total
----- ------ -------- -----
Property and equipment, net $189.4 $ 72.7 $ 41.7 $303.8
Valuation Allowance 128.4 49.3 - 177.7
------ ------ ------ ------
$ 61.0 $ 23.4 $ 41.7 $126.1
====== ====== ====== ======
Selected Pro Forma Financial Information:
The following table summarizes selected financial information for the
Fairchild businesses, the National core businesses and the Company as a
whole excluding in each case the effect of the one-time charges.
Included in the Fairchild amounts is financial information related to
certain businesses the Company has exited that were previously managed
under the Fairchild organization, but were not a part of the Fairchild
divestiture.
(Page 8)
Three Months Ended Nine Months Ended
---------------------- --------------------------
($ in millions) Fair- Nat'l Total Fair- Nat'l Total
child Core Co. child Core Co.
------ ------ ------ ------ -------- -------
Fiscal 1997
- -----------
Period Ended
February 23, 1997:
Net sales $147.5 $533.0 $680.5 $434.2 $1,473.9 $1,908.1
Gross margin 24.2% 41.2% 37.5% 23.3% 39.1% 35.5%
Fiscal 1996
- -----------
Period Ended
February 25, 1996:
Net Sales $157.8 $442.5 $600.3 $534.6 $1,476.1 $2,010.7
Gross margin 28.2% 42.3% 38.6% 33.0% 45.3% 42.1%
The financial information presented for Fairchild and the National core
businesses is pro forma and represents sales and cost of sales of the
product portfolios of Fairchild and the National core businesses. As
such, sales and related cost of sales for certain Fairchild products
manufactured by the National core business are included in the Fairchild
Semiconductor product portfolio pro forma financial information and
sales and related cost of sales for certain National core business
products manufactured by Fairchild are included in the National core
business product portfolio pro forma financial information. The pro
forma information is not necessarily indicative of the sales and gross
margin the Company would have achieved or would achieve in any future
period excluding the Fairchild businesses.
Note 6. Contingencies
In July 1996, the Company received notices of assessment totaling
approximately $59.2 million from the Malaysian Inland Revenue Department
relating to the Company's manufacturing operations in Malaysia, which
the Company believes are without merit and intends to contest. The
Company believes it has adequate tax reserves to satisfy any ultimate
resolution of the assessments.
Note 7. Subsequent Events
On March 11, 1997, the Company completed the disposition of Fairchild
under a recapitalization transaction with Sterling, LLC, a Citicorp
Venture Capital, Ltd. investment portfolio company in related
businesses, and Fairchild's management. The recapitalization was valued
at $550 million. In addition to retaining a 15 percent equity interest
in Fairchild for which the Company paid $12.9 million, the Company
received cash of $401 million and a promissory note of $77 million, and
certain liabilities were assumed by Fairchild. The Company expects to
record a gain on the disposition in the fourth quarter of fiscal 1997
after determining final divestiture costs and transition liabilities.
This gain on sale arose because the Company believed the disposition of
the Fairchild businesses would be completed in two or more separate
transactions. The Company originally anticipated losses on the
disposition of the logic and memory businesses and a gain from the
disposition of the discrete business. The Company was able to achieve a
higher price than it had originally anticipated, because the final
transaction resulted in the combined disposition of all three Fairchild
businesses, which provided unanticipated synergy to the new majority
owners of the collective Fairchild businesses. Additionally, the
Company anticipates that it will not utilize the provision that was
originally recorded to write down the Fairchild inventory to net
realizable value since the Company received full book value for the
inventory as a result of the final transaction.
(Page 9)
In connection with the Fairchild transaction, Fairchild and the Company
have entered into a manufacturing agreement under which the Company will
purchase goods and services from Fairchild during the first 39 months
after the transaction. Historically, these services provided by
Fairchild have been provided at cost. Under the agreement the Company
has committed to purchase goods and services based on specified wafer
prices.
On March 17, 1997, the Company acquired Mediamatics, Inc., a Fremont,
California company that is a major provider of MPEG audio/video
capabilities to the personal computer market. The Company completed the
acquisition by issuing or reserving for future issuance an aggregate of
3.4 million shares of common stock, with 1.6 million of these shares
reserved for stock options and employee retention arrangements. The
acquisition will be accounted for using the purchase accounting method
with a net adjusted purchase price after acquisition expenses of $74.5
million. The Company will incur a one-time charge to expense in the
fourth quarter of the fiscal year for in-process research and
development of approximately $62.0 million. In connection with the
acquisition, the Company will also record $23.5 million of deferred
compensation related to employee retention arrangements which will be
charged to operating expenses, primarily research and development, over
the next 30 months.
(Page 10)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Sales National Semiconductor Corporation ("National" or the "Company")
recorded net sales of $680.5 million and $1,908.1 million for the third
quarter and first nine months of fiscal 1997, respectively, an increase
of 13.4 percent from net sales for the third quarter of fiscal 1996 and
a decrease of 5.1 percent from net sales for the first nine months of
fiscal 1996. Although net sales year over year declined slightly, the
increase in net sales quarter over quarter reflects an improvement in
new order rates that began mid-summer 1996. New orders were strong and
remained stable through third quarter. As a result, third quarter net
sales actually grew over net sales for the second quarter, overriding
the seasonal dip the Company has typically experienced in past years.
Beginning in fiscal 1997, the Company reorganized its structure by
consolidating its seven former operating divisions into the following
four business groups: the Analog Group, the Communications and Consumer
Group, and the Personal Systems Group, all of which represent National's
core businesses, and the Fairchild Semiconductor Group ("Fairchild"),
which was formed as a separate organization consisting of the Company's
family logic, memory and discrete product lines. The Company believes
this structure will enhance the focus and support of the Company's
strength in analog and mixed signal technologies and help further its
strategy to develop application specific integrated products for the
personal systems, communications and consumer markets. The sales
discussion that follows is based on this new structure.
Sales for the third quarter and first nine months of fiscal 1997 for
National's core businesses as described above were $533.0 million or
78.3 percent of total sales and $1,473.9 million or 77.2 percent of
total sales, respectively. This compares to $442.5 million or 73.7
percent of total sales and $1,476.1 or 73.4 percent of total sales for
the same periods of fiscal 1996. Despite the slight decline in these
sales year over year for the first nine months, the increase in sales
quarter over quarter reflects the continued growth in sales for local
area network products and wide area network products, including wireless
communication products, each of which grew with increases of 62.4
percent and 9.5 percent, respectively, for the third quarter of fiscal
1997 over the comparable quarter of fiscal 1996 and 34.9 percent and 7.1
percent, respectively, year over year. In addition, sales strengthened
for personal computer products, which grew 44.6 percent and 28.8 percent
in the third quarter and first nine months of fiscal 1997, respectively,
over the comparable periods of fiscal 1996. Sales increases for all of
these product areas were the result of increased unit shipments.
Overall, increased unit shipments for the National core businesses
resulted in increased sales for the third quarter while some modest
price declines, particularly in multimarket analog products, resulted in
the slight decline in sales year over year. Sales for Fairchild were
$147.5 million or 21.7 percent of total sales and $434.2 million or 22.8
percent of total sales for the third quarter and first nine months of
fiscal 1997, respectively. This compares to $157.8 million or 26.3
percent of total sales and $534.6 million or 26.6 percent of total sales
for the same periods of fiscal 1996. Overall decreases in unit shipments
as older product lines continue to be trimmed, together with some modest
price declines, resulted in decreased sales for Fairchild for both
quarter to quarter and year over year periods.
(Page 11)
Gross Margin Gross margin as a percentage of sales was 37.5 percent
and 34.5 percent for the third quarter and first nine months of fiscal
1997, respectively, compared to 38.6 percent and 42.1 percent for the
comparable periods of fiscal 1996. Although gross margin for the third
quarter was slightly less than the quarter a year ago, it reflects a
recovery in gross margin since the beginning of the fiscal year when
factory utilization was reduced due to the slowdown in new orders as
customers and distributors reduced inventories. Wafer fab capacity
utilization reached 75 percent in the current quarter as new order rates
that began improving during fiscal 1997 remained stable through the
current quarter. The Company also achieved some product pricing
improvements in the third quarter. Also included in cost of sales for
the first nine months of fiscal 1997 was $18.7 million of the $275
million one-time charge related to the reorganization and the formation
of Fairchild (see Restructuring of Operations). Excluding this $18.7
million charge, gross margin as a percentage of total sales would have
been 35.5 percent for the first nine months of fiscal 1997 (See Note 5).
For the Company's continuing businesses excluding Fairchild, the gross
margin was 41.2 percent and 39.1 percent for the third quarter and first
nine months of fiscal 1997, compared with 42.3 percent and 45.3 percent
for the comparable periods of fiscal 1996.
Research and Development Research and development ("R&D") expenses
for the third quarter decreased by 3.7 percent from the third quarter of
fiscal 1996 and increased by 3.4 percent year over year for the first
nine months. As a percentage of sales, this represents a decrease to
13.7 percent for the third quarter of fiscal 1997 and an increase to
14.7 percent for the first nine months of fiscal 1997 compared to 16.1
percent and 13.5 percent for the comparable periods of fiscal 1996.
However, R&D expenses for the first nine months of fiscal 1997 include a
$10.6 million charge for in-process R&D related to the acquisition of
PicoPower in the first quarter of fiscal 1997 and R&D expenses for the
third quarter and first nine months of fiscal 1996 include an $11.4
million charge for in-process R&D related to the acquisition of Sitel
Sierra B.V. in the third quarter a year ago. Without the effect of
these one-time charges, R&D expenses for the third quarter and first
nine months of fiscal 1997 actually increased 9.1 percent and 3.9
percent over the comparable periods of fiscal 1996. Overall, the
increase in fiscal 1997 R&D expenses reflects the Company's accelerated
investment in advanced submicron CMOS process technology, as well as its
continued investment in the development of new analog and mixed signal
based products for applications in the personal systems, communications
and consumer markets.
Selling, General and Administrative Selling, general and administrative
("SG&A") expenses for fiscal 1997 decreased 0.5 percent and 15.7 percent
from the third quarter and first nine months of fiscal 1996,
respectively. As a percentage of sales SG&A expenses decreased to 16.4
percent and 16.3 percent of sales for the third quarter and first nine
months from 18.7 percent and 18.4 percent of sales for the comparable
periods of fiscal 1996. The decrease is attributable to certain ongoing
cost reduction actions that were implemented in response to the recent
slowdown in market conditions and the reduction of the Company's
infrastructure in both Fairchild and the continuing National core
business areas. The decrease quarter over quarter was partially offset
by additional compensation bonuses related to the Fairchild divestiture.
Restructuring of Operations In June 1996, the Company announced the
formation of the Fairchild organization to consist of The Company's
family logic, memory and discrete product lines. In connection with
this reorganization, the Company recorded a $275 million one-time charge
that included a restructuring charge of $256.3 consisting of the write
down of Fairchild assets to estimated fair value, costs associated with
staffing reductions and other exit costs necessary to reduce the
Company's infrastructure in both Fairchild and the remaining National
core business areas. The remaining components of the $275 million one-
time charge have been included in cost of sales and consist of $15.1
million to write down certain Fairchild inventory to net realizable
value and $3.6 million for other cost reduction activities.
(Page 12)
Excluding the effect of this $275 million one-time charge and the $10.6
million one-time charge related to the PicoPower acquisition that was
included in R&D expenses, net income for the first nine months would
have been $78.9 million, or $.56 per share.
Interest Income and Interest Expense Net interest income was $2.3
million and $4.6 million for the third quarter and first nine months of
fiscal 1997, respectively, compared to $4.1 million and $9.9 million for
the comparable periods of fiscal 1996. The decrease is due to reduced
interest income on lower cash balances in fiscal 1997 and higher
interest expense associated with the $258.8 million convertible
subordinated notes issued by the Company in September 1995, as well as
other borrowings related to the Company's continued investment in plant
and equipment.
Other Income , Net Other income, net was $4.3 million and $4.6
million for the third quarter and first nine months of fiscal 1997,
respectively, compared to $4.0 million and $20.0 million for the
comparable periods of fiscal 1996. For the third quarter of fiscal
1997, other income, net included a gain of $4.0 million from the sale of
stock of one of the Company's investment holdings and $0.3 million of
net intellectual property income. This compares to $2.5 million of net
intellectual property income plus a realized gain of $1.5 million
primarily arising from the sale of the assets of DynaCraft, Inc.
("DCI"), a wholly owned subsidiary of the Company, for the third quarter
of fiscal 1996. In addition to the $4.0 million gain from the sale of
stock, other income, net for the first nine months of fiscal 1997 also
included $2.0 million of net intellectual property income, $1.6 million
of dividend income from an investment holding offset by a net loss on
investments of $3.0 million primarily attributable to the write down of
an investment to net realizable value. This compares to $13.3 million
of net intellectual property income, $5.2 million of realized gains from
sale of investments, net of losses and the $1.5 million gain from the
sale of DCI assets for the first nine months of fiscal 1996.
Income Tax Expense Consistent with fiscal 1996, the Company's
effective tax rate for fiscal 1997 is 25 percent.
Financial Condition During the first nine months of fiscal 1997,
cash and cash equivalents decreased $58.6 million compared to a $7.9
million increase for the first nine months of fiscal 1996. The decrease
was primarily the result of the Company's continued investment in
property, plant and equipment of $446.6 million that more than offset
the cash flows generated from operations of $329.3 million and proceeds
from the draw down of $50.2 million in November 1996 on a new equipment
loan. This compares to $175.3 million generated from cash flows from
operations plus $253.3 million of net proceeds from the convertible
subordinated notes issued by the Company in September 1995, offset by
capital expenditures of $423.1 million for the first nine months of
fiscal 1996.
Management foresees significant cash outlays for plant and equipment
throughout fiscal 1997. Management continues to critically review its
planned capital investments in light of business conditions, and expects
the fiscal 1997 capital expenditure rate to be at a slightly lower level
than fiscal 1996. Existing cash and investment balances, together with
existing lines of credit, are felt to be sufficient to finance the
fiscal 1997 capital expenditures.
(Page 13)
Outlook The statements contained in this Outlook and in the
Financial Condition section of Management's Discussion and Analysis
immediately above are forward looking based on current expectations and
management's estimates. Actual results may differ materially from those
set forth in such forward looking statements. In addition to the risk
factors discussed in the Outlook and Financial Condition sections of
Management's Discussion and Analysis of Results of Operations and
Financial Condition on pages 18 through 21 of the Company's 1996 Annual
Report to Shareholders, the following factors may affect the Company's
operating results for fiscal 1997.
The Company intends to continue to focus on major customers in the
personal systems, communications and consumer markets with continued
emphasis in analog and mixed signal market opportunities. The Company
expects to grow at or above market rates of growth in particular
segments of analog and mixed signal.
During the current fiscal year the Company has experienced significant
improvement in order rates that began mid-summer. New orders were
strong and remained stable through the third quarter. Going into the
spring season, the semiconductor industry generally experiences a
seasonal upturn in new orders. Although the Company believes that this
trend will be evidenced in its three key markets of personal systems,
communication and consumer, and analog, revenue growth will be dependent
on the momentum in new orders through the end of the fiscal year.
While business conditions and overall market pricing have a major
influence on gross margin, the Company's planned expansion and
modernization of current facilities, improvements in manufacturing
efficiency, focus on analog and mixed signal products and introduction
of new products are expected to result in future gross margin
improvement. Future gross margin improvement is also predicated on
increased new order rates in future periods, particularly in the higher
margin multi-market analog products. In addition, the Company
anticipates bringing new manufacturing capacity on line in early fiscal
1998 with its accelerated investment in its eight-inch wafer fabrication
facility in South Portland, Maine, which will utilize advanced .35
submicron CMOS process technology. The failure of management to balance
the fixed costs associated with the realignment of its wafer fabrication
facilities to fill this new facility with new products going into fiscal
1998 may have an unfavorable impact on future gross margin.
The Company's significant investment in advanced process technology
together with its accelerated investment in its new eight-inch wafer
fabrication facility has caused the Company to evaluate and rationalize
its existing front-end manufacturing and wafer fabrication capability.
This evaluation process may result in decisions to de-emphasize or
eliminate previous investments in certain fabrication processes or
manufacturing technology and may have an unfavorable impact on the
Company's financial performance in future periods. The Company expects
the first phase of this evaluation to be completed in the fourth quarter
of fiscal 1997.
(Page 14)
On March 11, 1997, the Company completed the disposition of Fairchild
under a recapitalization transaction with Sterling, LLC, a Citicorp
Venture Capital, Ltd. portfolio investment company in related
businesses, and Fairchild's management. The recapitalization was valued
at $550 million. In addition to retaining a 15 percent equity interest
in Fairchild for which the Company paid $12.9 million, the Company
received cash of $401 million and a promissory note of $77 million, and
certain liabilities were assumed by Fairchild. The Company expects to
record a gain on the disposition in the fourth quarter of fiscal 1997
after determining final divestiture costs and transition liabilities.
In connection with the Fairchild transaction, Fairchild and the Company
have entered into a manufacturing agreement under which the Company will
purchase goods and services from Fairchild during the first 39 months
after the transaction. Historically, these services provided by
Fairchild have been provided at cost. Under the agreement the Company
has committed to purchase goods and services based on specified wafer
prices. Such prices may have an unfavorable impact on gross margin.
The Company also has certain continuing obligations arising from the
Fairchild transaction that include providing services to Fairchild and
indemnification of environmental and legal matters that may have an
unknown negative impact on the Company's future results of operations.
The Company has received notices of tax assessments from certain
governments of countries within which the Company operates. There can
be no assurance that these governments or other government entities will
not serve future notices of assessments on the Company, or that the
amounts of such assessments and the failure of the Company to favorably
resolve such assessments would not have a material adverse effect on the
Company's financial condition or results of operations.
The forward looking statements discussed or incorporated by reference in
this outlook involve a number of risks and uncertainties. Other risks
and uncertainties include, but are not limited to, the general economy,
regulatory and international economic conditions, changing environment
of the semiconductor industry, competitive products and pricing, growth
in the personal computer and communications industries, the effects of
legal and administrative cases and proceedings, and such other risks and
uncertainties as may be detailed from time to time in the Company's SEC
reports and filings.
(Page 15)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There have been no material developments in the legal proceedings
reported in Item 3 in the Company's Annual Report on Form 10-K for the
year ended May 26, 1996.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
3.1 Second Restated Certificate of Incorporation of the
Company as amended (incorporated by reference from the
Exhibits to the Company's Registration Statement on Form
S-3 Registration No. 33-52775, which became effective
March 22, 1994); Certificate of Amendment of Certificate
of Incorporation dated September 30, 1994 (incorporated by
reference from the Exhibits to the Company's Registration
Statement on Form S-8 Registration No. 333-09957, which
became effective August 12, 1996).
3.2 By-Laws of the Company (incorporated by reference from the
Exhibits to the Company's 10-Q Form for the quarter ended
November 24, 1996, filed December 20, 1996).
4.1 Rights Agreement (incorporated by reference from the
Exhibits to the Company's Registration Form 8-A filed
August 10, 1988). First Amendment to the Rights Agreement
(incorporated by reference from the Exhibits to the
Amendment No. 1 to the Company's Registration Statement on
Form 8-A filed December 11, 1995). Second Amendment to
the Rights Agreement dated as of December 17, 1996
(incorporated by reference from the Exhibits to the
Company's Amendment No. 2 to the Registration Statement on
Form 8-A filed January 17, 1997).
4.2 Form of Common Stock Certificate (incorporated by
reference from the Exhibits to the Company's Registration
Statement on Form S-3 Registration No. 33-48935, which
became effective October 5, 1992).
10.1 Agreement and Plan of Recapitalization between Sterling
Holding Company, LLC and National Semiconductor
Corporation (incorporated by reference from the Exhibits
to the Company's Form 8-K dated March 11, 1997).
10.2 Asset Purchase Agreement between National Semiconductor
Corporation and Fairchild Semiconductor Corporation. *
10.3 Transition Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
10.4 Fairchild Assembly Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
10.5 National Assembly Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
(Page 16)
10.6 Fairchild Foundry Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
10.7 National Foundry Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
10.8 Mil Aero Wafer and Services Agreement between National
Semiconductor Corporation and Fairchild Semiconductor
Corporation. *
10.9 Management Contract or Compensatory Plan or Agreement:
Amendments to Retention Agreement with Kirk P. Pond.
11.0 Additional Fully Diluted Calculation of Earnings Per
Share.
27.0 Financial Data Schedule.
* Exhibits and Schedules to referenced Agreements will
be filed upon request.
(b) Reports on Form 8-K
-------------------
A report on Form 8-K was filed on January 28, 1997
concerning the Company's announcement that it had signed
an agreement to dispose of its family logic, memory and
discrete businesses, known as Fairchild Semiconductor, in
a recapitalization transaction with Sterling, LLC, a
Citicorp Venture Capital Ltd. investment portfolio
company. The Company indicated it expected the
transaction to close before the end of its 1997 fiscal
year and that it expected to record a gain on the
disposition after determining final divestiture costs and
transition liabilities. No financial statements were
filed with the Form 8-K.
(Page 17)
SIGNATURE
- ---------
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.
NATIONAL SEMICONDUCTOR CORPORATION
Date: April 9, 1997 /s/ Richard D. Crowley
----------------------------------
Richard D. Crowley
Vice President and Controller
Signing on behalf of the registrant
and as principal accounting officer
(Page 18)
EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
between
FAIRCHILD SEMICONDUCTOR CORPORATION
as Buyer
and
NATIONAL SEMICONDUCTOR CORPORATION
as Seller
dated
as of March 11, 1997
Table of Contents
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Rule of Construction . . . . . . . . . . . . . . . . . . . 12
ARTICLE II SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . 12
2.1. Purchase and Sale. . . . . . . . . . . . . . . . . . . . . 12
2.2. Excluded Assets. . . . . . . . . . . . . . . . . . . . . . 15
2.3. Assumed Liabilities; Excluded Liabilities. . . . . . . . . 16
2.4. The Closing. . . . . . . . . . . . . . . . . . . . . . . . 19
2.5. Purchase Price . . . . . . . . . . . . . . . . . . . . . . 19
2.6. Consent of Third Parties; Further Assurances . . . . . . . 21
2.7. Shared Contracts . . . . . . . . . . . . . . . . . . . . . 21
2.8. Apportionment at Closing Date; Customer Billing. . . . . . 22
2.9. Warranty Claims. . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . 22
3.1. Organization and Authority . . . . . . . . . . . . . . . . 22
3.2. Authorization; Binding Obligation. . . . . . . . . . . . . 23
3.3. No Violations. . . . . . . . . . . . . . . . . . . . . . . 23
3.4. Financial Statements . . . . . . . . . . . . . . . . . . . 24
3.5. Absence of Changes . . . . . . . . . . . . . . . . . . . . 24
3.6. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.7. Personal Property. . . . . . . . . . . . . . . . . . . . . 25
3.8. Permits, Licenses. . . . . . . . . . . . . . . . . . . . . 25
3.9. Compliance with Laws and Litigation. . . . . . . . . . . . 26
3.10. Employees . . . . . . . . . . . . . . . . . . . . . . 27
3.11. Agreements. . . . . . . . . . . . . . . . . . . . . . 27
3.12. Environmental Matters . . . . . . . . . . . . . . . . 28
3.13. No Undisclosed Liabilities. . . . . . . . . . . . . . 29
3.14. Warranty Claims . . . . . . . . . . . . . . . . . . . 29
3.15. Inventory; Purchased Assets . . . . . . . . . . . . . 30
3.16. Real Estate . . . . . . . . . . . . . . . . . . . . . 30
3.17. Ownership of Subsidiaries . . . . . . . . . . . . . . 33
3.18. Tax Matters . . . . . . . . . . . . . . . . . . . . . 33
3.19. Employee Benefit Plans. . . . . . . . . . . . . . . . 34
3.20. No Implied Representation . . . . . . . . . . . . . . 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . 37
4.1. Organization and Authority . . . . . . . . . . . . . . . . 37
4.2. Authorization; Binding Obligation. . . . . . . . . . . . . 37
4.3. No Violations. . . . . . . . . . . . . . . . . . . . . . . 37
4.4. Inspections; Limitation of Seller's Warranties . . . . . . 38
ARTICLE V CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . 38
5.1. Information. . . . . . . . . . . . . . . . . . . . . . . . 38
5.2. Tax Reporting and Allocation of Consideration. . . . . . . 39
5.3. Operating Agreements . . . . . . . . . . . . . . . . . . . 40
5.4. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 40
5.5. Employee Matters . . . . . . . . . . . . . . . . . . . . . 42
5.6. Covenant Not to Compete; Nonsolicitation . . . . . . . . . 46
5.7. Material Consents. . . . . . . . . . . . . . . . . . . . . 48
5.8. Notice to Customers. . . . . . . . . . . . . . . . . . . . 48
5.9. Confidentiality. . . . . . . . . . . . . . . . . . . . . . 48
5.10. Estoppel Certificates . . . . . . . . . . . . . . . . 49
5.11. Title Policies. . . . . . . . . . . . . . . . . . . . 49
5.12. Survey. . . . . . . . . . . . . . . . . . . . . . . . 49
5.13. Accounts Receivable and Related Claims. . . . . . . . 50
ARTICLE VI CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 50
6.1. Seller's Closing Deliveries. . . . . . . . . . . . . . . . 50
6.2. Buyer's Closing Deliveries . . . . . . . . . . . . . . . . 51
ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 51
7.1. Indemnification By Seller. . . . . . . . . . . . . . . . . 51
7.2. Indemnification by Buyer . . . . . . . . . . . . . . . . . 51
7.3. General Indemnification Procedures . . . . . . . . . . . . 51
ARTICLE VIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 53
8.1. Nonsurvival of Representations . . . . . . . . . . . . . . 53
8.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . 54
8.5. Assignment; Binding Effect; Severability . . . . . . . . . 54
8.6. Governing Law. . . . . . . . . . . . . . . . . . . . . . . 55
8.7. Execution in Counterparts. . . . . . . . . . . . . . . . . 55
8.8. Public Announcement. . . . . . . . . . . . . . . . . . . . 55
8.9. No Third Party Beneficiaries . . . . . . . . . . . . . . . 55
8.10. Headings. . . . . . . . . . . . . . . . . . . . . . . 56
8.11. Further Assurances. . . . . . . . . . . . . . . . . . 56
8.12. Amendment and Waiver. . . . . . . . . . . . . . . . . 56
Schedules
Schedule 1-A Accounts Payable
Schedule 1-B Accrued Expenses
Schedule 1-D Certain Business Products
Schedule 1-E Environmental Liabilities
Schedule 1-F Seller's Knowledge
Schedule 2.1A Principal Premises
Schedule 2.1A-1 Permitted Encumbrances
Schedule 2.1A-2 Remote Locations
Schedule 2.1B Principal Equipment
Schedule 2.1C Motor Vehicles and Other Equipment
Schedule 2.1D Office Equipment
Schedule 2.1E Inventory
Schedule 2.1F Contracts
Schedule 2.1I Governmental Permits
Schedule 2.1O Other Purchased Assets
Schedule 2.2D Excluded Equipment
Schedule 2.2F Excluded Contracts
Schedule 2.2J Work in Process and Die Banks
Schedule 3.3 Violations; Consents
Schedule 3.4 Certain Financial Information
Schedule 3.5 Certain Changes
Schedule 3.6 Title to Assets
Schedule 3.7 Personal Property
Schedule 3.9 Compliance with Laws
Schedule 3.10 Business Employees; Labor Matters
Schedule 3.11 Agreements
Schedule 3.12 Environmental Matters
Schedule 3.13 Disclosed Liabilities
Schedule 3.14 Warranty Claims
Schedule 3.15 Inventory; Purchased Assets
Schedule 3.16 Real Property
Schedule 3.17 Fairchild Subsidiaries
Schedule 3.18 Tax Matters
Schedule 3.19A Benefit Plans
Schedule 3.19I Retiree Benefits
Schedule 3.19J Enhanced Benefits
Schedule 3.19K Foreign Plans
Schedule 3.19K(i) Non-Subsidiary Foreign Plans
Schedule 3.19M Noncompliance
Schedule 5.2 Statement of Allocation
Schedule 5.5A Employee Matters
Schedule 5.5D Buyer's Plans not Established as of Closing Date
Schedule 5.6 Integrated Circuit Products
Exhibits
Exhibit 2.3A Assumption Agreement
Exhibit 2.5B Purchase Price Note
Exhibit 6.1 Bill of Sale
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is dated as of
March 11, 1997 between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware
corporation ("Seller"), and FAIRCHILD SEMICONDUCTOR CORPORATION, a
Delaware corporation ("Buyer").
Background
A. Seller is, among other things, engaged through its Fairchild
Division in the manufacture and sale of the Business Products (as
hereinafter defined) and the furnishing of the Business Services.
B. In connection with a plan of recapitalization which the Board
of Directors of Seller deems advisable and in the best interest of
Seller, the Fairchild Division and the stockholders of Seller, Seller
will transfer certain assets and liabilities of the Fairchild Division
to Buyer, Buyer will accept such assets and assume such liabilities, and
Seller will enter into certain operating agreements with Buyer, on the
terms and conditions set forth herein. Seller and Buyer are
simultaneously entering into a letter agreement regarding certain
actions relating to implementation of the transactions contemplated
hereby.
C. The transactions contemplated hereby are taken with the
consent of Sterling Holding Company LLC to facilitate the transactions
contemplated by the Recap Agreement (as hereinafter defined).
Terms
In consideration of the mutual representations, warranties,
covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. For the purposes of this Agreement, the
following words and phrases shall have the following meanings:
"Accounting Principles" shall have the meaning set forth in
Section 2.5(c).
"Accounts Payable" means all liabilities or obligations that
would be included in the net book value of accounts payable related to
the Purchased Assets that would be set forth on a balance sheet of the
Business as of the Closing Date prepared on a basis consistent with the
Accounting Principles, including those identified on Schedule 1-A.
"Accounts Receivable" shall have the meaning set forth in
Section 2.2(b).
"Accrued Expenses" means all liabilities or obligations in
respect of the Business set forth on Schedule 1-B.
"Affiliate" of a Person means any Person controlling,
controlled by, or under common control with, such Person. For purposes
of this definition, "control" means the power to direct the management
and policies of a Person, whether through the ownership of voting
securities, by agreement or otherwise.
"Agreement" shall have the meaning set forth in the
Introduction.
"Acquired Business" shall have the meaning set forth in
Section 5.6(e).
"Asset Acquisition Statement" shall have the meaning set forth
in Section 5.2.
"Assumed Contracts" means the Contracts assumed by Buyer
pursuant to Section 2.3(a).
"Assumed Liabilities" shall have the meaning set forth in
Section 2.3(a).
"Assumption Agreement" shall have the meaning set forth in
Section 2.3(a).
"Beneficiary" means the person(s) or entity designated by an
employee, by operation of law or otherwise as the party entitled to
compensation, benefits, insurance coverage, payments, indemnification or
any other goods or services as a result of any liability, or claim under
any Benefit Plan, Foreign Plan or under any other employee benefit plan,
program or policy.
"Benefit Plan" shall have the meaning set forth in Section
3.19.
"Best Efforts" is defined to require that the obligated party
make a diligent, reasonable and good faith effort to accomplish the
applicable objective. Such obligation, however, does not require any
significant expenditure of funds or the incurrence of any significant
liability on the part of the obligated party, nor the incurrence of any
expenditure or liability which is unreasonable in light of the related
objective, nor does it require that the obligated party act in a manner
which would otherwise be contrary to prudent business judgment or normal
commercial practices in order to accomplish the objective. The fact
that the objective is not actually accomplished is no indication that
the obligated party did not in fact utilize its Best Efforts in
attempting to accomplish the objective.
"Bill of Sale" shall have the meaning set forth in Section
6.1(b).
"Business" means Seller's Logic, Memory and Discrete Power and
Signal Technologies Business Units as historically conducted and
accounted for (including Flash Memory, but excluding Public Networks,
Programmable Products and Mil Logic Products).
"Business Day" means a day which is not a Saturday, a Sunday
or a statutory or civic holiday in the State of New York or any other
day on which the principal offices of either Seller or Buyer are closed
or become closed prior to 2:00 p.m. local time whether in accordance
with established company policy or as a result of unanticipated events
including adverse weather conditions.
"Business Employees" means all individuals who, as of the
Closing Date, (i) are actively employed by or on Leave of Absence from
the employ of, any Seller Entity and whose duties, as of the Closing
Date (in the case of active employees) or immediately before their leave
began (in the case of employees on Leave of Absence), relate primarily
to the Business; (ii) are on assignment from the Business to Sematech
listed on Schedule 3.10; (iii) are marketing employees who, as of
January 24, 1997, have agreed with Buyer to become employees of Buyer
upon Closing (listed on Schedule 3.10) and such additional marketing
employees who subsequently agree with Buyer to become employees of Buyer
upon Closing; or (iv) are on assignment to the Eight Inch Wafer
Fabrication Facility and listed on Schedule 3.10 (the "Fab Employees").
"Business Financial Statements" shall have the meaning set
forth in Section 3.4.
"Business Products" shall have the meaning set forth in the
Technology Licensing and Transfer Agreement between Buyer and Seller
dated as of the Closing Date, and include those set forth in Schedule 1-
D.
"Business Records" shall have the meaning set forth in Section
2.1(h).
"Business Services" means the furnishing of services related
to the manufacture or sale of Business Products, including without
limitation design services and process technology services.
"Buyer" shall have the meaning set forth in the Introduction.
"Buyer's Plans" shall have the meaning set forth in Section
5.5(b).
"Claim Notice" shall have the meaning set forth in Section
7.3(a).
"Claim Response" shall have the meaning set forth in Section
7.3(a).
"Closing" means the closing of the transactions described in
Article 6.
"Closing Inventory Amount" means the net book value of the
Inventory included in the Purchased Assets on the Closing Date.
"Closing Inventory Schedule" shall have the meaning set forth
in Section 2.5(c).
"Closing Date" means the date of the Closing as determined
pursuant to Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Business" shall have the meaning set forth in
Section 5.6(b).
"Competitive Portion" shall have the meaning set forth in
Section 5.6(e).
"Confidential Offering Memoranda" shall have the meaning set
forth in Section 3.20.
"Contracts" shall have the meaning set forth in Section
2.1(f).
"Damage" means any and all losses, liabilities, damages,
penalties, obligations, awards, fines, deficiencies, interest, claims
(including third party claims, whether or not meritorious), costs and
expenses whatsoever (including reasonable attorneys', accountants' and
environmental consultants' fees and disbursements) resulting from,
arising out of or incident to (x) any matter for which indemnification
is provided under this Agreement, or (y) the enforcement by an
indemnified party of its rights to indemnification under this Agreement;
provided, however, that Damages shall not include consequential or
incidental damages (other than consequential or incidental damages that
are awarded to third parties under matters covered by the foregoing
clauses (x) or (y)) except in the case of a material breach by Seller of
its obligation to provide indemnification pursuant to Article VII hereof
with respect to Environmental Liabilities.
"Defense Notice" shall have the meaning set forth in Section
7.3(c).
"Disputed Items" shall have the meaning assigned in Section
2.5(d).
"Encumbrance" shall mean any encumbrance of any kind
whatsoever and includes any security interest, mortgage, deed of trust,
lien, judgment, tax lien, sewer rent, assessment, mechanics or
materialmen s liens, hypothecation, pledge, assignment, easement,
servitude, right of way, restriction, tenancy, encroachment or burden or
any other right or claim of others affecting the Purchased Assets and
any restrictive covenant or other agreement, restriction or limitation
on the use of the Purchased Assets.
"Environmental Audits" shall have the meaning set forth in
Section 3.12(f).
"Environmental Laws" shall have the meaning set forth in
Section 3.12(a).
"Environmental Liabilities" means, regardless of whether any
of the following are contained in any disclosure schedule to this
Agreement or otherwise disclosed to Buyer prior to the Closing, any and
all losses, claims, demands, liabilities, obligations, causes of action,
damages, costs and expenses, fines or penalties (including without
limitation reasonable attorney fees and other defense costs), known or
unknown, foreseen or unforeseen, whether contingent or otherwise, fixed
or absolute, present or future asserted against or incurred by Buyer
arising out of or related to:
(i) environmental conditions, including without
limitation, the presence, Release, threat of Release or Management of
Hazardous Materials, occurring or existing prior to the Closing Date,
at, on, in, under or from the Principal Premises or any other property
now or previously owned, operated or leased by Seller Entities or any of
their Affiliates or in connection with the operation of the Business;
provided however, that any Environmental Liability for Remediation shall
be only for such Remediation required by any Environmental Law; or
(ii) environmental conditions arising from the pre-
Closing off-site transportation, storage, treatment, recycling or
disposal of Hazardous Materials prior to the Closing Date generated by
or on behalf of Seller Entities or Affiliates or in connection with the
operation of the Business; or
(iii) any violation which occurred prior to the
Closing of any then-applicable Environmental Law (including without
limitation costs and expenses for pollution control or monitoring
equipment required by Environmental Laws to bring the Business into
compliance with Environmental Laws and fines, penalties and reasonable
defense costs incurred for such reasonable time after the Closing to
come into compliance); or
(iv) the items identified on Schedule 1-E.
in each case of clauses (i), (ii) and (iii), except to the extent that
such Environmental Liabilities are exacerbated by Buyer.
"Environmental Permits" shall have the meaning set forth in
Section 3.12(b).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (i) any corporation included with
Seller in a controlled group of corporations within the meaning of
Section 414(b) of the Code; (ii) any trade or business (whether or not
incorporated) which is under common control with Seller within the
meaning of Section 414(c) of the Code; (iii) any member of an affiliated
service group of which Seller is a member within the meaning of Section
414(m) of the Code; or (iv) any other person or entity treated as an
affiliate of Seller under Section 414(o) of the Code.
"Estoppel Certificates" shall have the meaning set forth in
Section 5.10.
"Evaluation Materials" shall have the meaning set forth in
Section 3.20.
"Excluded Assets" shall have the meaning set forth in Section
2.2.
"Excluded Contracts" shall have the meaning set forth in
Section 2.2(f).
"Excluded Equipment" shall have the meaning set forth in
Section 2.2(d).
"Excluded Liabilities" shall have the meaning set forth in
Section 2.3(b).
"Fairchild Subsidiaries" means the companies set forth on
Schedule 3.17.
"Financing" shall have the meaning set forth in the Recap
Agreement.
"Foreign Plan" shall have the meaning set forth in Section
3.19(k).
"GAAP" means United States generally accepted accounting
principles.
"Governmental Authority" means the government of the United
States, Hong Kong, Malaysia, the Philippines or any foreign country or
any state, province, municipality or other political subdivision thereof
or therein, or any court, tribunal, agency, department, board,
instrumentality, authority or commission (including regulatory and
administrative bodies) of any of the foregoing.
"Governmental Permits" shall have the meaning set forth in
Section 2.1(i).
"Hazardous Materials" means any hazardous, toxic or polluting
materials, substances, wastes, pollutants or contaminants (including,
without limitation, petroleum, petroleum products, radioactive
materials, asbestos, or asbestos-containing materials) which are defined
by or regulated under any Environmental Law or any other compound,
mixture, element, solution or substance which poses or may pose a
present or potential hazard to human health or the environment.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"including" or any variation thereof means "including without
limitation" and the term "including" or any variation thereof shall not
be construed to limit any general statement which it follows to the
specific or similar items or matters immediately following it.
"Indemnitee" shall have the meaning set forth in Section
7.3(a).
"Indemnitor" shall have the meaning set forth in Section
7.3(a).
"Independent Accountant" shall have the meaning set forth in
Section 2.5(d).
"Interim Financial Statements" shall have the meaning set
forth in Section 3.4.
"Inventory" shall have the meaning set forth in Section
2.1(e).
"IRS" means the U.S. Internal Revenue Service.
"KEIP" shall have the meaning set forth in Section 5.5(f).
"knowledge" when used with respect to Seller, means the actual
knowledge of the individuals whose names are set forth on Schedule 1-F,
after reasonable investigation.
"Leased Real Estate" shall have the meaning set forth in
Section 3.16(b)(i).
"Leases" shall have the meaning set forth in Section
3.16(b)(i).
"Leave of Absence" means an approved absence from employment
that is classified as sick time, personal leave, family leave,
industrial leave or Medical Leave.
"Manage" or "Management", when used with respect to Hazardous
Materials, has the meaning set forth in Section 3.12(c).
"Material Adverse Effect" means any change or effect (or
series of related changes or effects) which has or is reasonably likely
to have a material adverse change in or effect upon the business,
financial condition or results of operations of the Business taken as a
whole.
"Material Instruments" shall mean the Contracts described on
Schedule 2.1F, the licenses, agreements and other arrangements, if any,
transferred to Buyer pursuant to the Technology Transfer and License
Agreement and the Governmental Permits described on Schedule 2.1I.
"Material Real Estate Impairment" shall mean (1) a material
adverse effect upon the value of any one or more of the individual
Principal Premises so affected or (2) material impairment of the use of,
or the conduct of the Business at, any one or more of the individual
Principal Premises so affected.
"Medical Leave" means an absence from employment that is
classified as short-term disability, long-term disability or permanent
medical leave.
"Non-Assignable Assets" shall have the meaning set forth in
Section 2.6(a).
"Non-Assignable Patent Licenses" means licenses of patents in
third parties to which Seller is the licensee and which are not by their
terms assignable to Buyer.
"Non-Subsidiary Foreign Plan" shall have the meaning set forth
in Section 3.19(k).
"Operating Agreements" means the agreements to be entered into
between Buyer and Seller described in Section 5.3.
"Other Current Liabilities" means liabilities of the character
that would be reflected as "other current liabilities" on a balance
sheet prepared on a basis consistent with the Accounting Principles.
"Overlapping Fiscal Year" shall have the meaning set forth in
Section 5.5(f).
"Owned Real Estate" shall have the meaning set forth in
Section 3.16(a)(i).
"Pension Plan" shall have the meaning set forth in Section
3.19(e).
"Permitted Encumbrances" means (i) the Encumbrances and
exceptions set forth in Schedule 2.1A-1; and (ii) imperfections in title
not material in extent or amount and which, individually or in the
aggregate, do not materially interfere with the conduct of the Business
or with the use of the Purchased Assets and do not materially affect the
value of the Purchased Assets, taken collectively.
"Permitted Fee Title Exceptions" shall have the meaning set
forth in Section 3.16(a)(ii).
"Permitted Leasehold Exceptions" shall have the meaning set
forth in Section 3.16(b)(ii).
"Person" means and includes any individual, corporation,
partnership, firm, association, joint venture, joint stock company,
trust or other entity, or any government or regulatory administrative or
political subdivision or agency, department or instrumentality thereof.
"Portland Facility" shall have the meaning set forth in
Section 3.8(b).
"Principal Equipment" means all of the machinery and
equipment, fixtures, improvements, tooling, supplies, tools, dies and
similar capital items which are owned or leased by any Seller Entity and
are located at the Principal Premises, Remote Locations or elsewhere and
which are primarily used or held for use in the conduct of the Business,
or which are in transit to or temporarily removed from a location
specified above and which would otherwise be included among the items
described above. Principal Equipment shall include, without limitation,
those specified items of machinery and equipment which are identified on
Schedule 2.1B but shall not include the Excluded Equipment.
"Principal Premises" means the Owned Real Estate and all of
the rights, titles, interests and estates of the Seller Entities (and of
each of them) in and to the Leased Real Estate.
"Proprietary Information" means inventions, discoveries,
patentable subject matter, patents, patent applications, industrial
models, industrial designs, trade secrets, trade secret rights,
software, works, copyrightable subject matter, copyright rights and
registrations, know-how and show-how, whether or not protectible by
patent, copyright or trade secret, trademarks, trade names, service
marks, emblems, logos, insignia and related marks and registrations,
specifications, technical manuals and data, blueprints, drawings,
proprietary processes, product information and development work-in-
process.
"Purchase Price" means the payment to be made in consideration
for the Purchased Assets as provided in Section 2.5.
"Purchase Price Note" shall have the meaning set forth in
Section 2.5(b).
"Purchased Assets" shall have the meaning set forth in Section
2.1.
"RCRA" shall have the meaning set forth in Section 3.12(c).
"Recap Agreement" means the Agreement and Plan of
Recapitalization dated January 24, 1997 between Seller and Sterling
Holding Company LLC.
"Recap Closing" means the closing of the transactions under
the Recap Agreement.
"Recap Closing Date" means the date of the Recap Closing.
"Reference Amount" shall have the meaning set forth in Section
2.5(a).
"Release" shall have the meaning set forth in Section 3.12(e).
"Remediation" means investigation, cleanup, remedial action or
other response action.
"Remote Locations" means the facilities for Inventory stocking
and/or manufacturing support listed on Schedule 2.1A-2.
"Resolution Period" shall have the meaning set forth in
Section 2.5(d).
"Response Period" shall have the meaning set forth in Section
7.3(a).
"Returns" means all returns, declarations, reports, statements
and other documents required under a Tax Law to be filed with a
Governmental Authority in respect of Taxes, and includes any Forms W-2,
1099 or similar documents required under any Tax Law to be provided to a
person other than a Governmental Authority (and "Return" means any one
of the foregoing Returns).
"Seller" shall have the meaning set forth in the Introduction.
"Seller Entities" means Seller and all Affiliates of Seller
having an interest in any Purchased Asset, including the Fairchild
Subsidiaries.
"Shared Contract" shall have the meaning set forth in Section
2.7.
"Specified Liabilities" means the sum of Accounts Payable,
Accrued Expenses and Other Current Liabilities.
"Statement of Allocation" shall have the meaning set forth in
Section 5.2.
"Straddle Period Taxes" shall have the meaning set forth in
Section 5.4(e).
"subsidiary" means as to any Person, a corporation or other
entity of which shares of stock or other equity ownership interests
having ordinary voting power to elect a majority of the board of
directors or other managers of such corporation or other entity are at
the time owned, directly or indirectly, through one or more
intermediaries, or both, by such Person.
"Surveyor" shall have the meaning set forth in Section 5.12.
"Surveys" shall have the meaning set forth in Section 5.12.
"Taxes" means all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, add on or alternative
minimum tax, occupancy, withholding, payroll, employment, excise,
severance, stamp, value added, occupation, premium, property (including,
without limitation, real property taxes and any assessments, special or
otherwise), windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect
thereto (and "Tax" means any one of the foregoing Taxes).
"Tax Law" means a statute, regulation or administrative rule
or judicial opinion enacted, issued or promulgated for the
determination, imposition, assessment or collection of any Tax.
"Title Company" shall have the meaning set forth in Section
5.11.
"Title Policies" shall have the meaning set forth in Section
5.11.
"Transferred Employee" shall have the meaning set forth in
Section 5.5(a).
"Transition Services Agreement" means the Transition Services
Agreement of even date herewith between Seller and Buyer.
"Voluntary Participation" shall have the meaning set forth in
Section 7.3(c).
1.2. Rule of Construction. No inaccuracies in a representation or
warranty as a result of any inaccuracy in any Schedule to this Agreement
shall be deemed to constitute a breach of such representation or
warranty which makes reference to such Schedule unless the aggregate
effect of all such inaccuracies in all such Schedules is material to the
Business in the context of the transactions contemplated by the Recap
Agreement (including the Financing).
ARTICLE II
SALE OF ASSETS
2.1. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date Seller shall, and
shall cause the other Seller Entities to, sell, transfer, assign, convey
and deliver to Buyer, and Buyer shall purchase from the Seller Entities,
all of the Purchased Assets which include the Business as a going
concern and the goodwill related thereto, as the same shall exist on the
Closing Date; it being understood that such of the Purchased Assets as
shall be held by the Fairchild Subsidiaries shall not be transferred
directly to Buyer but shall be transferred to Buyer through the transfer
of ownership of the Fairchild Subsidiaries to Buyer. For purposes of
this Agreement, "Purchased Assets" shall mean all of the assets,
properties and rights which are primarily used in the conduct of the
Business (except in each case for the Excluded Assets), wherever such
assets, properties and rights are located and whether such assets are
real, personal or mixed, tangible or intangible, matured or unmatured,
known or unknown, contingent or fixed, and whether or not any of such
assets have any value for accounting purposes or are carried or
reflected on or specifically referred to in Seller's books or financial
statements including:
(a) the Principal Premises;
(b) all of the Principal Equipment and any rights to the
warranties and licenses received from the manufacturers and distributors
of the Principal Equipment and to any related claims, credits, rights of
recovery and set-off with respect to such items, subject, as applicable,
to the rights set forth in Section 2.1(f);
(c) all of the motor vehicles, whether or not licensed or
registered to operate on public highways, including automobiles, trucks,
self-propelled carts, and other motorized lifting, material handling or
transporting equipment and all spare parts, fuel and other supplies,
tools and other items used in the operation or maintenance thereof which
are owned or leased by a Seller Entity and located at the Principal
Premises, Remote Locations or elsewhere and which are primarily used or
held for use in the conduct of the Business, or which are in transit to
or temporarily removed from a location specified above and which would
otherwise be included among the items described above, and any rights to
the warranties received from suppliers or manufacturers of such items
described above, and any related claims, credits, rights of recovery and
set-off with respect thereto, including without limitation all such
vehicles, spare parts, fuel and other supplies, tools and other items
and other rights set forth on Schedule 2.1C;
(d) all of the furniture and office equipment, including
desks, tables, chairs, file cabinets and other storage devices,
communications equipment, computers and office supplies, including those
identified on Schedule 2.1D, which are owned or leased by a Seller
Entity and located at the Principal Premises, Remote Locations or
elsewhere and which are primarily used or held for use in the conduct of
the Business, or which are in transit to or temporarily removed from a
location specified above and which would otherwise be included among the
items identified above;
(e) all inventory, wherever located (including inventory in
transit), including, without limitation, all the raw materials, work in
process, recycled materials, finished products, supplies, and spare
parts located at the Principal Premises, the Remote Locations, or
elsewhere and primarily used or held for use in the conduct of the
Business, including items of the type and nature of the materials
identified as inventory in the Business Financial Statements, a summary
of which and the principal locations of which are set forth in Schedule
2.1E (the "Inventory") and any rights to the warranties received from
suppliers and any related claims, credits, rights of recovery and set-
off with respect to such Inventory;
(f) subject to Section 2.7 and subject to the terms of the
Transition Services Agreement dated as of the Closing Date between
Seller and Buyer, all of the rights and obligations under the contracts,
contractual rights, agreements, leases, purchase orders, warranty
rights, sales orders and instruments which primarily relate to the
Business, including those identified on Schedule 2.1F, and including
those (i) for the lease (from Persons other than Seller or any Affiliate
of Seller) of machinery and equipment, real property, motor vehicles, or
furniture and office equipment or other property primarily used or held
for use in the conduct of the Business, (ii) for the provision (by
Persons other than Seller or any Affiliate of Seller) of goods or
services primarily used or held for use in the conduct of the Business,
(iii) for the sale of goods or performance of services by the Business,
(iv) which restrain or restrict any Person from directly or indirectly
competing with the Business or from disclosing confidential or
Proprietary Information relating primarily to the Business, and (v) any
such contracts, agreements, instruments and leases entered into by
Seller or any Affiliate of Seller between the date hereof and the
Closing Date which relate primarily to the Business that are consistent
with the terms of this Agreement (collectively, the "Contracts");
(g) all mailing lists, customer lists, supplier lists, sales
and marketing or packaging materials, equipment maintenance records,
warranty information, records of plant operations and the source and
disposition of materials used and produced therein, manuals of
operation, and other similar proprietary or confidential information of
the Seller Entities primarily used or held for use in the conduct of the
Business, and with respect to the Principal Premises, all building
plans, blueprints, renderings or surveys provided, that the items set
forth in this subsection (g) shall not include any information that does
not primarily relate to the Business and Seller shall be entitled to
remove or redact any such information from such items and provided,
further, that Seller shall have the right to retain copies of the items
set forth in this subsection (g);
(h) all books and records of the Seller Entities relating to
the Business including, without limitation, all discs, tapes and other
media storing data and other information and the software and
information management systems primarily used or held for use in the
conduct of the Business, including any documentation and manuals related
thereto (the materials described in subsections (g) and (h) of this
Section 2.1 hereinafter being referred to as "Business Records");
provided, that Business Records shall not include any information that
does not primarily relate to the Business and Seller shall be entitled
to remove or redact any such information from the Business Records and
provided, further, Seller shall be entitled to retain copies of such
Business Records;
(i) all of the governmental permits, licenses, certificates
of inspection, certificates of occupancy, building permits, variances
and other licenses or permits (including Environmental Permits) relating
to the use or occupancy of the Principal Premises, approvals or other
authorizations issued with respect to the Business and which are used
in, or otherwise necessary or material to, the operation of the
Business, the use of the Principal Premises, or the conduct of the
Business at the Principal Premises by Buyer, or which are otherwise
required by law to be transferred to Buyer (the "Governmental Permits")
including those Governmental Permits which are described and identified
in Schedules 2.1I and 3.12 (other than those Governmental Permits for
which transfer is not permitted by law or the issuing authority);
(j) all intellectual property rights granted to Buyer
pursuant to the Technology Licensing and Transfer Agreement dated as of
the Closing Date between Buyer and Seller;
(k) all rights of the Seller Entities to any insurance
proceeds relating to the damage, destruction or impairment of assets or
other rights described in this Section 2.1 which would have been
Purchased Assets but for such damage, destruction or impairment prior to
the Closing;
(l) all of the rights, claims or causes of action of the
Seller Entities against third Persons to the extent they relate to the
Purchased Assets or the Assumed Liabilities;
(m) all of the capital stock of the Fairchild Subsidiaries;
(n) all assets (other than Excluded Assets) reflected in the
May 26, 1996 balance sheet which is included in the Business Financial
Statements, together with all replacements thereof, all expansions,
enhancements and modifications thereto and all assets (other than
Excluded Assets) of like character that have been or are acquired by the
Seller Entities subsequent to such balance sheet date and on or prior to
the Closing Date, primarily for use in the Business, except to the
extent such assets have been disposed of on or after such date; and
(o) all the items, if any, listed on Schedule 2.1O.
The term "Purchased Assets" when used herein with respect to
any date prior to the Closing Date, shall be deemed to refer to the
properties and assets of the Seller Entities that would constitute the
"Purchased Assets" hereunder if the Closing were to take place on such
date.
2.2. Excluded Assets. It is hereby expressly acknowledged and
agreed that the Purchased Assets shall not include, and the Seller
Entities are not selling, transferring or assigning to Buyer, and Buyer
is not purchasing or acquiring from the Seller Entities, all properties
and assets of the Seller Entities that are not included in the Purchased
Assets pursuant to Section 2.1 or that are excluded by this Section 2.2
(such properties and assets collectively the "Excluded Assets"),
including:
(a) any of the Seller Entities cash, bank deposits or
similar cash items existing as of the close of business on the Closing
Date;
(b) all of the accounts, notes and finance receivables
generated by the Business and existing as of the close of business on
the Closing Date, including, without limitation, all funds, refunds,
receivables, credits, offsets, or reimbursements, claims, debts,
obligations and such other rights, together with all accrued interest
thereon, existing as of the close of business on the Closing Date to the
extent and in the amounts that such items would be reflected as accounts
or notes receivable (or as any other asset related thereto) on a balance
sheet of the Business as of the Closing Date prepared in accordance with
the Accounting Principles (the "Accounts Receivable");
(c) any claim, right or interest of the Seller Entities in
and to any refund for Taxes for any periods prior to the Closing Date;
(d) any of the equipment located at the Principal Premises
and listed on Schedule 2.2D (the "Excluded Equipment");
(e) all assets attributable or related to any Benefit Plan
except as provided in Section 5.5;
(f) all of the Contracts set forth on Schedule 2.2F (the
"Excluded Contracts") and all Shared Contracts;
(g) all of the rights, claims or causes of action of the
Seller Entities against third Persons to the extent they do not relate
to the Business or they relate to the Excluded Assets or the Excluded
Liabilities;
(h) all intellectual property of Seller except as described
in Section 2.1(j);
(i) the shares of stock of Wafer Scale Integration Inc. owned
or held by Seller;
(j) the work in process (including die banks) at the
locations set forth on Schedule 2.2J to be delivered to Seller under the
Operating Agreements; and
(k) the capital stock of any Seller Entity other than the
Fairchild Subsidiaries.
2.3. Assumed Liabilities; Excluded Liabilities.
(a) On the Closing Date, Buyer shall execute and deliver to
Seller an assumption agreement in the form set forth in Exhibit 2.3A
(the "Assumption Agreement") pursuant to which Buyer shall assume and
agree to pay, perform or otherwise discharge, in accordance with their
respective terms and subject to the respective conditions thereof and
subject to the provisions of Sections 2.3(b), 2.6 and 2.9, all of the
Assumed Liabilities. As used herein, "Assumed Liabilities" means any
and all liabilities of the Seller Entities in respect of the Business of
any nature, whether direct or indirect, known or unknown, or absolute or
contingent, to the extent arising out of or relating to the conduct of
the Business or the ownership and operation of the Purchased Assets,
including, without limitation, the obligations and liabilities set forth
under the heading "Assumed by FSC" on Schedule 1-A and 1-B, but
excluding the Excluded Liabilities.
(b) Buyer shall not assume or be obligated to pay, perform or
otherwise discharge any of the following obligations or liabilities of
Seller or any of its Affiliates, whether or not related to the Business
and whether direct or indirect, known or unknown, or absolute or
contingent (all of such obligations and liabilities not so assumed being
herein called the "Excluded Liabilities"):
(i) any obligations or liabilities of any Seller Entity
or any of its Affiliates (including, without limitation, any
Environmental Liability) incurred by any Seller Entity or any of its
Affiliates in connection with the conduct of their businesses other than
the Business, including those associated with any "shelf" companies
acquired by any Seller Entity in connection with the transactions
contemplated hereby;
(ii) any obligations of any Seller Entity or any of its
Affiliates (other than obligations of Buyer under this Agreement, the
Operating Agreements and the Shareholders Agreement (as defined in the
Recap Agreement)) arising under this Agreement, the Recap Agreement, the
Operating Agreements or the Shareholders Agreement (as defined in the
Recap Agreement);
(iii) any intercompany payables and liabilities or obligations
of any Seller Entity to any of its Affiliates;
(iv) any liabilities or obligations to the extent related
to Excluded Assets;
(v) any Taxes of a Fairchild Subsidiary with respect to
any taxable period that ends on or prior to the Closing Date except to
the extent such Taxes result from (A) actions taken by Buyer after
Closing unless Buyer is required to take such actions under an
applicable Tax Law or under this Agreement or (B) Buyer's failure to
take actions required to be taken by Buyer under an applicable Tax Law
or under this Agreement; any Taxes of a Fairchild Subsidiary with
respect to any period that begins before and ends after the Closing Date
to the extent such Taxes are allocable to the portion of the period up
to the day before the Closing Date;
(vi) all of the Seller Entities' liabilities for Taxes
that have been or may be incurred as a result of the Seller Entities
operation of the Business or ownership of the Purchased Assets before
the Closing Date;
(vii) any liability allocated to Seller Entities for
Taxes incident to or arising from the consummation of the transactions
contemplated under this Agreement as set forth in Section 8.3;
(viii) any liability for any Taxes of the Seller
Entities or of any consolidated, combined or unitary group of which a
Seller Entity is or was a member with respect to periods ending on or
prior to the Closing Date or beginning prior to and ending after the
Closing Date, including (but not limited to) any liability pursuant to
Treasury Regulation Section 1.1502-6 or any analogous state, local or
foreign tax provisions except to the extent such Taxes result from (A)
actions taken by Buyer after Closing unless Buyer is required to take
such actions under an applicable Tax Law or under this Agreement or (B)
Buyer's failure to take actions required to be taken by Buyer under an
applicable Tax Law or under this Agreement;
(ix) any liability for Taxes of another Person (other
than a Fairchild Subsidiary and other than with respect to withholdings
related to payments to another Person after the Closing) resulting from
an agreement entered into by any Seller Entity or by any Fairchild
Subsidiary prior to the Closing Date, pursuant to which any Seller
Entity or any Fairchild Subsidiary has an obligation in respect of the
Taxes of such other Person;
(x) all of the Specified Liabilities (other than the
liabilities and obligations set forth under the heading "Amts to be
Assumed by FSC" on Schedule 1-B designated on such schedule to be
assumed by Buyer), whether direct or allocated, existing as of the close
of business on the Closing Date;
(xi) all liabilities in respect of customer returns and
allowances, including, without limitation, "ship from stock and debit"
liabilities, in respect of Business Products shipped prior to Closing to
OEM customers;
(xii) any liability allocated to Seller pursuant to
Section 5.5;
(xiii) any liability or obligation of any Seller
Entity or any of its Affiliates for indemnification of, or advancement
of expenses or payment of insurance proceeds to, any present or former
director or officer of (or other person serving in a fiduciary capacity
at the request of) any Seller Entity or any of its Affiliates based upon
an actual or alleged breach of fiduciary duty of such person prior to
the Closing;
(xiv) any Environmental Liabilities;
(xv) all liabilities and obligations arising out of,
resulting from or relating to claims, whether founded upon negligence,
strict liability in tort or other similar legal theory (but not breach
of warranty), seeking compensation or recovery for or relating to injury
to person or damage to property arising out of the conduct of the
Business before Closing;
(xvi) any liability or obligation arising out of or
relating to any business or product line formerly owned or operated by
any Seller Entity or any predecessor thereof but not presently so owned
or operated;
(xvii) any liability or obligation arising out of, or
related to, any indemnification or other provision under any contract or
other agreement pursuant to which any sale or disposition was made of
any business or product line formerly owned or operated by any Seller
Entity or any predecessor thereof but not presently so owned or
operated;
(xviii) any liability or obligation of any Seller
Entity (other than the Fairchild Subsidiaries) or any of its Affiliates
(other than the Fairchild Subsidiaries) arising out of matters
occurring, or obligations incurred, after the Closing;
(xix) any liabilities or obligations of any Seller
Entity (other than the Fairchild Subsidiaries) for any professional,
financial advisory or consulting fees and expenses incident to or
arising out of the negotiation, preparation, approval or authorization
of this Agreement, the Recap Agreement, the Operating Agreements and the
transactions contemplated hereby or thereby, or any other proposed
transaction for the direct or indirect sale of the Business or any
portion thereof, including without limitation, the fees, expenses and
disbursements of Seller's counsel and accountants (including accountants
fees, expenses and disbursements in connection with the preparation of
the Business Financial Statements but excluding those to the extent
related to the Financing (as defined in the Recap Agreement)) and any
liability or obligation to Deutsche Morgan Grenfell or to BA Partners;
(xx) the liabilities and obligations of Seller pursuant
to Section 2.6(c) and any liability or obligation of any Seller Entity
or any of its Affiliates arising out of any Shared Contract;
(xxi) any liability or obligation of any Seller
Entity or any of its Affiliates to the extent the amount of such
liability or obligation is covered by a policy of insurance or other
indemnity agreement maintained by or for the benefit of any Seller
Entity or any of its Affiliates, unless the rights under such policy of
insurance or indemnity agreement have been assigned to Buyer;
(xxii) any liability or obligation of any Seller
Entity or any of its Affiliates for funded debt and indebtedness for
borrowed money, including obligations evidenced by notes, bonds,
debentures or similar instruments, and including any guaranties of any
of the foregoing provided, however, that funded debt and indebtedness
for borrowed money shall not include any lease or deferred payment
obligations for property or services;
(xxiii) any liability or obligation to which Buyer, any
Purchased Assets or the Business becomes subject that would not
otherwise constitute an Assumed Liability arising as a result of failure
to comply with bulk sales laws or any similar law;
(xxiv) any liability or obligation for which Seller
has agreed to indemnify Buyer under the Technology Licensing and
Transfer Agreement of even date herewith between Buyer and Seller;
(xxv) any liability or obligation under the heading
"Total Amount Retained by NSC" on Schedule 1-B; and
(xxvi) any liability or obligation designated as an
Excluded Liability on any Schedule to this Agreement.
2.4. The Closing. The Closing shall take place at the office of
Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York on the
Recap Closing Date (such date and time being herein called the "Closing
Date"). The effective time of the transactions contemplated hereby
shall be deemed to be the opening of business on the Closing Date.
2.5. Purchase Price. (a) The purchase price (the "Purchase
Price") for the Purchased Assets and the other agreements of Seller
stated herein shall be $549.8 million (subject to the adjustments set
forth in paragraphs (B), (C) and (D) on Schedule 1 of the Recap
Agreement) payable as provided in Section 2.5(b) plus Buyer's assumption
of the Assumed Liabilities. The Purchase Price shall be subject to a
dollar-for-dollar adjustment to the extent the Closing Inventory Amount
is greater or less than $67,342,000 (the "Reference Amount").
(b) The Purchase Price shall be paid as follows: At the
Closing Buyer will deliver to Seller Buyer's demand note (and demand
notes of Fairchild Subsidiaries) in the aggregate principal amount of
$400,960,000 (the "Purchase Price Note") in the form attached hereto as
Exhibit 2.5B and a certificate representing 100 shares of Buyer's Common
Stock, par value $.01 per share.
(c) Within sixty (60) days after the Closing Date, Seller
will deliver to Buyer a schedule (the "Closing Inventory Schedule")
setting forth the Closing Inventory Amount. The Closing Inventory
Schedule shall be prepared in accordance with GAAP applied on a basis
consistent in all respects with the accounting principles, policies and
methodologies reflected in the May 26, 1996 statement of net assets
included in the Business Financial Statements (the "Accounting
Principles").
(d) If, within forty-five (45) days after the delivery of the
Closing Inventory Schedule, Buyer determines in good faith that the
Closing Inventory Schedule has not been prepared in accordance with the
Accounting Principles or otherwise disputes any item on the Closing
Inventory Schedule, Buyer shall deliver to Seller within such period
written notice specifying in reasonable detail all disputed items and
the basis therefor (collectively, the "Disputed Items"). The failure by
Buyer to provide such notice of Disputed Items to Seller within such
period will constitute Buyer's acceptance of the Closing Inventory
Schedule. Buyer and Seller shall, within ten (10) days following the
delivery of such notice of Disputed Items to Seller (the "Resolution
Period"), negotiate in good faith to resolve such Disputed Items to
their mutual satisfaction. At the conclusion of the Resolution Period,
Seller and Buyer shall refer all unresolved Disputed Items to Coopers &
Lybrand, or any other "big six" independent accounting firm (which has
not previously been engaged by either Seller or Buyer for the
preparation of such party's audited financial statements) as Seller and
Buyer shall mutually agree upon (the "Independent Accountant"). The
Independent Accountant shall make a determination with respect to each
Disputed Item within fifteen (15) days after its engagement by Seller
and Buyer to resolve such Disputed Items, which determination shall be
made on the basis of whether the Closing Inventory Schedule has been
prepared in accordance with the Accounting Principles. All
determinations by the Independent Accountant shall be final, binding and
conclusive on the parties hereto. Buyer and Seller shall each pay one-
half of all of the costs incurred in connection with the engagement of
the Independent Accountant.
(e) If the Closing Inventory Amount (as determined by the
Closing Inventory Schedule and adjusted by the resolution of the
Disputed Items, if any) (i) exceeds the Reference Amount, Buyer shall,
within ten (10) days after a final determination of the Closing
Inventory Amount, pay to Seller by wire transfer of immediately
available funds an amount equal to such excess, together with interest
on such amount from the Closing Date to the date of such payment at a
rate of ten percent (10%) per annum, or (ii) is less than the Reference
Amount, Seller shall, within ten (10) days after a final determination
of the Closing Inventory Amount, pay to Buyer by wire transfer of
immediately available funds an amount equal to such deficiency, together
with interest on such amount from the Closing Date to the date of such
payment at a rate of ten percent (10%) per annum. Any such adjustment
shall be made notwithstanding the fact that the Purchase Price Note may
have been repaid.
2.6. Consent of Third Parties; Further Assurances.
(a) From time to time following the Closing, Seller shall
execute and deliver, or cause to be executed and delivered, to Buyer
such additional instruments of conveyance and transfer as Buyer may
reasonably request or as may be otherwise reasonably necessary to more
effectively convey or transfer to, and vest in, Buyer and put Buyer in
possession of, any part of the Purchased Assets. Nothing in this
Agreement shall be construed as an attempt or agreement to assign any
asset, contract, lease, permit, license or other right which would
otherwise be included in the Purchased Assets but which is by its terms
or by law nonassignable without the consent of the other party or
parties thereto or any Governmental Authority unless such consent shall
have been given, or as to which all the remedies for the enforcement
thereof enjoyed by Seller, any other Seller Entity or the Business would
not, as a matter of law, pass to Buyer as an incident of the assignments
provided for by this Agreement (the "Non-Assignable Assets"). Seller
agrees to use its Best Efforts to obtain such consent promptly. At such
time as any Non-Assignable Assets is properly assigned to Buyer, such
Non-Assignable Asset shall become a Purchased Asset. Following the
Closing and until such time as such Non-Assignable Assets may be
properly assigned to Buyer, such Non- Assignable Assets shall be held by
Seller in trust for Buyer and the covenants and obligations thereunder
shall be performed by Buyer in the name of Seller and all benefits and
obligations existing thereunder shall be for the account of Buyer.
During such period, Seller shall take or cause to be taken such action
in its name or otherwise as Buyer may reasonably request, at Buyer's
expense, so as to provide Buyer with the benefits of the Non-Assignable
Assets and to effect collection of money or other consideration to
become due and payable under the Non-Assignable Assets and Seller shall
promptly pay over to Buyer all money or other consideration received by
it (or its Affiliates) in respect of all Non-Assignable Assets.
Following the Closing, Seller authorizes Buyer, to the extent permitted
by applicable law and the terms of the Non-Assignable Assets, at Buyer's
expense, to perform all of the obligations and receive all of the
benefits under the Non-Assignable Assets and appoints Buyer its
attorney-in-fact to act in its name on its behalf (and on behalf of its
Affiliates) with respect thereto.
(b) Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not constitute an agreement by Seller to
assign or delegate, or by Buyer to assume and agree to pay, perform or
otherwise discharge, any Non-Assignable Asset if an attempted
assignment, delegation or assumption thereof without the consent of a
third Person (including, without limitation, any Governmental Authority)
thereto would constitute a breach thereof unless and until such consent
is obtained.
(c) Except as set forth in Section 2.6(a), Section 2.7 or as
provided in the Transition Services Agreement, to the extent reasonably
practicable, the Seller Entities shall perform all obligations and be
entitled to all the benefits under the Non-Assignable Assets; provided,
however, that Seller shall be liable for the failure to perform any such
obligation.
2.7. Shared Contracts. Subject to the terms of the Transition
Services Agreement, to the extent any of the Contracts relates both to
the Business and to other businesses of the Seller Entities ("Shared
Contracts") such Shared Contracts shall not be assigned to Buyer. At
Buyer's request, with respect to any Shared Contract, the Seller
Entities shall use Best Efforts to obtain the agreement of the other
party or parties to any Shared Contract to enter into a separate
agreement with Buyer with respect to the matters covered by such Shared
Contract that relate to the Business. Buyer shall be responsible for
fulfilling the obligations under the Shared Contracts related to or
arising from benefits received by Buyer pursuant to the Shared Contracts
as contemplated by the Transition Services Agreement.
2.8. Apportionment at Closing Date; Customer Billing.
(a) At the Closing, the parties shall make without
duplication customary closing adjustments with respect to the conveyance
of the Principal Premises as of the Closing Date and the usual
adjustments relating to the Business as of the Closing Date, including
prepaid lease payments, security deposits, rents, real estate taxes,
local improvements charges, assessments (special and ordinary), sewer
impost charges, utility charges, water rents, monthly maintenance
charges, rebates and royalties, deposits and prepaid expenses with any
public utility or any municipal, governmental or other public authority,
wages and any other ongoing charges, and all such payments, taxes and
charges shall be apportioned and adjusted as of the Closing Date, and at
the Closing the net amount thereof shall be pro rata paid by Seller to
Buyer or paid by Buyer to Seller, as the case may be. Any such
apportionments and adjustments shall be subject to correction for any
errors or omissions that subsequently may be discovered provided that
the party discovering such error or omission provides written notice of
same to the other party. Such other party shall, within 15 days after
receipt of such notice, reimburse the party delivering such notice for
the full amount of such error or omission.
(b) In the event that Seller or any of its Affiliates
receives payment after the Closing Date on invoices issued by Buyer
relating to product sold or services rendered on or after the Closing
Date, Seller will promptly notify Buyer of such receipt and will
promptly remit, or will cause such Affiliate to promptly remit, such
payment to Buyer. In the event that Buyer or any Affiliate of Buyer
receives payment after the Closing Date on invoices issued by Seller
relating to product sold or services rendered prior to the Closing Date
that have given rise to accounts receivable that are included in the
Excluded Assets, Buyer will promptly notify Seller of such receipt and
will promptly remit, or will cause such Affiliate to promptly remit,
such payment to Seller.
2.9. Warranty Claims. Except as provided in Section 2.3 and this
Section 2.9, all of the obligations and liabilities of the Seller
Entities with respect to any Business Products transferred to Buyer as
part of the Purchased Assets which are shipped or provided by Buyer on
or after the Closing shall be for the account of, and exclusively the
obligation of Buyer. Buyer shall assume the obligation to satisfy all
warranty claims or liabilities with respect to any products or services
shipped or provided by Seller prior to the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1. Organization and Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power and corporate authority
to execute and deliver this Agreement and the Operating Agreements and
effect the transactions contemplated hereby and thereby and has duly
authorized the execution, delivery and performance of this Agreement and
the Operating Agreements by all necessary corporate action. Seller has
all corporate power and corporate authority necessary to carry on the
Business as now conducted and to own or lease and operate its properties
as and in the places where such Business is now conducted and such
properties are now owned, leased or operated.
3.2. Authorization; Binding Obligation. This Agreement and the
Operating Agreements have been duly executed and delivered by Seller,
and this Agreement and the Operating Agreements are the valid and
legally binding obligations of Seller, enforceable against it in
accordance with their terms.
3.3. No Violations. Except as disclosed on Schedule 3.3:
(a) The execution, delivery and performance of this Agreement
and the Operating Agreements by the Seller Entities and the consummation
of the transactions contemplated hereby and thereby do not and will not
(i) result in a breach or violation of any provision of Seller's charter
or by-laws, (ii) result in a violation of any statute, rule, regulation
or ordinance applicable to the Seller Entities, or any one or more of
the Principal Premises, which violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect or a Material Real Estate Impairment, (iii) subject to the
receipt of any consents of third Persons described in clauses (i)-(iii)
of Section 3.3(b), violate or result in a breach of or constitute an
event of default (or an event which might, upon the passage of time or
the giving of notice, or both, constitute an event of default) under any
provision of, result in acceleration or cancellation of any obligation
under, or give rise to a right by any party to terminate or amend its
obligations under, any mortgage, deed of trust, conveyance to secure
debt, note, loan, indenture, lien, Material Instrument, material lease,
agreement, instrument, order, judgment or decree or other material
arrangement or commitment (x) (1) to which any Seller Entity is a party
or (2) which primarily relates to the Business or the Purchased Assets
and (y) which violation, breach or default could be reasonably expected
to have a Material Adverse Effect or a material adverse effect on
Seller, taken as a whole, or with respect to Principal Premises, could
be reasonably expected to have a Material Real Estate Impairment (iv)
violate any order, judgment, decree, rule or regulation of any court or
any governmental agency or body (x) having jurisdiction over any Seller
Entity or any of its assets or properties, and which violation could be
reasonably expected to have a Material Adverse Effect or a material
adverse effect on Seller, taken as a whole, or on the performance by
Seller of its obligations under this Agreement, or which could be
reasonably expected to have a Material Real Estate Impairment and (y)
having jurisdiction over the Business or the Purchased Assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Person is required by any
Seller Entity in connection with the execution and delivery of this
Agreement, the Operating Agreements or the consummation of the
transactions contemplated hereby or thereby, except for (i) any filings
required to be made under the HSR Act; (ii) consents of third Persons
which are required to transfer or assign to Buyer any Purchased Assets
or assign the benefits of or delegate performance with regard thereto,
which consents are disclosed on Schedule 3.3; and (iii) such consents,
approvals, orders or authorizations, registrations, declarations or
filings where failure of compliance would not, individually or in the
aggregate, have a Material Adverse Effect or a Material Real Estate
Impairment.
3.4. Financial Statements. Attached hereto as Schedule 3.4 are the
Combined Financial Statements of the Business for the three years ended
May 26, 1996 (such financial statements of the Business being referred
to collectively herein as the "Business Financial Statements") and the
Combined Financial Statements of the Business for the six months ended
November 24, 1996 and November 26, 1995 (such financial statements of
the Business being referred to collectively herein as the "Interim
Financial Statements"). The Business Financial Statements and the
Interim Financial Statements have been compiled from and are in all
material respects in accordance with Seller's books and records for the
Business and (i) fairly present the financial condition, assets and
liabilities of the Business as of their respective dates and the results
of operations of the Business for the periods then ended; (ii) have been
prepared in accordance with GAAP consistently applied; (iii) in the case
of the Business Financial Statements, are accompanied by the unqualified
opinion of KPMG Peat Marwick; and (iv) conform to the requirements of
Regulation S-X of the Securities and Exchange Commission. The Business
Financial Statements reflect allocations of expense for certain common
support functions performed predominately outside of the Principal
Premises, such as general and administrative support and marketing and
sales support, which allocations are disclosed on Schedule 3.4 hereto.
Since January 1, 1994 the methodology of making such allocations has not
changed in any material respect. If the Closing had occurred on
September 29, 1996, the Closing Inventory Amount as of such date would
not have been less than the mean Closing Inventory Amount for such
fiscal year. During the five fiscal years ended May 26, 1996, there has
not been any material change in the method of accounting or keeping of
books of account or accounting practices with respect to the Business,
except as described in Seller's annual reports on Form 10-K for the five
fiscal years ended May 26, 1996 as filed with the Securities and
Exchange Commission.
3.5. Absence of Changes. Except as disclosed on Schedule 3.5,
since May 26, 1996:
(a) Seller has (i) conducted the Business only in the usual
and ordinary course and (ii) operated the Business in accordance with
past practices;
(b) there has not been any change (or series of changes) in
the business, financial condition or results of operations of the
Business, other than changes arising in the ordinary course of business,
none of which changes, individually or in the aggregate, has had or
reasonably would be expected to have a Material Adverse Effect;
(c) no Seller Entity has made or promised to make any
increase in any salaries, rates of pay or other compensation or benefits
of any Business Employees, except for customary increases and
progressions for employees which increases and progressions were made in
the ordinary course of business or changes in benefits generally
provided to Seller's occupational and/or management employees;
(d) the Business has not suffered any damage, destruction or
loss of any tangible assets or properties which would have been included
as Purchased Assets but for such damage, destruction or loss (whether or
not covered by insurance) in excess of $500,000;
(e) the Business has not suffered any strike or other labor
trouble that has had or would reasonably be expected to have a Material
Adverse Effect on the relationship between any Seller Entity and the
Business Employees, and has not entered into any material agreement or
material negotiation with any labor union or other collective bargaining
representative of any Business Employees;
(f) there has not been any change or, to the knowledge of
Seller, any threat of any change in any of its relations with, or any
loss or, to the knowledge of Seller, threat of loss of, any of the
suppliers, distributors or customers of the Business which, individually
or in the aggregate, has had or reasonably could be expected to have a
Material Adverse Effect;
(g) other than in the ordinary course, there has not been any
cancellation, expiration, non-renewal or waiver of any right under any
contract, lease, agreement, license or permit which cancellation,
expiration, non-renewal or waiver, has had or could reasonably be
expected to have a Material Adverse Effect; and
(h) there has not been any sale, transfer or other
disposition of, or subjection to any Encumbrance of, any assets,
properties or rights of the Business, except for Permitted Encumbrances,
Permitted Fee Title Exceptions, Permitted Leasehold Exceptions, sales of
inventory or obsolete or damaged equipment or retirement of equipment,
in each case in the ordinary course of business, and sales of equipment
to third Persons other than in the ordinary course of business in an
aggregate amount less than $500,000.
3.6. Assets. Except as disclosed on Schedule 3.6, the Seller
Entities have and upon consummation of the transactions contemplated by
this Agreement, Buyer (or the Fairchild Subsidiaries, as the case may
be) will have good and marketable title to, or leasehold interest in,
all of the Purchased Assets (other than the Non-Assignable Assets) free
and clear of any Encumbrance except for (i) Permitted Encumbrances,
Permitted Fee Title Exceptions and Permitted Leasehold Exceptions; (ii)
mechanics', materialmen's, carriers', workmen's, warehousemen's,
repairmen's, landlords' or other like liens securing obligations that
are not delinquent; and (iii) liens for taxes and other governmental
charges which are not due and payable or which may be paid without
penalty.
3.7. Personal Property. Except as set forth on Schedule 3.7, to
Seller's knowledge, the items of personal property included in the
Purchased Assets and presently and actively used in the operation of the
Business are in good operating condition, free of any defects (except
those resulting from normal wear and operation) which individually or in
the aggregate, reasonably could be expected to have a Material Adverse
Effect.
3.8. Permits, Licenses. (a) Except as set forth on Schedule 2.1I,
Schedule 3.8 or Schedule 3.12, there are no material Governmental
Permits, licenses, certificates of inspection or other authorizations,
necessary for or used to carry on the Business as now being conducted or
to use and occupy any one or more of the Principal Premises as now being
used, which are required by currently effective laws, rules or
regulations, other than, in each case, those Governmental Permits,
licenses, certificates of inspection or other authorizations the absence
of which, individually or in the aggregate, could not reasonably be
expected to have a (i) Material Adverse Effect on the Business as now
being conducted, or (ii) Material Real Estate Impairment with respect to
the use and occupancy of any one or more of the Principal Premises as
now being used.
(b) Except as set forth on Schedule 2.1I or Schedule 3.12,
there are no material Governmental Permits, licenses, certificates of
inspection or other authorizations, necessary for the division of the
existing facility owned by Seller Entities in South Portland, Maine into
two parcels of real estate, one of which shall be owned by Buyer and
constitute Owned Real Estate as listed on Schedule 2.1A (the "Portland
Facility") or the conduct of the Business, as contemplated subsequent to
the Closing, or the use and occupancy of the Portland Facility as
contemplated subsequent to the Closing, which are required by currently
effective laws, rules or regulations other than, in each case, those
Governmental Permits, licenses, certificates of inspection or other
authorizations, the absence of which, individually or in the aggregate,
could not reasonably be expected to have a (i) Material Adverse Effect
on the Business at the Portland Facility as contemplated subsequent to
the Closing, or (ii) Material Real Estate Impairment with respect to the
use and occupancy of the Portland Facility as contemplated subsequent to
the Closing.
3.9. Compliance with Laws and Litigation. (a) Except as set forth
on Schedule 3.9, with respect to the Business and the Principal
Premises, the Seller Entities are in compliance with all applicable
laws, rules, regulations, ordinances, decrees, orders, judgments,
permits and licenses of or from governmental authorities, including,
without limitation, those relating to the use and operation of any one
or more of the Principal Premises, except for such failures or non-
compliance which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect or a Material Real Estate
Impairment. Except as set forth on Schedule 3.9, there are no actions,
suits, proceedings or governmental investigations pending or, to the
knowledge of Seller, threatened against it with respect to the Business
or the Purchased Assets which individually or in the aggregate, could be
reasonably expected to have a Material Adverse Effect or a Material Real
Estate Impairment.
(b) Except as set forth on Schedule 3.9, with respect to the
Business contemplated to be conducted at the Portland Facility
subsequent to the Closing, the Seller Entities will be in compliance
with all applicable laws, rules, regulations, ordinances, decrees,
orders, judgments, permits and licenses of or from governmental
authorities, including, without limitation, those relating to the use
and operation of the Portland Facility contemplated subsequent to the
Closing, except for such failures or non-compliance which, individually
or in the aggregate, could not reasonably be expected to have a (i)
Material Adverse Effect on the Business at the Portland Facility as
contemplated subsequent to the Closing, or (ii) Material Real Estate
Impairment with respect to the use and occupancy of the Portland
Facility as contemplated subsequent to the Closing. Except as set forth
on Schedule 3.9, there are no actions, suits, proceedings or
governmental investigations pending or, to the knowledge of Seller,
threatened against it with respect to the contemplated division of the
Portland Facility or with respect to the Business contemplated to be
conducted at the Portland Facility subsequent to the Closing, which
individually or in the aggregate, could be reasonably expected to have a
Material Adverse Effect or a Material Real Estate Impairment.
3.10. Employees. (a) Schedule 3.10 lists the names, job title,
date of hire or seniority date, and assigned location of all Business
Employees (designated as union-represented or not) as of its date, which
date is not earlier than the last day of the fiscal period ending not
more than six weeks prior to the date hereof. Except as set forth on
Schedule 3.10, all individuals whose primary responsibility relates to,
and who are employed in the conduct of, the Business are employed by the
Seller Entities and there are no other such individuals (including
"leased employees" as defined in Section 414(n) of the Code) whose
continued services are material to the Business as a whole. None of the
Business Employees is covered by any union, collective bargaining or
similar agreements. Seller has provided Buyer with a true and correct
copy of the current collective bargaining agreements affecting the
Business Employees. Except as set forth on Schedule 2.1F, there are no
written employment or consulting agreements that constitute an Assumed
Contract.
(b) Except as disclosed in Schedule 3.10 and except for any
of the following that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect: (i) there is
no unfair labor practice charge pending or, to the knowledge of Seller,
threatened against any Seller Entity relating to any of the Business
Employees; (ii) there is no labor strike or stoppage relating to any of
the Business Employees actually pending or, to the knowledge of Seller,
threatened against or involving any Seller Entity; (iii) no material
labor grievance relating to any of the Business Employees is pending or,
to the knowledge of Seller, threatened; (iv) the Seller Entities have
not in the past three years experienced any work stoppage relating to
any of the Business Employees; (v) to the knowledge of Seller, within
the past two years, the Seller Entities have not been the subject of any
union organizational campaign with respect to any of the Business
Employees; (vi) no Seller Entity has any material labor negotiations in
process with any labor union or other labor organization relating
specifically to the Business Employees; and (vii) to the knowledge of
Seller, there are no efforts in process by unions to organize any
Business Employees who are not now represented by recognized collective
bargaining agents.
3.11. Agreements. Schedule 2.1F contains a complete and
correct list of all outstanding Contracts (other than the Excluded
Contracts) (a) which have unexpired terms of more than one (1) year and
cannot be terminated by the Seller Entity which is a party thereto
without penalty or payment on thirty (30) days notice or less; (b) which
would require over the full term thereof payments by or to any Seller
Entity or the Business of more than $250,000; or (c) pursuant to which
there were payments by or to any Seller Entity or the Business of more
than $250,000 for the calendar year ended December 31, 1995. True and
correct copies of the Contracts (other than the Excluded Contracts)
listed on Schedule 2.1F have been delivered or made available to Buyer.
Each of such Contracts is valid, binding and enforceable against the
Seller Entity which is a party thereto, and to the knowledge of Seller,
the other parties thereto, in accordance with its terms and is in full
force and effect, except those the absence of which could not reasonably
be expected to have a Material Adverse Effect. Except as set forth in
Schedule 2.1F or Schedule 3.11, the Seller Entities, and to the
knowledge of Seller, each of the other parties thereto, have performed
in all material respects all obligations required to be performed by
them under, and are not in default in any material respect under, any of
such Contracts and no event has occurred which, with notice or lapse of
time, or both, would constitute such a default, except for any such
defaults which could not reasonably be expected to have a Material
Adverse Effect. Except as disclosed on Schedule 2.1F or Schedule 3.11,
no Seller Entity has received any written claim from any other party to
any such Contract that any Seller Entity has breached any obligations to
be performed by it thereunder, or is otherwise in default or delinquent
in performance thereunder, except any of the foregoing which could not
reasonably be expected to have a Material Adverse Effect. There are no
agreements not to compete binding upon any Seller Entity which affect or
restrict the conduct of the Business as currently conducted by the
Seller Entities or could reasonably be expected to affect or restrict
the conduct of the Business as currently conducted by the Seller
Entities by Buyer (or any Fairchild Subsidiary) after the Closing.
3.12. Environmental Matters. Seller represents and warrants
that in relation to the Business and except as disclosed on Schedule
3.12 and except as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Business
as a whole:
(a) The Seller Entities and their Affiliates have conducted
and are now conducting the Business in compliance with all applicable
foreign, federal, state and local environmental and employee protection
laws, rules, regulations, the common law, judgments orders, consent
agreements, work practices and standards in existence on the Closing
Date ("Environmental Laws") and, to Seller's knowledge, have conducted
the Business in compliance with environmental laws that existed prior to
the Closing Date.
(b) The Seller Entities hold and are and have been in
compliance with all permits, certificates, licenses, approvals,
registrations and authorizations required under Environmental Laws
("Environmental Permits"), and all such Environmental Permits are in
full force and effect and are transferable or assignable to Buyer. The
Seller Entities have made or will make before the Closing timely
application or notification for the renewal of all Environmental Permits
for which Environmental Laws require that applications or notices must
be filed on or before the Closing to maintain the Environmental Permits
in full force and effect up to and through the Closing. Seller and
Buyer will use their respective Best Efforts to obtain any and all
material consents, approvals, authorizations, transfers, assignments or
issuances of such Environmental Permits to the Buyer before the Closing.
Schedule 3.12 lists all such material Environmental Permits and
identifies whether such permits are transferrable or assignable.
(c) No Seller Entity nor any of its subsidiaries or
affiliates uses, possesses, generates, treats, manufactures, processes,
handles, stores, recycles, transports or disposes of ("Manage" or
"Management") Hazardous Materials in connection with the operations of
the Business in quantities or in a manner which requires a treatment,
storage or disposal permit or which imposes generator requirements under
the Resource Conservation and Recovery Act, as amended ("RCRA") or any
similar Environmental Laws.
(d) No Seller Entity nor any of its Affiliates has received
any written notice, citation, summons, order or complaint, no penalty
has been assessed or is pending or, to the knowledge of Seller or any of
its Affiliates, threatened by any third party including any Governmental
Authority or other entity with respect to the Management or Release of
Hazardous Materials by or on behalf of any Seller Entity, its Affiliates
in relation to the Business or exposure to such Hazardous Materials. No
Seller Entity nor any of its Affiliates has received any written and, to
the best of their knowledge after due inquiry, no one else has received
any requests for information, notices of claim, demands or other
notifications that it or they are or may be potentially responsible with
respect to any investigation or cleanup of Hazardous Materials Released
or Managed at the Principal Premises or at any other property owned,
operated or leased by any Seller Entity or any of its Affiliates in
connection with the Business or at any other property, facility or off-
site location to which the Hazardous Materials Released or Managed by
any Seller Entity or any of its Affiliates in connection with the
Business have been transported or disposed of or have come to be
located.
(e) To Seller's knowledge, no Hazardous Materials have been
released, spilled, leaked, discharged, disposed of, pumped, poured,
emitted, emptied, injected, leached, dumped or allowed to escape
("Released") at, on, about, under or from the Principal Premises or any
property now or formerly owned, operated or leased by any Seller Entity
or any of its Affiliates in connection with the operation of the
Business.
(f) All environmental audits or reports conducted in relation
to the Principal Premises or in connection with the operation of the
Business thereat (collectively, "Environmental Audits") which are in the
possession or control of Seller have been provided or made available to
Buyer.
(g) To the knowledge of Seller, no Seller Entity nor any of
its subsidiaries or affiliates has retained or assumed, by contract, law
or otherwise, any liability or responsibility for any environmental
claims or conditions with respect to the Business or the Purchased
Assets.
(h) For purposes of this Section 3.12, "Principal Premises"
shall be deemed to include the Principal Premises and any Purchased
Assets located thereat and includes all environmental media on which or
in which the Principal Premises are located.
3.13. No Undisclosed Liabilities. None of the Seller Entities
(with respect to the Businesses) has any liability or obligation of any
nature, whether due or to become due, absolute, contingent or otherwise,
including liabilities for or in respect of federal, state and local
taxes and any interest or penalties relating thereto, which has had or
would reasonably be expected to have a Material Adverse Effect, except
(a) to the extent reflected as a liability on the Combined Financial
Statement as of May 26, 1996 included in the Financial Statements, (b)
liabilities incurred in the ordinary course of business since May 26,
1996 and fully reflected as liabilities on the Business' books of
account, none of which, individually or in the aggregate, has been
materially adverse to the Business taken as a whole and (c) liabilities
disclosed on Schedule 3.13.
3.14. Warranty Claims. The Seller Entities have paid (whether
in money, property or services) claims relating to breaches of express
or implied warranties (excluding claims founded upon negligence, strict
liability in tort or other similar legal theory) made with respect to
Business Products for the years ended May 26, 1996, May 28, 1995 and May
29, 1994 in amounts not in excess of 2% of sales of the Business for
such years, respectively. Except as set forth on Schedule 3.14, there
are no pending or, to the knowledge of Seller, threatened claims for the
breach of any express or implied warranty made with respect to Business
Products, except for individual claims which involve claims for money,
property or services of less than $50,000.
3.15. Inventory; Purchased Assets. Except as set forth on
Schedule 3.15:
(a) All Inventory is located at the locations specified on
Schedule 2.1E and all such Inventory that is not located on the
Principal Premises is identified as belonging to the Business.
(b) The Purchased Assets, taken together with the Non-
Assignable Assets (the extent to which Buyer will receive the benefits
thereof under Section 2.6) and Buyer's rights under the Operating
Agreements, constitute substantially all of the assets, properties,
agreements, licenses (other than the Non-Assignable Patent Licenses),
intellectual property and other rights which are necessary to enable
Buyer after the Closing to manufacture the Business Products in a manner
consistent with the Seller Entities' past practice, furnish Business
Services or otherwise operate the Business after the Closing.
(c) No Seller Entity nor any of its subsidiaries has received
any written notice of any infringement or violation of, or conflict
with, any intellectual property rights of any third Person by the Seller
Entities or any of their subsidiaries in connection with the conduct of
the Business which could reasonably be expected to have a Material
Adverse Effect.
3.16. Real Estate.
(a) Owned Property. (i) Schedule 2.1A sets forth a list of
all of the real estate owned by any one or more of the Seller Entities
and primarily used in the Business (such real estate, together with all
beneficial, appurtenant easements and other appurtenances thereto and
with all fixtures attached thereto or forming a part thereof, is
collectively referred to herein as the "Owned Real Estate"), and
includes the street address and legal description of each parcel of the
Owned Real Estate. Seller has good, valid, marketable and indefeasible
fee simple title to the Owned Real Estate, including the buildings,
structures, fixtures and improvements situated thereon or forming a part
thereof and the appurtenances thereto, subject to the Permitted Fee
Title Exceptions. Seller has made available to Buyer copies of all (i)
title reports, title insurance policies and commitments therefore, (ii)
surveys, (iii) documents and instruments creating or governing
appurtenances, and (iv) licenses, certificates of occupancy, plans,
specifications and permits, pertaining to the Owned Real Estate that are
in the possession or control of any of the Seller Entities.
(ii) The Owned Real Estate is free and clear of all
Encumbrances, including, without limitation, security interests, any
conditional sale or other title or interest retention agreements or
arrangements, options to purchase, rights of first refusal, liens,
encumbrances, mortgages, pledges, assessments, easements, covenants,
restrictions, reservations, defects in title, encroachments and other
burdens, leases, subleases, rights of occupancy, deed restrictions,
chattel mortgages and collateral security arrangements, rights of way,
building use restrictions, exceptions, variances or reservations of any
nature whatsoever, except for the following (collectively, "Permitted
Fee Title Exceptions"): (a) any Encumbrances or title defects,
conditions, easements, covenants or restrictions, if any, none of which,
individually or in the aggregate, would reasonably be expected to have a
Material Real Estate Impairment or which would cause such Owned Real
Estate to be unmarketable or uninsurable at customary title insurance
rates, (b) zoning or land use ordinances (subject to the compliance
obligations under Section 3.8 and 3.9), (c) liens for ad valorem real
property taxes and assessments not yet due and payable, (d) with respect
to the Portland Facility only, the Shared Facilities Agreement relating
to such shared facility, and (e) with respect to the Seller's facility
in Santa Clara, California only, the Shared Services and Occupancy
Agreement relating to such shared facility. The Owned Real Estate is
also subject to those matters set forth on Schedule 2.1-A, but unless
such matters otherwise qualify under clauses (a) through (c) above, such
matters shall not be deemed to be Permitted Fee Title Exceptions.
(iii) No Seller Entity has received written notice
from any governmental authority, insurance company which has issued a
policy with respect to any of the Owned Real Estate or any board of fire
underwriters or other body performing similar functions or any other
Person which (a) relates to or alleges a violation of or nonconformity
with any zoning, building, safety, subdivision, wetlands or other
similar law, code, rule, regulation, ordinance, permit, license,
certificate, covenant, restriction or condition with respect to any of
the Owned Real Estate or the use thereof which nonconformity could,
either individually or in the aggregate, reasonably be expected to have
a Material Real Estate Impairment, or (b) requests the performance of
any repairs, alterations or other work to or in any of the Owned Real
Estate, which violations, repairs, alterations or other work have not
yet been cured or performed, as applicable; which failure to perform
such work, either individually or in the aggregate, would reasonably be
expected to have a Material Real Estate Impairment. There is no pending
condemnation, expropriation, eminent domain, or similar proceeding
affecting any of the Owned Real Estate and, to the knowledge of Seller,
no such action, proceeding or litigation is threatened which proceeding
or litigation, if concluded adversely to Seller Entities, would
reasonably be expected to have a Material Real Estate Impairment. The
sale of the Owned Real Estate to Buyer does not and will not violate or
conflict with the requirements of any subdivision plan currently
applicable to the Owned Real Estate.
(b) Real Estate Leases. (i) Schedule 3.16 sets forth a list
of all of the leases or rights of occupancy pursuant to which the Seller
Entities (or any of them) lease or sublease any real property or
interest therein related to or used in the Business (collectively, as
heretofore modified, amended or extended, the "Leases"), including the
identification of each of the lessors thereof and the street addresses
of all of the real estate demised under any of the Leases (collectively,
the "Leased Real Estate"). Except as set forth on Schedule 3.16, one or
more of the Seller Entities is the lessee under all Leases, and no party
other than one or more of the Seller Entities has any right to
possession, occupancy or use of any of the Leased Real Estate. Copies
of (a) leasehold title insurance policies and commitments therefor,
title reports, surveys, licenses, certificates of occupancy, plans,
specifications, permits and other documents, pertaining to the Leased
Real Estate, if any, that are in the possession or control of any of the
Seller Entities, and (b) each of the Leases, including all amendments,
modifications and extensions, and together with all subordination, non-
disturbance and/or attornment agreements or any brokerage commission
agreements related thereto, and (c) any other material agreements
relating to the Leases have been made available by Seller to Buyer.
Each of the Leases is valid and in full force and effect and is binding
and enforceable in accordance with its terms. Except as set forth on
Schedule 3.16-1, none of the Seller Entities has received any written
notice of any material default under any provision of any of the Leases
which default remains uncured. There is no material default by any
Seller Entity in the payment of rent under any Lease beyond any
applicable notice and cure period. None of the Seller Entities has
given notice to any other party to any of the Leases that such party is
in default under any of the provisions thereof which default remains
uncured.
(ii) Except as set forth in Schedule 3.16, the Seller
Entities are in actual possession of the Leased Real Estate. The Seller
Entities have good and valid title to all the leasehold estates conveyed
under the Leases free and clear of all Encumbrances, including, without
limitation, security interests, any conditional sale or other title or
interest retention agreements or arrangements, options to purchase,
rights of first refusal, liens, encumbrances, mortgages, pledges,
assessments, easements, covenants, restrictions, reservations, defects
in title, encroachments and other burdens, leases, subleases, rights of
occupancy, deed restrictions, chattel mortgages and collateral security
arrangements, rights of way, building use restrictions, exceptions,
variances or reservations of any nature whatsoever, except for the
following (collectively, "Permitted Leasehold Exceptions"): (a) zoning
or land use ordinances (subject to the compliance obligations under
Sections 3.8 and 3.9), (b) liens for ad valorem real property taxes and
assessments not yet due and payable, (c) with respect to the Portland
Facility only, the Shared Facilities Agreement relating to such shared
facility, (d) with respect to Seller's Santa Clara, California facility
only, the Shared Services and Occupancy Agreement relating to such
shared facility, and (e) any Encumbrances or title defects, conditions,
easements, covenants or restrictions effecting or encumbering the fee
interest of the Leased Real Estate, none of which, either individually,
or in the aggregate, would reasonably be expected to have a Material
Real Estate Impairment. The Leased Real Estate is also subject to those
matters set forth on Schedule 3.16, but unless such matters otherwise
qualify under clause (a), (b), and (e) above, such matters will not be
deemed to be Permitted Leasehold Exceptions.
(iii) No Seller Entity has received written notice
from any governmental authority, insurance company which has issued a
policy with respect to any of the Leased Real Estate or any board of
fire underwriters or other body performing similar functions or any
other Person which (a) relates to or alleges a violation of or
nonconformity with any zoning, building, safety, subdivision, wetlands
or other similar law, code, rule, regulation, ordinance, permit,
license, certificate, covenant, restriction or condition with respect to
any of the Leased Real Estate or the use thereof which nonconformity
could, either individually or in the aggregate, reasonably be expected
to have a Material Real Estate Impairment, or (b) requests the
performance of any material repairs, alterations or other work to or in
any of the Leased Real Estate, which violations repairs, alterations or
other work have not yet been cured or performed, as applicable; which
failure to perform such work, either individually or in the aggregate,
would reasonably be expected to have a Material Real Estate Impairment.
There is no pending condemnation, expropriation, eminent domain, or
similar proceeding affecting any of the Leased Real Estate and, to the
knowledge of Seller, no such action, proceeding or litigation is
threatened, which proceeding or litigation if concluded adversely to the
Seller Entities would reasonably be expected to have a Material Real
Estate Impairment.
(iv) Except as set forth on Schedule 3.16, there are no
brokerage commissions or finder's fees due from any of the Seller
Entities which are currently due and unpaid with regard to any of the
Leases or the Leased Real Estate, or which will become due at any time
in the future with regard to the Leases or the Leased Real Estate.
(v) Except as set forth on Schedule 3.16, there have
been no casualties which could result in the termination by any landlord
pursuant to the terms of such lease, or pursuant to the written
agreement of the landlord and tenant.
3.17. Ownership of Subsidiaries. Except for the Fairchild
Subsidiaries, the Purchased Assets do not include the stock of, or any
other equity or debt interest in, any other corporation or business
entity. Each Fairchild Subsidiary is (or will be prior to Closing) a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation, which jurisdiction is set
forth opposite its name on Schedule 3.17. Each Fairchild Subsidiary has
(or will have prior to Closing) all requisite power and authority to own
or lease its properties and assets as now owned or leased and to carry
on its business as and where now being conducted, except for any failure
to have such power and authority which could not reasonably be expected
to have a Material Adverse Effect. The copies of the articles of
incorporation and bylaws, as amended to date, of each Fairchild
Subsidiary in existence as of the date hereof and which have been
delivered to Buyer, are correct and complete and are in full force and
effect. The currently authorized, issued and outstanding shares of
capital stock of each Fairchild Subsidiary in existence on the date
hereof and the record holders as of the date hereof of such shares are
set forth on Schedule 3.17. All of such outstanding shares have been
(or will be prior to Closing) duly authorized, validly issued and are
fully paid and nonassessable, are directly or indirectly owned by Seller
free and clear of all liens, claims, security interests, pledges,
charges, equities, options, restrictions and encumbrances of whatsoever
nature, were not issued in violation of the terms of any agreement or
other understanding binding upon any Fairchild Subsidiary or Seller, and
were issued in compliance with all applicable federal and state
securities or "blue sky" laws and regulations. There are no outstanding
options, warrants, rights, agreements, calls, commitments or demands of
any character relating to the capital stock of any Fairchild Subsidiary
and no securities convertible into or exchangeable for any of such
capital stock.
3.18. Tax Matters. Except as set forth on Schedule 3.18 and
except as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect:
(a) The Seller Entities have (A) filed or provided all
Returns required to be filed or provided with respect or relating to, in
connection with or arising out of the Business and each Return is true,
complete and accurate, (B) timely paid all Taxes shown thereon as due
and owing with respect or relating to, in connection with or arising out
of the Business, and (C) in accordance with GAAP has provided for, on
its books of account and related records, liability for all other
current Taxes not yet paid with respect to, or in connection with or
arising out of the Business. To Seller's knowledge, no Seller Entity
has received from any Governmental Authority any written notice of
proposed adjustment, deficiency or underpayment of Taxes with respect
to, or in connection with or arising out of the Business, which notice
has not been satisfied by payment or been withdrawn, and there are no
claims that have been asserted or threatened in writing relating to such
Taxes against any Seller Entity.
(b) There are no liens with respect to Taxes upon the
Purchased Assets other than customary liens for current Taxes not yet
due and payable.
(c) Each Fairchild Subsidiary has (A) duly filed or provided,
or has had filed or provided on its behalf, all Returns required to be
filed by it, and each such Return is true, complete and accurate; (B)
paid, or has had paid on its behalf, all Taxes shown to have become due
pursuant to such Returns; and (C) in accordance with GAAP has provided
for, on its books of account and related records, liability for all
other current Taxes not yet paid.
(d) To the knowledge of Seller, there is no action, suit,
proceeding or claim currently pending regarding Taxes with respect to
any Fairchild Subsidiary. No Return of any Fairchild Subsidiary is
being examined by, and no written notification of intention to examine
has been received from, any Governmental Authority. No issue raised by
any Governmental Authority in connection with any Return with respect to
Taxes of any Fairchild Subsidiary is currently pending. No presently
effective waiver or extension of any statute of limitation with respect
to Taxes has been given by or requested from any Fairchild Subsidiary.
(e) There is no ruling issued to any Fairchild Subsidiary (or
closing agreement to which any Fairchild Subsidiary is a party)
concerning Taxes from (or with) any Governmental Authority which would
have continuing material effect on any Fairchild Subsidiary after the
Closing Date.
(f) No Fairchild Subsidiary is a party to any tax sharing or
similar agreement in respect of Taxes of a Person other than a Fairchild
Subsidiary.
(g) None of the Fairchild Subsidiaries has reported or
expects to report income, loss, deduction or credit in its capacity as a
partner in another entity for federal income tax purposes.
(h) Each Seller Entity is a United States person within the
meaning of Section 7701(a)(30) of the Code.
(i) There is no lien or security interest in favor of any
Governmental Authority on any of the assets of any Fairchild Subsidiary
that arose in connection with the failure (or alleged failure) to pay
any Tax except for customary liens for current Taxes not yet due and
payable.
The representations and warranties set forth in this Section 3.18
are not applicable to the extent that such Taxes do not constitute an
encumbrance against the Purchased Assets or will not become a liability
of FSC Semiconductor Corporation, Buyer or any of the Fairchild
Subsidiaries.
3.19. Employee Benefit Plans. (a) Schedule 3.19(a) lists all
"employee benefit plans," as defined in Section 3(3) of ERISA (including
any "multiemployer plan" as defined in Section 3(37) of ERISA) and all
other material pension, profit sharing, retirement, supplemental
retirement, stock, stock option, basic and supplemental accidental death
and dismemberment, basic and supplemental life and health insurance,
post-retirement medical or life, welfare, dental, vision, savings,
bonus, deferred compensation, incentive compensation, business travel
and accident, holiday, vacation, severance pay, salary continuation,
sick pay, sick leave, short and long term disability, tuition refund,
service award, company car, scholarship, relocation, patent award,
fringe benefit and other employee benefit plans, arrangements,
contracts, or policies, qualified or unqualified, funded or unfunded,
(i) maintained, contributed to, or required to be contributed to by
Seller or any ERISA Affiliate with respect to any Business Employees, or
(ii) pursuant to which Seller or any ERISA Affiliate may have any
liability with respect to any Business Employees, within the United
States (the "Benefit Plans").
(b) As applicable, with respect to each of the Benefit Plans,
true and complete copies of (i) all plan documents (including all
amendments and modifications thereof) and all related trust agreements
and insurance contracts; (ii) the last three filed Form 5500 series and
all Schedules thereto, as applicable; (iii) the current summary plan
descriptions and all summary material modifications thereto; and (iv)
the most recent determination letter issued with respect to each Benefit
Plan has been delivered or made available to Buyer.
(c) Each Benefit Plan has been maintained, operated and
administered in compliance in all material respects with its terms and
the applicable provisions of ERISA and the Code.
(d) No Benefit Plan is subject to Title IV of ERISA.
(e) Seller's Retirement and Savings Program is the only
Benefit Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA and which is intended to meet the
qualification requirements of Section 401(a) of the Code (the "Pension
Plan"). The Pension Plan meets the qualification requirements of
Section 401(a) of the Code and each related trust is exempt from
taxation under Section 501(a) of the Code.
(f) The Pension Plan has received a determination letter from
the IRS to the effect that such Pension Plan is qualified and all
related trusts are exempt from federal income taxes and no determination
letter with respect to the Pension Plan has been revoked nor has the
Pension Plan been amended since the date of its most recent
determination letter in any respect which would adversely affect its
qualification.
(g) There are no pending audits or investigations by any
governmental agency involving the Benefit Plans, and no threatened or
pending claims (except for individual claims for benefits payable in the
normal operation of the Benefit Plans), suits or proceedings involving
any Benefit Plan.
(h) With respect to each Benefit Plan that is a "group health
plan" within the meaning of Section 607 of ERISA and that is subject to
Section 4980B of the Code, Seller and each ERISA Affiliate comply in all
material respects with the continuation coverage requirements of the
Code and ERISA with respect to Business Employees and their eligible
beneficiaries and dependents.
(i) Except as set forth in Schedule 3.19(i), no Benefit Plan
provides medical or life insurance benefits, beyond termination of
service or retirement other than coverage mandated by law.
(j) Except as set forth on Schedule 3.19(j), the execution
of, and performance of the transactions contemplated by this Agreement
will not constitute an event under any Benefit Plan that will result in
any payment (whether as severance pay or otherwise), acceleration,
vesting or increase in benefits with respect to any employee. No
Benefit Plan provides for "parachute payments" within the meaning of
Section 280G of the Code.
(k) Schedule 3.19(k) lists all material pension, profit
sharing, retirement, supplemental retirement, stock, stock option, basic
and supplemental accidental death and dismemberment, basic and
supplemental life and health insurance, post-retirement medical or life,
welfare, dental, vision, savings, bonus, deferred compensation,
incentive compensation, business travel and accident, holiday, vacation,
severance pay, salary continuation, sick pay, sick leave, short and long
term disability, tuition refund, service award, company car,
scholarship, relocation, patent award, fringe benefit and other employee
benefit plans, arrangements, contracts or policies, whether funded or
unfunded (i) maintained, contributed to, or required to be contributed
to by Seller or any Affiliate with respect to any Business Employees, or
(ii) pursuant to which Seller or any Affiliate may have any liability
with respect to any Business Employees, outside the United States (the
"Foreign Plans"). Schedule 3.19(k)(i) lists all the Foreign Plans that
are not sponsored by a Fairchild Subsidiary (a "Non-Subsidiary Foreign
Plan").
(l) A true and complete copy of each Foreign Plan including
all amendments and modifications thereof together with all related trust
agreements and insurance contracts have been delivered or made available
to Buyer.
(m) Except as set forth on Schedule 3.19(m), each Foreign
Plan has been maintained, operated and administered in compliance in all
material respects with its terms and with all applicable laws.
(n) All contributions and other payments required to be made
by Seller or any Affiliate to any Foreign Plan with respect to any
period up to and including the Closing Date shall have been made or
accrued and booked on or before the Closing Date.
(o) There are no pending audits or investigations by any
governmental or quasi-governmental agency involving the Foreign Plans
and no threatened or pending claims (except for individual claims for
benefits payable in the normal operation of the Foreign Plan), suits or
proceedings involving any Foreign Plan.
3.20. No Implied Representation. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS ARTICLE III OR ANY OTHER PROVISION OF THIS AGREEMENT
BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT NONE OF SELLER OR ANY OF ITS
AFFILIATES, AGENTS, EMPLOYEES OR REPRESENTATIVES IS MAKING, WHETHER
CONTAINED IN OR REFERRED TO IN THE EVALUATION MATERIALS THAT HAVE BEEN
OR SHALL HEREAFTER BE PROVIDED TO BUYER OR ANY OF ITS AFFILIATES, AGENTS
OR REPRESENTATIVES (INCLUDING WITHOUT LIMITATION THE CONFIDENTIAL
OFFERING MEMORANDA RELATING TO THE BUSINESS (THE "CONFIDENTIAL OFFERING
MEMORANDA") (SUCH MATERIALS COLLECTIVELY, THE "EVALUATION MATERIALS")),
ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND
THOSE EXPRESSLY GIVEN BY SELLER IN THIS AGREEMENT, THE RECAP AGREEMENT
AND THE OPERATING AGREEMENTS, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTY OR REPRESENTATION AS TO THE VALUE, CONDITION, MERCHANTABILITY
OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE BUSINESS
CARRIED OUT BY SELLER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1. Organization and Authority. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power and corporate authority
to execute and deliver this Agreement, the Purchase Price Note and the
Operating Agreements and to effect the transactions contemplated hereby
and thereby and has duly authorized the execution, delivery and
performance of this Agreement, the Purchase Price Note and the Operating
Agreements by all necessary corporate action. Buyer has all corporate
power and corporate authority necessary to carry on its business as now
being conducted and to own or lease and operate its properties as and in
the places where such business is now conducted and such properties are
now owned, leased or operated.
4.2. Authorization; Binding Obligation. This Agreement, the
Purchase Price Note and the Operating Agreements have been duly executed
and delivered by Buyer and this Agreement, the Purchase Price Note and
the Operating Agreements are the valid and legally binding obligations
of Buyer, enforceable against it in accordance with their terms.
4.3. No Violations. (a) The execution, delivery and performance of
this Agreement, the Purchase Price Note and the Operating Agreements by
Buyer and the consummation of the transactions contemplated hereby and
thereby do not and will not (i) result in a breach or violation of any
provision of Buyer's charter or by-laws or in a material violation of
any statute, rule, regulation or ordinance applicable to Buyer or (ii)
violate or result in a breach of or constitute an event of default (or
an event which might, upon the passage of time or the giving of notice,
or both, constitute an event of default) under any provision of, result
in acceleration or cancellation of any obligation under, or give rise to
a right by any party to terminate or amend its obligations under, any
mortgage, deed of trust, conveyance to secure debt, note, loan,
indenture, lien, material lease, agreement, instrument, order, judgment,
decree or other material arrangement or commitment to which Buyer is a
party or by which its assets or properties are bound, or violate any
order, judgment, decree, rule or regulation of any court or any
governmental agency or body having jurisdiction over Buyer or any of its
assets or properties.
(b) No consent, approval, order or authorization of or
registration, declaration or filing with, any Person is required by
Buyer in connection with the execution and delivery of this Agreement,
the Purchase Price Note, the Operating Agreements or the consummation of
the transactions contemplated hereby or thereby, except for (i) any
filings required to be made under the HSR Act, and (ii) such consents,
approvals, orders or authorizations, registrations, declarations or
filings where failure of compliance would not, individually or in the
aggregate, have a material adverse effect on the ability of Buyer to
consummate the transactions contemplated hereby.
4.4. Inspections; Limitation of Seller's Warranties. Buyer is an
informed and sophisticated participant in the transactions contemplated
by this Agreement and has undertaken such investigation, and has been
provided with and has evaluated certain documents and information in
connection with the execution, delivery and performance of this
Agreement. Buyer acknowledges that it is acquiring the Business without
any representation or warranty, express or implied, by Seller or any of
its Affiliates except as expressly set forth herein, in the Recap
Agreement and in the Operating Agreements. In furtherance of the
foregoing, and not in limitation thereof, Buyer acknowledges that,
except as expressly set forth herein, in the Recap Agreement and in the
Operating Agreements, no representation or warranty, express or implied,
of Seller or any of its advisors, including, without limitation,
Deutsche Morgan Grenfell, BA Partners, Seller's lawyers (other than the
opinions of such lawyers delivered in connection with this Agreement),
KPMG Peat Marwick (except in connection with financial statements
prepared by such accountants accompanied by an opinion of such
accountants thereon) or any of their respective Affiliates or
representatives, with respect to the Business (including, without
limitation, the Evaluation Materials, the Confidential Offering
Memorandum, any other information provided to Buyer pursuant to the
Confidentiality Agreement and any financial projection or forecast
delivered to Buyer with respect to the revenues or profitability which
may arise from the Business either before or after the Closing Date)
shall form the basis of any claim against Seller or any of its advisors,
or any of their respective Affiliates or representatives, except as
otherwise provided in Section 3.20. With respect to any financial
projection or forecast delivered on behalf of Seller to Buyer, Buyer
acknowledges that there are uncertainties inherent in attempting to make
such projections and forecasts and that it is familiar with such
uncertainties.
ARTICLE V
CERTAIN COVENANTS
5.1. Information. (a) Seller and Buyer will provide to each other
and to their respective officers, employees, counsel and other
representatives, upon request (subject to any limitations that are
reasonably required to preserve any applicable attorney-client
privilege) reasonable access to their respective officers and employees
and reasonable access for inspection and copying of all Business
Records, Governmental Permits, Contracts and any other information
existing at the Closing Date and relating to the conduct of the
Business, and will make their respective officers and employees
available, to the extent such availability does not unreasonably
interfere with the conduct of the Business by Buyer, or the conduct of
its business by Seller, as the case may be, as is reasonably necessary
to enable the party requesting such information to: (i) comply with
reporting, filing or other requirements related to the conduct of the
Business and imposed on such party by any local, state or federal court,
agency or regulatory body or taxing authority; (ii) assert or defend any
claims or allegations in any arbitration or in any administrative or
legal proceeding related to the conduct of the Business other than
claims or allegations which one party to this Agreement has asserted
against the other; or (iii) subject to clause (ii) above, perform its
obligations under this Agreement. Seller and Buyer shall each maintain
all of the foregoing information in accordance with their normal
document retention policies and if either party desires to destroy or
dispose of any of the foregoing which are material to the other party at
any time prior to the tenth anniversary of the Closing, such party will
offer first in writing at least 60 days prior to such destruction or
disposition to surrender them to the other party.
(b) Subject to applicable law, Seller agrees to make
available to Buyer, for inspection and copying by Buyer, all employment
and personnel records (including medical records) and information
relating to any Business Employee hired by Buyer.
(c) The party requesting the information and assistance
provided in clauses (a) and (b) of this Section 5.1 shall reimburse the
other party for all out-of-pocket costs and expenses incurred by such
party in providing such information and in rendering such assistance.
The access to files, books and records contemplated by this Section 5.1
shall be during normal business hours and upon not less than two
Business Days prior written request and shall be subject to such
reasonable limitations as the party having custody or control thereof
may impose to preserve the confidentiality of information contained
therein. Buyer agrees to preserve all Business Records and Governmental
Permits delivered to it by Seller for at least three (3) years after
the Closing Date.
5.2. Tax Reporting and Allocation of Consideration. Buyer and
Seller agree that the sale of the Purchased Assets hereunder is a fully
taxable sale for income tax purposes. Seller further agrees that
neither Buyer nor FSC Semiconductor Corporation will be treated on
Seller's federal income tax returns (or amended federal income tax
returns) as a member of any consolidated group of which Seller is or was
a member with respect to periods ending on or prior to the Closing Date
or beginning prior to and ending after the Closing Date. Buyer and
Seller recognize their mutual obligations pursuant to Section 1060 of
the Code to timely file IRS Form 8594 (the "Asset Acquisition
Statement") with each of their respective federal income tax returns.
Accordingly, Buyer and Seller agree to cooperate in the preparation of
the Asset Acquisition Statement for timely filing in each of their
respective federal income tax returns in accordance with a written
statement (the "Statement of Allocation") prepared in accordance with
Schedule 5.2 (to be attached at Closing), setting forth an allocation of
the Purchase Price among such Purchased Assets and the covenants not to
compete and not to solicit contained in Section 5.6 in accordance with
the provisions of Section 1060 of the Code and the Treasury Regulations
thereunder. The Statement of Allocation shall be prepared by Seller.
Seller shall deliver, subject to Buyer's prior review and written
approval the Statement of Allocation to Buyer at the Closing. If Buyer
approves the Statement of Allocation, then, unless otherwise prohibited
by law, all federal, state and local income tax returns of Buyer and
Seller shall be filed consistently with the allocations made pursuant to
the Statement of Allocation. If Buyer does not approve the Statement of
Allocation and if Buyer and Seller, after good faith negotiations,
cannot agree on the allocation of the consideration among the Purchased
Assets and covenants, then no Statement of Allocation shall be prepared,
and each party shall prepare and file its tax returns in accordance with
its own allocations. Seller and Buyer acknowledge and agree that (x)
Seller will be responsible for and perform all tax withholding, payment
and reporting duties with respect to any wages and other compensation
paid by Seller to any Business Employee in connection with the operation
of the Business prior to the Closing; and (y) Buyer will be responsible
for and perform all tax withholding, payment and reporting duties with
respect to any wages and other compensation paid by Buyer to any
employee in connection with the operation of the Business after the
Closing. Seller and Buyer agree to follow the Standard Procedure
specified in Rev. Proc. 96-60, whereby, among other things, each will be
responsible for the reporting duties with respect to its own wages and
compensation to employees in connection with the operation of the
Business.
5.3. Operating Agreements. On or prior to the Closing Date, Buyer
shall execute and deliver to Seller and Seller shall execute and deliver
to Buyer the following agreements (the "Operating Agreements"):
Technology Licensing and Transfer Agreement, Transition Services
Agreement, Fairchild Foundry Services Agreement, Revenue Side Letter,
Fairchild Assembly Services Agreement, National Foundry Services
Agreement, National Assembly Services Agreement, Mil/Aero Wafer and
Services Agreement, Shared Facilities Agreement (for South Portland
Site), Shared Services Agreement (for South Portland Site) and Shared
Services and Occupancy Agreement and the agreements contemplated by the
foregoing agreements.
5.4. Tax Matters. (a) Seller will be responsible for the
preparation and filing of (i) all Returns of any Fairchild Subsidiary
that are due (giving effect to valid extensions) on or before the
Closing Date or are due after the Closing Date for a taxable period that
ends on or before the Closing Date and (ii) all Returns for the Business
that are due (giving effect to valid extensions) after the Closing Date
for all taxable periods ending on or before the Closing Date. Seller
shall make all payments required with respect to any such Return as
shown or required to be shown thereon; provided, however, Seller and
Buyer will reimburse each other for all Taxes prorated in accordance
with Section 5.4 (c).
(b) Buyer will be responsible for the preparation and filing
of all other Returns of any Fairchild Subsidiary or relating to the
Business. Buyer will make all payments required with respect to any
such Return; provided, however, Seller and Buyer will reimburse each
other for all Taxes prorated in accordance with Section 5.4 (c).
(c) Taxes imposed on a Fairchild Subsidiary for any taxable
period that begins before and ends after the Closing Date shall be
allocated to and paid or caused to be paid by (i) Seller for the period
up to and including the day before the Closing Date, and (ii) Buyer for
the period beginning on the Closing Date. For purposes of this
Agreement, Taxes of any Fairchild Subsidiary for the period up to and
including the day before the Closing Date and for the period beginning
on the Closing Date shall be apportioned on a per diem basis in the case
of any such Taxes not measured or measurable in whole or in part with
reference to net or gross income, sales or receipts, capital expenses or
compensation expenses, and all other such Taxes shall be determined on
the basis of an interim closing of the books of the Fairchild Subsidiary
as of the end of the day before the Closing Date.
(d) Seller and Buyer shall provide reasonable cooperation and
information to each other in connection with (i) the preparation or
filing of any Return, amended Return, Tax election, Tax consent or
certification, or any claim for a Tax refund, (ii) any determination of
liability for Taxes, and (iii) any audit, examination or other
proceeding in respect of Taxes related to any Fairchild Subsidiary or
the Business. Such cooperation shall include providing copies of all
relevant Returns, together with accompanying schedules and related work
papers, documents relating to determinations by any Governmental
Authority and records containing the ownership and tax basis of
property, which either party may possess. Seller and Buyer shall make
available on a reasonable basis, employees of the Seller, Buyer, or any
Fairchild Subsidiary as the case may be, whose reasonable out-of- pocket
costs, if any, such as travel and lodging, shall be reimbursed by the
party to which such employees are made available. Seller and Buyer
shall at their own cost and expense preserve all Returns, schedules,
workpapers and all material records or other documents relating thereto
until the expiration of any applicable statute of limitations, including
extensions thereof, provided that notice of such extension is given to
the party which did not grant the extension. Seller and Buyer shall not
destroy or otherwise dispose of any Returns, schedules, workpapers,
information, records and documents without first providing the other
party a reasonable opportunity to review and copy the same. The party
requesting such information, records and documents shall bear the
reasonable out-of-pocket costs and expenses incurred in connection with
providing the same. For the Seller's fiscal year ending May 25, 1997,
Buyer shall at its own cost and expense complete and submit any Tax data
packages required by Seller consistent with past practices of Seller's
Tax Department. Any information obtained under this Section 5.4 shall
be kept confidential, except as may be otherwise necessary in connection
with the filing of Returns, claims for a Tax refund or in conducting any
audit, examination or other proceeding in respect of Taxes.
(e) Seller shall have the right, at its own expense, to
control any audit or examination by any Governmental Authority, to
initiate any claim for refund, to amend any Return, or to contest,
resolve and defend against any assessment, notice of deficiency, or
other adjustment or proposed adjustment relating to any Taxes for any
taxable period ending on or before the Closing Date, except that Seller
shall consult with Buyer and obtain Buyer's consent (which consent shall
not be unreasonably withheld) as to any of the foregoing if Buyer, any
of its Subsidiaries or any Fairchild Subsidiary may be adversely
affected by such action. Buyer shall promptly notify Seller of the
receipt of all notices, audits, examinations or other proceedings,
information or document requests, requests for conferences, meetings,
interviews or testimony of employees of Buyer or any Fairchild
Subsidiary and other correspondence in respect of Taxes related to any
Fairchild Subsidiary or the Business for any taxable period ending on or
before the Closing Date. Seller shall have the right, at its own
expense to participate in all conferences, meetings, interviews or
testimony of employees of Buyer or any Fairchild Subsidiary and other
correspondence in respect of Taxes related to any Fairchild Subsidiary
or the Business for any taxable period ending on or before the Closing
Date. With respect to any audit or other proceeding relating to Taxes
for taxable periods that begin before and end after the Closing Date
("Straddle Period Taxes"), Seller shall have the right, at its own
expense, to participate (i) in all conferences, meetings or proceedings
with any Governmental Authority, the subject matter of which is or
includes Straddle Period Taxes and (ii) in all appearances before any
court, the subject matter of which is or includes Straddle Period Taxes.
Buyer agrees not to settle or compromise any issue relating to Straddle
Period Taxes without Seller's consent (which consent shall not be
unreasonably withheld) unless Buyer first waives, in writing, any rights
to indemnification it may have under this Agreement relating to such
Straddle Period Taxes.
(f) Effective as of the Closing Date, Seller shall cause any
tax sharing agreements to which any Fairchild Subsidiary is a party to
be terminated as to such Fairchild Subsidiary and such Fairchild
Subsidiary shall have no current or continuing obligations under any
such agreement after the Closing Date.
5.5. Employee Matters. (a) Effective as of the Closing Date,
except for the Fab Employees, Buyer shall offer to employ all of the
Business Employees who are not otherwise employed by a Fairchild
Subsidiary on substantially the same terms and conditions (other than
the Benefit Plans set forth on item (c) of Schedule 3.5) as they were
employed immediately before the Closing Date; provided, that such offer
of employment with respect to any Business Employee who is on Medical
Leave as of the Closing Date shall only be effective if and when such
Business Employee is ready, willing and able to return to active duty
and provided further, that notwithstanding Buyer's offer of employment,
responsibility for the workers' compensation benefits of any Business
Employee shall be governed by Section 5.5(j). In addition, Buyer shall
offer to employ the Fab Employees in accordance with the terms and
conditions set forth on Schedule 5.5A. All of the Business Employees
who accept such offers of employment are hereinafter referred to as
"Transferred Employees" and shall be considered to become "Transferred
Employees" as of the Closing Date, except for such Business Employees
who are on Medical Leave or classified as a Fab Employee as of the
Closing Date, each of whom shall be considered to become a "Transferred
Employee" as of the date he or she returns to active duty with the Buyer
after the Closing Date. Nothing in this Section 5.5 shall limit Buyer's
authority to terminate the employment of any Business Employee at any
time after he or she becomes a Transferred Employee for any reason.
(b) Effective as of the Closing Date, Buyer shall take, or
cause to be taken, all action necessary and appropriate to establish
employee benefit plans for the benefit of Transferred Employees and
their eligible beneficiaries and dependents that correspond to, and that
are substantially similar in the aggregate (excluding equity based
features and the Benefit Plans set forth on item (c) of Schedule 3.5) to
Seller's Benefit Plans and Non-Subsidiary Foreign Plans set forth on
Schedule 3.19(a) and Schedule 3.19(k)(i) (such plans established by
Buyer are hereinafter referred to as "Buyer's Plans"). Except as
specifically provided otherwise in this Section 5.5 or as required by
law, each Transferred Employee and his or her eligible beneficiaries and
dependents shall cease to participate in and accrue benefits under
Seller's Benefit Plans and Non-Subsidiary Foreign Plans, and shall
become eligible to participate in and accrue benefits under Buyer's
Plans, as of the date such Transferred Employee becomes a Transferred
Employee. Except as specifically provided otherwise in this Section
5.5, Seller shall remain responsible for all liabilities or obligations
of any Seller Entity or Affiliate to the Business Employees or any of
their other present or former employees (or the Beneficiary of any such
individual) arising out of their employment relationship with any Seller
Entity or any Affiliate, including without limitation, claims asserted
under any Benefit Plan, Non- Subsidiary Foreign Plan or collective
bargaining agreement or claims for severance, bonuses or any other
benefits that must be paid as a result of the transactions contemplated
by this Agreement (whether or not such individual becomes a Transferred
Employee) or as a result of the termination of such employees by any
Seller Entity, including severance, bonuses or any other benefits
arising under the agreements with directors, officers and employees set
forth on Schedule 3.5 other than claims resulting from or arising out of
a failure of Buyer to comply with its obligations under this Section 3.5
other than claims resulting from or arising out of a failure of Buyer to
comply with its obligations under this Section 5.5. Buyer shall be
responsible for all liabilities relating to or arising out of Buyer's
Plans. Nothing in this Section 5.5 shall prevent Buyer from amending,
modifying or terminating any of Buyer's Plans at any time after the
Closing Date or prevent Seller from amending, modifying or terminating
any of Seller's Benefit Plans and Non-Subsidiary Foreign Plans at any
time after the date hereof; provided, if Seller makes any amendment or
modification to a Seller's Benefit Plan or Non-Subsidiary Foreign Plan
after the date hereof that increases materially the costs of providing
benefits thereunder to any Business Employee, the corresponding Buyer's
Plan need not incorporate such amendment or modification.
Notwithstanding the foregoing sentence, Buyer's Plans shall at all times
after the Closing Date treat pre-Closing service by Transferred
Employees with Seller and its affiliates in the same manner as service
with Buyer for all purposes under Buyer's Plans other than accrual of
benefits.
(c) Seller's Benefit Plans and Non-Subsidiary Foreign Plans
that are identified on Schedule 3.19(a) or Schedule 3.19(k)(i) as
Medical Plans, Dental Plans and other Welfare Benefit Plans shall be
responsible for all claims incurred by any Transferred Employee and any
eligible beneficiary or dependent thereof before the date such
Transferred Employee becomes a Transferred Employee (regardless of when
submitted), and the corresponding Buyer's Plans shall be responsible for
all claims incurred by any Transferred Employee and any eligible
beneficiary or dependent thereof on or after the date such Transferred
Employee becomes a Transferred Employee. Such Buyer's Plans shall
provide coverage to Transferred Employees and their eligible
beneficiaries and dependents without regard to any pre-existing
conditions except to the extent such pre-existing conditions were
subject to coverage limitations under the corresponding Seller's Benefit
Plans or Non-Subsidiary Foreign Plans, and shall give credit for all
deductibles, copayments and other out-of-pocket expenses incurred by
Transferred Employees under Seller's Benefit Plans and Non-Subsidiary
Foreign Plans during the portion of the applicable plan year that
precedes the date such Transferred Employees begin to be covered by the
corresponding Buyer's Plans. An individual receiving benefits under
Seller's Benefit Plans pursuant to the continuation coverage
requirements of Section 601 et seq. of ERISA and section 4980B of the
Code as a result of ceasing to be an eligible beneficiary or dependent
of a Transferred Employee shall be considered for all purposes of this
Section 5.5 to be an eligible beneficiary or dependent, as applicable,
of such Transferred Employee during the period such continuation
coverage is required to be provided. It is understood that a claim for
a benefit under any such plan shall be deemed to be incurred (i) in the
case of a claim for life insurance or other death benefits, on the date
of death, (ii) in the case of a claim for disability benefits, on the
date the later of the date the relevant disability status is deemed to
begin and the date any applicable waiting period is satisfied, (iii) in
the case of a claim for medical, dental, vision care, employee
assistance, family care and other benefits involving the rendering of
services or the reimbursement of the cost of services, on the date the
relevant service is rendered, and (iv) in the case of a claim for
prescription drug benefits, on the date the relevant prescription is
filled.
(d) Notwithstanding the provisions of Sections 5.5(b) and
(c), if Buyer determines that it is not practicable for it to establish
any of the Buyer's Plans corresponding to the Seller's Benefit Plans set
forth on Schedule 5.5D as of the Closing Date, Seller shall amend such
corresponding Seller's Benefit Plan so as to permit the continued
participation of Transferred Employees therein until Buyer is able to
establish such Buyer's Plan (and Buyer shall do so as soon as reasonably
practicable after the Closing Date).
(e) (i) Effective as of the Closing Date, Buyer shall
establish a defined contribution retirement plan qualified under section
401(a) of the Code for the benefit of Transferred Employees located in
the United States ("Buyer's Savings Plan"). Seller shall take all
actions necessary or appropriate so that, effective as of the date any
participant in Seller's Retirement and Savings Program (the "RASP")
becomes a Transferred Employee, such participant shall be fully vested
in his or her accrued benefit under the RASP. Seller agrees, as soon as
practicable following the Closing Date, to direct the trustee of the
trust funding the RASP to transfer to the trustee of the trust funding
the Buyer's Savings Plan in one or more separate transfers, the account
balances as of the date of transfer attributable to the participants in
the RASP who are Transferred Employees, plus the portion of any
unallocated contributions and trust earnings attributable to such
participants who are Transferred Employees. Unless otherwise agreed to
by Buyer and Seller, such account balances shall be transferred in cash
(except to the extent such account balances are invested in participant
notes which shall be transferred in kind); provided, that with respect
to any portion of such accounts invested in Insurance Policy #61896
issued by Confederation Life Insurance Company, Seller shall transfer
such amounts in kind or in cash, as and when reasonably practicable and
prudent. Following the transfer to Buyer's Savings Plan of the account
balances as provided herein, Buyer's Savings Plan shall be solely
liable, to the extent of the account balances transferred and any
benefits accruing thereafter, for the payment of benefits to the
Transferred Employees whose accounts were so transferred.
(ii) Seller and Buyer shall, in connection with the
transfers required by this Section 5.5(e), cooperate in making any and
all appropriate filings required under the Code or ERISA, and the
regulations thereunder, and any applicable securities laws, and shall
take all such action as may be necessary and appropriate to cause such
transfers to take place as soon as practicable after the Closing Date;
provided, however, that no such transfer shall take place until after
the later of (i) the expiration of a 30-day period following the date of
filing of any required Form 5310 (or any successor form thereto) with
the IRS and (ii) the earlier of (a) the receipt of a favorable IRS
determination letter with respect to the qualification of the Buyer's
Savings Plan under Section 401(a) of the Code or (b) the receipt by
Seller of an opinion of Buyer's counsel to the effect that Buyer's
Savings Plan is intended in good faith to be qualified under Section
401(a) of the Code and that an application for an IRS determination
letter to that effect has been filed within the remedial amendment
period.
(iii) Seller shall be responsible for making all
matching contributions applicable to all employee contributions made to
the RASP by Transferred Employees prior to Closing. Such contribution
shall be made prior to the time of the asset transfers required by
Section 5.5(e)(i). Seller will be responsible for making a "Pro Rata
Profit Sharing Contribution" (as described below) to the RASP on behalf
of the Transferred Employees prior to the time of the asset transfers
required by Section 5.5(e)(i). The Pro Rata Profit Sharing Contribution
shall mean a good faith estimate of the amount to be contributed under
the profit-sharing contribution formula utilized under the RASP for the
plan year that begins before and ends after the Closing Date but applied
only to the compensation earned by the Transferred Employees from the
Seller during such plan year.
(f) Except as otherwise expressly set forth in this
subsection (f), Buyer shall be responsible for paying awards to
Transferred Employee under the Seller's Key Employee Incentive Plan
("KEIP") for the fiscal year of Seller that begins before and ends after
the Closing Date (the "Overlapping Fiscal Year"), including, without
limitation, those liabilities set forth on Schedule 1-A/1-B under the
heading "Assumed by FSC." Buyer shall pay such amounts in accordance
with the terms of the KEIP, except that (i) employment with Buyer shall
be treated as employment with Seller for purposes of determining
eligibility to receive an award under the KEIP, and (ii) the amount of
each such award shall be determined by (A) multiplying the Performance
Factor (as defined below) times the applicable Transferred Employee's
Annual Compensation (as defined below) times the applicable Transferred
Employee's Participation Percentage (as defined in the KEIP), and then
(B) multiplying the result of (A) by a fraction, the numerator of which
is the number of days during the Overlapping Fiscal Year that precede
the Closing Date, and the denominator of which is the total number of
days during the Overlapping Fiscal Year. For purposes of this Section
5.5(f): "Performance Factor" means the actual performance with respect
to the performance goals under the KEIP for the Overlapping Fiscal Year,
measured by reference solely to performance during the portion of the
Overlapping Fiscal Year that precedes the Closing Date, as reasonably
determined by Buyer; and a Transferred Employee's "Annual Compensation"
means such Transferred Employee's Compensation (as defined in the KEIP)
treating compensation from Buyer after the Closing Date as if it were
compensation from Seller. The KEIP awards payable pursuant to this
Section 5.5(f) shall be paid following the end of the Overlapping Fiscal
Year in accordance with past practice (but in no event more than 45 days
after the end of the Overlapping Fiscal Year). Seller shall be
responsible for paying all awards to Transferred Employees under
Seller's KEIP to the extent such awards were awarded with respect to a
fiscal year prior to the Overlapping Fiscal Year and have been deferred
by the applicable recipient, including, without limitation, those
liabilities set forth on Schedule 1-A/1-B under the heading "Stay with
NSC."
(g) Seller shall remain responsible for providing scholarship
benefits to any child of a Transferred Employee who is receiving such
benefits as of the date such individual becomes a Transferred Employee.
(h) Buyer shall permit Transferred Employees to use after the
Closing Date all vacation that is accrued but unused as of the Closing
Date under Seller's vacation pay policies and practices. As soon as
practicable following the Closing, Seller shall provide Buyer with a
list of the amount of each Transferred Employee's accrued vacation as of
the Closing Date.
(i) Buyer shall be responsible for paying awards for Seller's
third and fourth fiscal quarters for the fiscal year ending May 25, 1997
under Seller's Success Sharing Plan to all eligible Transferred
Employees in accordance with the terms of such Plan. Seller shall be
responsible for paying awards under Seller's Success Sharing Plan to all
eligible employees, other than Transferred Employees, including, without
limitation, those awards set forth on Schedule 1-A/1-B under the heading
"Stay with NSC." Seller shall pay all sales incentive compensation
earned by any Transferred Employee before he or she becomes a
Transferred Employee, as determined in accordance with the terms of the
applicable sales incentive plan of Seller. Stock options granted under
Seller's Stock Option Plan ("Seller's Stock Plan") to any Transferred
Employee at least six months before, and that remain outstanding and
unexercised as of, the date he or she becomes a Transferred Employee
shall be fully vested and exercisable as of such date and shall remain
exercisable until, and shall terminate upon, the close of business on
the ninetieth day following such date, all in accordance with the terms
of Seller's Stock Plan.
(j) Buyer shall be responsible for any workers' compensation
claims incurred by any Transferred Employee whether incurred prior to,
upon or after Closing. A workers' compensation claim shall be
considered "incurred" on the first date that there is objective evidence
of the event or condition that is the basis of such claim.
(k) Seller and Buyer will take all action necessary to
facilitate the treatment as deferred compensation for income tax
purposes of all KEIP payments previously deferred that otherwise would
have become payable prior to the Seller's 1997 fiscal year, KEIP awards
otherwise payable for the Overlapping Fiscal Year, certain stay-on
bonuses, sales bonuses, participation in sales price pools, management
incentive bonuses, retention bonus plan payments, and enhanced benefits
under performance incentive plans which come due to be paid or delivered
by any Seller Entity to certain Transferred Employees previously
identified to National Semiconductor, with each such Transferred
Employee to be entitled to designate the amount of such payments to
which he or she is entitled to be so treated and to designate the manner
in which such payments shall be made in order to achieve such treatment.
As of the Closing Date, Buyer shall assume all liabilities of Seller
with respect to such designated payments, and Buyer and Seller shall use
their best efforts to cause such Transferred Employees to consent to
such assumption and release Seller from such liabilities. Buyer shall
establish one or more "rabbi" trusts to provide for payment of such
liabilities and each such trust shall allow the investment of its assets
in stock of Buyer or any of its Affiliates or designees. As promptly as
practicable on or after Closing, Seller shall contribute to such trust
or trusts a cash amount equal to the amount of such assumed liabilities
as of the Closing Date. In the event that Seller shall pay any awards
to Transferred Employees under Seller's KEIP with respect to the
Overlapping Fiscal Year, Buyer shall reimburse Seller for such payments.
Seller and Buyer agree that Seller shall be entitled to any and all tax
deductions attributable to satisfaction of such assumed liabilities,
Buyer shall be entitled to any and all tax deductions attributable to
satisfaction by Buyer of any other liabilities relating to such deferred
compensation, that they will cooperate with one another in sharing any
information needed to assure the foregoing, and that neither of them
shall take any position on any tax return or take any other action
inconsistent with the foregoing.
(l) Notwithstanding the foregoing, to the extent required by
applicable law, effective as of the Closing Date, Buyer shall assume all
liabilities arising under German pension plan identified on Schedule
3.19(K) with respect to Transferred Employees.
(m) Effective as of the Closing Date, all Transferred
Employees shall cease to participate in the National Stock Purchase Plan
and Seller shall cause all employee contributions not utilized to
purchase National stock prior to the Closing Date to be refunded to
Transferred Employees within 30 days.
5.6. Covenant Not to Compete; Nonsolicitation. (a) From and after
the Closing Date, Seller will not and will cause its Affiliates not to,
for its own account or for the account of others, directly or
indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of any business conducting
business under the name "Fairchild," or any variant thereof, other than
Fairchild Parent and its Affiliates. For a period of five years from
and after the Closing Date, Seller will not and will cause its
Affiliates (other than natural persons) not to, other than in the
performance of Seller's obligations under the Operating Agreements, for
its own account or for the account of others, directly or indirectly (i)
engage in any Competing Business, or (ii) own, manage, operate, join,
control or participate in the ownership, management, operation or
control of any person or entity who or which at any relevant time during
such period is engaged in any Competing Business. Ownership of not more
than 5% of the outstanding capital stock of any company registered under
Section 12 of the Securities Exchange Act of 1934 shall not be a
violation of this Section 5.6(a). Notwithstanding the foregoing, in the
event that Buyer breaches any of the Fairchild Foundry Services
Agreement, Fairchild Assembly Services Agreement, or Mil/Aero Wafer
Services Agreement included in the Operating Agreements, which breach
gives rise to a right of termination of such agreement, Seller may
manufacture or assemble the products or perform the services which Buyer
is not providing under such agreement as a result of such breach, solely
to satisfy its own needs for such products or services and not for the
purpose of providing such products or services to others.
(b) As used herein, "Competing Business" shall mean the
design, production, manufacture, assembly, testing, distribution,
marketing or sale for Seller's own account or for the account of others
of any product that has substantially the same specifications as any
Business Product or the purchase for resale or repackaging of any
Business Product except pursuant to the Mil/Aero Wafer Services
Agreement of even date herewith between Buyer and Seller.
(c) For a period of one year from and after the Closing Date,
Seller will not and will cause its Affiliates not to, directly or
indirectly, solicit or attempt to solicit any person or entity who is or
has been a customer, supplier, licensor, licensee or business relation
of the Business prior to or during such period to cease its particular
business relationship with the Business.
(d) Except as specifically contemplated in Section 5.5, for a
period of two years from the Closing Date with respect to any director,
officer, employee or agent located in Maine and for a period of one year
from and after the Closing Date with respect to any of the foregoing
located outside of Maine, neither party hereto will, and the parties
hereto will cause their respective Affiliates not to, directly or
indirectly, solicit or induce any person or entity who is a director,
officer, employee or agent of the other party or any of its Affiliates
to terminate his, her or its relationship with, or employment by, such
entity.
(e) Notwithstanding the foregoing, Seller may acquire any
business or entity that engages in a Competing Business (an "Acquired
Business") provided that (i) not more than fifteen percent (15%) of the
revenues of the Acquired Business during the twelve calendar months
immediately preceding such acquisition are derived from any Competing
Business and (ii) Seller uses its diligent good faith efforts to dispose
of the portion of the Acquired Business which engages in a Competing
Business (the "Competitive Portion") as soon as commercially
practicable.
(f) For a period of thirty-nine (39) months following
Closing, Buyer will not develop, manufacture (except for Seller under
the Fairchild Foundry Services Agreement or Fairchild Assembly Services
Agreement each of even date herewith between Buyer and Seller), market
or sell any integrated circuit that has substantially the same
specifications as any of Seller's integrated circuit products identified
in Schedule 5.6 hereto; provided, however, that this provision shall not
prohibit Buyer from acquiring and operating any Person that at the time
of acquisition develops, manufactures, markets or sells any product that
has substantially the same specifications as any of Seller's products
identified on Schedule 5.6.
(g) The restrictive covenants contained in this Section are
covenants independent of any other provision of this Agreement and the
existence of any claim which any party to this Agreement may allege
against any other party to this Agreement, whether based on this
Agreement or otherwise, shall not prevent the enforcement of these
covenants. Each of Seller and Buyer agrees that the other's remedies at
law for any breach or threat of breach of the provisions of this Section
will be inadequate, and that each party shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Section and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which such party may be entitled at law
or equity. In the event of litigation regarding the covenant not to
compete, the prevailing party in such litigation shall, in addition to
any other remedies the prevailing party may obtain in such litigation,
be entitled to recover from the other party its reasonable legal fees
and out of pocket costs incurred by such party in enforcing or defending
its rights hereunder. The length of time for which this covenant not to
compete shall be in force shall not include any period of violation or
any other period required for litigation during which the party seeking
to enforce this covenant seeks to enforce this covenant. Should any
provisions of this Section be adjudged to any extent invalid by any
competent tribunal, such provision will be deemed modified to the extent
necessary to make it enforceable.
5.7. Material Consents. Seller and Buyer agree to use their
respective Best Efforts to obtain prior to the Closing all of the
consents of third Persons which have been disclosed, or are required to
be disclosed, on Schedule 3.3, which consents shall be in a form
reasonably satisfactory to Seller and Buyer.
5.8. Notice to Customers. Seller agrees, in consultation with
Buyer, to promptly notify customers of the Business of the consummation
of the transactions contemplated by this Agreement and to reasonably
assist Buyer, at Buyer's expense, in making arrangements with such
customers for the payment of Buyer's accounts receivable (other than the
Accounts Receivable) in a manner satisfactory to Buyer.
5.9. Confidentiality. For a period of five years after the Closing
Date, Seller agrees that it will keep confidential all of Buyer's
Proprietary Information and Buyer agrees that it will keep confidential
all of Seller's Proprietary Information except that Buyer shall not be
required to keep confidential Proprietary Information relating to the
Business and conveyed to Buyer as part of the Purchased Assets; such
Proprietary Information shall include any Proprietary Information
obtained in connection with the Operating Agreements. The obligation of
each party to keep such Proprietary Information confidential shall not
apply to any information which (i) is or becomes available to such party
from a source other than the other party (or any Person who is bound by
a confidentiality agreement with such other party with respect to such
information), (ii) is or becomes available to the public other than as a
result of disclosure by such party or its agents, or (iii) is required
to be disclosed under applicable law or judicial process; provided,
however, that if a party is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demand or similar process) to disclose
any of such information, to the extent permitted by law, such party will
provide the other party with prompt written notice to, and will
cooperate with, such other party so that such other party may seek a
protective order or other appropriate remedy; provided, further, that in
the event such other party waives compliance with the provisions of this
Section 5.9, such party shall disclose only that portion of the
confidential information which is legally required and will exercise its
Best Efforts to seek confidential treatment for such information.
Notwithstanding anything in this Section 5.9 to the contrary, in the
event that any such information is also subject to a limitation on
disclosure or use contained in another written agreement between Buyer
and Seller which is more restrictive than the limitation contained in
this Section 5.9, then the limitation in such agreement shall supersede
this Section 5.9.
5.10. Estoppel Certificates. The parties shall each use, and
Seller shall cause the Seller Entities to use, their respective Best
Efforts to obtain on or prior to the Closing estoppel certificates and
lessor lien waivers (such estoppel certificates and waivers not to be
conditioned on any increased rental, other payment, reduced term, or
other change of lease terms), if applicable, in a form and substance
reasonably acceptable to Buyer and its lenders and dated a date
occurring not more than twenty (20) days prior to the Closing Date (the
"Estoppel Certificates"), from each real property lessor listed on
Schedule 3.16.
5.11. Title Policies. The parties shall each use, and Seller
shall cause the Seller Entities to use, their respective Best Efforts to
obtain on or prior to the Closing, at standard rates, good and valid,
irrevocable ALTA extended form title insurance policies (or signed pro
forma policies) (collectively, the "Title Policies" issued by a
nationally recognized title company or companies reasonably acceptable
to Buyer (collectively, the "Title Company"), insuring (or committing
the Title Company to insuring) the Buyer's fee title to each parcel of
the Owned Real Estate in such amounts which are equal to the current
fair market values of each of such parcels, subject to no Encumbrances
or exceptions to title other than the than the Permitted Fee Title
Exceptions, together with such endorsements as are customary for
commercial transactions of this type including without limitation a
comprehensive endorsement with respect to easements and restrictions of
record. Each of the Title Policies shall be effective as of the date
and time of the recording of the deed to the parcel or parcels of the
Owned Real Estate to which it relates. The cost of obtaining such Title
Policies shall be paid one-half by Seller and one-half by Buyer.
5.12. Survey. The parties shall each use, and Seller shall
cause the Seller Entities to use, their respective Best Efforts to
obtain no later than fifteen days prior to Closing, as-built surveys of
each parcel of the Owned Real Estate (the "Surveys") prepared by
surveyors registered in the jurisdiction in which the surveyed property
is located and otherwise satisfactory to Buyer (the "Surveyor") in
accordance with the 1992 minimum standard detail requirements for
ALTA/ACSM surveys, Class A or B or Urban, dated as of a date after
January 20, 1997 showing, with respect to each parcel of the Owned Real
Estate and the appurtenances to such parcel, access to and from a
dedicated and accepted public right-of-way, the correct location and
dimensions of all improvements (including fences and driveways), all
easements, rights-of-way and setback lines, the correct location and
dimensions of all alleys and streets, all other matters of record or
visible on the ground affecting such parcel of the Owned Real Estate,
and such other information as may be requested by Buyer. The Surveys
shall: (i) show that other than Permitted Fee Title Encumbrances, all
structures and other improvements on the Principal Premises are (I)
within the lot lines and do not encroach upon the properties of any
other Person, and (II) in compliance with applicable zoning laws
relating to setback and height restrictions, (ii) show no Encumbrances
other than Permitted Fee Title Encumbrances, (iii) be certified to the
Buyer and its assigns, the Investor and any mortgage lender to the same,
and the Title Company, and (iv) comply with any requirements imposed by
the Title Company as a condition to the removal of any survey exception
from the general exceptions to the Title Policy covering such of the
Owned Real Estate as is shown on the property surveyed. The cost of
obtaining such Surveys shall be paid one-half by Seller and one-half by
Buyer.
5.13. Accounts Receivable and Related Claims. From and after
the Closing, Buyer (i) shall use its Best Efforts to assist Seller, upon
Seller's reasonable request, in collecting the Accounts Receivable and
(ii) shall not (A) without the prior written consent of Seller, waive or
settle any claims or rights which constitute Excluded Assets, including,
without limitation, claims with respect to Accounts Receivable or (B)
take any action to interfere with or impair the collection by Seller of
any claims or rights which constitute Excluded Assets, including,
without limitation, claims with respect to Accounts Receivable.
ARTICLE VI
CLOSING
6.1. Seller's Closing Deliveries. On the Closing Date, Seller
shall deliver, or execute and deliver, to Buyer:
(a) the Operating Agreements;
(b) an Assumption Agreement and Bill of Sale substantially in
the form set forth in Exhibit 6.1 (the "Bill of Sale") with respect to
the Purchased Assets (other than the Non-Assignable Assets);
(c) special warranty deeds in the customary and proper form
for recording duly executed and acknowledged so as to convey to Buyer
good and marketable title to the Principal Premises free and clear of
all Encumbrances other than Permitted Fee Title Exceptions;
(d) all of the consents of third Persons described on
Schedule 7.5 of the Recap Agreement; and
(e) any documents or instruments as Buyer may reasonably
request or as may be otherwise necessary or desirable to evidence and
effect the sale, assignment, transfer, conveyance and delivery of the
Purchased Assets (other than the Non-Assignable Assets) to Buyer and to
put Buyer in actual possession or control of the Purchased Assets (other
than the Non-Assignable Assets).
6.2. Buyer's Closing Deliveries. On the Closing Date, Buyer shall
deliver, or execute and deliver, to Seller:
(a) the Operating Agreements;
(b) the Assumption Agreement;
(c) the Bill of Sale;
(d) the Purchase Price Note;
(e) a certificate for 100 shares of Buyer's Common Stock; and
(f) any documents or instruments as Seller may reasonably
request or as may be otherwise necessary or desirable to evidence and
effect the assumption by Buyer of the Assumed Liabilities.
ARTICLE VII
INDEMNIFICATION
7.1. Indemnification By Seller. Seller hereby agrees to indemnify
and hold harmless Buyer from and against any Damages arising out of or
resulting from (i) the Excluded Liabilities or (ii) the breach by Seller
of any covenant contained in this Agreement or in any Operating
Agreement.
7.2. Indemnification by Buyer. Buyer hereby agrees to indemnify
and hold harmless Seller from and against any Damages arising out of or
resulting from (i) the Assumed Liabilities or (ii) the breach by Buyer
of any covenant contained in this Agreement or in any Operating
Agreement.
7.3. General Indemnification Procedures.
(a) In the event that any party incurs or suffers any Damages
with respect to which indemnification may be sought by such party
pursuant to this Article VII, the party seeking indemnification (the
"Indemnitee") must assert the claim by giving written notice (a "Claim
Notice") to the party from whom indemnification is sought (the
"Indemnitor"). The Claim Notice must state the nature, basis and amount
(if known) of the claim in reasonable detail based on the information
available to the Indemnitee and, if the Claim Notice is being given with
respect to a third party claim, it must be accompanied by a copy of any
written notice of the third party claimant. If the Claim Notice is
being given by reason of any third party claim, it shall be given in a
timely manner but in no event more than 30 days after the filing or
other written assertion of any such claim against the Indemnitee, but
the failure of the Indemnitee to give the Claim Notice within such time
period shall not relieve the Indemnitor of any liability for
indemnification under this Article VII, except to the extent that the
Indemnitor is prejudiced thereby. If the amount of the claim is not
known at the time the Claim Notice is given, the Indemnitee shall also
give notice of such amount to the Indemnitor at such time as the amount
of the claim is reasonably ascertainable. Each Indemnitor to whom a
Claim Notice is given shall respond to any Indemnitee that has given a
Claim Notice (a "Claim Response") within 30 days (the "Response Period")
after the date that the Claim Notice is received by Indemnitor. Any
Claim Response shall specify whether or not the Indemnitor given the
Claim Response disputes the claim described in the Claim Notice in whole
or in part. If any Indemnitor fails to give a Claim Response within the
Response Period, such Indemnitor shall be deemed not to dispute the
claim described in the related Claim Notice. If any Indemnitor elects
not to dispute a claim described in a Claim Notice, whether by failing
to give a timely Claim Response or otherwise, then such claim shall be
conclusively deemed to be an obligation of such Indemnitor. If any
Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such
Indemnitor shall pay to such Indemnitee within 30 days after the last
day of the applicable Response Period (or at such later time as the
amount is ascertainable) the amount to which such Indemnitee shall be
entitled. If there shall be a dispute as to the amount or manner of
indemnification under this Agreement, the Indemnitor and the Indemnitee
shall seek to resolve such dispute through negotiations and, if such
dispute is not resolved within 20 days, the Indemnitee may pursue
whatever legal remedies may be available for the recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or any
part of any indemnification obligation on or before the later to occur
of (x) 30 days after the last day of the applicable Response Period, and
(y) if the Claim Notice relates to Damages that have not been liquidated
as of the date of the Claim Notice, the date on which all or any part of
such Damages shall have become liquidated and determined, then the
Indemnitor shall also be obligated to pay to the Indemnitee interest on
the unpaid amount for each day during which the obligation remains
unpaid at an annual rate of ten percent.
(b) The Indemnitee shall provide to the Indemnitor on request
all information and documentation reasonably necessary to support and
verify any Damages that the Indemnitee believes give rise to the claim
for indemnification hereunder and shall give the Indemnitor reasonable
access to all books, records and personnel in the possession or under
the control of the Indemnitee that would have bearing on such claim.
(c) Except as hereinafter provided, in the case of third
party claims for which indemnification is sought, the Indemnitor shall
have the option: (x) to conduct any proceedings or negotiations in
connection therewith, (y) to take all other steps to settle or defend
any such claim (provided that the Indemnitor shall not settle any such
claim without the consent of the Indemnitee (which consent shall not be
unreasonably withheld, it being understood that it shall not be
unreasonable for the Indemnitee to withhold its consent from any
settlement which (1) commits the Indemnitee to take, or to forbear to
take, any action, or (2) does not provide for a complete release of the
Indemnitee by such third party)), and (z) to employ counsel to contest
any such claim or liability in the name of the Indemnitee or otherwise.
In any event, the Indemnitee shall be entitled to participate at its own
expense and by its own counsel (a "Voluntary Participation") in any
proceedings relating to any third party claim. The Indemnitor shall,
within 45 days of receipt of the Claim Notice, notify the Indemnitee of
its intention to assume the defense of the claim (a "Defense Notice").
Until the Indemnitee has received the Defense Notice, the Indemnitee
shall take reasonable steps to defend (but may not settle) the claim.
If the Indemnitor declines to assume the defense of any such claim or
fails to give a Defense Notice within 45 days after receipt of the Claim
Notice, the Indemnitee shall defend against the claim but shall not
settle such claim without the consent of the Indemnitor (which consent
shall not be unreasonably withheld). The expenses of all proceedings,
contests or lawsuits (other than those incurred in a Voluntary
Participation) with respect to claims as to which a party is entitled to
indemnification under this Article VII shall represent indemnifiable
Damages under this Agreement. Regardless of which party shall assume
the defense of the claim, the parties shall cooperate fully with one
another in connection therewith. Notwithstanding the foregoing, the
Indemnitor shall not be entitled (except with the consent of the
Indemnitee) to take any of the actions referred to in clauses (x), (y)
or (z) of the first sentence of this subparagraph unless: (a) the third
party claim involves principally monetary damages; and (b) the
Indemnitor shall have expressly agreed in writing that, as between the
Indemnitor and the Indemnitee, the Indemnitor shall be solely obligated
to satisfy and discharge such third party claim. Damages payable
hereunder shall be appropriately adjusted to reflect the receipt of
insurance proceeds, tax benefits and detriments and proceeds received
with respect to condemnation, expropriation or eminent domain
proceedings.
ARTICLE VIII
MISCELLANEOUS
8.1. Nonsurvival of Representations. The representations and
warranties of Buyer and Seller contained in this Agreement shall
terminate upon the Closing. The covenants and agreements of Buyer and
Seller contained in this Agreement shall survive the Closing.
8.2. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given (i) three
Business Days after mailing if mailed by certified or registered mail,
return receipt requested, (ii) one Business Day after delivery to
Federal Express or other nationally recognized overnight express
carrier, if sent for overnight delivery with fee prepaid, (iii) upon
receipt if sent via facsimile with receipt confirmed, or (iv) upon
receipt if delivered personally, addressed as follows or to such other
address or addresses of which the respective party shall have notified
the other:
If to Seller, to:
National Semiconductor Corporation
2900 Semiconductor Drive
Santa Clara, CA 95052
Attention: General Counsel
Fax No.: (408) 733-0293
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Barry A. Bryer
Fax No.: (212) 403-2000
If to Buyer, to:
Fairchild Semiconductor Corporation
333 Western Avenue
Portland, ME 04106
Attention: General Counsel, mail stop 01-00
Fax No.: (207) 761-6020
With copies to:
Citicorp Venture Capital Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: Richard M. Cashin, Jr.
Fax No.: 212-888-2940
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: G. Daniel O'Donnell
Fax No.: 215-994-2222
8.3. Expenses. Except as otherwise provided in this Agreement and
in the Recap Agreement, each party to this Agreement will bear all the
fees, costs and expenses which are incurred by it in connection with the
transactions contemplated hereby, whether or not such transactions are
consummated, provided that Seller and Buyer shall bear equally all Taxes
(other than income Taxes) and related charges, all fees for any
necessary consents or approvals of any Governmental Authority, and all
recording and filing fees, in each case that may be imposed by reason of
the sale, transfer, assignment or delivery of the Purchased Assets.
8.4. Entire Agreement. The agreement of the parties, which is
comprised of this Agreement and the Schedules hereto and the documents
referred to herein, sets forth the entire agreement and understanding
between the parties and supersedes any prior agreement or understanding,
written or oral, relating to the subject matter of this Agreement.
8.5. Assignment; Binding Effect; Severability. This Agreement may
not be assigned by any party hereto without the written consent of the
other party, provided, however that Buyer may assign its rights
hereunder as collateral security to any bona fide financial institution
which is engaged in financing in the ordinary course providing financing
to consummate the transactions contemplated hereby or any financial
institution which is engaged in financing in the ordinary course through
whom such financing is refunded, replaced, or refinanced and any of the
foregoing financial institutions may, in enforcing its rights in
connection with such financing, assign Buyer's rights or cause Buyer to
assign its rights hereunder in connection with a sale of Buyer or its
parent or the business in the form then being conducted by Buyer
substantially as an entirety; and provided, further, Buyer may assign
its rights hereunder, in whole or in part, but subject to all
limitations contained herein, to one or more subsidiaries of Buyer,
provided that, in any such case, Buyer gives Seller prior written notice
of such assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the successors, legal
representatives and permitted assigns of each party hereto. The
provisions of this Agreement are severable, and in the event that any
one or more provisions are deemed illegal or unenforceable the remaining
provisions shall remain in full force and effect unless the deletion of
such provision shall cause this Agreement to become materially adverse
to any party, in which event the parties shall use Best Efforts to
arrive at an accommodation which best preserves for the parties the
benefits and obligations of the offending provision.
8.6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws (as opposed
to the conflicts of laws provisions) of the State of New York.
8.7. Execution in Counterparts. This Agreement may be executed in
any number of counterparts with the same effect as if the signatures
thereto were upon one instrument.
8.8. Public Announcement. Neither Seller nor Buyer shall, without
the approval of the other party hereto, make any press release or other
public announcement concerning the terms of the transactions
contemplated by this Agreement, except as and to the extent that any
such party shall be so obligated by law, in which case such party shall
use its Best Efforts to advise the other party thereof and the parties
shall use their Best Efforts to cause a mutually agreeable release or
announcement to be issued; provided that the foregoing shall not
preclude communications or disclosures necessary to (a) implement the
provisions of this Agreement (including the Financing) or (b) comply
with accounting, securities laws and Securities and Exchange Commission
disclosure obligations.
8.9. No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended to or shall (i) confer on any Person
other than the parties hereto and their respective successors or
permitted assigns any rights (including third party beneficiary rights),
remedies, obligations or liabilities under or by reason of this
Agreement, or (ii) constitute the parties hereto as partners or as
participants in a joint venture. This Agreement shall not provide third
parties with any remedy, claim, liability, reimbursement, cause of
action or other right in excess of those existing without reference to
the terms of this Agreement.
8.10. Headings. The headings preceding the text of the
sections and subsections hereof are inserted solely for convenience of
reference, and shall not constitute a part of this Agreement, nor shall
they affect its meaning, construction or effect.
8.11. Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to
carry out the provisions and purposes of this Agreement and the
transactions contemplated hereby.
8.12. Amendment and Waiver. The parties may by mutual
agreement amend this Agreement in any respect, and any party, as to such
party, may (a) extend the time for the performance of any of the
obligations of any other party, (b) waive any inaccuracies in
representations by any other party, (c) waive compliance by any other
party with any of the agreements contained herein and performance of any
obligations by such other party, and (d) waive the fulfillment of any
condition that is precedent to the performance by such party of any of
its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the party
against whom enforcement of the same is sought.
IN WITNESS WHEREOF, each of Buyer and Seller has caused this
Agreement to be duly executed on its behalf by its duly authorized
officer as of the day and year first written above.
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ DONALD MACLEOD
Donald Macleod
Executive Vice President and
Chief Financial Officer
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
Joseph R. Martin
Executive Vice President and
Chief Financial Officer
EXHIBIT 10.3
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement ("Agreement") is entered
into this 11th day of March, 1997 by and between NATIONAL SEMICONDUCTOR
CORPORATION, a Delaware corporation having a principal place of business
at 2900 Semiconductor Drive, Santa Clara, California 95119 (hereinafter
"National") and [FAIRCHILD SEMICONDUCTOR CORPORATION], a Delaware
corporation having a principal place of business at 333 Western Avenue,
South Portland, Maine 04106 (hereinafter "Fairchild"). National and
Fairchild may be referred to herein as a "Party" and/or the "Parties" as
the case may require.
RECITALS
WHEREAS, the parties have entered into that certain Asset
Purchase Agreement, dated the date hereof (hereinafter "Purchase
Agreement"), under which Fairchild is acquiring certain of the assets of
National's Logic, Memory, and Discrete Power and Signal Technologies
Business Units as historically conducted and accounted for (including
Flash Memory but excluding Public Networks, Programmable Products and
Mil Logic Products) (the "Business"); and
WHEREAS, pursuant to the transactions contemplated in the
Purchase Agreement, Fairchild is acquiring National's manufacturing
facilities in South Portland, Maine (excluding the 8-inch fab and
related facilities); West Jordan, Utah; Penang, Malaysia; and Cebu,
Philippines (the "Facilities"); and
WHEREAS, after the Closing Date Fairchild will own and operate
the Facilities; and
WHEREAS, National has provided certain services to the
Business in the past; and
WHEREAS, in order to support the continued and uninterrupted
operation of the Business following the Closing, the parties desire to
enter into this Agreement, pursuant to which National will provide, for
the time periods and consideration described below, certain of the
services that have been provided by National to the Business prior to
the Closing Date.
NOW, THEREFORE, in furtherance of the foregoing premises and
in consideration of the mutual covenants and obligations hereinafter set
forth, the parties hereto, intending to be legally bound hereby, do
agree as follows:
IX DEFINITIONS
9.1. Closing Date: The date of closing of the transactions
described in the Purchase Agreement.
9.2. Capitalized terms not defined herein shall have the
meaning set forth in the Purchase Agreement.
9.3. Fairchild: [Fairchild Semiconductor Corporation] and
its Subsidiaries.
9.4. National: National Semiconductor Corporation and its
Subsidiaries.
9.5. Subsidiary: Any corporation, partnership, joint venture
or similar entity more than fifty percent (50%) owned or controlled by a
Party hereto, provided that any such entity shall no longer be deemed a
Subsidiary after such ownership or control ceases to exist.
X SERVICES TO BE PROVIDED BY NATIONAL
Following the Closing Date, National shall provide Fairchild
the following services (individually or collectively referred to herein
as, the "Service(s)") for a period not to extend beyond June 1, 1998,
except as otherwise provided herein:
10.1. Data processing and communications services and related
support as set forth in Schedule 2.1 hereto. National shall invoice
Fairchild in the manner and at the rates set forth herein.
10.2. Financial and administrative and related support as set
forth in Schedule 2.2 hereto. National shall invoice Fairchild in the
manner and at the rates set forth herein.
10.3. Purchasing services and related support as set forth in
Schedule 2.3 hereto. National shall invoice Fairchild in the manner and
at the rates set forth herein.
10.4. Marketing and Sales services and related support as set
forth in Schedule 2.4 hereto. National shall invoice Fairchild in the
manner and at the rates set forth herein.
10.5. Logistics and Operational services and related support
as set forth in Schedule 2.5 hereto. National shall invoice Fairchild
in the manner and at the rates set forth herein.
10.6. Human resources and benefits services and related
support as set forth in Schedule 2.6 hereto. National shall invoice
Fairchild in the manner and at the rates set forth herein.
10.7. Security assistance and consulting services as set
forth in Schedule 2.7 hereto. National shall invoice Fairchild in the
manner and at the rates set forth herein.
10.8. Certain additional services at the South Portland,
Maine site will be provided by Fairchild to National and by National to
Fairchild, and at the West Jordan, Utah site by Fairchild to National,
under separate agreements regarding shared facilities and services. The
parties will also enter into separate agreements regarding office space
in Santa Clara to be leased by National to Fairchild, office space in
West Jordan to be leased by Fairchild to National, and the lease of
buildings in South Portland. In addition, the Parties will enter into a
letter agreement regarding certain environmental matters, including the
cleanup underway in South Portland and West Jordan.
10.9. Under another separate agreement, Fairchild will
reimburse National for lease payments to be made following the Closing
by National in respect to certain leased manufacturing and computer
equipment used in Fairchild facilities and used in the operation of the
Business including but not limited to that leased from GE Capital.
Notwithstanding anything to the contrary contained herein, Fairchild
shall not be charged under this Agreement for any Service that is
specifically required to be performed under any other agreement between
National and Fairchild and any such other Service shall be performed and
charged for in accordance with the terms of such other agreement.
XI TERMS OF SERVICE
11.1. The attached Schedules of Services and costs are
subject to change with the Parties' mutual written consent consistent
with change methodologies applied to National. Wherever practical,
charges to Fairchild for Services shall be based on actual incurred
costs, not budgeted or estimated costs. The Parties shall use good
faith efforts to discuss any situation in which the actual charge for a
Service is reasonably expected to exceed the estimated charge, if any,
set forth on a Schedule for a particular Service; provided, however,
that the incurrence of charges in excess of any such estimate shall not
justify stopping a provision of, or payment for, Services under this
Agreement. The Parties have made good faith efforts as of the date
hereof to identify each Service and to complete the content of each
Schedule to this Agreement. To the extent a Schedule has not been
prepared for a Service or a Schedule is otherwise incomplete as of the
date hereof, the Parties shall use good faith efforts to prepare or
complete Schedules as promptly as practicable. Any Service reflected on
any such additional or amended Schedule shall be deemed a "Schedule" as
if set forth on such Schedule as of the date hereof.
11.2. National will have in place by the Closing Date all
legal entities necessary at each location to import and ship product and
invoice customers on behalf of Fairchild. The legal entity structure
will be equivalent to National's legal structure unless otherwise agreed
in writing by Fairchild. In the event that at any time any change is
made by Fairchild to the legal structure which adversely affects
National's provision of Services under this Agreement, National shall,
in its sole discretion, have the right to cease provision of such
affected Service(s). Fairchild will operate under the National systems,
logistics and accounting calendar and observe all National system cutoff
schedules. With respect to Fairchild products for which National
performs an invoicing function, except in Japan, invoices will be issued
in Fairchild's name after the Closing Date, such invoices to incorporate
on behalf of Fairchild the same terms and conditions of sale as used by
National. While on National's systems, Fairchild will use National's
published company rates for foreign currency exchange and National's
practices with respect to use of currency.
11.3. Fairchild is contracting for use of National's system
on an "as-is" basis. It will be at National's discretion as to whether
enhancements or modifications to these systems will be made available to
Fairchild. After the Closing Date, there will be no modifications to
National's systems at Fairchild's request, except in National's sole
discretion and at a price to be agreed between the Parties and paid by
Fairchild.
11.4. Prices to be paid by Fairchild for Services rendered by
National hereunder are listed in the Schedules hereto. One time systems
and services costs incurred to establish the capability of National and
Fairchild to operate as separate companies using common systems will be
paid entirely by National. Costs to support the ultimate separation of
Fairchild and the implementation of Fairchild's own independent systems
and services will be paid entirely by Fairchild. National agrees to
cooperate as reasonably requested by Fairchild in order to effectuate
such separation.
XII ADDITIONAL SERVICES, SOFTWARE TRANSFERS AND SOFTWARE
LICENSES
12.1. In addition to the specific services and facilities
described above, the parties hereto acknowledge that there may be
additional services and facilities which have not been identified herein
but which have been used by the Business prior to the Closing Date and
which shall continue to be required or desired by Fairchild until June
1, 1998, or such later date as the Parties may agree upon. If any such
additional services or facilities are identified and requested by
Fairchild, and National agrees to provide such services, Fairchild will
be charged at the rate paid by National for said services.
12.2. Upon the written request of Fairchild, National shall
assign to Fairchild, to the extent possible and subject to vendor legal
or contractual restrictions, all of its right, title, and interest in
and to any software licensed programs which between National and
Fairchild are used solely and exclusively for the benefit of Fairchild
and are listed in Schedule 4.2 hereto.
12.3. National hereby grants Fairchild a paid-up, royalty-
free, perpetual, nonexclusive, irrevocable, worldwide, multi-site
license to use, or have used for its own benefit, National in-house
developed business, engineering and manufacturing systems software, as
listed on Schedule 4.3 hereto, which is or has been used by or for
Fairchild, whether user or MIS developed and/or supported (hereinafter
"NS Software"). No termination of any Services provided pursuant to
this Agreement shall terminate or revoke Fairchild's license to use, or
have used for its own benefit, the NS Software.
12.4. Fairchild, its agents, it subsidiaries and its
subsidiaries' agents may make such copies of the NS Software as may be
reasonably necessary for their needs. Subject to 3.3 above, and during
the term of this Agreement, if National develops changes, modifications,
enhancements or improvements to the NS Software, National will use its
best efforts to promptly disclose them to Fairchild in accordance with
National's current notification methods and they shall be included
within the scope of this license.
12.5. After discontinuation of the Service provided by
National, modifications or enhancements may be made by Fairchild, its
subsidiaries or their respective employees or agents which shall be the
sole and exclusive property of Fairchild (including all worldwide
copyrights, trade secrets, patents or other proprietary rights relating
thereto). National is the owner of the NS Software and any copyrights,
trade secrets, patents or other proprietary rights relating thereto and
has the right to grant to Fairchild the license to use the NS Software
under this Agreement, in each case free of any claim of any third party.
12.6. Any NS Software wrongly omitted from Schedule 3.3 shall
be added with both Parties' written consent. National shall not
unreasonably withhold such consent.
XIII INDEMNIFICATION
In the event any act or omission of either Party or its
directors, officers, employees, servants, agents or representatives
causes or directly results in (i) loss, damage to, destruction of
property of the other Party or third Parties, and/or (ii) death or
injury to persons including, but not limited to, employees or invitees
of either Party, then such Party shall indemnify, defend and hold the
other Party harmless from and against any and all claims, actions,
damages, demands, liabilities, costs and expenses resulting therefrom.
The indemnifying Party or its agent or representative shall pay or re-
imburse the other Party promptly for any such loss, damage, destruction,
death or injury when notified promptly in writing of any claim made
hereunder and when given full and complete authority, information and
assistance (at the indemnifying Party's expense) for the defense of
same. The indemnifying Party shall not be responsible for any
compromise or settlement made without its written consent. With respect
to third party claims, the right of contribution shall exist as between
the Parties.
XIV NO WARRANTY
The level and quality of the Services shall be provided in
good faith and at a level and quality comparable to that performed for
the benefit of National prior to the date of execution of this
Agreement. National shall not be liable for any loss or damage suffered
by Fairchild on account of any failure by National to perform such
service so long as such failure was not a result of National's willful
intent to breach this Agreement. Except as may otherwise be explicitly
set forth herein, National makes no representation or warranty
whatsoever with respect to the Services to be provided hereunder.
XV TERM AND TERMINATION
15.1. The term of this Agreement shall begin on the Closing
Date. Services shall be provided by National hereunder until June 1,
1998, unless otherwise provided herein.
15.2. Subject to the provisions of the Schedules hereto,
Fairchild may terminate any Service(s) provided pursuant to this
Agreement on ninety (90) days prior written notice to National, unless
otherwise specified in the Schedules hereto. If Fairchild elects to
terminate a service, it will bear the costs of interfacing any new
system to the remaining National systems which it continues to use.
Fairchild shall no longer be obligated to pay National the fee
attributable to such cancelled Service(s) following the effective
termination date of such Service(s). Fairchild shall be liable for any
outstanding purchase orders placed with third parties by National on
Fairchild's behalf prior to National's receipt of the aforesaid written
notice of termination provided that any purchase order in an amount
greater than $1,000 shall have been issued with Fairchild's written
consent.
15.3. Subject to the provisions of the Schedules hereto, in
the event of a material breach under this Agreement, the non- defaulting
Party may terminate the specific Service(s) to which such breach relates
if the defaulting Party fails to cure such breach within thirty (30)
days of its receipt of a written notice from the non-defaulting Party of
such breach, provided that the duties and obligations of the defaulting
Party which have accrued prior to the termination of such Service shall
not be released or discharged by such termination. During the pendency
of any dispute resolution process with respect to such purported
default, the Service(s) in dispute will continue to be provided and paid
for.
15.4. Prior to termination of this Agreement, the Parties
shall cooperate with one another to maintain an orderly transfer of
Services provided hereunder and shall provide necessary assistance for
an orderly transfer thereof.
XVI OWNERSHIP AND MAINTENANCE OF DATA
All records, data files (and the data contained therein),
input materials, reports and other materials received, computed,
developed, processed or stored for Fairchild by National (collectively
the "Data") pursuant to this Agreement after the Closing Date will be
the exclusive property of Fairchild, and National shall not possess any
interest, title, lien or right in connection therewith. National shall
safeguard the Data to the same extent it protects its own similar
materials. Data shall not be utilized by National for any purpose other
than in support of National's obligations hereunder. Neither the Data
nor any part thereof shall be disclosed, sold, assigned, leased or
otherwise disposed of to third parties by National or commercially
exploited by or on behalf of National, its employees or agents. In the
event that either Party either determines on the advice of its counsel
that it is required to disclose any information pursuant to applicable
law or receives any demand under lawful process to disclose or provide
information of the other Party that is subject to the confidentiality
provisions hereof, such Party shall notify the other Party prior to
disclosing and providing such information and shall cooperate at the
expense of the requesting Party in seeking any reasonable protective
arrangements requested by such other Party. Subject to the foregoing,
the Party that receives such request may thereafter disclose or provide
information to the extent required by such law (as so advised by
counsel) or by lawful process. Upon termination of any Service provided
hereunder, National shall provide Fairchild reasonable access to
retained Data for a period not to exceed twelve (12) months following
said termination whereupon such Data will be transferred to Fairchild or
otherwise made available to Fairchild as Fairchild may reasonably
request.
XVII PAYMENT
17.1. During the term of the provision of any Service(s)
hereunder, National shall invoice Fairchild monthly, unless otherwise
specified in the Schedules hereto, itemizing the basis for each invoice
amount.
17.2. Any out-of-pocket expense paid to a third party by
National as result of Services provided hereunder by National to
Fairchild shall be invoiced separately in National's customary form and
detail and reimbursed by Fairchild to National. The foregoing
reimbursement shall be in addition to the fees provided for in Section
9.1 above. In the event that any such expense exceeds $1000, it must be
approved in writing by Fairchild prior to incurrence by National.
Fairchild will not unreasonably withhold approval.
17.3. Unless otherwise provided in the Schedules, payment
terms are Net, thirty (30) days from date of invoice and payments shall
be made in United States Dollars. Each Party shall have the option to
net payment obligations owed to it against amounts due from the other
Party. If payment amounts are netted against receivable amounts, the
netting Party will provide the receiving Party with a reconciliation
referencing the specific invoices involved in the netting transaction.
Netting shall not apply against payments to be made under the
Recapitalization or Asset Purchase Agreement.
XVIII CONFIDENTIALITY
The parties acknowledge that in the course of performance of
their respective obligations pursuant to this Agreement, each may obtain
certain confidential and/or proprietary information of the other or its
affiliates or customers, including the terms and conditions of this
Agreement. Except as otherwise provided in the Technology Licensing and
Transfer Agreement, dated the date hereof, between National and
Fairchild, each Party hereby agrees that all information communicated to
it by the other, its affiliates or customers, whether before or after
the Closing Date, shall be kept and was received in strict confidence
and shall be used only in accordance with this Agreement, and shall not
be disclosed by the other Party, its agents or employees without the
prior written consent of the first Party. In the event that either
Party either determines on the advice of its counsel that it is required
to disclosure any information pursuant to applicable law or receives any
demand under lawful process to disclose or provide information of the
other Party that is subject to the confidentiality provisions hereof,
such Party shall notify the other Party prior to disclosing and
providing such information and shall cooperate at the expense of the
requesting Party in seeking any reasonable protective arrangements
requested by such other Party. Subject to the foregoing, the Party that
receives such request may thereafter disclose or provide information to
the extent required by such law (as so advised by counsel) or by lawful
process. Furthermore, the Parties shall take reasonable steps necessary
to ensure that all information and records relating to the business of
National and Fairchild are kept strictly confidential. Notwithstanding
the above, this Agreement imposes no obligation on either Party with
respect to information that is or becomes a matter of public knowledge
through no fault of that Party, is rightfully obtained by either Party
from a third party not in violation of any duty of confidentiality, is
disclosed by either Party to a third party without a duty of
confidentiality imposed upon the third party, or is independently
developed by either Party without reference to any proprietary or
confidential information of the other Party.
XIX GENERAL
19.1. AMENDMENT: This Agreement may be modified only by a
written document signed by duly authorized representatives of the
Parties.
19.2. FORCE MAJEURE: A Party shall not be liable for a
failure or delay in the performance of any of its obligations under this
Agreement where such failure or delay is the result of fire, flood, or
other natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials, or the intervention of any government
authority, providing that the Party failing in or delaying its
performance promptly notifies the other Party of its inability to
perform and states the reason for such inability.
19.3. ASSIGNMENT: This Agreement may not be assigned by any
Party hereto without the written consent of the other Party; provided
that Fairchild may assign its rights but not its obligations hereunder
as collateral security to any bona fide financial institution engaged in
financing in the ordinary course providing financing to consummate the
transactions contemplated by the Purchase Agreement or any bona fide
financial institution engaged in acquisition financing in the ordinary
course through whom such financing is refunded, replaced, or refinanced
and any of the foregoing financial institutions may assign such rights
in connection with a sale of Fairchild or the Business in the form then
being conducted by Fairchild substantially as an entirety. Subject to
the foregoing, all of the terms and provisions of this Agreement shall
be binding upon, and inure to the benefit of, and shall be enforceable
by, the respective successors and assigns of the Parties hereto.
19.4. COUNTERPARTS: This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute but one
and the same instrument.
19.5. CHOICE OF LAW: This Agreement, and the rights and
obligations of the Parties, shall be interpreted and governed in
accordance with the laws of the State of California, without giving
effect to its conflicts of law provisions.
19.6. WAIVER: Should either of the Parties fail to exercise
or enforce any provision of this Agreement, or waive any right in
respect thereto, such failure or waiver shall not be construed as
constituting a waiver or a continuing waiver of its rights to enforce
any other provision or right.
19.7. SEVERABILITY: If any provision of this Agreement or
the application thereof to any situation or circumstance shall be
invalid or unenforceable, the remainder of this Agreement shall not be
affected, and each remaining provision shall be valid and enforceable to
the fullest extent.
19.8. LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO
PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF
ANY GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF
CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF
WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR NOT.
19.9. EFFECT OF HEADINGS: The headings and sub-headings
contained herein are for information purposes only and shall have no
effect upon the intended purpose or interpretation of the provisions of
this Agreement.
19.10. INTEGRATION: This Agreement, the Recapitalization and
Purchase Agreement, the Operating Agreements (as defined in the Recap
Agreement) and Schedules hereto and thereto, constitute the entire
agreement and understanding between the Parties with respect to the
subject matter of this Agreement and integrates all prior discussions
and proposals (whether oral or written) between them related to the
subject matter hereof, provided that any provisions hereof allowing for
netting or offsetting of any payments to be made hereunder shall not be
deemed to permit that such netting or offsetting apply against any
payments to be made under the Recapitalization or Purchase Agreement.
19.11. PUBLIC ANNOUNCEMENT: Prior to the closing of the
transactions contemplated under the Purchase Agreement, neither
Fairchild nor National shall, without the approval of the other Party
hereto, make any press release or other public announcement concerning
the terms of the transactions contemplated by this Agreement, except as
and to the extent that any such Party shall be so obligated by law, in
which case the Party shall use its Best Efforts to advise the other
Party thereof and the Parties shall use their Best Efforts to cause a
mutually agreeable release or announcement to be issued; provided that
the foregoing shall not preclude communications or disclosures necessary
to (a) implement the provisions of this Agreement or (b) comply with
accounting, securities laws and Securities and Exchange Commission
disclosure obligations. Fairchild shall provide National with a
reasonable opportunity to review and comment on any references to
National made by Fairchild (and shall not include any such references
to National without the written consent of National, which consent shall
not be unreasonably withheld or delayed) in any written materials that
are intended to be filed with the Securities and Exchange Commission in
connection with obtaining financing required to effect the transactions
contemplated in connection with the Purchase Agreement or intended to be
distributed to prospective purchasers pursuant to an offering made under
Rule 144A promulgated under the Securities Act of 1933 in connection
with obtaining such financing.
19.12. NO PARTNERSHIP OR AGENCY CREATED: The relationship of
National and Fairchild shall be that of independent contractors only.
Nothing in this Agreement shall be construed as making one Party an
agent or legal representative of the other or otherwise as having the
power or authority to bind the other in any manner.
19.13. BINDING EFFECT: This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the Parties hereto and to their respective successors and permitted
assigns.
19.14. EXPORT CONTROL: The Parties shall comply with any and
all export regulations now in effect or as may be issued from time to
time by the Office of Export Administration of the United States
Department of Commerce or any other governmental authority which has
jurisdiction relating to the export of technology from the United States
of America.
19.15. NOTICES: Any notice to be made in connection with any
right or obligation arising under this Agreement, shall be provided by
registered mail, telegram, facsimile or telex by one Party to the other
at the following addresses. Said notices shall be deemed to be
effective upon receipt by the receiving Party thereof.
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
M/S 16-135 (Attn: General Counsel)
Santa Clara, CA 95052-8090
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
MS 01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
Either Party may change its address by written notice given to
the other Party in the manner set forth above.
IN WITNESS WHEREOF, The Parties have had this Agreement
executed by their respective authorized officers on the date written
below. The persons signing warrant and represent that they are duly
authorized to sign for and on behalf of the respective Parties.
By and on behalf of By and on behalf of
NATIONAL SEMICONDUCTOR FAIRCHILD SEMICONDUCTOR
CORPORATION CORPORATION
By: /s/ JOHN M. CLARK III By: /s/ JOSEPH R. MARTIN
Its: Senior Vice President Its: Executive Vice President
Date: March 11, 1997 Date: March 11, 1997
EXHIBIT 10.4
FAIRCHILD ASSEMBLY SERVICES AGREEMENT
THIS ASSEMBLY SERVICES AGREEMENT ("Agreement") is dated and made
effective this 11th day of March, 1997 (the "Effective Date") by and
between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation,
having its principal place of business at 2900 Semiconductor Drive,
Santa Clara, California 95052-8090 ("National") and [FAIRCHILD
SEMICONDUCTOR CORPORATION], a Delaware corporation, having its principal
place of business at 333 Western Avenue, South Portland, Maine 04106
("Fairchild"), National and/or Fairchild may be referred to herein as a
"Party" or the "Parties" as the case may require.
WITNESSETH:
WHEREAS, the Parties have entered into a certain Asset Purchase
Agreement (hereinafter referred to as the "Purchase Agreement") under
which Fairchild is acquiring certain of the assets of National's Logic,
Memory and Discrete Power and Signal Technologies Business Units as
historically conducted and accounted for (including Flash Memory, but
excluding Public Networks, Programmable Products and Mil/Aero Logic
Products) (the "Business"); and
WHEREAS, pursuant to the transactions contemplated in the Purchase
Agreement, Fairchild is acquiring National's manufacturing facilities in
South Portland, Maine (excluding the eight-inch fab and related
facilities), West Jordan, Utah, Penang, Malaysia and Cebu, the
Philippines; and
WHEREAS, after the closing of the transactions contemplated by the
Purchase Agreement Fairchild will own or lease and operate the
Facilities; and
WHEREAS, National has been performing assembly, test and other back-
end services at the Facilities; and
WHEREAS, National is conveying to Fairchild certain intellectual
property rights pursuant to the Technology Licensing and Transfer
Agreement between National and Fairchild, of even date herewith; and
WHEREAS, National and Fairchild desire to enter into an agreement
under which Fairchild will continue to provide certain services to
National following the closing of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, National and Fairchild recognize that the prices for
assembly and test services to be provided by Fairchild to National as
set forth herein are determined based on the collateral transactions and
ongoing relationship between the Parties as expressed in the Purchase
Agreement, Revenue Side Letter between National and Fairchild of even
date herewith (the "Revenue Side Letter") and the other Operating
Agreements (as defined in Paragraph 9.1); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the closing of the transactions contemplated by the
Purchase Agreement.
NOW, THEREFORE, in furtherance of the foregoing premises and in
consideration of the mutual movements and obligations hereinafter set
forth, the Parties hereto, intending to be legally bound hereby, do
agree as follows:
1.0 DEFINITIONS
1.1 "Best Efforts" shall require that the obligated Party make a
diligent, reasonable and good faith effort to accomplish the applicable
objective. Such obligation, however, does not require any material
expenditure of funds or the incurrence of any material liability on the
part of the obligated Party, which expenditure or liability is
unreasonable in light of the related objective, nor does it require that
the obligated Party act in a manner which would otherwise be contrary to
prudent business judgment or normal commercial practices in order to
accomplish the objective. The fact that the objective is not actually
accomplished is no indication that the obligated Party did not in fact
utilize its Best Efforts in attempting to accomplish the objective.
1.2 "Confidential Information" shall have the meaning set forth
in Paragraph 16.1 below.
1.3 "Devices" shall mean National integrated circuits to be
assembled and/or tested by Fairchild hereunder.
1.4 "Die" shall mean the silicon die material, consigned by
National to Fairchild in wafer form, from which Devices are assembled.
1.5 "Effective Date" shall mean the date first set forth above.
1.6 "Facilities" shall mean the existing assembly facilities
located at Penang, Malaysia and Cebu, the Philippines, transferred to
Fairchild from National pursuant to the Purchase Agreement.
1.7 "Fairchild Assured Capacity" shall mean the capacity of
assembly and/or test services that Fairchild agrees to supply National
pursuant to Section 7 below.
1.8 "Fairchild" shall mean Fairchild Semiconductor Corporation
and its Subsidiaries.
1.9 "Mix" shall mean the allocation within a forecast by package
type and pin count.
1.10 "National" shall mean National Semiconductor Corporation
and its Subsidiaries.
1.11 "Specifications" shall mean National drawings, criteria
and other documented specifications in effect as of the Effective Date,
including, but not limited to, build procedures, buy-off criteria,
quality and reliability parameters, material specifications, marking
specifications, test settings, program specifications, load board
schematics, facilities and environmental SOP's, handling requirements,
lot and/or die traceability and processes for manufacturing Devices.
1.12 "Subsidiary" shall mean any corporation, partnership, joint
venture or similar entity more than fifty percent (50%) owned or
controlled by a Party hereto, provided that any such entity shall no
longer be deemed a Subsidiary after such ownership or control ceases to
exist.
1.13 "Technology Licensing and Transfer Agreement" shall mean the
agreement of even date herewith between the Parties under which National
is licensing and transferring certain intellectual property rights to
Fairchild.
2.0 INTELLECTUAL PROPERTY
2.1 The provisions of the Technology Licensing and Transfer
Agreement will govern all issues related to the respective intellectual
property rights of the Parties hereunder, to include but not be limited
to, use rights, ownership rights and indemnification obligations.
2.2 All assembly and test services shall take place at the
Facilities. Fairchild shall not transfer any National-owned
intellectual property or other National technical information outside
of the Facilities or to any other site, other than as may be permitted
under the Technology Licensing and Transfer Agreement.
3.0 SHIPPING AND BUILD ORDER REQUIREMENTS
3.1 Fairchild shall provide backgrind, assembly and test
services hereunder in accordance with the Specifications. Such
services shall be performed at those Facilities at which they have
historically been performed.
3.2 National will, at "No Charge", deliver and consign to
Fairchild at the Facilities its electrically probed wafers or wafers
requiring wafer probe. Any reject die on said wafers shall be ink
marked or identified by National in a manner acceptable for use with
Fairchild's pattern recognition equipment. Wafers and other materials
shall be packed in accordance with the Specifications.
3.3 Fairchild shall be responsible for forecasting and ordering
lead frames, bonding wire, molding compound and other raw materials
required for assembly in sufficient quantities and with sufficient lead
times to meet its obligations under the Fairchild Assured Capacity.
Fairchild shall also be responsible for maintenance and replacement
costs associated with manufacturing tools and equipment (e.g., mold die,
trim and form die, lead frame tooling), except for lead frame tooling
which is currently owned by and used exclusively for National.
3.4 National shall supply an appropriate bonding diagram and
test program (if applicable) for each Device to be assembled per the
Specifications.
3.5 Fairchild hereby agrees to verify the Die count and advise
National of any variance greater than one percent (1%).
3.6 National will provide Fairchild with a "Lot Traveler" in a
format identical to that in effect on the Effective Date and outlined in
Exhibit A hereto for the first six (6) months after the Effective Date.
After that period of time, Fairchild may utilize its own Traveler,
provided its form has previously been approved in writing by National,
which approval shall not be unreasonably withheld.
3.7 Fairchild shall provide National with the following
manufacturing data in a format and pursuant to criteria and procedures
agreed to by the parties, on a monthly basis:
(a) WIP from sealing through final assembly, including
finished goods;
(b) Test yield and wafer sort yield results (if
applicable);
(c) Shipping activity (description, quantity, ship
date);
(d) Acknowledgment of National Die shipments as well as
such other information which National may reasonably request from time
to time; and
(e) Cycle time (if requested by National).
3.8 Fairchild shall deliver completed lots to National, packaged
in accordance with the Specifications, with the assembly run card
enclosed for each assembly lot (kit). Future traceability for a lot
(kit) shall be based solely on the run card and shall be the
responsibility of National. The assembly run card shall show the yield
for each yield point in the assembly process. By mutual agreement of
the Parties, traceability may instead be software based, so long as
such records are accessible to both Parties.
4.0 PACKAGE/PROCESS CHANGES NOTIFICATION
4.1 If Fairchild proposes to make any change affecting the
assembly processes, materials and/or suppliers, to include, but not be
limited to, lead frame design, lead frame material, die attach material,
wire bond material, molding compound, lead plating process or plating
material, test programs or assembly procedures affecting the Devices,
Fairchild will notify National of the intended change in accordance with
Fairchild's change procedures then in effect. If the proposed change is
unacceptable to National, National and Fairchild shall work together in
efforts to resolve the problem. If during the first thirty- nine (39)
fiscal periods of this Agreement the Parties are unable to resolve the
problem, Fairchild shall not make the proposed change. After the first
39 fiscal periods of this Agreement, if the Parties are unable to
resolve the problem, Fairchild shall have the right to make such change
upon the provision of ninety (90) days prior written notice to National.
Notwithstanding the foregoing, however, Fairchild shall in no event
manufacture Devices other than in strict accordance with the
Specifications, or any amendments thereto, without the prior written
consent of National.
4.2 National shall provide at least fifteen (15) days prior
written notice to Fairchild of any proposed change in Die design, layout
modification, fabrication process, test programs or other changes
which may impact upon Fairchild's processing, handling or assembly of
Devices. Fairchild shall not be responsible for any assembly or test
loss incurred as a result of National's failure to provide timely
notification of such change.
4.3 National reserves the right to make changes to the
Specifications that reflect improvements, developments or other
technically desired changes in the Devices. National shall notify
Fairchild of such requested change orders and Fairchild shall respond
within thirty (30) working days regarding the feasibility, schedule and
anticipated costs of implementing such change orders. Once the Parties
have agreed in writing to the engineering changes, schedule and prices
thereof, Fairchild shall promptly take all measures required to
incorporate such change orders into the Devices. Fairchild shall have
the right to renegotiate the price and/or its capacity commitments
hereunder if such changes will have an adverse effect on Fairchild's
assembly or test capacity.
5.0 DEVICE ACCEPTANCE/QUALIFICATION/RAMP UP
5.1 Should Fairchild agree to add new package types requested by
National, Fairchild shall utilize its Best Efforts to complete
qualification assembly of new package types as soon as possible,
including qualification lots. National shall reimburse Fairchild for
the full costs of equipment, tooling and one time start up costs
required to manufacture new packages that Fairchild will exclusively use
for National, otherwise such costs will be shared.
5.2 National shall be responsible for specifying and performing
any qualification testing deemed necessary.
5.3 Fairchild reserves the right to refuse assembly of any new
Devices which violate Fairchild internal design or processing
requirements that are introduced after the Effective Date.
5.4 Fairchild shall provide National with a preliminary ramp-up
schedule, which may be subject to subsequent reduction by Fairchild in
the event unforeseen problems are encountered by Fairchild with
yields, process, capacity support, quality/reliability or other
product or process features. Fairchild shall immediately notify
National in writing of the necessity of any such reductions.
6.0 INSPECTION, ACCEPTANCE AND WARRANTY
6.1 For those Devices not tested by Fairchild, National shall
conduct incoming acceptance tests within ten (10) days after delivery at
its test facility. Upon completion of such tests, National shall
promptly report any shortage, damage or defective Devices in any
shipment. In the case of defective Devices found by National to exceed
applicable AQL and/or PPM Limits in effect as of the Effective Date, or
as subsequently agreed in writing by the Parties, National shall
promptly ship samples of defective Devices to Fairchild for
verification. If such testing demonstrates that the shipment failed to
meet the relevant Specifications due to Fairchild workmanship or
materials, National may at its option either:
(a) deduct the defective Devices' purchase price from
Fairchild's invoice, in which event National shall, if requested by
Fairchild, return to Fairchild the damaged or defective Devices at
Fairchild's risk and expense,
(b) return the damaged or defective Devices to
Fairchild, at Fairchild's risk and expense, for credit, or
(c) scrap the defective Devices at Fairchild's request
for credit.
6.2 Fairchild warrants that the services provided to National
hereunder shall conform to all applicable Specifications for assembly
and/or test and shall be free from defects in material and Fairchild's
workmanship. Such warranty, however, shall not apply to the design or
operation of the National supplied Die incorporated in the Devices.
This warranty is limited to a period of one (1) year from the date of
delivery to National. If, during the one year period:
(i) Fairchild is notified promptly upon discovery in
writing by a detailed description of any such defect in any Device; and
(ii) National receives a return material authorization
number from Fairchild and returns such Device to the applicable Facility
at National's expense for inspection; and
(iii) Fairchild's examination reveals that the Device is
indeed defective and does not meet the applicable Specification or is
defective in materials or Fairchild's workmanship and such problems
are not caused by accident, abuse, misuse, neglect, improper storage,
handling, packaging or installation, repair, alteration or improper
testing or use by someone other than Fairchild
then, within a reasonable time, Fairchild shall credit
National for such defective Device. Fairchild shall reimburse National
for the transportation charges paid by National in returning such
defective Devices to Fairchild. The performance of this warranty shall
not act to extend the one (1) year warranty period for any Device(s)
repaired or replaced beyond that period applicable to such Devices(s) as
originally delivered.
6.3 THE FOREGOING WARRANTY CONSTITUTES FAIRCHILD'S EX CLUSIVE
LIABILITY, AND NATIONAL'S EXCLUSIVE REMEDY, FOR ANY BREACH OF WARRANTY.
FAIRCHILD MAKES AND NATIONAL RECEIVES NO WARRANTIES OR CONDITIONS ON THE
SERVICES PERFORMED HEREUNDER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AND FAIRCHILD SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
7.0 CAPACITY; VOLUME COMMITMENTS; PRODUCTION PLANNING
7.1 All planning herein will be done under National's accounting
calendar which currently divides its fiscal year into four (4) equal
fiscal quarters, each of which consists of three (3) fiscal periods.
The first two (2) periods of each quarter are of four (4) weeks in
duration and the third period is of (5) weeks duration.
7.2 Two (2) weeks prior to the end of each National fiscal
period, or as otherwise agreed by the Parties, National will provide to
Fairchild a baseline quantity of assembly starts, set forth in terms
of product family, package and pin count, for the next eight (8)
fiscal periods (the "Capacity Request"). National's initial Capacity
Request and Fairchild's Assured Capacity response formats are set forth
herein at Exhibit B.
7.3 Each fiscal period, National may make changes to the
Capacity Request in accordance with the following table, provided that
the maximum Capacity Request for each package and pin count module does
not exceed National's share of each package and pin count module's
installed equipment capacity. Any changes outside those permitted under
the following table must be by mutual consent of the Parties.
Fiscal Periods in
the Capacity Request Permitted Changes
Period 1 Fixed
Period 2 +/-10%
Period 3 +/-20%
Period 4 +/-40%
Period 5 +/-40%
Period 6 +/-40%
Period 7 +/-40%
Period 8 +/-40%
7.4 National's share of a package and pin count module's
installed equipment capacity will equal the previous Fairchild Assured
Capacity for that module, plus that percentage of any excess capacity
available in the package and pin count module equal to National's
percentage of the currently utilized capacity in said module. Installed
equipment capacity by package and pin count module is set forth herein
at Exhibit C.
7.5 One (1) work week after receipt of the Capacity Request,
Fairchild shall provide National with a response to such Capacity
Request, the "Fairchild Assured Capacity". The Fairchild Assured
Capacity must guarantee the amount requested in National's latest
Capacity Request, provided that any changes to National's latest
Capacity Request are within the limits of Paragraph 7.3. Fairchild
shall utilize its Best Efforts to comply with any requests by National
for capacity above those which are permitted under Paragraph 7.3. In
any case, Fairchild shall be obligated hereunder to provide National
with the assembly starts guaranteed in the Fairchild Assured Capacity
response. The initial Fairchild Assured Capacity response shall be the
last response provided prior to the Effective Date. Set forth below are
two examples of the foregoing:
Example #1 The new Capacity Request is less than
the last Fairchild Assured Capacity
response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last Fairchild Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 90 80 60 60 60 60 60
New Fairchild Assured Capacity 100 90 80 60 60 60 60 60
Example #2 The new Capacity Request is greater
than the last Fairchild Assured
Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last Fairchild Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 110 120 140 140 140 140
New Fairchild Assured Capacity 100 110 120 140 140 140 140 140
7.6 The timetable for the rolling eight fiscal period Capacity
Request, the Fairchild Assured Capacity response, purchase order release
and detailed Device level assembly starts request for the next fiscal
period are set forth in Exhibit D hereto.
8.0 PURCHASE ORDERS
8.1 All purchases and sales between Fairchild and National
shall be initiated by National's issuance of written purchase orders
sent by either first class mail or facsimile. By written agreement of
the Parties, purchase orders may also be sent and acknowledged by
electronic data exchange or other mutually satisfactory system. Such
"blanket" purchase orders shall be issued once per fiscal quarter for
assembly starts three (3) fiscal periods in the future. They shall
state the product family, package and pin count, and shipping and
invoicing instructions. Fairchild shall accept purchase orders through
a written or electronic acknowledgment. Within a reasonable time after
receipt of National's detailed Device level assembly starts request for
the next fiscal period, Fairchild shall provide National with a Device
delivery schedule either on a weekly basis as assembly is started or for
the assembly starts for the entire fiscal period, as the Parties may
agree in writing. The purchase orders may utilize the first three (3)
fiscal periods forecast in the eight period rolling forecast supplied
pursuant to Section 7, as the embodiment of the purchase order for
specifying the assembly starts by package and pin count.
8.2 In the event of any conflict between the terms and
conditions of this Agreement and either Party's purchase order,
acknowledgment, or similar forms, priority shall be determined as
follows:
(a) typewritten or handwritten terms on the face of a
written purchase order, acknowledgment or similar document or in the
main body of an electronic equivalent which have been specifically
accepted in writing by the other Party's Program Manager;
(b) the terms of this Agreement;
(c) preprinted terms incorporated in the purchase order,
acknowledgment or similar document.
8.3 Consistent with standard practices of issuing specific
Device level details of part numbers to be assembled on a weekly or
periodic basis, National may unilaterally change the part number to be
manufactured, provided that Fairchild agrees that the change does not
negatively impact Fairchild's loadings and provided further that there
is no change in the package and pin count to be used. A change that
will negatively impact loading or alter the package and pin count may
only be directed upon Fairchild's written agreement, which shall utilize
its Best Efforts to comply with such requested change. The specific
part number detail shall be submitted by first class mail or facsimile.
By written agreement of the Parties, specific part number detail may
also be sent by electronic data exchange, or other mutually satisfactory
system.
8.4 National shall request delivery dates which are consistent
with Fairchild's reasonable lead times for each Device as indicated at
the time National's purchase order is placed. Notwithstanding the
foregoing, Fairchild shall utilize its Best Efforts to accommodate
requests by National for quick turnarounds or "hot lots", which includes
prototype lots. Hot lot cycle times shall be a 50% reduction of
standard cycle time with a $2000.00 lot charge.
8.5 Fairchild may manufacture lots of any size which satisfy the
requirements of effective manufacturing. However, National must place
order for full flow and prototype products in minimum lot sizes of three
thousand (3,000) Devices.
9.0 PRICING AND PAYMENT
9.1 The Parties hereby acknowledge that, as part of the
collateral transactions contemplated under the Purchase Agreement and
ongoing relationship between the Parties, they have entered into the
Revenue Side Letter under which National agrees to provide a minimum
revenue of Three Hundred Thirty Million Dollars ($330,000,000.00) to
Fairchild during the first thirty-nine (39) fiscal periods after the
Effective Date. National shall discharge its obligations under the
Revenue Side Letter by purchasing goods and services under this
Agreement, a corresponding Fairchild Foundry Services Agreement, and a
Mil/Aero Wafer and Services Agreement of even date herewith
(collectively the "Operating Agreements"). Set forth herein at
Exhibit G is the forecasted volume of assembly services that National
will purchase from Fairchild during the aforementioned thirty-nine
fiscal periods (the "Forecast Volumes"). The Forecast Volumes are for
pricing purposes under this Section 9 only and may vary in magnitude and
mix in practice, whereupon the prices applicable to the revised
magnitude and mix may also vary. The Forecast Volumes will be reviewed
and updated by the Parties every fiscal period and shall be consistent
with the principles of manufacturing set forth in Exhibit H.
9.2 Set forth in Exhibit G hereto are the prices which National
shall pay to Fairchild for backgrind, standard assembly and test
services hereunder during the first six (6) fiscal periods of this
Agreement. The prices in Exhibit G for fiscal periods 7 through 39 are
for information purposes only and are based on the Parties' best
estimate of forecast volumes and projected costs.
9.3 The prices which National shall pay to Fairchild for
background, standard assembly and test services hereunder after the
first six (6) fiscal periods of this Agreement are set forth herein as
Exhibit K. The pricing methodology to be followed hereafter will depend
on the Facility at which the services will be provided.
9.4 For purposes of Exhibit K, National, or any "Big 6"
accounting firm designated by National, shall have reasonable rights to
audit not more than twice each fiscal year the books and records of
Fairchild relevant to the pricing terms of this Agreement in order to
come to agreement with Fairchild with regard to Fairchild's actual
manufacturing costs.
9.5 Prices are quoted and shall be paid in U.S. Dollars. Such
prices are on an FOB ship point basis. Payment terms are net thirty
(30) from date of invoice. Miscellaneous services may be invoiced
separately.
9.6 National shall pay, in addition to the prices quoted or
invoiced, the amount of any freight, insurance, special handling and
duties. National shall also pay all sales, use, excise or other similar
tax applicable to the sale of goods or provision of services covered by
this Agreement, or National shall supply Fairchild with an appropriate
tax exemption certificate.
9.7 Quoted prices are based on the use of standard Fairchild
processes and on the assumption that National's product is readily
accommodated by Fairchild's assembly/handling equipment and processes.
Any changes that must be made thereto shall result in additional charges
to National that are mutually agreed to by the Parties.
9.8 Unless otherwise noted, quoted prices for assembly shall
include packing, marking and testing in accordance with the
Specifications for Devices that are in production as of the Effective
Date. For new Devices added after the Effective Date, pricing will
reflect specifications and any special requirements for the Devices such
as multi-insertion testing.
9.9 Should yields below historical levels be directly
attributable to Die, materials, processes or documentation provided by
National, then National shall be charged for the full price of Devices
begun in assembly, including handling, incurred by Fairchild in
processing such units.
9.10 Should National terminate any order prior to process
completion, National shall be charged a prorated portion of the full
price of such Device subject to a negotiated adjustment, based on the
process termination point, including handling incurred by Fairchild in
processing the total quantity started in assembly.
9.11 Fairchild may invoice National for complete or partial lots
(kits).
9.12 National shall in no event be required to pay prices in
excess of those charged by Fairchild for other third party customers,
for substantially similar services sold on substantially similar terms
(e.g., volume, payment terms, manufacturing criteria, contractual
commitments vs. spot buys, etc.). In the event Fairchild desires to
perform such services for other third party customers at such lower
prices, Fairchild shall immediately notify National and National shall
begin receiving the benefit of such lower price at the same time as such
other third party customer. This Paragraph 9.12 shall not apply to the
prices to be paid by National hereunder for the first twelve (12) fiscal
periods of this Agreement, or if National fails to honor its fixed
commitments under Section 7 and to the extent that such sales by
Fairchild to third party customers are only made in an attempt to make
up for any underutilization of capacity thereby caused by National.
9.13 For assembly and test services not reflected in Exhibit G,
terms shall be on an individual purchase order basis at prices to be
negotiated by the Parties using a methodology based on that set forth in
Exhibit K.
10.0 DELIVERY; RESCHEDULING AND CANCELLATION
10.1 Fairchild shall make reasonable and diligent efforts to
deliver assembled and/or tested Devices on the delivery dates published
to National. Any shipment made within +/- 3 days of the shipment
date(s) published to National shall constitute timely shipment,
10.2 All Devices delivered pursuant to the terms of this
Agreement shall be suitably packed for shipment in National's
specified containers, marked for shipment to National's address set
forth in the applicable purchase order and delivered to a carrier or
forwarding agent chosen by National. Fairchild shall not be
responsible for delays in shipment resulting from National's failure to
supply Fairchild with an adequate supply of National's specified
containers. Should National fail to designate a carrier, forwarding
agent or type of conveyance, Fairchild shall make such designation in
conformance with its standard shipping practices. Shipment will be
F.O.B. shipping point, at which time risk of loss and title shall pass
to National. Shipments will be subject to incoming inspection as set
forth in Paragraph 6.1 above.
10.3 National may, with Fairchild's prior written consent,
reschedule delivery of any order of assembled and/or tested Devices
once each fiscal period.
10.4 Subject to the provisions of Section 7 hereof, National may
cancel any purchase order at least two (2) weeks prior to the
commencement of work by Fairchild without charge, provided that National
reimburses Fairchild for the cost of any unique raw materials purchased
after such purchase order has been placed, and provided further that
Fairchild had provided National with a listing of materials it considers
unique.
10.5 As of 12:01 A.M. on the Effective Date, National will
consign to Fairchild all Devices located at the Facilities upon which
National had previously commenced services but which have not yet been
completed, which Devices are termed work in process in the Purchase
Agreement and which are not purchased by Fairchild thereunder. Unless
expressly directed in writing by National otherwise, Fairchild shall
commence performing services hereunder to bring such Devices to a normal
state of completion. National shall pay Fairchild for the accumulated
additional processing costs, plus a twenty-five percent (25%) mark up,
for the additional servicing taking place after the Effective Date. The
provisions of Sections 6 and 11 hereof shall specifically apply to all
such Devices.
11.0 QUALITY AND YIELD PROGRAMS
11.1 Fairchild shall maintain continuous cost, quality and yield
enhancement programs throughout the term of this Agreement.
11.2 Fairchild shall support National quality programs and shall
supply to National reports and/or manufacturing data in standard
Fairchild format that are in effect and which are required as of the
Effective Date.
11.3 Fairchild hereby warrants that the Facilities currently are,
and will remain throughout the term of this Agreement, ISO9000
certified.
12.0 ON-SITE INSPECTION AND INFORMATION
12.1 Fairchild shall allow National and/or National's customers
to visit and evaluate the Facilities during normal business hours as
part of established source inspection programs, it being understood
and agreed between National and Fairchild that National must obtain the
concurrence of Fairchild for the scheduling of all such visits, which
such concurrence shall not be unreasonably withheld. It is anticipated
that these visits will not occur more than once per quarter on average.
12.2 Upon National's written request, Fairchild will provide
National with process control information, to include but not be limited
to: SPC, yield and other detailed assembly and test quality and
reliability data and associated analyses required to support National
and National's customers quality and reliability programs. Except for
exigent circumstances, such requests shall not be made more than twice
per year for a given category of information.
12.3 Upon National's request and Fairchild's agreement, which
shall not be unreasonably withheld, Fairchild shall provide National
engineers with access to the Facilities to the extent necessary to
perform yield improvement and product management updates relevant to
this Agreement. National's engineers will comply with all applicable
Fairchild regulations in force at the Facilities and National hereby
agrees to hold Fairchild harmless for any damages or liability caused
by any such National engineer which are attributable to: (i) the
negligence or willful malfeasance of such engineer and (ii) any failure
to comply with Fairchild's regulations in force at the Facilities or
with applicable law.
13.0 REPORTS AND COMMUNICATIONS
13.1 Each Party hereby appoints a Program Manager whose
responsibilities shall include acting as a focal point for the technical
and commercial discussions between them related to the subject matter of
this Agreement, to include monitoring within his or her respective
company the distribution of Confidential Information received from the
other Party and assisting in the prevention of the unauthorized
disclosure of Confidential Information within the company and to third
parties. The Program Managers shall also be responsible for maintaining
pertinent records arranging such conferences, visits, reports and other
conditions as are necessary to fulfill the terms and conditions of this
Agreement. The names, addresses and telephone numbers of the Program
Managers will be communicated between the Parties from time to time.
14.0 EXPORT CONTROL
14.1 The Parties acknowledge that each must comply with all rules
and laws of the United States government relating to restrictions on
export. Each Party agrees to use its Best Efforts to obtain any export
licenses, letters of assurance or other documents necessary with respect
to this Agreement.
14.2 Each Party agrees to comply fully with United States export
laws and regulations, assuring the other Party that, unless prior
authorization is obtained from the competent United States government
agency, the receiving Party does not intend and shall not knowingly
export or re-export, directly or indirectly, any wafers, Die, Devices,
technology or technical information received hereunder, that would be in
contravention of any laws and regulations published by any United States
government agency.
15.0 TERM AND TERMINATION
15.1 The term of this Agreement shall be thirty-nine (39) fiscal
periods from the Effective Date; provided, however, that the Parties
shall not less than eight (8) fiscal periods prior to the end of such
thirty-ninth (39th) fiscal period determine in good faith a ramp-down
schedule of production under this Agreement so as to minimize disruption
to both Parties at the termination of this Agreement. If the Parties
are unable to agree on the terms governing a ramp-down, National shall
be allowed to reduce its purchase commitment by not more than twenty
percent (20%) per fiscal quarter after the initial thirty-nine (39)
fiscal period term of this Agreement. National will provide Fairchild
with not less than ninety (90) days prior written notice of any such
reduction.
15.2 This Agreement may be terminated, in whole or in part, by
one Party sending a written notice to the other Party of the termination
of this Agreement, which notice specifies the reason for the
termination, upon the happening of any one or more of the following
events:
(a) the other Party is the subject of a petition filed in a
bankruptcy court of competent jurisdiction, whether voluntary or
involuntary, which petition in the event of an involuntary petition
is not dismissed within sixty (60) days; if a receiver or trustee is
appointed for all or a substantial portion of the assets of the other
Party; or if the other Party makes an assignment for the benefit of
its creditors; or
(b) the other Party fails to perform substantially any
material covenant or obligation, or breaches any material representation
or warranty provided for herein; provided, however, that no right of
termination shall arise hereunder until sixty (60) days after receipt of
written notice by the Party who has failed to perform from the other
Party, specifying the failure of performance, and said failure having
not been remedied or cured during said sixty (60) day period.
15.3 Upon termination of this Agreement, all rights granted
hereunder shall immediately terminate and each Party shall return to the
other Party any property belonging to the other Party which is in its
possession, except that Fairchild may continue to retain and use any
rights or property belonging to National solely for the period necessary
for it to finish manufacturing the currently forecasted Fairchild
Assured Capacity and/or complete any production rampdown activity.
Nothing in this Section 15 is intended to relieve either Party of any
liability for any payment or other obligation existing at the time of
termination.
15.4 The provisions of Section 2, 14, 16 and Paragraphs 6.2, 6.3,
17.5 and 17.8 shall survive the termination of this Agreement for any
reason.
16.0 CONFIDENTIALITY
16.1 For purposes of this Agreement, "Confidential Information"
shall mean all proprietary information, including National and/or
Fairchild trade secrets relating to the subject matter of this Agreement
disclosed by one of the Parties to the other Party in written and/or
graphic form and originally designated in writing by the disclosing
Party as Confidential Information or by words of similar import, or, if
disclosed orally, summarized and confirmed in writing by the disclosing
Party within thirty (30) days after said oral disclosure, that the
orally disclosed information is Confidential Information.
16.2 Except as may otherwise be provided in the Technology
Licensing and Transfer Agreement, each Party agrees that it will not use
in any way for its own account, or for the account of any third party,
nor disclose to any third party except pursuant to this Agreement, any
Confidential Information revealed to it by the other Party. Each Party
shall take every reasonable precaution to protect the confidentiality of
said information. Each Party shall use the same standard of care in
protecting the Confidential Information of the other Party as it
normally uses in protecting its own trade secrets and proprietary
information.
16.3 Notwithstanding any other provision of this Agreement, no
information received by a Party hereunder shall be Confidential
Information if said information is or becomes:
(a) published or otherwise made available to the public
other than by a breach of this Agreement;
(b) furnished to a Party by a third party without
restriction on its dissemination;
(c) approved for release in writing by the Party
designating said information as Confidential Information;
(d) known to, or independently developed by, the Party
receiving Confidential Information hereunder without reference to or use
of said Confidential Information; or
(e) disclosed to a third party by the Party transferring
said information hereunder without restricting its subsequent disclosure
and use by said third party.
16.4 In the event that either Party either determines on the
advice of its counsel that it is required to disclose any information
pursuant to applicable law or receives any demand under lawful process
to disclose or provide information of the other Party that is subject to
the confidentiality provisions hereof, such Party shall notify the other
Party prior to disclosing and providing such information and shall
cooperate at the expense of the requesting Party in seeking any
reasonable protective arrangements requested by such other Party.
Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by
such law (as so advised by counsel) or by lawful process.
17.0 GENERAL
17.1 AMENDMENT: This Agreement may be modified only by a written
document signed by duly authorized representatives of the Parties.
17.2 FORCE MAJEURE: A Party shall not be liable for a failure or
delay in the performance of any of its obligations under this Agreement
where such failure or delay is the result of fire, flood, or other
natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials or utilities (provided that such
unavailability is not caused by the actions or inactions of the Party
claiming force majeure), or the intervention of any government
authority, providing that the Party failing in or delaying its
performance immediately notifies the other Party of its inability to
perform and states the reason for such inability.
17.3 ASSIGNMENT: This Agreement may not be assigned by any Party
hereto without the written consent of the other Party; provided that
Fairchild may assign its rights but not its obligations hereunder as
collateral security to any bona fide financial institution engaged in
acquisition financing in the ordinary course providing financing to
consummate the transactions contemplated by the Purchase Agreement or
any bona fide financial institution engaged in acquisition financing in
the ordinary course through whom such financing is refunded, replaced,
or refinanced and any of the foregoing financial institutions may assign
such rights in connection with a sale of Fairchild or the Business in
the form then being conducted by Fairchild substantially as an entirety.
Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon, and inure to the benefit of, and shall
be enforceable by, the respective successors and assigns of the Parties
hereto.
17.4 COUNTERPARTS: This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed
an original and all of which together shall constitute but one and the
same instrument.
17.5 CHOICE OF LAW: This Agreement, and the rights and
obligations of the Parties hereto, shall be interpreted and governed in
accordance with the laws of the State of California, without giving
effect to its conflicts of law provisions.
17.6 WAIVER: Should either of the Parties fail to exercise or
enforce any provision of this Agreement such failure shall not be
construed as constituting a waiver or a continuing waiver of its
rights to enforce such provision or right or any other provision or
right. Should either of the Parties waive any provision or right under
this Agreement, such waiver shall not be construed as constituting a
waiver of any other provision or right.
17.7 SEVERABILITY: If any provision of this Agreement or the
application thereof to any situation or circumstance shall be invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each remaining provision shall be valid and enforceable to the
fullest extent.
17.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER
THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS OR
SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH
OR WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE
NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR
NOT.
17.9 EFFECT OF HEADINGS: The headings and subheadings
contained herein are for information purposes only and shall have no
effect upon the intended purpose or interpretation of the provisions of
this Agreement.
17.10 INTEGRATION: The agreement of the Parties, which is
composed of this Agreement and the Exhibits hereto and the documents
referred to herein, constitutes the entire agreement and understanding
between the Parties with respect to the subject matter of this Agreement
and integrates all prior discussions and proposals (whether oral or
written) between them related to the subject matter hereof.
17.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the
transactions contemplated under the Purchase Agreement, neither
Fairchild nor National shall, without the approval of the other Party
hereto, make any press release or other public announcement
concerning the terms of the transactions contemplated by this Agreement,
except as and to the extent that any such Party shall be so obligated by
law, in which case the Party shall use its Best Efforts to advise the
other Party thereof and the Parties shall use their Best Efforts to
cause a mutually agreeable release or announcement to be issued;
provided that the foregoing shall not preclude communications or
disclosures necessary to (a) implement the provisions of this Agreement
or (b) comply with accounting, securities laws and Securities and
Exchange Commission disclosure obligations. Fairchild shall provide
National with a reasonable opportunity to review and comment on any
references to National made by Fairchild (and shall not include any such
references to National without the written consent of National, which
consent shall not be unreasonably withheld or delayed) in any written
materials that are intended to be filed with the Securities and Exchange
Commission in connection with obtaining financing required to effect
the transactions contemplated in connection with the Purchase Agreement
or intended to be distributed to prospective purchasers pursuant to an
offering made under Rule 144A promulgated under the Securities Act of
1933 in connection with obtaining such financing.
17.12 NO PARTNERSHIP OR AGENCY CREATED: Nothing contained
herein or done pursuant to this Agreement shall constitute the Parties
as entering upon a joint venture or partnership, or shall constitute
either Party the agent for the other Party for any purpose or in any
sense whatsoever.
17.13 BINDING EFFECT: This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the Parties hereto and to their respective successors and assigns.
17.14 NOTICES: All notices, requests, demands and other
communications which are required or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by
telecopy, electronic or digital transmission method; the day after it is
sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
M/S 16-135
Santa Clara, CA 95052-8090
Attn: General Counsel
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
MS01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
or to such other place as such Party may designate as to
itself by written notice to the other Party.
IN WITNESS WHEREOF, the Parties have had this Agreement executed by
their respective duty authorized officers on the day and date first
written above. The persons signing warrant that they are duly
authorized to sign for and on behalf of the respective Parties.
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ JOHN M. CLARK III
Title: Senior Vice President
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
Title: Executive Vice President & CFO
EXHIBIT 10.5
NATIONAL ASSEMBLY SERVICES AGREEMENT
THIS NATIONAL ASSEMBLY SERVICES AGREEMENT ("Agreement") is dated and
made effective this 11th day of March, 1997 (the "Effective Date") by
and between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation,
having its principal place of business at 2900 Semiconductor Drive,
Santa Clara, California 95052-8090 ("National") and FAIRCHILD
SEMICONDUCTOR CORPORATION, a Delaware corporation, having its principal
place of business at 333 Western Avenue, South Portland, Maine 04106
("Fairchild"). National and/or Fairchild may be referred to herein as a
"Party" or the "Parties" as the case may require.
W I T N E S S E T H:
WHEREAS, the Parties have entered into a certain Asset Purchase
Agreement (hereinafter referred to as the "Purchase Agreement") under
which Fairchild is acquiring certain of the assets of National's Logic,
Memory and Discrete Power and Signal Technologies Business Units as
historically conducted and accounted for (including Flash Memory, but
excluding Public Networks, Programmable Products and Mil/Aero Logic
Products) (the "Business"); and
WHEREAS, National owns and/or leases and operates assembly
facilities in Malacca, Malaysia and Singapore (the "Facilities"); and
WHEREAS, Fairchild has been having assembly, test and other back-end
services performed at the Facilities by National; and
WHEREAS, National and Fairchild desire to enter into an agreement
under which National will continue to provide certain services to
Fairchild following the closing of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, National and Fairchild recognize that the prices for
assembly and test services to be provided by National to Fairchild as
set forth herein are determined based on the collateral transactions
and ongoing relationship between the Parties as expressed in the
Purchase Agreement, Revenue Side Letter between National and Fairchild
of even date herewith (the "Revenue Side Letter") and the other
Operating Agreements (as defined in Paragraph 8.2); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the closing of the transactions contemplated by Purchase
Agreement.
NOW, THEREFORE, in furtherance of the foregoing premises and in
consideration of the mutual covenants and obligations hereinafter set
forth, the Parties hereto, intending to be legally bound hereby, do
agree as follows:
1.0 DEFINITIONS
1.1 "Best Efforts" shall require that the obligated Party make a
diligent, reasonable and good faith effort to accomplish the applicable
objective. Such obligation, however, does not require any material
expenditure of funds or the incurrence of any material liability on the
part of the obligated Party, which expenditure or liability is
unreasonable in light of the related objective, nor does it require that
the obligated Party act in a manner which would otherwise be contrary to
prudent business judgment or normal commercial practices in order to
accomplish the objective. The fact that the objective is not actually
accomplished is no indication that the obligated Party did not in fact
utilize its Best Efforts in attempting to accomplish the objective.
1.2 "Confidential Information" shall have the meaning set forth
in Paragraph 15.1 below.
1.3 "Devices" shall mean Fairchild integrated circuits to be
assembled and/or tested by National hereunder.
1.4 "Die" shall mean the silicon die material, consigned by
Fairchild to National in wafer form, from which Devices are assembled.
1.5 "Effective Date" shall mean the date first set forth above.
1.6 "Facilities" shall mean the existing assembly facilities
located at Malacca, Malaysia and Singapore owned and/or leased and
operated by National.
1.7 "Fairchild" shall mean Fairchild Semiconductor Corporation
and its Subsidiaries.
1.8 "Mix" shall mean the allocation within a forecast by package
type and pin count.
1.9 "National" shall mean National Semiconductor Corporation and
its Subsidiaries.
1.10 "National Assured Capacity" shall mean the capacity of
assembly and/or test services that National agrees to supply Fairchild
pursuant to Section 6 below.
1.11 "Specifications" shall mean Fairchild drawings, criteria and
other documented specifications in effect as of the Effective Date,
including, but not limited to, build procedures, buy-off criteria,
quality and reliability parameters, material specifications, marking
specifications, test settings, program specifications, load board
schematics, facilities and environmental SOP's, handling requirements,
lot and/or die traceability and processes for manufacturing Devices.
1.12 "Subsidiary" shall mean any corporation, partnership, joint
venture or similar entity more than fifty percent (50%) owned or
controlled by a Party hereto, provided that any such entity shall no
longer be deemed a Subsidiary after such ownership or control ceases to
exist.
2.0 SHIPPING AND BUILD ORDER REQUIREMENTS
2.1 National shall provide assembly and test services hereunder
in accordance with the Specifications. Such services shall be performed
at those Facilities at which they have historically been performed.
2.2 Fairchild will, at "No Charge", deliver and consign to
National at the Facilities its electrically probed wafers or wafers
requiring wafer probe. If supplied in wafer form, any reject die on
said wafers shall be ink marked or identified by Fairchild in a manner
acceptable for use with National's pattern recognition equipment. Wafers
and other materials shall be packed in accordance with the
Specifications.
2.3 National shall be responsible for forecasting and ordering
lead frames, bonding wire, molding compound and other raw materials
required for assembly in sufficient quantities and with sufficient lead
times to meet its obligations under the National Assured Capacity.
National shall also be responsible for maintenance and replacement costs
associated with manufacturing tools and equipment (e.g., mold die, trim
and form die, lead frame tooling), except for lead frame tooling which
is owned by and used exclusively for Fairchild.
2.4 Fairchild shall supply an appropriate bonding diagram and
test program (if applicable) for each Device to be assembled per the
Specifications.
2.5 National hereby agrees to verify the Die count and advise
Fairchild of any variance greater than one percent (1%).
2.6 Fairchild will provide National with a "Lot Traveler" in a
format identical to that in effect on the Effective Date and outlined in
Exhibit A hereto for the first six (6) months after the Effective Date.
After that period of time, National may utilize its own Traveler,
provided its form has previously been approved in writing by Fairchild,
which approval shall not be unreasonably withheld.
2.7 National shall provide Fairchild with the following
manufacturing data, in a format and pursuant to criteria and procedures
agreed to by the Parties, on a monthly basis:
(a) WIP from sealing through final assembly, including
finished goods;
(b) Test yield and wafer sort yield results (if applicable);
(c) Shipping activity (description, quantity, ship date);
(d) Acknowledgment of Fairchild Die shipments as well as
such other information which Fairchild may reasonably request from time
to time; and
(e) Cycle time (if requested by Fairchild).
2.8 National shall deliver completed lots to Fairchild, packaged
in accordance with the Specifications, with the assembly run card
enclosed for each assembly lot (kit). Future traceability for a lot
(kit) shall be based solely on the run card and shall be the
responsibility of Fairchild. The assembly run card shall show the yield
for each yield point in the assembly process. By mutual agreement of
the Parties, traceability may instead be software based, so long as such
records are accessible to both Parties.
2.9 All assembly and test services shall take place at the
Facilities. National shall not perform assembly or test services or
transfer any Fairchild owned intellectual property or other Fairchild
technical information outside of the Facilities or to any other site,
unless mutually agreed upon by both Parties.
3.0 PACKAGE/PROCESS CHANGES NOTIFICATION
3.1 If National proposes to make any change affecting the
assembly processes, materials and/or suppliers, to include, but not be
limited to, lead frame design, lead frame material, die attach material,
wire bond material, molding compound, lead plating process or plating
material, test programs or assembly procedures affecting the Devices,
National will notify Fairchild of the intended change in accordance with
National's change procedures then in effect. If the proposed change is
unacceptable to Fairchild, Fairchild and National shall work together in
efforts to resolve the problem. If during the first thirty-nine (39)
fiscal periods of this Agreement the Parties are unable to resolve the
problem, National shall not make the proposed change. After the first
39 fiscal periods of this Agreement, if the Parties are unable to
resolve the problem, National shall have the right to make such change
upon the provision of ninety (90) days prior written notice to
Fairchild. Notwithstanding the foregoing, however, National shall in
no event manufacture Devices other than in strict accordance with the
Specifications, or any amendments thereto, without the prior written
consent of Fairchild.
3.2 Fairchild shall provide at least fifteen (15) days prior
written notice to National of any proposed change in Die design, layout
modification, fabrication process, test programs or other changes which
may impact upon National's processing, handling or assembly of Devices.
National shall not be responsible for any assembly or test loss incurred
as a result of Fairchild's failure to provide timely notification of
such change.
3.3 Fairchild reserves the right to make changes to the
Specifications that reflect improvements, developments or other
technically desired changes in the Devices. Fairchild shall notify
National of such requested change orders and National shall respond
within thirty (30) working days regarding the feasibility, schedule and
anticipated costs of implementing such change orders. Once the parties
have agreed in writing to the engineering changes, schedule and prices
thereof, National shall promptly take all measures required to
incorporate such change orders into the Devices. National shall have
the right to renegotiate the price and/or its capacity commitments
hereunder if such changes will have an adverse effect on National's
assembly or test capacity.
4.0 DEVICE ACCEPTANCE/QUALIFICATION/RAMP UP
4.1 Should National agree to add new package types requested by
Fairchild, National shall utilize its Best Efforts to complete
qualification assembly of new package types as soon as possible,
including qualification lots. Fairchild shall reimburse National for
the full costs of equipment, tooling and one time start up costs
required to manufacture new packages that National will use exclusively
for Fairchild, otherwise such costs will be shared.
4.2 Fairchild shall be responsible for specifying and performing
any qualification testing deemed necessary.
4.3 National reserves the right to refuse assembly of any new
Devices which violate National internal design or processing
requirements that are introduced after the Effective Date.
4.4 National shall provide Fairchild with a preliminary ramp up
schedule, which may be subject to subsequent reduction by National in
the event unforeseen problems are encountered by National with yields,
process, capacity support, quality/reliability or other product or
process features. National shall immediately notify Fairchild in
writing of the necessity of any such reductions.
5.0 INSPECTION, ACCEPTANCE AND WARRANTY
5.1 For those Devices not tested by National, Fairchild shall
conduct incoming acceptance tests within ten (10) days after delivery at
its test facility. Upon completion of such tests, Fairchild shall
promptly report any shortage, damage or defective Devices in any
shipment. In the case of defective Devices found by Fairchild to exceed
applicable AQL and/or PPM Limits in effect as of the Effective Date, or
as subsequently agreed to in writing by the Parties, Fairchild shall
promptly ship samples of defective Devices to National for verification.
If such testing demonstrates that the shipment failed to meet the
relevant Specifications due to National workmanship and materials,
Fairchild may at its option either:
(a) deduct the defective Devices' purchase price from
National's invoice, in which event Fairchild shall, if requested by
National, return to National the damaged or defective Devices at
National's risk and expense; or
(b) return the damaged or defective Devices to National, at
National's risk and expense, for credit; or
(c) scrap the defective Devices at National's refff quest
for credit.
5.2 National warrants that the services provided to Fairchild
hereunder shall conform to all applicable Specifications for assembly
and/or test and shall be free from defects in material and National's
workmanship. Such warranty, however, shall not apply to the design or
operation of the Fairchild supplied Die incorporated in the Devices.
This warranty is limited to a period of one (1) year from the date of
delivery to Fairchild. If, during the one year period:
(i) National is notified promptly in writing upon
discovery of any such defect in any Device with a detailed description;
and
(ii) Fairchild receives a return material authorization
number from National and returns such Device to the applicable Facility
at Fairchild's expense for inspection; and
(iii) National's examination reveals that the Device is
indeed defective and does not meet the applicable Specification or is
defective in materials or National's workmanship and such problems are
not caused by accident, abuse, misuse, neglect, improper storage,
handling, packaging or installation, repair, alteration or improper
testing or use by someone other than National
then, within a reasonable time, National shall credit
Fairchild for such defective Device. National shall reimburse Fairchild
for the transportation charges paid by Fairchild in returning such
defective Devices to National. The performance of this warranty shall
not act to extend the one (1) year warranty period for any Device(s)
repaired or replaced beyond that period applicable to such Device(s) as
originally delivered.
5.3 THE FOREGOING WARRANTY CONSTITUTES NATIONAL'S EXCLUSIVE
LIABILITY, AND FAIRCHILD'S EXCLUSIVE REMEDY, FOR ANY BREACH OF WARRANTY.
NATIONAL MAKES AND FAIRCHILD RECEIVES NO WARRANTIES OR CONDITIONS ON THE
SERVICES PERFORMED HEREUNDER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AND NATIONAL SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
6.0 CAPACITY; VOLUME COMMITMENTS; PRODUCTION PLANNING
6.1 All planning herein will be done under National's accounting
calendar which currently divides its fiscal year into four (4) equal
fiscal quarters, each of which consists of three (3) fiscal periods.
The first two (2) periods of each quarter are of four (4) weeks in
duration and the third period is of (5) weeks duration.
6.2 Two (2) weeks prior to the end of each National fiscal
period, or as otherwise agreed by the Parties, Fairchild will provide to
National a baseline quantity of assembly starts set forth in terms of
product family, package and pin count, for the next eight (8) fiscal
periods (the "Capacity Request"). Fairchild's initial Capacity Request
and National's Assured Capacity response formats are set forth herein at
Exhibit B.
6.3 Each fiscal period, Fairchild may make changes to the
Capacity Request in accordance with the following table, provided that
the maximum Capacity Request for each package and pin count module does
not exceed Fairchild's share of each package and pin count module's
installed equipment capacity. Any changes outside those permitted under
the following table must be by mutual consent of the Parties.
Fiscal Periods in the
Capacity Request Permitted Changes
Period 1 Fixed
Period 2 +/-10%
Period 3 +/-20%
Period 4 +/-40%
Period 5 +/-40%
Period 6 +/-40%
Period 7 +/-40%
Period 8 +/-40%
6.4 Fairchild's share of a package and pin count module's
installed equipment capacity will equal the previous National Assured
Capacity for that module, plus that percentage of any excess capacity
available in the package and pin count module equal to Fairchild's
percentage of the currently utilized capacity in said module. Installed
equipment capacity by package and pin count module is set forth herein
at Exhibit C.
6.5 One (1) work week after receipt of the Capacity Request,
National shall provide Fairchild with a response to such Capacity
Request, the "National Assured Capacity". The National Assured Capacity
must guarantee the amount requested in Fairchild's latest Capacity
Request, provided that any changes to Fairchild's latest Capacity
Request are within the limits of Paragraph 6.3. National shall utilize
its Best Efforts to comply with any requests by Fairchild for
capacity above those which are permitted under Paragraph 6.3. In any
case, National shall be obligated hereunder to provide Fairchild with
the assembly starts guaranteed in the National Assured Capacity
response. The initial National Assured Capacity response shall be the
last response provided prior to the Effective Date. Set forth below are
two examples of the foregoing:
Example #1 The new Capacity Request is less than the last
National Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last National Assured
Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 90 80 60 60 60 60 60
New National Assured
Capacity 100 90 80 60 60 60 60 60
Example #2 The new Capacity Request is greater than the last
National Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last National Assured
Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 110 120 140 140 140 140 140
New National Assured
Capacity 100 110 120 140 140 140 140 140
6.6 The timetable for the rolling eight fiscal period Capacity
Request, the National Assured Capacity response, purchase order release
and detailed Device level assembly starts request for the next fiscal
period are set forth in Exhibit D hereto.
7.0 PURCHASE ORDERS
7.1 All purchases and sales between National and Fairchild shall
be initiated by Fairchild's issuance of written purchase orders sent by
either first class mail or facsimile. By agreement of the Parties,
purchase orders may also be sent and acknowledged by electronic data
exchange or other mutually satisfactory system. Such "blanket" purchase
orders shall be issued once per fiscal quarter for assembly starts three
(3) fiscal periods in the future. They shall state the product family,
package and pin count, and shipping and invoicing instructions.
National shall accept purchase orders through a written or electronic
acknowledgment. Upon receipt of Fairchild's detailed Device level
assembly starts request for the next fiscal period, National shall
provide Fairchild with a Product delivery schedule either on a weekly
basis as assembly is started or for the assembly starts for the entire
fiscal period, as the Parties may agree. The purchase orders may
utilize the first three (3) fiscal periods forecast in the eight period
rolling forecast supplied pursuant to Section 6, as the embodiment of
the purchase order for specifying the assembly starts by package and pin
count.
7.2 In the event of any conflict between the terms and conditions
of this Agreement and either Party's purchase order, acknowledgment, or
similar forms, priority shall be determined as follows:
(a) typewritten or handwritten terms on the face of a
written purchase order, acknowledgment or similar document or in the
main body of an electronic equivalent which have been specifically
accepted in writing by the other Party's Program Manager;
(b) the terms of this Agreement;
(c) preprinted terms incorporated in the purchase order,
acknowledgment or similar document.
7.3 Consistent with standard practices of issuing specific Device
level details of part numbers to be assembled on a weekly or periodic
basis, Fairchild may unilaterally change the part number to be
manufactured, provided that National agrees that the change does not
negatively impact National's loadings and provided further that there is
no change in the package and pin count to be used. A change that will
negatively impact loading or alter the package and pin count may only be
directed upon National's written agreement, which shall utilize its Best
Efforts to comply with such requested change. The specific part number
detail shall be submitted by first class mail or facsimile. By written
agreement of the Parties, specific part number detail may also be sent
by electronic data exchange, or other mutually satisfactory system.
7.4 Fairchild shall request delivery dates which are consistent
with National's reasonable lead times for each Device as indicated at
the time Fairchild's purchase order is placed. Notwithstanding the
foregoing, National shall utilize its Best Efforts to accommodate
requests by Fairchild for quick turnarounds or "hot lots", which
includes prototype lots. Hot lot cycle times shall be a fifty percent
(50%) reduction of standard cycle time with a $2,000 lot charge.
7.5 National may manufacture lots of any size which satisfy the
requirements of effective manufacturing. However, Fairchild must
place orders for full flow and prototype Products in minimum lot sizes
of three thousand (3,000) Devices.
8.0 PRICING AND PAYMENT
8.1 Set forth herein at Exhibit F is the forecasted volume of
assembly services that Fairchild will purchase from National during the
initial thirty- nine (39) fiscal periods (the "Forecast Volumes"). The
Forecast Volumes are for pricing purposes under this Section 8 only and
may vary in magnitude and mix in practice, whereupon the prices
applicable to the revised magnitude and mix may also vary.
8.2 The Parties hereby acknowledge that the prices for assembly
and test services to be provided by National to Fairchild as set forth
herein are determined based on the collateral transactions and on-
going relationship between the Parties as expressed in the Purchase
Agreement, Revenue Side Letter and corresponding Fairchild Foundry
Services Agreement, Fairchild Assembly Services Agreement and Mil/Aero
Wafer and Services Agreement, all of even date herewith between the
Parties (collectively, the "Operating Agreements"). Set forth in
Exhibit F hereto are the prices which Fairchild shall pay to National
for standard assembly and test services hereunder during the first six
(6) fiscal periods of this Agreement. The prices in Exhibit F for
fiscal periods 7 through 39 are for information purposes only and are
based on the Parties' best estimate of forecast volumes and projected
costs.
8.3 The methodology under which prices which Fairchild shall pay
to National for standard assembly and test services hereunder after the
first six (6) fiscal periods of this Agreement is set forth herein at
Exhibit K.
8.4 For purposes of Exhibit K, Fairchild, or any "Big 6"
accounting firm designated by Fairchild, shall have reasonable rights,
not more than twice per fiscal year, to audit the books and records of
National relevant to the pricing terms of this Agreement in order to
come to agreement with National with regard to National's actual
manufacturing costs.
8.5 Prices are quoted and shall be paid in U.S. Dollars. Such
prices are on an FOB ship point basis. Payment terms are net thirty
(30) from date of invoice. Miscellaneous services may be invoiced
separately.
8.6 Fairchild shall pay, in addition to the prices quoted or
invoiced, the amount of any freight, insurance, special handling and
duties. Fairchild shall also pay all sales, use, excise or other
similar tax applicable to the sale of goods or provision of services
covered by this Agreement, or Fairchild shall supply National with an
appropriate tax exemption certificate.
8.7 Quoted prices are based on the use of standard National
processes and on the assumption that Fairchild's product is readily
accommodated by National's assembly/handling equipment and processes.
Any changes that must be made thereto shall result in additional charges
to Fairchild that are mutually agreed to by the Parties.
8.8 Unless otherwise noted, quoted prices for assembly shall
include packing, marking and testing in accordance with the
Specifications for Devices that are in production as of the Effective
Date. For new Devices added after the Effective Date, pricing will
reflect specifications and any special requirements for the Device, such
as multi-insertion testing.
8.9 Should yields below historical levels be directly
attributable to Die, materials, processes or documentation provided by
Fairchild, then Fairchild shall be charged for the full price of Devices
begun in assembly, including handling, incurred by National in
processing such units.
8.10 Should Fairchild terminate any order prior to process
completion, Fairchild shall be charged a prorated portion of the full
price of such Device, subject to a negotiated adjustment, based on the
process termination point, including handling incurred by National in
processing the total quantity started in assembly.
8.11 National may invoice Fairchild for complete or partial lots
(kits).
8.12 Fairchild shall in no event be required to pay prices in
excess of those charged by National for other third party customers, for
substantially similar services sold on substantially similar terms
(e.g., volume, payment terms, manufacturing criteria, contractual
commitments vs. spot buys, etc.). In the event National desires to
perform services for other third party customers at such lower prices,
National shall immediately notify Fairchild and Fairchild shall begin
receiving the benefit of such lower price at the same time as such other
third party customer. This Paragraph 8.12 shall not apply to the prices
to be paid by Fairchild hereunder for the first twelve (12) fiscal
periods of this Agreement, or if Fairchild fails to honor its fixed
commitments under Section 6 and to the extent that such sales by
National to third party customers are only made in an attempt to make up
for any underutilization of capacity thereby caused by Fairchild.
8.13 For assembly and test services not reflected in Exhibit F,
terms shall be on an individual purchase order basis at prices to be
negotiated by the Parties using a methodology based on that set forth in
Exhibit K.
9.0 DELIVERY; RESCHEDULING AND CANCELLATION
9.1 National shall make reasonable and diligent efforts to
deliver assembled and/or tested Devices on the delivery dates published
to Fairchild. Any shipment made within +/- 3 days of the shipment
date(s) published to Fairchild shall constitute timely shipment.
9.2 All Devices delivered pursuant to the terms of this Agreement
shall be suitably packed for shipment in Fairchild's specified
containers, marked for shipment to Fairchild's address set forth in the
applicable purchase order and delivered to a carrier or forwarding agent
chosen by Fairchild. National shall not be responsible for delays in
shipment resulting from Fairchild's failure to supply National with an
adequate supply of Fairchild's specified containers. Should Fairchild
fail to designate a carrier, forwarding agent or type of conveyance,
National shall make such designation in conformance with its standard
shipping practices. Shipment will be F.O.B. shipping point, at which
time risk of loss and title shall pass to Fairchild. Shipments will be
subject to incoming inspection as set forth in Paragraph 5.1 above.
9.3 Fairchild may, with National's prior written consent,
reschedule delivery of any order of assembled and/or tested Devices once
each fiscal period.
9.4 Subject to the provisions of Section 6 hereof, Fairchild may
cancel any purchase order at least two (2) weeks prior to the
commencement of work by National without charge, provided that Fairchild
reimburses National for the cost of any unique raw materials purchased
after such purchase order has been placed, and provided further that
National had provided Fairchild with a listing of materials it considers
unique.
10.0 QUALITY AND YIELD PROGRAMS
10.1 National shall maintain continuous cost, quality and yield
enhancement programs throughout the term of this Agreement.
10.2 National shall support Fairchild quality programs and shall
supply to Fairchild reports and/or manufacturing data in standard
National format that are in effect and which are required as of the
Effective Date.
10.3 National hereby warrants that the Facilities currently are,
and will remain throughout the term of this Agreement, ISO9000
certified.
11.0 ON-SITE INSPECTION AND INFORMATION
11.1 National shall allow Fairchild and/or Fairchild's customers
to visit and evaluate the Facilities during normal business hours as
part of established source inspection programs, it being understood and
agreed between Fairchild and National that Fairchild must obtain the
concurrence of National for the scheduling of all such visits, which
such concurrence shall not be unreasonably withheld. It is anticipated
that these visits will occur not more than once per quarter, on average.
11.2 Upon Fairchild's written request, National will provide
Fairchild with process control information, to include but not be
limited to: SPC, yield and other detailed assembly and test quality and
reliability data and associated analyses required to support Fairchild
and Fairchild's customers' quality and reliability programs. Except for
exigent circumstances, such requests shall not be made more than twice
per year for a given category of information.
11.3 Upon Fairchild's request and National's agreement which
shall not be unreasonably withheld, National shall provide Fairchild
engineers with access to the Facilities to the extent necessary to
perform yield improvement and product management updates relevant to
this Agreement. Fairchild's engineers will comply with all applicable
National regulations in force at the Facilities and Fairchild hereby
agrees to hold National harmless for any damages or liability caused by
any such Fairchild engineer, which are attributable to:
(i) the negligence or willful malfeasance of such
engineer, and
(ii) any failure to comply with National's regulations in
force at the Facilities or with applicable law.
12.0 REPORTS AND COMMUNICATIONS
12.1 Each Party hereby appoints a Program Manager whose
responsibilities shall include acting as a focal point for the technical
and commercial discussions between them related to the subject matter of
this Agreement, to include monitoring within his or her respective
company the distribution of Confidential Information received from the
other Party and assisting in the prevention of the unauthorized
disclosure of Confidential Information within the company and to third
parties. The Program Managers shall also be responsible for
maintaining pertinent records and arranging such conferences, visits,
reports and other communications as are necessary to fulfill the terms
and conditions of this Agreement. The names, addresses and telephone
numbers of the Program Managers will be communicated between the Parties
from time to time.
13.0 EXPORT CONTROL
13.1 The Parties acknowledge that each must comply with all rules
and laws of the United States government relating to restrictions on
export. Each Party agrees to use its Best Efforts to obtain any export
licenses, letters of assurance or other documents necessary with respect
to this Agreement.
13.2 Each Party agrees to comply fully with United States export
laws and regulations, assuring the other Party that, unless prior
authorization is obtained from the competent United States government
agency, the receiving Party does not intend and shall not knowingly
export or re-export, directly or indirectly, any wafers, Die, Devices,
technology or technical information received hereunder, that would be
in contravention of any laws and regulations published by any United
States government agency.
14.0 TERM AND TERMINATION
14.1 The term of this Agreement shall be thirty-nine (39) fiscal
periods from the Effective Date; provided, however that the Parties
shall not less than eight (8) fiscal periods prior to the end of such
thirty-ninth (39th) fiscal period determine in good faith a ramp-down
schedule of production so as to minimize disruption to both Parties. If
the Parties are unable to agree on the terms governing a ramp-down,
Fairchild shall be allowed to reduce its purchase commitment by not more
than twenty percent (20%) per fiscal quarter, starting one fiscal
quarter after the initial thirty-nine (39) fiscal period term of this
Agreement. Fairchild will provide National with not less than ninety
(90) days prior written notice of any such reduction.
14.2 This Agreement may be terminated, in whole or in part, by one
Party sending a written notice to the other Party of its election to
terminate, which notice specifies the reason for the termination, upon
the happening of any one or more of the following events:
(a) the other Party is the subject of a petition filed in a
bankruptcy court of competent jurisdiction, whether voluntary or
involuntary, which petition in the event of an involuntary petition is
not dismissed within sixty (60) days; if a receiver or trustee is
appointed for all or a substantial portion of the assets of the other
Party; or if the other Party makes an assignment for the benefit of its
creditors; or
(b) the other Party fails to perform substantially any
material covenant or obligation, or breaches any material representation
or warranty provided for herein; provided, however, that no right of
termination shall arise hereunder until sixty (60) days after receipt of
written notice by the Party who has failed to perform from the other
Party, specifying the failure of performance, and said failure having
not been remedied or cured during said sixty (60) day period.
14.3 Upon termination of this Agreement, all rights granted
hereunder shall immediately terminate and each Party shall return to the
other Party any property belonging to the other Party which is in its
possession, except that National may continue to retain and use any
rights or property belonging to Fairchild solely for the period
necessary for it to finish manufacturing the currently forecasted
National Assured Capacity and/or complete any production ramp-down
activity. Nothing in this Section 14 is intended to relieve either
Party of any liability for any payment or other obligations existing at
the time of termination.
14.4 The provisions of Sections 13, 15 and Paragraphs 5.2, 5.3,
16.5 and 16.8 shall survive the termination of this Agreement for any
reason.
15.0 CONFIDENTIALITY
15.1 For purposes of this Agreement, "Confidential Information"
shall mean all proprietary information, including Fairchild and/or
National trade secrets relating to the subject matter of this Agreement
disclosed by one of the Parties to the other Party in written and/or
graphic form and originally designated in writing by the disclosing
Party as Confidential Information or by words of similar import, or,
if disclosed orally, summarized and confirmed in writing by the
disclosing Party within thirty (30) days after said oral disclosure,
that the orally disclosed information is Confidential Information.
15.2 Except as may otherwise be provided in the Technology
Licensing and Transfer Agreement between the Parties of even date
herewith, each Party agrees that it will not use in any way for its own
account, or for the account of any third party, nor disclose to any
third party except pursuant to this Agreement, any Confidential
Information revealed to it by the other Party. Each Party shall take
every reasonable precaution to protect the confidentiality of said
information. Each Party shall use the same standard of care in
protecting the Confidential Information of the other Party as it
normally uses in protecting its own trade secrets and proprietary
information.
15.3 Notwithstanding any other provision of this Agreement, no
information received by a Party hereunder shall be Confidential
Information if said information is or becomes:
(a) published or otherwise made available to the public
other than by a breach of this Agreement;
(b) furnished to a Party by a third party without
restriction on its dissemination;
(c) approved for release in writing by the Party designating
said information as Confidential Information;
(d) known to, or independently developed by, the Party
receiving Confidential Information hereunder without reference to or use
of said Confidential Information; or
(e) disclosed to a third party by the Party transferring
said information hereunder without restricting its subsequent disclosure
and use by said third party.
15.4 In the event that either Party either determines on the
advice of its counsel that it is required to disclose any information
pursuant to applicable law or receives any demand under lawful process
to disclose or provide information of the other Party that is subject to
the confidentiality provisions hereof, such Party shall notify the other
Party prior to disclosing and providing such information and shall
cooperate at the expense of the requesting Party in seeking any
reasonable protective arrangements requested by such other Party.
Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by
such law (as so advised by counsel) or by lawful process.
16.0 GENERAL
16.1 AMENDMENT: This Agreement may be modified only by a written
document signed by duly authorized representatives of the Parties.
16.2 FORCE MAJEURE: A Party shall not be liable for a failure or
delay in the performance of any of its obligations under this Agreement
where such failure or delay is the result of fire, flood, or other
natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials or utilities (provided that such
unavailability is not caused by the actions or inactions of the Party
claiming force majeure), or the intervention of any government
authority, providing that the Party failing in or delaying its
performance immediately notifies the other Party of its inability to
perform and states the reason for such inability.
16.3 ASSIGNMENT: This Agreement may not be assigned by any Party
hereto without the written consent of the other Party; provided that
Fairchild may assign its rights but not its obligations hereunder as
collateral security to any bona fide financial institution engaged in
acquisition financing in the ordinary course providing financing to
consummate the transactions contemplated by the Purchase Agreement or
any bona fide financial institution engaged in acquisition financing in
the ordinary course through whom such financing is refunded, replaced,
or refinanced and any of the foregoing financial institutions may assign
such rights in connection with a sale of Fairchild or the Business in
the form then being conducted by Fairchild substantially as an entirety.
Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon, and inure to the benefit of, and shall
be enforceable by, the respective successors and assigns of the Parties
hereto.
16.4 COUNTERPARTS: This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed
an original and all of which together shall constitute but one and the
same instrument.
16.5 CHOICE OF LAW: This Agreement, and the rights and
obligations of the Parties hereto, shall be interpreted and governed
in accordance with the laws of the State of California, without giving
effect to its conflicts of law provisions.
16.6 WAIVER: Should either of the Parties fail to exercise or
enforce any provision of this Agreement, such failure shall not be
construed as constituting a waiver or a continuing waiver of its rights
to enforce such provision or right or any other provision or right.
Should either of the Parties waive any provision or right under this
Agreement, such waiver shall not be construed as constituting a waiver
of any other provision or right.
16.7 SEVERABILITY: If any provision of this Agreement or the
application thereof to any situation or circumstance shall be invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each remaining provision shall be valid and enforceable to the
fullest extent.
16.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM
UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY
GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF
CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF
WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR NOT.
16.9 EFFECT OF HEADINGS: The headings and subheadings contained
herein are for information purposes only and shall have no effect upon
the intended purpose or interpretation of the provisions of this
Agreement.
16.10 INTEGRATION: The agreement of the Parties, which is composed
of this Agreement and the Exhibits hereto and the documents referred to
herein, constitutes the entire agreement and understanding between the
Parties with respect to the subject matter of this Agreement and
integrates all prior discussions and proposals (whether oral or written)
between them related to the subject matter hereof.
16.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the
transactions contemplated under the Purchase Agreement, neither
Fairchild nor National shall, without the approval of the other Party
hereto, make any press release or other public announcement concerning
the terms of the transactions contemplated by this Agreement, except as
and to the extent that any such Party shall be so obligated by law, in
which case the Party shall use its Best Efforts to advise the other
Party thereof and the Parties shall use their Best Efforts to cause a
mutually agreeable release or announcement to be issued; provided that
the foregoing shall not preclude communications or disclosures
necessary to (a) implement the provisions of this Agreement or (b)
comply with accounting, securities laws and Securities and Exchange
Commission disclosure obligations. Fairchild shall provide National
with a reasonable opportunity to review and comment on any references
to National made by Fairchild (and shall not include any such references
to National without the written consent of National, which consent shall
not be unreasonably withheld or delayed) in any written materials that
are intended to be filed with the Securities and Exchange Commission in
connection with obtaining financing required to effect the transactions
contemplated in connection with the Purchase Agreement or intended to
be distributed to prospective purchasers pursuant to an offering made
under Rule 144A promulgated under the Securities Act of 1933 in
connection with obtaining such financing.
16.12 NO PARTNERSHIP OR AGENCY CREATED: Nothing contained herein
or done pursuant to this Agreement shall constitute the Parties as
entering upon a joint venture or partnership, or shall constitute either
Party the agent for the other Party for any purpose or in any sense
whatsoever.
16.13 BINDING EFFECT: This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the Parties hereto and to their respective successors and assigns.
16.14 NOTICES: All notices, requests, demands and other
communications which are required or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by
telecopy, electronic or digital transmission method; the day after it is
sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
M/S 16-135
Santa Clara, CA 95052-8090
Attn: General Counsel
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
M/S 01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
or to such other place as such Party may designate as to
itself by written notice to the other Party.
IN WITNESS WHEREOF, the Parties have had this Agreement executed by
their respective duly authorized officers on the day and date first
written above. The persons signing warrant that they are duly
authorized to sign for and on behalf of the respective Parties.
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
Title:Executive Vice President & CFO
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ JOHN M. CLARK III
Title: Senior Vice President
EXHIBIT 10.6
FAIRCHILD FOUNDRY SERVICES AGREEMENT
THIS FAIRCHILD FOUNDRY SERVICES AGREEMENT ("Agreement")is dated and made
effective this 11th day of March, 1997 (the "Effective Date") by and
between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation,
having its principal place of business at 2900 Semiconductor Drive,
Santa Clara, California 95052-8090 ("National") and FAIRCHILD
SEMICONDUCTOR CORPORATION, a Delaware corporation, having its principal
place of business at 333 Western Avenue, South Portland, Maine 04106
("Fairchild"). National and/or Fairchild may be referred to herein as a
"Party" or the "Parties" as the case may require.
WITNESSETH:
WHEREAS, the Parties have entered into a
certain Asset Purchase Agreement (hereinafter referred to as the
"Purchase Agreement") under which Fairchild is acquiring certain of the
assets of National's Logic, Memory and Discrete Power and Signal
Technologies Business Units as historically conducted and accounted for
(including Flash Memory, but excluding Public Networks, Programmable
Products and Mil/Aero Logic Products) (the "Business"); and
WHEREAS, pursuant to the transactions
contemplated in the Purchase Agreement, Fairchild is acquiring
National's manufacturing facilities in South Portland, Maine (excluding
the eight-inch fab and related facilities); West Jordan, Utah; and
Penang, Malaysia, and Cebu, the Philippines; and
WHEREAS, after the closing of the
transactions contemplated by the Purchase Agreement Fairchild will own
and operate the Facilities; and
WHEREAS, National, using proprietary
processes, has been manufacturing silicon wafers containing certain
integrated circuits at the Facilities; and
WHEREAS, National is conveying to
Fairchild certain intellectual property rights pursuant to the
Technology Licensing and Transfer Agreement between National and
Fairchild, of even date herewith; and
WHEREAS, National and Fairchild desire to
enter into an agreement under which Fairchild will continue to provide
certain manufacturing services to National following the closing of
the transactions contemplated by the Purchase Agreement; and
WHEREAS, National and Fairchild recognize
that the prices National shall pay to Fairchild for silicon wafers
manufactured pursuant to this Agreement are determined based on the
collateral transactions and ongoing relationship between the Parties as
expressed in the Purchase Agreement, Revenue Side Letter between
National and Fairchild of even date herewith (the "Revenue Side Letter")
and the other Operating Agreements (as defined in Paragraph 7.1); and
WHEREAS, the execution and delivery of
this Agreement is a condition precedent to the closing of the
transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in furtherance of the
foregoing premises and in consideration of the mutual covenants and
obligations hereinafter set forth, the Parties hereto, intending to be
legally bound hereby, do agree as follows:
1.0 DEFINITIONS
1.1 "Acceptance Criteria" shall mean the electrical parameter
testing, process control monitor ("PCM") and other inspections for each
Product and/or Process as set forth in Exhibit F hereto, all of which
are to be performed by Fairchild prior to shipment of Wafers hereunder.
1.2 "Best Efforts" shall require that the obligated Party make a
diligent, reasonable and good faith effort to accomplish the applicable
objective. Such obligation, however, does not require any material
expenditure of funds or the incurrence of any material liability on the
part of the obligated Party, which expenditure or liability is
unreasonable in light of the related objective, nor does it require that
the obligated Party act in a manner which would otherwise be contrary to
prudent business judgment or normal commercial practices in order to
accomplish the objective. The fact that the objective is not actually
accomplished is no indication that the obligated Party did not in fact
utilize its Best Efforts in attempting to accomplish the objective.
1.3 "Confidential Information" shall have the meaning set forth in
Paragraph 16.1 below.
1.4 "Effective Date" shall mean the date first set forth above.
1.5 "Equivalent Wafers" for wafers manufactured at the South
Portland, Maine six inch fab shall mean the actual number of wafers in a
given Process multiplied by the process complexity factor for that
Process, as set forth in Exhibit A hereto; and for wafers manufactured
in a four or five inch fab, Equivalent Wafers shall mean the number of
six inch equivalent wafers.
1.6 "Facilities" shall mean the existing wafer fabrication
facilities located at South Portland, Maine (excluding the eight inch
fabrication facility of which National is retaining ownership) and West
Jordan, Utah, transferred to Fairchild from National pursuant to the
Purchase Agreement.
1.7 "Fairchild" shall mean Fairchild Semiconductor Corporation
and its Subsidiaries.
1.8 "Fairchild Assured Capacity" shall mean the capacity that
Fairchild agrees to supply National pursuant to Section 5 below.
1.9 "Masks" shall mean the masks and reticle sets, including the
mask holders and ASM pods, for the Products and Wafers used to
manufacture Products hereunder.
1.10 "National" shall mean National Semiconductor Corporation and
its Subsidiaries.
1.11 "Processes" shall mean those National proprietary wafer
manufacturing processes and associated unit processes to be used in the
fabrication of Wafers hereunder which are set forth in Exhibit A hereto,
as such processes shall be modified from time to time as agreed in
writing by the Parties.
1.12 "Products" shall mean National's integrated circuit products
which will be manufactured by Fairchild in wafer form for National
hereunder and which are identified by National's part numbers listed in
Exhibit B hereto, which exhibit may be amended from time to time as
the parties may agree.
1.13 "Quality and Reliability Criteria" shall mean National's
manufacturing process quality and reliability specifications, as set
forth in the revision of National Specification CP0008 which is in
effect as of the Effective Date, and which are to be followed by
Fairchild in manufacturing Wafers hereunder.
1.14 "Specifications" shall mean the technical specifications (such
as Mask ID, Process Flow and Sort/Test) as listed in Exhibit B for each
of the Products as provided in this Agreement.
1.15 "Subsidiary" shall mean any corporation, partnership, joint
venture or similar entity more than fifty (50%) owned or controlled by a
Party hereto, provided that any such entity shall no longer be deemed a
Subsidiary after such ownership or control ceases to exist.
1.16 "Technology Licensing and Transfer Agreement" shall mean the
agreement of even date herewith between the Parties under which National
is licensing and transferring certain intellectual property rights to
Fairchild.
1.17 "Wafers" shall mean four-inch (4"), five-inch (5") and/or six-
inch (6") silicon wafers for any of the Products to be manufactured by
Fairchild hereunder.
1.18 "Wafer Module" shall mean the Fairchild four-inch (4"), five-
inch (5"), and six-inch (6") wafer fabrication units in South Portland,
Maine and the six-inch (6") wafer fabrication unit in West Jordan, Utah.
2.0 INTELLECTUAL PROPERTY/NON-COMPETE
2.1 The provisions of the Technology Licensing and Transfer
Agreement will govern all issues related to the respective intellectual
property rights of the Parties hereunder, to include but not be limited
to, use rights, ownership rights and indemnification obligations.
2.2 All manufacturing of Wafers shall take place at the Facilities.
Fairchild shall not transfer any National-owned intellectual property or
technical information outside of the Facilities or to any other site,
other than as may be permitted under the Technology Licensing and
Transfer Agreement.
2.3 During the term of this Agreement, including all extensions
hereto and any subsequent ramp-down period provided under Paragraph
15.1, Fairchild will not develop, manufacture (except for National here-
under), market or sell any integrated circuit that has substantially the
same specifications as any Product.
3.0 PROCESSES
3.1 Exhibit A lists the Processes which Fairchild shall use in
manufacturing Wafers hereunder for National. Exhibit A may be amended
from time to time by mutual agreement in writing of the Parties, as new
processes are developed and older Processes become obsolete.
3.2 After qualification is successfully completed for any Product
to be manufactured under this Agreement, if Fairchild desires to make
material Process changes affecting form, fit or function, Fairchild will
notify National of the intended change in accordance with Fairchild's
process change procedures then in effect. If the proposed changes are
unacceptable to National, National and Fairchild shall work together in
efforts to resolve the problem and qualify the changed Process for
making Wafers. If during the first thirty-nine (39) fiscal periods of
this Agreement the Parties are unable to resolve the problem, Fairchild
shall continue to run the unmodified Process to supply Wafers pursuant
to this Agreement. After the first 39 fiscal periods of this Agreement,
if the Parties are unable to resolve the problem, Fairchild shall have
the right to make such Process changes upon the provision of ninety (90)
days prior written notice to National.
3.3 Should Fairchild elect to discontinue a Process, it must give
National written notice of no less than twenty-four (24) fiscal periods
prior to the date it intends to discontinue any Process in the ABiC
family and written notice of no less than twelve (12) fiscal periods for
any other Process, or its future amended form. In no event, however may
Fairchild discontinue any Process during the first thirty-nine (39)
fiscal periods of this Agreement unless National agrees. Subsequent to
Fairchild's notice of Process discontinuance, Fairchild will make
provisions with National for Last Time Buys, and commit to ship all
Wafers requested in such Last Time Buys as the Parties may negotiate.
If Fairchild is unable to deliver Wafers due to a Process
discontinuance during any ramp down phase occurring after the first 39
fiscal periods, then any ramp-down revenue obligations of National as-
sociated with Wafers to be manufactured under that Process will be
discharged in full.
3.4 National shall have the right, in its sole discretion, to
establish an alternative source of manufacturing for any Process. In
support of any Process transfer required to establish such alternate
source, Fairchild shall make available to National process
characterization data, where such data exists at the time of such
request, and all applicable manufacturing specifications, including run
cards and complete unit process specifications for the Processes. In
further support of such transfer, National may contract with Fairchild,
at a cost to be negotiated, for up to thirteen (13) man weeks of
engineering services. If such services are required away from the
Facilities, National shall also pay reasonable travel and per diem
expenses for the Fairchild engineers providing such services.
3.5 There are currently a number of Processes under development
at the Facilities. Attached as Exhibit C hereto is a listing of said
Processes, the timetable and milestones to completion for each and the
funding which National shall pay Fairchild for such development
services. Fairchild will utilize its Best Efforts to complete all
development work successfully in accordance with Exhibit C. National
may terminate such development services prior to completion thereof only
after three (3) months prior written notice to Fairchild. The rights of
the Parties to any intellectual property resulting from such development
work shall be governed by the terms of the Technology Transfer and
License Agreement.
4.0 EXISTING PRODUCTS; SET UP AND QUALIFICATION OF NEW PRODUCTS;
MODIFICATION OF EXISTING PRODUCTS
4.1 For each new Product that National proposes to have Fairchild
manufacture, National will provide to Fairchild in advance the
Specifications and design layout of the Product for review and comment
by Fairchild. The Parties will also agree on the Acceptance
Criteria, including electrical test parameters, and Quality and
Reliability Criteria for the prototype Wafers to be manufactured for the
new Product during the qualification process.
4.2 An initial data base for Mask generation or pattern generation,
or acceptable production Masks will be provided by National to
Fairchild, per Fairchild specifications for large die, at National's
expense, for each new Product to be fabricated for National. In the
alternative, National may provide Fairchild with prime die design data
and Fairchild will provide the frame and fracture services and procure
the Mask set at National's expense. After receipt of the initial data
base, or pattern generation tape, or master or sub-master Mask set,
additional and/or replacement Mask sets shall be the responsibility and
expense of Fairchild. All such data bases, pattern generation tapes and
Mask sets shall be the property of National, regardless of whether they
were initially supplied by National or replaced by Fairchild.
4.3 As soon as practical following agreement on the items in
Paragraph 4.1 above, and following receipt of a written purchase order
from National, Fairchild will begin manufacture of twelve (12) prototype
Wafers for such Product as is specified in the purchase order.
Fairchild will perform the electrical testing specified in the initial
Acceptance Criteria and supply the test data to National with the
prototype Wafers. Fairchild's obligation shall be limited to providing
Wafers that meet the applicable PCM specifications and the associated
test data. National will promptly inspect the prototype Wafers and
notify Fairchild in writing of the results. If the prototype Wafers do
not meet the Acceptance Criteria and Quality and Reliability Criteria,
the Parties will cooperate in good faith to determine the reason for
such failure.
4.4 In connection with the completion of the qualification
process for any new Product, National will deliver to Fairchild final
Specifications for the Product incorporating any changes agreed in
writing by the Parties during the qualification process. The Parties
will also negotiate for each Product the final Acceptance Criteria and
Quality and Reliability Criteria to be used for the commercial
production lots of Wafers.
4.5 Unless otherwise agreed in writing, production quantities of
Wafers of a new Product will not be manufactured prior to completion of
the qualification process under this Section 4. In the event that
National desires for Fairchild to manufacture production quantities, the
Parties will agree in writing on the terms before Fairchild accepts the
purchase order.
4.6 If either National or Fairchild desires to make any changes to
the final Specifications, Acceptance Criteria or Quality and Reliability
Criteria for any existing Product, that Party shall notify the other
Party in writing and negotiate the changes in good faith, including any
changes in prices required by such modifications. A modification to any
of the foregoing will be binding only when a writing to which such
modification is attached has been signed by both Parties as provided in
this Agreement. The Parties will separately negotiate the price and
terms of any prototype Wafers required in connection with such change.
4.7 Fairchild may at its discretion declare a Product obsolete if
such Product has not been run in production for a minimum of six (6)
fiscal periods. Fairchild must provide National with twelve (12) months
prior written notice of an obsolescence declaration and make
reasonable provisions with National for a Last Time Buy for such
Product. Within thirty (30) days after completing production of
National's Last Time Buy, Fairchild shall return all data bases and
Masks for such Product to National.
5.0 CAPACITY; VOLUME COMMITMENTS; PRODUCTION PLANNING
5.1 All planning herein will be done under National's accounting
calendar which currently divides its fiscal year into four (4) equal
fiscal quarters, each of which consists of three (3) fiscal periods.
The first two (2) periods of each quarter are of four (4) weeks in
duration and the third period is of five (5) weeks duration.
5.2 Two (2) weeks prior to the end of each National fiscal period
National will provide in writing to Fairchild a baseline quantity of
Wafers, set forth in terms of Wafer starts per Wafer Module, for the
next eight (8) fiscal periods (the "Capacity Request"). For the South
Portland, Maine facility the Capacity Request shall clearly state each
Wafer in terms of 6" Equivalent Wafers. Equivalency factors are set
forth in Exhibit A. For the West Jordan, Utah facility the Capacity
Request shall be stated in terms of the Process required to manufacture
the Wafers. National's initial Capacity Request and Fairchild's Assured
Capacity response formats are set forth in Exhibit D.
5.3 Each fiscal period National may change the Capacity Request in
accordance with the following table, provided that the maximum Capacity
Request for each Wafer Module does not exceed National's share of each
Wafer Module's installed equipment capacity as provided herein. Any
changes outside those permitted under the following table must be by
written agreement of the Parties.
Fiscal Periods in
the Capacity Request Permitted Changes
Period 1 Fixed
Period 2 +/-10%
Period 3 +/-15%
Period 4 +/-20%
Period 5 +/-25%
Period 6 +/-30%
Period 7 +/-35%
Period 8 +/-40%
5.4 National's share of a Wafer Module's installed equipment
capacity will equal the previous Fairchild Assured Capacity for that
Wafer Module, plus that percentage of any excess capacity available in
the Wafer Module equal to National's percentage of the currently
utilized capacity in said Wafer Module. Installed equipment capacity by
Wafer Module in South Portland, Maine is set forth below:
Wafer Module Annual Capacity
FM Class 1 6" 133,000 Equivalent Wafer
starts
FM Class 100 4" 180,000 Wafer starts
(6" equivalent)
FM Class 100 5" 110,000 Wafer starts
(6" equivalent)
As no excess capacity exists in West Jordan, Utah, Fairchild
hereby commits the following capacities to National for each National
fiscal year:
FY 1998 19,400 Wafer starts
FY 1999 7,000 Wafer starts
FY 2000 0 Wafer starts
5.5 One (1) work week after receipt of the Capacity Request,
Fairchild shall provide National with a response to such Capacity
Request, the "Fairchild Assured Capacity". The Fairchild Assured
Capacity must guarantee the amount requested in National's latest
Capacity Request, provided that any changes to National's latest
Capacity Request are within the limits of Paragraph 5.3. Fairchild
shall utilize its Best Efforts to comply with any requests by National
for capacity above those which are permitted under Paragraph 5.3. In
any case, Fairchild shall be obligated hereunder to provide National
with the Wafer starts guaranteed in the Fairchild Assured Capacity
response. The initial Fairchild Assured Capacity response will be the
last one provided prior to the Effective Date. Set forth below are two
examples of the foregoing:
Example #1 The new Capacity Request is less than the last
Fairchild Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last Fairchild Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 90 85 80 75 70 65 65
New Fairchild Assured Capacity 100 90 85 80 75 70 65 65
Example #2 The new Capacity Request is greater than
the last Fairchild Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last Fairchild Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 110 115 120 125 130 135 135
New Fairchild Assured Capacity 100 110 115 120 125 130 135 135
5.6 The timetable for the rolling eight fiscal period Capacity
Request, the Fairchild Assured Capacity response, purchase order release
and detailed device level Wafer starts request for the next fiscal
period are set forth in Exhibit D hereto.
6.0 PURCHASE ORDERS
6.1 All purchases and sales between Fairchild and National shall
be initiated by National's issuance of written purchase orders sent by
either first class mail or facsimile. By written agreement of the
Parties, purchase orders may also be sent and acknowledged by electronic
data exchange or other mutually satisfactory system. Such "blanket"
purchase orders shall be issued once per fiscal quarter for Wafers to
be delivered three (3) fiscal periods in the future. They shall state
the Wafer quantities (specifying whether equivalents or actual) by Wafer
Module, and shipping and invoicing instructions. Fairchild shall accept
purchase orders through a written or electronic acknowledgment. Within
a reasonable time after receipt of National's detailed device level
Wafer starts request for the next fiscal period, Fairchild shall provide
National with a Product delivery schedule either on a weekly basis as
the Wafers are started or for the Wafer starts for the entire fiscal
period, as the parties may agree in writing. The purchase orders may
utilize the first three (3) fiscal periods forecast in the eight period
rolling forecast supplied pursuant to Section 5, as the embodiment of
the purchase order for specifying the Wafer quantity by Wafer Module and
Process, and whether sorted or unsorted.
6.2 In the event of any conflict between the terms and conditions
of this Agreement and either Party's purchase order, acknowledgment, or
similar forms, priority shall be determined as follows:
(a) typewritten or handwritten terms on the face of a written
purchase order, acknowledgment or similar document or in the main body
of an electronic equivalent which have been specifically accepted in
writing by the other Party's Program Manager;
(b) the terms of this Agreement;
(c) preprinted terms incorporated in the purchase order,
acknowledgment or similar document.
6.3 Consistent with standard practices of issuing specific device
level details of part numbers to be fabricated on a weekly or periodic
basis, National may unilaterally change the part number to be
manufactured, provided that Fairchild agrees that the change does not
negatively impact Fairchild's loadings and provided further that there
is no change in the Process flow to be used. A change that will
negatively impact loading or alter the Process flow may only be directed
upon Fairchild's written agreement, which shall utilize its Best Efforts
to comply with such requested change. The specific part number detail
shall be submitted by first class mail or facsimile. By written
agreement of the Parties, specific part number detail may also be sent
by electronic data exchange, or other mutually satisfactory system.
6.4 National shall request delivery dates which are consistent with
Fairchild's reasonable lead times for each Product as indicated at the
time National's purchase order is placed. Notwithstanding the
foregoing, Fairchild shall utilize its Best Efforts to accommodate
requests by National for quick turnarounds or "hot lots", which includes
prototype lots. Hot lot cycle times and the premiums to be paid
therefor are listed in Exhibit K.
6.5 Fairchild may manufacture lots of any size which satisfy the
requirements of effective manufacturing. However, National must place
orders for full flow and prototype Products in increments of twelve (12)
or twenty-four (24) Wafers. For personalized ASIC Wafers drawn from
mid-flow inventories, the smallest quantity that shall be ordered by
National is three (3) Wafers, except for Wafers manufactured in the
five-inch (5") fab, in which case the smallest quantity that can be
ordered is six (6) Wafers.
7.0 PRICES AND PAYMENT
7.1 The Parties hereby acknowledge that, as part of the collateral
transactions contemplated under the Purchase Agreement and ongoing
relationship between the Parties they have entered into the Revenue Side
Letter under which National has agreed to provide a minimum revenue of
Three Hundred Thirty Million Dollars ($330,000,000.00) to Fairchild
during the first thirty-nine (39) fiscal periods after the Effective
Date. National shall discharge its obligations under the Revenue Side
Letter by purchasing goods and services under this Agreement, a
corresponding Fairchild Assembly Services Agreement, and a Mil/Aero
Wafer and Services Agreement of even date herewith (collectively the
"Operating Agreements"). Set forth herein at Exhibit N is the
forecasted volume of Wafers, by Wafer Module and Process, that National
will purchase from Fairchild during the aforementioned thirty-nine
fiscal periods (the "Forecast Volumes"). The Forecast Volumes are for
pricing purposes under this Section 7 only and may vary in magnitude and
mix in practice, whereupon the prices applicable to the revised
magnitude and mix may also vary. The Forecast Volumes will be reviewed
and updated by the Parties every six (6) fiscal periods and shall be
consistent with the principles of manufacturing set forth in Exhibit O.
7.2 Set forth in Exhibit N hereto are the prices which National
shall pay to Fairchild for Wafers manufactured hereunder during the
first six (6) fiscal periods of this Agreement. The prices in Exhibit
N for fiscal periods 7 through 39 are for information purposes only and
are based on the Parties' best estimate of projected volumes and costs.
Set forth herein at Exhibit M is the forecast capacity utilization and
associated fixed costs of the Fairchild FM 6001 six-inch fab by both
National and Fairchild for the term of this Agreement.
7.3 The prices which National shall pay to Fairchild for Wafers
manufactured hereunder after the first six (6) fiscal periods of this
Agreement shall be determined as set forth herein in Exhibit L. The
pricing methodology to be followed hereunder will depend on the Wafer
Module in which the Wafers are being manufactured. In addition,
Products that qualify will be subject to a die cost adjustment as
provided in Exhibit E.
7.4 For purposes of Exhibit L, National, or any "Big 6" accounting
firm designated by National, shall have reasonable rights to audit not
more than twice each fiscal year the books and records of Fairchild rel-
evant to the pricing terms of this Agreement in order to come to
agreement with Fairchild with regard to Fairchild's actual manufacturing
costs.
7.5 Prices are quoted and shall be paid in U.S. Dollars. Such
prices shall be on an FOB ship point basis. Payment terms are net
thirty (30) from date of invoice. Miscellaneous services may be
invoiced separately.
7.6 National shall pay, in addition to the prices quoted or
invoiced, the amount of any freight, insurance, special handling and
duties. National shall also pay all sales, use, excise or other similar
tax applicable to the sale of goods or provision of services covered by
this Agreement, or National shall supply Fairchild with an appropriate
tax exemption certificate.
7.7 National shall in no event be required to pay prices in excess
of those charged by Fairchild for other third party foundry customers,
for substantially similar products sold on substantially similar terms
(e.g., volume, payment terms, manufacturing criteria, contractual
commitments vs. spot buys, etc.). In the event Fairchild desires to
perform such foundry services for other third party customers at such
lower prices, Fairchild shall immediately notify National and National
shall begin receiving the benefit of such lower price at the same time
as such other third party customer. This Paragraph 7.7 shall not apply
to the prices to be paid by National hereunder for the first twelve (12)
fiscal periods of this Agreement, or if National fails to honor its
fixed commitments under Section 5 and to the extent that such sales by
Fairchild to third party foundry customers are only made in an attempt
to make up for any underutilization of capacity thereby caused by
National.
8.0 OTHER MANUFACTURING SERVICES
8.1 At National's request, Fairchild will perform Wafer sort and
test services based on sort and test programs prepared, owned and
otherwise proprietary to National. Towards that end, National shall
supply Fairchild with National-owned specific probe cards, load boards
and test software in order that Fairchild may provide such services.
Wafer sort shall be priced by hours of active sorting, with specific
prices as set forth in Exhibit G, and specific sort times as set forth
in Exhibit B.
8.2 At National's request, Fairchild will perform separate
epitaxial deposition services for National for Wafers not otherwise
manufactured by Fairchild hereunder. The general principles set forth
in Sections 5 and 6 above shall apply to such services, with epitaxial
deposition services being treated as a separate Wafer Module with its
respective Capacity Request and Fairchild Assured Capacity, but the lead
time for epitaxial deposition shall be one (1) fiscal period. Prices
shown in Exhibit N for Wafer foundry services include epitaxial
deposition where appropriate. Otherwise, prices for such services are
set forth in Exhibit G.
8.3 At National's request, Fairchild shall continue to provide
certain ongoing operational support services (the "Miscellaneous Support
Services") to National at the same level of support that was in effect
as of the Effective Date as listed in Exhibit J hereto consisting of:
(i) those services which will be provided to National at no charge; and
(ii) those services which will be provided at the prices set forth in
Exhibit J on a purchase order basis. Operational support services not
shown in Exhibit J will be provided on a purchase order basis at prices
to be negotiated by the Parties case-by-case.
8.4 In support of the Processes and those manufacturing processes
listed in Exhibit C, Fairchild will make available design support
information including the following items:
(a) Layout design rules.
(b) Industry standard models for active devices (BSIM3v3 for
CMOS devices and Gummel-Poon with parasitics for bipolar devices)
representing nominal conditions and performance corners.
(c) Industry standard models, as stated in the National
NTPRS document in effect as of the Effective Date, for parasitic
elements, such as interconnect resistances and capacitances, sheet
resistivities of all conducting layers, parasitic capacitances for
diffused areas, and so forth, including additional elements or devices
intended for mixed-signal applications.
(d) Process cross sections, if not already available at
National.
(e) Sufficient sizing and PCM information to assure the
integrity of Masks ordered in support of Products to be manufactured.
(f) Yield models plus applicable current and forecast
parameters such as Ys and Do for those models.
This information should be in the form of at least one
controlled paper copy or electronic access to a controlled copy.
National, at its discretion, may request a controlled electronic copy of
the required information in lieu of the paper copy. Fairchild will
provide the foregoing services at no charge to National, limited to
those engineering services performed as of the Effective Date. Any
additional requests are subject to fees set forth in Exhibit J.
9.0 DELIVERY; RESCHEDULING AND CANCELLATION
9.1 Fairchild shall make reasonable and diligent efforts to deliver
Wafers on the delivery dates specified in the Product delivery schedule
provided by Fairchild pursuant to Paragraph 6.1. Any shipment made
within fifteen (15) days before or after the shipment date(s) specified
in said Product delivery schedule shall constitute timely shipment.
Partial shipments will be allowed and may be invoiced separately. A
delivery will be considered conforming if it contains a quantity equal
to plus or minus five percent (5%) of the quantity ordered.
9.2 If Fairchild has not made shipment of Products within fifteen
(15) days after the shipment date specified in the Product delivery
schedule provided by Fairchild pursuant to Paragraph 6.1, National shall
have the right, subject to Paragraph 19.2, to cancel that portion of its
purchase order pertaining to such Products, but only in the event that
National's customer for those Products has cancelled its order with
National for such Products. Notwithstanding the foregoing, if Fairchild
has not made shipment of Products within thirty (30) days after the
shipment date specified in the Product delivery schedule, National shall
have the right, subject to Paragraph 19.2, in its sole discretion, to
cancel that portion of its purchase order pertaining to such Products,
regardless of whether National's customer has cancelled its order with
National or not. In either event, any obligation of National under its
Capacity Request and/or any commitment to Fairchild under the Revenue
Side Letter associated with such cancelled purchase order shall be
discharged in full and National shall have no liability whatsoever to
Fairchild therefore.
9.3 All Wafers delivered pursuant to the terms of this Agreement
shall be suitable, packed for shipment in Fairchild's standard
containers, marked for shipment to National's address set forth in the
applicable purchase order and delivered to a carrier or forwarding agent
chosen by National. Should National fail to designate a carrier,
forwarding agent or type of conveyance, Fairchild shall make such
designation in conformance with its standard shipping practices.
Shipment will be F.O.B. shipping point, at which time risk of loss and
title shall pass to National. Shipments will be subject to incoming
inspection as set forth in Paragraph 10.2 below.
9.4 To facilitate the inspection of Product deliveries to National,
lot integrity shall be maintained on all such deliveries, unless
specifically waived by mutual agreement of the Parties.
9.5 Subject to the provisions of Section 6, National may cancel any
purchase order upon at least one (1) week's notice prior to the
commencement of manufacturing without charge, provided that National
reimburses Fairchild for the cost of any unique raw materials purchased
for such order.
9.6 National may request that Fairchild stop production of Wafers
in process for National's convenience and Fairchild shall consider
stopping depending on the point of process. In such event, National
shall pay for all Wafers at the agreed price, subject to a negotiated
adjustment based upon the degree of completion of the Wafers and whether
or not Fairchild is able to utilize the unfilled capacity. Fairchild
will, if reasonably practicable, restart production of stopped Wafers
one time within a reasonable time after receipt of a written request
from National, subject to National's payment of any additional expenses
incurred. Sections 10, 11 and 12 of this Agreement shall not apply to
Wafers stopped under this Paragraph 9.6 for more than thirty (30) days,
nor shall Fairchild make any commitments of yield with respect to such
Wafers.
9.7 In the event that National elects to maintain an inventory of
partially finished Wafers, ownership of the partially finished Wafers
will pass to National when they reach the holding point defined by the
relevant Process flow. Fairchild will invoice National for such Wafers,
but they will be stored under cleanroom conditions and remain in the
Wafer processing WIP management system. Fairchild will inform National
of the number and types of these Wafers remaining in inventory at the
end of each fiscal period. Further, the electronic records and physical
inventory shall be available for inspection by National at any time.
Fairchild shall credit National with the amount previously invoiced for
any such Wafers at such time as they are restarted in the Process flow.
9.8 As of 12:01 A.M. on the Effective Date, National will own all
Wafers located at the Facilities which Fairchild has commenced
processing but which have not yet been completed in accordance with the
pertinent Process flow. Unless expressly directed in writing by
National otherwise, Fairchild shall continue to process each Wafer to a
normal state of completion in the applicable Wafer Module. National
shall pay Fairchild for the accumulated additional processing costs,
plus a twenty-five percent (25%) mark up, for the additional processing
taking place on and after the Effective Date. The provisions of
Sections 10, 11 and 12 hereof shall specifically apply to all such
Wafers.
10.0 QUALITY CONTROL AND INSPECTION; AND RELIABILITY
10.1 Fairchild will manufacture Wafers in accordance with the
Quality and Reliability Criteria for the applicable Product. Prior to
shipment, Fairchild will perform the electrical parameter testing and
other inspections specified to be performed by it in the applicable
Acceptance Criteria on each Wafer lot manufactured. Fairchild will only
ship those Wafer lots that successfully pass the applicable Acceptance
Criteria. Fairchild will electronically provide National with the
electrical test data specified in the applicable Acceptance Criteria.
Wafers will be laser scribed with lot and wafer number for statistical
monitoring and lot number traceability.
10.2 National shall promptly provide for inspection and testing of
each shipment of Wafers upon receipt in accordance with the Acceptance
Criteria and shall notify Fairchild in writing of acceptance of the
Wafers. If National has not given written notice to Fairchild of
rejection of all or part of a shipment within thirty (30) days of
receipt, National will be deemed to have accepted such Wafers. In the
event any lot or Wafer is found to fail the Acceptance Criteria prior to
final acceptance, National shall promptly return it to Fairchild,
together with all test data and other information reasonably required by
Fairchild. Upon confirmation by Fairchild that such Wafers fail the
Acceptance Criteria, Fairchild shall replace such lot or Wafer on a
timely basis.
10.3 National shall promptly provide for yield probe tests to be
conducted on the Wafers and communicate the results of the tests to
Fairchild within thirty (30) days of receipt of Wafers from Fairchild.
The right to return any Wafers for low yield shall be governed by
Section 11 below.
10.4 MPS-3-000 (Material Procurement Specification) - General
Provisions and Quality Requirements for External (Non-National) Wafer
Fab Facilities and MPS- 3-001 (Material Procurement Specification) -
Technical Requirements for CMOS Processing are the National policies for
the purchase of integrated circuits from independent suppliers. These
policies as in effect at the Effective Date shall provide criteria for
the initial and continuing qualification of the Facilities and
evaluation of Wafers manufactured by Fairchild hereunder. To the extent
that those policies are not inconsistent with the provisions of this
Agreement, National shall not be required to accept delivery of any Wa-
fers hereunder if Fairchild fails to comply with said policies or such
other similar policies as may be mutually agreed to in writing by the
Parties.
10.5 Fairchild hereby warrants that the South Portland, Maine
Facility currently is, and will remain throughout the term of this
Agreement, ISO9000 certified. Fairchild further warrants that the
West Jordan, Utah Facility currently is, and will remain throughout the
term of this Agreement, ISO9000 and AEC-100 certified.
11.0 MINIMUM YIELD ASSURANCES
11.1 Fairchild will guarantee a minimum yield assurance ("MYA") on
a per Product basis for those Wafers fabricated and probed by Fairchild.
For Wafers not sorted by Fairchild the MYA limits will apply only to
Wafers whose substandard yield is caused by materials or Fairchild's
workmanship. MYAs shall function as a reliability screen hereunder for
maverick Wafers, via standard sort test results and yield.
11.2 The baseline yield and initial MYA for each Product to be
manufactured by Fairchild hereunder is set forth in Exhibit B hereto.
11.3 For a new Product, the baseline yield and MYA will be
established after a minimum of twenty (20) Wafer lot runs have been
tested to production released test programs. A new baseline yield and
MYA will be calculated whenever National makes any modifications to said
test programs.
11.4 For Products that qualify for die cost sharing, as provided in
Exhibit E, the baseline Net Die Per Wafer (NDPW) for the Product will
be used for defining the MYA. For all other Products, each fiscal
quarter, each Product's baseline yield will be calculated using the
previous fiscal quarter's results, or the previous twenty (20) Wafer
lot runs if less than twenty (20) Wafer lot runs were processed in said
previous quarter. The mean and standard deviation (sigma) yield for a
Product, will be calculated using individual Wafer data. Zero yielding
Wafers will be excluded from such calculations. The results of such
calculations will be used in defining the MYA for that Product for the
quarter in which the calculations are made, but only if the mean yield
changes by more than +/- 2%.
11.5 MYA will be determined as follows. For purposes of Wafers
manufactured in South Portland, Maine, Wafers which yield less than
sixty (60%) percent of the mean will be considered discrepant and may be
returned for full credit at National's discretion. For purposes of
Wafers manufactured in West Jordan, Utah, Wafers which yield less than
mean minus six sigma, as determined according to National Specification
SS4908 in the version extant as of the Effective Date, will be
considered discrepant and may be returned for full credit at National's
discretion. In no event shall Fairchild accept returns of Wafers on
non-released products.
11.6 National shall provide yield analysis information on Wafers
returned to Fairchild under this Section 11, in order to assist
Fairchild in continuous Process improvement.
11.7 In the event of an extended period of substandard yields on a
Product, Fairchild will utilize its Best Efforts to correct any Process
related causes and the Parties will negotiate in good faith to make up
for the Process related yield loss experienced by National and its
customers.
12.0 WARRANTY
12.1 Fairchild warrants that the Wafers delivered hereunder shall
meet the Quality and Reliability Criteria and shall be free from
defects in material and Fairchild's workmanship under normal use for a
period of one (1) year from the date of delivery. If, during the one
year period:
a. Fairchild is notified in writing promptly upon
discovery with a detailed description of any such defect in any Product
(at which time Fairchild shall issue a return material authorization
number to National), and;
b. National returns such Product to the applicable
Facility at National's expense for inspection; and
c. Fairchild's examination of such Product reveals that
the Product is indeed defective and does not meet the applicable Quality
and Reliability Criteria or is defective in materials or Fairchild's
workmanship and such problems are not caused by accident, abuse,
misuse, neglect, improper storage, handling, packaging or installation,
repair, alteration or improper testing or use by someone other than
Fairchild
then, within a reasonable time, Fairchild, at its sole option,
shall either replace or credit National for such defective Product.
Fairchild shall return any Products replaced under this warranty to
National, transportation prepaid, and shall reimburse National for the
transportation charges paid by National in returning such defective
Products to Fairchild.
12.2 THE FOREGOING WARRANTY CONSTITUTES FAIRCHILD'S EXCLUSIVE
LIABILITY, AND NATIONAL'S EXCLUSIVE REMEDY, FOR ANY BREACH OF WARRANTY.
EXCEPT AS SET FORTH HEREIN, FAIRCHILD MAKES AND NATIONAL RECEIVES NO
WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND FAIRCHILD SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
13.0 ON-SITE INSPECTION AND INFORMATION
13.1 Fairchild shall allow National and/or National's customers to
visit and evaluate the Facilities during normal business hours as part
of established source inspection programs, it being understood and
agreed between National and Fairchild that National must obtain the
concurrence of Fairchild for the scheduling of all such visits, which
such concurrence shall not be unreasonably withheld. It is
anticipated that such visits will occur no more than once per quarter on
average.
13.2 Upon National's written request, Fairchild will provide
National with process control information, to include but not be limited
to: process and electrical test yield results, current process
specifications and conformance to specifications; calibration schedules
and logs for equipment; environmental monitor information for air, gases
and DI water; documentation of operator qualification and training;
documentation of traceability through Fairchild's operation; and
Fairchild verification information. Except for exigent circumstances,
such requests shall not be made more than twice per year for a given
category of information.
14.0 PRODUCT ENGINEERING SUPPORT
14.1 The Parties will cooperate in allowing National employees to
have reasonable access to the Facilities during the term of this
Agreement (the "National Engineering Team"), in order to assist in
Product developments and improvements. Fairchild will provide
reasonable office space to the National Engineering Team, if required
on a temporary basis not to exceed sixty (60) days per occurrence, at no
expense to National. Should the National Engineering Team require
long term, dedicated office space, National agrees to pay Fairchild the
overhead cost associated with such space. The National Engineering
Team will comply with all applicable Fairchild regulations in force at
the Facilities and National hereby agrees to hold Fairchild harmless for
any damages or liability caused by any member of the National
Engineering Team, which are attributable to: (i) the negligence or
willful malfeasance of such member, and (ii) any failure by such member
to comply with Fairchild's regulations in force at the Facilities or
with applicable law.
14.2 Fairchild shall assist the efforts of the National Engineering
Team and provide National with reasonable and timely support.
14.3 Fairchild shall assist National in any efforts to identify any
reliability problems that may arise in a Product. National shall
correct Product related problems and Fairchild shall correct all Process
related problems.
15.0 TERM AND TERMINATION
15.1 The term of this Agreement shall be thirty-nine (39) fiscal
periods from the Effective Date; provided, however, that the Parties
shall not less than eight (8) fiscal periods prior to the end of such
thirty-ninth (39th) fiscal period determine in good faith either an
extension to this Agreement or a ramp-down schedule of production so as
to minimize disruption to both Parties. If the Parties are unable to
agree on the terms governing a ramp-down, National shall be allowed to
reduce its purchase commitment by not more than twenty percent (20%) per
fiscal quarter, starting one fiscal quarter after the initial thirty-
nine (39) fiscal period term of this Agreement. National will provide
Fairchild with not less than ninety (90) days prior written notice of
any such reduction.
15.2 This Agreement may be terminated, in whole or in part, by one
Party sending a written notice to the other Party of the termination of
this Agreement, which notice specifies the reason for the termination,
upon the happening of any one or more of the following events:
(a) the other Party is the subject of a petition filed in a
bankruptcy court of competent jurisdiction, whether voluntary or
involuntary, which petition in the event of an involuntary petition is
not dismissed within sixty (60) days; if a receiver or trustee is
appointed for all or a substantial portion of the assets of the other
Party; or if the other Party makes an assignment for the benefit of its
creditors; or
(b) the other Party fails to perform substantially any
material covenant or obligation, or breaches any material representation
or warranty provided for herein; provided, however, that no right of
termination shall arise hereunder until sixty (60) days after receipt
of written notice by the Party who has failed to perform from the other
Party, specifying the failure of performance, and said failure having
not been remedied or cured during said sixty (60) day period.
15.3 Upon termination of this Agreement, all rights granted
hereunder shall immediately terminate and each Party shall return to the
other Party any property belonging to the other Party which is in its
possession, except that Fairchild may continue to retain and use any
rights or property belonging to National solely for the period necessary
for it to finish manufacturing the currently forecasted Fairchild
Assured Capacity and/or complete any production ramp-down activity.
Nothing in this Section 15 is intended to relieve either Party of any
liability for any payment or other obligations existing at the time of
termination.
15.4 The provisions of Sections 2, 12, 16, 17 and Paragraphs 19.5
and 19.8 shall survive the termination of this Agreement for any reason.
16.0 EXPORT CONTROL
16.1 The Parties acknowledge that each must comply with all rules
and laws of the United States government relating to restrictions on
export. Each Party agrees to use its Best Efforts to obtain any export
licenses, letters of assurance or other documents necessary with respect
to this Agreement.
16.2 Each Party agrees to comply fully with United States export
laws and regulations, assuring the other Party that, unless prior
authorization is obtained from the competent United States government
agency, the receiving Party does not intend and shall not knowingly
export or re-export, directly or indirectly, any Wafers, Products,
technology or technical information received hereunder, that would be in
contravention of any laws and regulations published by any United States
government agency.
17.0 CONFIDENTIALITY
17.1 For purposes of this Agreement, "Confidential Information"
shall mean all proprietary information, including National and/or
Fairchild trade secrets relating to the subject matter of this Agreement
disclosed by one of the Parties to the other Party in written and/or
graphic form and originally designated in writing by the disclosing
Party as Confidential Information or by words of similar import, or, if
disclosed orally, summarized and confirmed in writing by the disclosing
Party within thirty (30) days after said oral disclosure, that the
orally disclosed information is Confidential Information.
17.2 Except as may otherwise be provided in the Technology
Licensing and Transfer Agreement, each Party agrees that it will not use
in any way for its own account, or for the account of any third party,
nor disclose to any third party except pursuant to this Agreement, any
Confidential Information revealed to it by the other Party. Each Party
shall take every reasonable precaution to protect the confidentiality of
said information. Each Party shall use the same standard of care in
protecting the Confidential Information of the other Party as it
normally uses in protecting its own trade secrets and proprietary
information.
17.3 Notwithstanding any other provision of this Agreement, no
information received by a Party hereunder shall be Confidential
Information if said information is or becomes:
(a) published or otherwise made available to the public other
than by a breach of this Agreement;
(b) furnished to a Party by a third party without restriction
on its dissemination;
(c) approved for release in writing by the Party designating
said information as Confidential Information;
(d) known to, or independently developed by, the Party
receiving Confidential Information hereunder without reference to or
use of said Confidential Information; or
(e) disclosed to a third party by the Party transferring
said information hereunder without restricting its subsequent
disclosure and use by said third party.
17.4 In the event that either Party determines on the advice of its
counsel that it is required to disclose any information pursuant to
applicable law or receives any demand under lawful process to disclose
or provide information of the other Party that is subject to the
confidentiality provisions hereof, such Party shall notify the other
Party prior to disclosing and providing such information and shall
cooperate at the expense of the requesting Party in seeking any
reasonable protective arrangements requested by such other Party.
Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by
such law (as so advised by counsel) or by lawful process.
18.0 REPORTS AND COMMUNICATIONS
18.1 Each Party hereby appoints a Program Manager whose
responsibilities shall include acting as a focal point for the technical
and commercial discussions between them related to the subject matter of
this Agreement, to include monitoring within his or her respective
company the distribution of Confidential Information received from the
other Party and assisting in the prevention of the unauthorized
disclosure of Confidential Information within the company and to third
parties. The Program Managers shall also be responsible for maintaining
pertinent records and arranging such conferences, visits, reports and
other communications as are necessary to fulfill the terms and
conditions of this Agreement. The names, addresses and telephone
numbers of the Program Managers will be communicated between the Parties
from time to time.
19.0 GENERAL
19.1 AMENDMENT: This Agreement may be modified only by a written
document signed by duly authorized representatives of the Parties.
19.2 FORCE MAJEURE: A Party shall not be liable for a failure or
delay in the performance of any of its obligations under this Agreement
where such failure or delay is the result of fire, flood, or other
natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials or utilities (provided that such
unavailability is not caused by the actions or inactions of the Party
claiming force majeure), or the intervention of any government
authority, providing that the Party failing in or delaying its
performance immediately notifies the other Party of its inability to
perform and states the reason for such inability.
19.3 ASSIGNMENT: This Agreement may not be assigned by any Party
hereto without the written consent of the other Party; provided that
Fairchild may assign its rights but not its obligations hereunder as
collateral security to any bona fide financial institution engaged in
acquisition financing in the ordinary course providing financing to
consummate the transactions contemplated by the Purchase Agreement or
any bona fide financial institution engaged in acquisition financing in
the ordinary course through whom such financing is refunded, replaced,
or refinanced and any of the foregoing financial institutions may
assign such rights in connection with a sale of Fairchild or the
Business in the form then being conducted by Fairchild substantially
as an entirety. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the respective successors and
assigns of the Parties hereto.
19.4 COUNTERPARTS: This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original
and all of which together shall constitute but one and the same
instrument.
19.5 CHOICE OF LAW: This Agreement, and the rights and obligations
of the Parties hereto, shall be interpreted and governed in accordance
with the laws of the State of California, without giving effect to its
conflicts of law provisions.
19.6 WAIVER: Should either of the Parties fail to exercise or
enforce any provision of this Agreement such failure shall not be
construed as constituting a waiver or a continuing waiver of its rights
to enforce such provision or right or any other provision or right.
Should either of the Parties waive any provision or right under this
Agreement, such waiver shall not be construed as constituting a waiver
of any other provision or right.
19.7 SEVERABILITY: If any provision of this Agreement or the
application thereof to any situation or circumstance shall be invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each remaining provision shall be valid and enforceable to the
fullest extent.
19.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER
THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS
OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE
NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR
NOT.
19.9 EFFECT OF HEADINGS: The headings and sub-headings contained
herein are for information purposes only and shall have no effect upon
the intended purpose or interpretation of the provisions of this
Agreement.
19.10 INTEGRATION: The agreement of the Parties, which is composed
of this Agreement and the Exhibits hereto and the documents referred to
herein, constitutes the entire agreement and understanding between the
Parties with respect to the subject matter of this Agreement and
integrates all prior discussions and proposals (whether oral or written)
between them related to the subject matter hereof.
19.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the transactions
contemplated under the Purchase Agreement, neither Fairchild nor
National shall, without the approval of the other Party hereto, make any
press release or other public announcement concerning the terms of the
transactions contemplated by this Agreement, except as and to the extent
that any such Party shall be so obligated by law, in which case the
Party shall use its Best Efforts to advise the other Party thereof and
the Parties shall use their Best Efforts to cause a mutually agreeable
release or announcement to be issued; provided that the foregoing shall
not preclude communications or disclosures necessary to (a) implement
the provisions of this Agreement or (b) comply with accounting,
securities laws and Securities and Exchange Commission disclosure
obligations. Fairchild shall provide National with a reasonable
opportunity to review and comment on any references to National made by
Fairchild (and shall not include any such references to National without
the written consent of National, which consent shall not be unreasonably
withheld or delayed) in any written materials that are intended to be
filed with the Securities and Exchange Commission in connection with
obtaining financing required to effect the transactions contemplated in
connection with the Purchase Agreement or intended to be distributed to
prospective purchasers pursuant to an offering made under Rule 144A
promulgated under the Securities Act of 1933 in connection with
obtaining such financing.
19.12 NO PARTNERSHIP OR AGENCY CREATED: Nothing contained herein or
done pursuant to this Agreement shall constitute the Parties as entering
upon a joint venture or partnership, or shall constitute either Party
the agent for the other Party for any purpose or in any sense
whatsoever.
19.13 BINDING EFFECT: This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of the
Parties hereto and to their respective successors and assigns.
19.14 NOTICES: All notices, requests, demands and other
communications which are required or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by
telecopy, electronic or digital transmission method; the day after it
is sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service (e.g. Federal Express) and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
MS 16-135
Santa Clara, CA 95052-8090
Attn: General Counsel
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
MS 01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
or to such other place as such Party may designate as to
itself by written notice to the other Party.
IN WITNESS WHEREOF, the Parties have had this Agreement
executed by their respective duly authorized officers on the day and
date first written above. The persons signing warrant that they are
duly authorized to sign for and on behalf of the respective parties.
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ JOHN M. CLARK III
Title: Senior Vice President
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
Title: Executive Vice President
EXHIBIT 10.7
NATIONAL FOUNDRY SERVICES AGREEMENT
THIS NATIONAL FOUNDRY SERVICES AGREEMENT ("Agreement") is dated
and made effective this 11th day of March, 1997 (the "Effective Date")
by and between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware
corporation, having its principal place of business at 2900
Semiconductor Drive, Santa Clara, California 95052-8090 ("National") and
FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation, having
its principal place of business at 333 Western Avenue, South Portland,
Maine 04106 ("Fairchild"). National and/or Fairchild may be referred to
herein as a "Party" or the "Parties" as the case may require.
WITNESSETH:
WHEREAS, the Parties have entered into a certain Asset Purchase
Agreement (hereinafter referred to as the "Purchase Agreement") under
which Fairchild is acquiring certain of the assets of National's Logic,
Memory and Discrete Power and Signal Technologies Business Units as
historically conducted and accounted for (including Flash Memory, but
excluding Public Networks, Programmable Products and Mil/Aero Logic
Products) (the "Business"); and
WHEREAS, National, using proprietary processes, has been
manufacturing silicon wafers containing certain integrated circuits for
Fairchild at the Facility; and
WHEREAS, National and Fairchild desire to enter into an
agreement under which National will continue to provide certain
manufacturing services to Fairchild following the closing of the
transactions contemplated by the Purchase Agreement; and
WHEREAS, National and Fairchild recognize that the prices
Fairchild shall pay to National for silicon wafers manufactured pursuant
to this Agreement are determined based on the collateral transactions
and ongoing relationship between the Parties, as expressed in the
Purchase Agreement, Revenue Side Letter between National and Fairchild
of even date herewith (the "Revenue Side Letter") and the Operating
Agreements (as defined in Paragraph 6.2); and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the closing of the transactions contemplated by
the Purchase Agreement.
NOW, THEREFORE, in furtherance of the foregoing premises and
in consideration of the mutual covenants and obligations hereinafter
set forth, the Parties hereto, intending to be legally bound hereby, do
agree as follows:
1.0 DEFINITIONS
1.1 "Acceptance Criteria" shall mean the electrical parameter
testing, process control monitor ("PCM") and other inspections for each
Product and/or Process as set forth in Exhibit F hereto, all of which
are to be performed by National prior to shipment of Wafers hereunder.
1.2 "Best Efforts" shall require that the obligated Party make
a diligent, reasonable and good faith effort to accomplish the
applicable objective. Such obligation, however, does not require any
material expenditure of funds or the incurrence of any material
liability on the part of the obligated Party, which expenditure or
liability is unreasonable in light of the related objective, nor does it
require that the obligated Party act in a manner which would otherwise
be contrary to prudent business judgment or normal commercial practices
in order to accomplish the objective. The fact that the objective is
not actually accomplished is no indication that the obligated Party did
not in fact utilize its Best Efforts in attempting to accomplish the
objective.
1.3 "Confidential Information" shall have the meaning set
forth in Paragraph 16.1 below.
1.4 "Effective Date" shall mean the date first set forth
above.
1.5 "Equivalent Wafers" shall mean the actual number of Wafers
in a given Process multiplied by the process complexity factor for that
Process, as set forth in Exhibit A hereto.
1.6 "Facility" shall mean National's existing wafer
fabrication facility located at Arlington, Texas.
1.7 "Fairchild" shall mean Fairchild Semiconductor Corporation
and its Subsidiaries.
1.8 "National" shall mean National Semiconductor Corporation
and its Subsidiaries.
1.9 "National Assured Capacity" shall mean the capacity that
National agrees to supply Fairchild pursuant to Section 5 below.
1.10 "Masks" shall mean the masks and reticle sets, including
the mask holders and ASM pods, for the Products and Wafers used to
manufacture Products hereunder.
1.11 "Processes" shall mean those National proprietary wafer
manufacturing processes and associated unit processes to be used in
the fabrication of Wafers hereunder which are set forth in Exhibit A
hereto, as such processes shall be modified from time to time as agreed
by the Parties.
1.12 "Products" shall mean Fairchild's integrated circuit
products for which Wafers will be manufactured by National for
Fairchild hereunder and which are identified by Fairchild's part numbers
listed in Exhibit B hereto, which exhibit may be amended from time to
time as the Parties may agree.
1.13 "Quality and Reliability Criteria" shall mean National's
manufacturing process quality and reliability specifications, as set
forth in the revision of National Specification CP0008 which is in
effect as of the Effective Date, and which are to be followed by
National in manufacturing Wafers hereunder.
1.14 "Specifications" shall mean the technical specifications
as listed in Exhibit B for each of the Products as provided in this
Agreement.
1.15 "Subsidiary" shall mean any corporation, partnership,
joint venture or similar entity more than fifty percent (50%) owned or
controlled by a Party hereto, provided that any such entity shall no
longer be deemed a Subsidiary after such ownership or control ceases to
exist.
1.16 "Wafers" shall mean six-inch (6") silicon wafers for
any of the Products to be manufactured by National hereunder.
1.17 "Wafer Module" shall mean any of the National six-inch
(6") wafer fabrication units in Arlington, Texas.
2.0 PROCESSES
2.1 All manufacturing hereunder shall take place at the
Facility. National shall not manufacture Wafers or transfer any
Fairchild-owned intellectual property or technical information outside
of the Facility other than as may be permitted under this Agreement.
2.2 Exhibit A lists the Processes which National shall use in
manufacturing Wafers hereunder for Fairchild. Exhibit A may be amended
from time to time by mutual agreement in writing of the Parties, as new
processes are developed and older Processes become obsolete.
2.3 National agrees to utilize Best Efforts to allow Fairchild
to source Wafers from Taiwan Semiconductor Manufacturing Corporation
("TSMC") by means of the Joint Purchasing Arrangements as provided in
the Transition Services Agreement between the Parties of even date
herewith. Fairchild's target eight-inch Wafer process flow and expected
eight-inch Wafer requirements are set forth in Exhibit H hereto.
2.4 After qualification is successfully completed for any
Product to be manufactured under this Agreement, if National desires to
make material Process changes affecting form, fit or function, National
will notify Fairchild of the intended change in accordance with
National's process change procedures then in effect. If the proposed
changes are unacceptable to Fairchild, Fairchild and National shall
work together in efforts to resolve the problem and qualify the
changed Process for making Wafers. If during the first fifteen (15)
fiscal periods of this Agreement the Parties are unable to resolve the
problem, National shall continue to run the unmodified Process to supply
Wafers pursuant to this Agreement. After the first fifteen (15) fiscal
periods of this Agreement, if the Parties are unable to resolve the
problem, National shall have the right to make such Process changes upon
the provision of ninety (90) days prior written notice to Fairchild.
2.5 Should National elect to discontinue a Process, it must
give Fairchild written notice of no less than twelve (12) fiscal
periods. In no event, however, may National discontinue any Process
during the first thirty-nine (39) fiscal periods of this Agreement
unless Fairchild agrees. Subsequent to National's notice of Process
discontinuance, National will make provisions with Fairchild for Last
Time Buys, and commit to ship all Wafers requested in such Last Time
Buys as the Parties may negotiate.
2.6 Just prior to the qualification of National's eight inch
(8") wafer fab in South Portland, Maine and National's 0.35 micron
CMOS process technology in that wafer fab, the Parties will undertake
good faith negotiations to make foundry capacity in said 8" wafer fab
available to Fairchild under terms generally similar to those hereunder.
3.0 EXISTING PRODUCTS; SET UP AND QUALIFICATION OF NEW
PRODUCTS; MODIFICATION OF EXISTING PRODUCTS
3.1 For each new Product that Fairchild proposes to have
National manufacture, Fairchild will provide to National in advance the
Specifications and design layout of the Product for review and comment
by National. The Parties will also agree on the Acceptance Criteria,
including electrical test parameters, and Quality and Reliability
Criteria for the prototype Wafers to be manufactured for the new Product
during the qualification process.
3.2 An initial data base for Mask generation or pattern
generation, or acceptable production Masks will be provided by Fairchild
to National, at Fairchild's expense, for each new Product to be
fabricated for Fairchild. In the alternative, Fairchild may provide
National with prime die design data and National will provide the frame
and fracture services and procure the Mask set at Fairchild's expense.
After receipt of the initial data base, or pattern generation tape, or
master or sub-master Mask set, additional and/or replacement Mask sets
shall be the responsibility and expense of National. All such data
bases, pattern generation tapes and Mask sets shall be the property of
Fairchild, regardless of whether they were initially supplied by
Fairchild or replaced by National.
3.3 As soon as practical following agreement on the items in
Paragraph 3.1 above, and following receipt of a written purchase order
from Fairchild, National will begin manufacture of one or more lots of
twelve (12) prototype Wafers for such Product as is specified in the
purchase order. National will perform the electrical testing specified
in the initial Acceptance Criteria and supply the test data to Fairchild
with the prototype Wafers. National's obligation shall be limited to
providing Wafers that meet the applicable PCM specifications and the
associated test data. Fairchild will promptly inspect the prototype
Wafers and notify National in writing of the results. If the prototype
Wafers do not meet the Acceptance Criteria and Quality and Reliability
Criteria, the Parties will cooperate in good faith to determine the
reason for such failure.
3.4 In connection with the completion of the qualification
process for any new Product, Fairchild will deliver to National final
Specifications for the Product incorporating any changes agreed in
writing by the Parties during the qualification process. The Parties
will also negotiate for each Product the final Acceptance Criteria and
Quality and Reliability Criteria to be used for the commercial
production lots of Wafers.
3.5 Unless otherwise agreed in writing, production quantities
of Wafers of a new Product will not be manufactured prior to completion
of the qualification process under this Section 3. In the event that
Fairchild desires for National to manufacture production quantities, the
Parties will agree in writing on the terms before National accepts the
purchase order.
3.6 If either Fairchild or National desires to make any
changes to the final Specifications, Acceptance Criteria or Quality and
Reliability Criteria for any existing Product, that Party shall notify
the other Party in writing and negotiate the changes in good faith,
including any changes in prices required by such modifications. A
modification to any of the foregoing will be binding only when a writing
to which such modification is attached has been signed by both Parties
as provided in this Agreement. The Parties will separately negotiate
the price and terms of any prototype Wafers required in connection with
such change.
3.7 National may at its discretion declare a Product obsolete
if such Product has not been run in production for a minimum of six (6)
fiscal periods. National must provide Fairchild with twelve (12) months
prior written notice of an obsolescence declaration and make reasonable
provisions with Fairchild for a Last Time Buy for such Product. Within
thirty (30) days after completing production of Fairchild's Last Time
Buy, National shall return all data bases and Masks for such Product to
Fairchild.
4.0 CAPACITY; VOLUME COMMITMENTS; PRODUCTION PLANNING
4.1 All planning herein will be done under National's
accounting calendar which currently divides its fiscal year into four
(4) equal fiscal quarters, each of which consists of three (3) fiscal
periods. The first two (2) periods of each quarter are of four (4)
weeks in duration and the third period is of five (5) weeks duration.
4.2 Two (2) weeks prior to the end of each National fiscal
period Fairchild will provide in writing to National a baseline quantity
of Wafers, set forth in terms of Wafer starts by Wafer Module, for the
next eight (8) fiscal periods (the "Capacity Request"). The Capacity
Request shall clearly state each Wafer in terms of six-inch (6")
Equivalent Wafers. Equivalency factors are set forth in Exhibit A.
Fairchild's initial Capacity Request and National's Assured Capacity
response formats are set forth in Exhibit D.
4.3 Each fiscal period Fairchild may change the Capacity
Request in accordance with the following table, provided that the
maximum Capacity Request does not exceed Fairchild's share of a Wafer
Module's installed equipment capacity as provided herein. Any changes
outside those permitted under the following table must be by mutual
consent of the Parties.
Fiscal Periods in the Capacity Request Permitted Changes
Period 1 Fixed
Period 2 +/-10%
Period 3 +/-15%
Period 4 +/-20%
Period 5 +/-25%
Period 6 +/-30%
Period 7 +/-35%
Period 8 +/-40%
4.4 Fairchild's share of a Wafer Module's installed equipment
capacity will equal the previous National Assured Capacity for the Wafer
Module, plus that percentage of any excess capacity available in the
Wafer Module equal to Fairchild's percentage of the currently utilized
capacity in said Wafer Module. Installed equipment capacity is set
forth below:
Wafer Module Annual Capacity
Arlington, TX 20,000 6" wafers
4.5 One (1) work week after receipt of the Capacity Request,
National shall provide Fairchild with a response to such Capacity
Request, the "National Assured Capacity". The National Assured Capacity
must guarantee the amount requested in Fairchild's latest Capacity
Request, provided that any changes to Fairchild's latest Capacity
Request are within the limits of Paragraph 4.3. National shall utilize
its Best Efforts to comply with any requests by Fairchild for capacity
above those which are permitted under Paragraph 4.3. In any case,
National shall be obligated hereunder to provide Fairchild with the
Wafer starts guaranteed in the National Assured Capacity response. The
initial National Assured Capacity response will be the last one
provided prior to the Effective Date. Set forth below are two examples
of the foregoing:
Example #1 The new Capacity Request is less than the last National
Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last National Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 90 85 80 75 70 65 65
New National Assured Capacity 100 90 85 80 75 70 65 65
Example #2 The new Capacity Request is greater than the last National
Assured Capacity response.
Period A B C D E F G H
Last Capacity Request 100 100 100 100 100 100 100 100
Last National Assured Capacity 100 100 100 100 100 100 100 100
New Capacity Request 100 110 115 120 125 130 135 135
New National Assured Capacity 100 110 115 120 125 130 135 135
4.6 The timetable for the rolling eight fiscal period
Capacity Request, the National Assured Capacity response, purchase order
release and detailed device level Wafer starts request for the next
fiscal period are set forth in Exhibit D hereto.
5.0 PURCHASE ORDERS
5.1 All purchases and sales between National and Fairchild
shall be initiated by Fairchild's issuance of written purchase orders
sent by either first class mail or facsimile. By written agreement of
the Parties, purchase orders may also be sent and acknowledged by
electronic data exchange or other mutually satisfactory system. Such
"blanket" purchase orders shall be issued once per fiscal quarter for
Wafers to be delivered three (3) fiscal periods in the future. They
shall state the Wafer quantities (specifying whether equivalents or
actual) by Wafer Module, and shipping and invoicing instructions.
National shall accept purchase orders through a written or electronic
acknowledgment. Within a reasonable time after receipt of Fairchild's
detailed device level Wafer starts request for the next fiscal period,
National shall provide Fairchild with a Wafer delivery schedule either
on a weekly basis as the Wafers are started or for the Wafer starts for
the entire fiscal period, as the parties may agree in writing. The
purchase orders may utilize the first three (3) fiscal periods forecast
in the eight period rolling forecast supplied pursuant to Section 4, as
the embodiment of the purchase order for specifying the Wafer quantity
by Wafer Module and Process, and whether sorted or unsorted.
5.2 In the event of any conflict between the terms and
conditions of this Agreement and either Party's purchase order,
acknowledgment, or similar forms, priority shall be determined as
follows:
(a) typewritten or handwritten terms on the face of a written
purchase order, acknowledgment or similar document or in the main body
of an electronic equivalent which have been specifically accepted in
writing by the other Party's Program Manager;
(b) the terms of this Agreement;
(c) preprinted terms incorporated in the purchase order,
acknowledgment or similar document.
5.3 Consistent with standard practices of issuing specific
device level details of part numbers to be fabricated on a weekly or
periodic basis, Fairchild may unilaterally change the part number to be
manufactured, provided that National agrees that the change does not
negatively impact National's loadings and provided further that there is
no change in the Process flow to be used. A change that will negatively
impact loading or alter the Process flow may only be directed upon
National's agreement; National shall utilize its Best Efforts to comply
with such requested change. The specific part number detail shall be
submitted by first class mail or facsimile. By written agreement of the
Parties, specific part number detail may also be sent by electronic data
exchange, or other mutually satisfactory system.
5.4 Fairchild shall request delivery dates which are
consistent with National's reasonable lead times for each Product as
indicated at the time Fairchild's purchase order is placed.
Notwithstanding the foregoing, National shall utilize its Best Efforts
to accommodate requests by Fairchild for quick turnarounds or "hot
lots", which includes prototype lots. Hot lot cycle times and the
premiums to be paid therefor are listed in Exhibit K.
5.5 National may manufacture lots of any size which satisfy
the requirements of effective manufacturing. However, Fairchild must
place orders for full flow and prototype Products in increments of
twelve (12) or twenty-four (24) Wafers.
6.0 PRICES AND PAYMENT
6.1 Set forth herein in Exhibit M is the Forecasted Volume of
Wafers by Process that Fairchild will purchase from National during the
term of this Agreement. Set forth in Exhibit N hereto are the prices
which Fairchild shall pay to National for Wafers manufactured
hereunder during the first six (6) fiscal periods of this Agreement.
6.2 The Parties hereby acknowledge that the prices Fairchild
shall pay to National for silicon wafers manufactured pursuant to this
Agreement are based on the collateral transactions and ongoing
relationship between the Parties as expressed in the Purchase Agreement,
Revenue Side Letter and corresponding Fairchild Foundry Services
Agreement, Fairchild Assembly Services Agreement, and Mil/Aero Wafer and
Services Agreement of even date herewith between the Parties
(collectively the "Operating Agreements"). The prices which Fairchild
shall pay to National for Wafers manufactured hereunder after the first
six (6) fiscal periods of this Agreement are set forth herein at Exhibit
L. In addition, Products that qualify will be subject to a die cost
adjustment as provided in Exhibit E.
6.3 For purposes of Exhibit L, Fairchild, or any "Big 6"
accounting firm designated by Fairchild, shall have reasonable rights to
audit not more than twice each fiscal year the books and records of
National relevant to the pricing terms of this Agreement in order to
come to agreement with National with regard to National's actual
manufacturing costs.
6.4 Prices are quoted and shall be paid in U.S. Dollars. Such
prices are on an FOB ship point basis. Payment terms are net thirty
(30) from date of invoice. Miscellaneous services may be invoiced
separately.
6.5 Fairchild shall pay, in addition to the prices quoted or
invoiced, the amount of any freight, insurance, special handling and
duties. Fairchild shall also pay all sales, use, excise or other
similar tax applicable to the sale of goods or provision of services
covered by this Agreement, or Fairchild shall supply National with an
appropriate tax exemption certificate.
6.6 Fairchild shall in no event be required to pay prices in
excess of those charged by National for other third party foundry
customers, for substantially similar products sold on substantially
similar terms (e.g., volume, payment terms, manufacturing criteria,
contractual commitments vs. spot buys, etc.). In the event National
desires to perform such foundry services for other third party customers
at such lower prices, National shall immediately notify Fairchild and
Fairchild shall begin receiving the benefit of such lower price at the
same time as such other third party customer. This Paragraph 6.6 shall
not apply to the prices to be paid by Fairchild hereunder for the first
twelve (12) fiscal periods of this Agreement, or for "spot buys"
intended to fill underutilized capacity thereby caused by Fairchild.
7.0 OTHER MANUFACTURING SERVICES
7.1 At Fairchild's request, National will perform Wafer sort
and test services based on sort and test programs prepared, owned and
otherwise proprietary to Fairchild. Towards that end, Fairchild shall
supply National with Fairchild-owned specific probe cards, load boards
and test software in order that National may provide such services.
Wafer sort shall be priced by hours of active sorting, with specific
prices as set forth in Exhibit G.
7.2 At Fairchild's request, National shall continue to provide
certain ongoing operational support services (the "Miscellaneous Support
Services") to Fairchild at the same level of support that was in effect
as of the Effective Date on a purchase order basis at prices to be
negotiated by the Parties case-by-case.
7.3 In support of the Processes and those manufacturing
processes listed in Exhibit C, National will make available design
support information including the following items:
(a) Layout design rules.
(b) Industry standard models for active devices (BSIM3v3 for
CMOS devices and Gummel-Poon with parasitics for bipolar devices)
representing nominal conditions and performance corners.
(c) Industry standard models, as stated in the Fairchild NTPRS
document in effect as of the Effective Date, for parasitic elements,
such as interconnect resistances and capacitances, sheet resistivities
of all conducting layers, parasitic capacitances for diffused areas, and
so forth, including additional elements or devices intended for mixed-
signal applications.
(d) Process cross sections, if not already available at
Fairchild.
(e) Sufficient sizing and PCM information to assure the
integrity of Masks ordered in support of Products to be manufactured.
(f) Yield models plus applicable current and forecast
parameters such as Ys and Do for those models.
This information should be in the form of at least one controlled
paper copy or electronic access to a controlled copy. Fairchild, at its
discretion, may request a controlled electronic copy of the required
information in lieu of the paper copy. National will provide the
foregoing services at no charge to Fairchild, limited to those
engineering services performed as of the Effective Date. Any additional
requests are subject to fees set forth in Exhibit J.
8.0 DELIVERY; RESCHEDULING AND CANCELLATION
8.1 National shall make reasonable and diligent efforts to
deliver Wafers on the delivery dates specified in the Product delivery
schedule provided by National pursuant to Paragraph 5.1. Any shipment
made within fifteen (15) days before or after the shipment date(s)
specified in said Product delivery schedule shall constitute timely
shipment. Partial shipments will be allowed and may be invoiced
separately. A delivery will be considered conforming if it contains a
quantity equal to plus or minus five percent (5%) of the quantity
ordered.
8.2 If National has not made shipment of Products within
fifteen (15) days after the shipment date specified in the Product
delivery schedule provided by National pursuant to Paragraph 5.1,
Fairchild shall have the right, subject to Paragraph 18.2, to cancel
that portion of its purchase order pertaining to such Products, but only
in the event that Fairchild's customer for those Products has
cancelled its order with Fairchild for such Products. Notwithstanding
the foregoing, if National has not made shipment of Products within
thirty (30) days after the shipment date specified in the Product
delivery schedule, Fairchild shall have the right, subject to Paragraph
18.2, in its sole discretion, to cancel that portion of its purchase
order pertaining to such Products, regardless of whether Fairchild's
customer has cancelled its order with Fairchild or not.
8.3 All Wafers delivered pursuant to the terms of this
Agreement shall be suitably packed for shipment in National's standard
containers, marked for shipment to Fairchild's address set forth in the
applicable purchase order and delivered to a carrier or forwarding agent
chosen by Fairchild. Should Fairchild fail to designate a carrier,
forwarding agent or type of conveyance, National shall make such
designation in conformance with its standard shipping practices.
Shipment will be F.O.B. shipping point, at which time risk of loss and
title shall pass to Fairchild. Shipments will be subject to incoming
inspection as set forth in Paragraph 9.2 below.
8.4 To facilitate the inspection of Product deliveries to
Fairchild, lot integrity shall be maintained on all such deliveries,
unless specifically waived by mutual agreement of the Parties.
8.5 Subject to the provisions of Section 5 hereof, Fairchild
may cancel any purchase order upon at least one (1) week's notice prior
to the commencement of manufacturing without charge, provided that
Fairchild reimburses National for the cost of any unique raw materials
purchased for such order.
8.6 Fairchild may request that National stop production of Wafers in
process for Fairchild's convenience and National will consider stopping
depending on the point of process. In such event, Fairchild shall pay
for all Wafers at the agreed price, subject to a negotiated adjustment
based upon the degree of completion of the Wafers and whether or not
National is able to utilize the unfilled capacity. National will, if
reasonably practicable, restart production of stopped Wafers one time
within a reasonable time after receipt of a written request from
Fairchild, subject to Fairchild's payment of any additional expenses
incurred. Sections 9, 10 and 11 of this Agreement shall not apply to
Wafers stopped under this Paragraph 8.6 for more than thirty (30) days,
nor shall National make any commitments of yield with respect to such
Wafers.
8.7 In the event that Fairchild elects to maintain an
inventory of partially finished Wafers, ownership of the partially
finished Wafers will pass to Fairchild when they reach the holding point
defined by the relevant Process flow. National will invoice Fairchild
for such Wafers, but they will be stored under clean-room conditions and
remain in the Wafer processing WIP management system. National will
inform Fairchild of the number and types of these Wafers remaining in
inventory at the end of each fiscal period. Further, the electronic
records and physical inventory shall be available for inspection by
Fairchild at any time. National shall credit Fairchild with the amount
previously invoiced for any such Wafers at such time as they are
restarted in the Process flow.
8.8 As of 12:01 A.M. on the Effective Date, Fairchild will
own all Wafers located at the Facility which National has commenced
processing but which have not yet been completed in accordance with the
pertinent Process flow. Unless expressly directed by Fairchild
otherwise, National shall continue to process each Wafer to a normal
state of completion in the applicable Wafer Module. Fairchild shall pay
National for the accumulated additional processing costs, plus a twenty-
five percent (25%) mark up, for the additional processing taking place
on and after the Effective Date. The provisions of Sections 9, 10 and
11 hereof, shall specifically apply to all such Wafers.
9.0 QUALITY CONTROL AND INSPECTION; AND RELIABILITY
9.1 National will manufacture Wafers in accordance with the
Quality and Reliability Criteria for the applicable Product. Prior to
shipment, National will perform the electrical parameter testing and
other inspections specified to be performed by it in the applicable
Acceptance Criteria on each Wafer lot manufactured. National will only
ship those Wafer lots that successfully pass the applicable Acceptance
Criteria. National will electronically provide Fairchild with the
electrical test data specified in the applicable Acceptance Criteria.
Wafers will be laser scribed with lot and wafer number for statistical
monitoring and lot number traceability.
9.2 Fairchild shall promptly provide for inspection and
testing of each shipment of Wafers upon receipt in accordance with the
Acceptance Criteria and shall notify National in writing of acceptance
of the Wafers. If Fairchild has not given written notice to National of
rejection of all or part of a shipment within thirty (30) days of
receipt, Fairchild will be deemed to have accepted such Wafers. In the
event any lot or Wafer is found to fail the Acceptance Criteria prior to
final acceptance, Fairchild shall promptly return it to National,
together with all test data and other information reasonably required by
National. Upon confirmation by National that such Wafers fail the
Acceptance Criteria, National shall replace such lot or Wafer on a
timely basis.
9.3 Fairchild shall promptly provide for yield probe tests to
be conducted on the Wafers and communicate the results of the tests to
National within thirty (30) days of receipt of Wafers from National.
The right to return any Wafers for low yield shall be governed by
Section 10 below.
9.4 MPS-3-000 (Material Procurement Specification) - General
Provisions and Quality Requirements for External (Non-National) Wafer
Fab Facilities and MPS-3-001 (Material Procurement Specification) -
Technical Requirements for CMOS Processing are the National policies for
the purchase of integrated circuits from independent suppliers. These
policies as in effect at the Effective Date shall provide criteria for
the initial and continuing qualification of the Facility and evaluation
of Wafers manufactured by National hereunder. To the extent that those
policies are not inconsistent with the provisions of this Agreement,
Fairchild shall not be required to accept delivery of any Wafers
hereunder if National fails to comply with said policies or such other
similar policies as may be mutually agreed to in writing by the Parties.
9.5 National hereby warrants that the Facility currently is,
and will remain throughout the term of this Agreement, ISO9000
certified.
10.0 MINIMUM YIELD ASSURANCES
10.1 National will guarantee a minimum yield assurance
("MYA") on a per Product basis for those Wafers fabricated and probed by
National. For Wafers not sorted by National the MYA limits will apply
only to Wafers whose substandard yield is caused by materials or
National's workmanship. MYAs shall function as a reliability screen
hereunder for maverick Wafers, via standard sort test results and yield.
10.2 The baseline yield and initial MYA for each Product to be
manufactured by National hereunder is set forth in Exhibit B hereto.
10.3 For a new Product, the baseline yield and MYA will be
established after a minimum of twenty (20) Wafer lot runs have been
tested to production released test programs. A new baseline yield and
MYA will be calculated whenever Fairchild makes any modifications to
said test programs.
10.4 For Products that qualify for die cost sharing, as
provided in Exhibit E, the baseline Net Die Per Wafer (NDPW) for the
Product will be used for defining the MYA. For all other Products, each
fiscal quarter, each Product's baseline yield will be calculated using
the previous fiscal quarter's results, or the previous twenty (20) Wafer
lot runs if less than twenty (20) Wafer lot runs were processed in said
previous quarter. The mean and standard deviation (sigma) yield for a
Product will be calculated using individual Wafer data. Zero yielding
Wafers will be excluded from such calculations. The results of such
calculations will be used in defining the MYA for that Product for the
quarter in which the calculations are made, but only if the mean yield
changes by more than +/-2%.
10.5 MYA will be determined as follows. For purposes of
Wafers manufactured in the Facility, Wafers which yield less than sixty
percent (60%) of the mean will be considered discrepant and may be
returned for full credit at Fairchild's discretion. In no event shall
National accept returns of Wafers on non-released products.
10.6 Fairchild shall provide yield analysis information on
Wafers returned to National under this Section 10, in order to assist
National in continuous Process improvement.
10.7 In the event of an extended period of substandard
yields on a Product, National will utilize its Best Efforts to correct
any Process related causes and the Parties will negotiate in good faith
to make up for the Process related yield loss experienced by Fairchild
and its customers.
11.0 WARRANTY
11.1 National warrants that the Wafers delivered hereunder
shall meet the Quality and Reliability Criteria and shall be free from
defects in material and National's workmanship under normal use for a
period of one (1) year from the date of delivery. If, during the one
year period:
(i) National is notified in writing promptly upon
discovery with a detailed description of any such defect in any Product
(at which time National shall issue a return material authorization
number to Fairchild), and;
(ii) Fairchild returns such Product to the applicable
Facility at Fairchild's expense for inspection; and
(iii) National's examination of such Product reveals that
the Product is indeed defective and does not meet the applicable Quality
and Reliability Criteria or is defective in materials or National's
workmanship and such problems are not caused by accident, abuse, misuse,
neglect, improper storage, handling, packaging or installation, repair,
alteration or improper testing or use by someone other than National
then, within a reasonable time, National, at its sole option, shall
either replace or credit Fairchild for such defective Product. National
shall return any Products replaced under this warranty to Fairchild
transportation prepaid, and shall reimburse Fairchild for the
transportation charges paid by Fairchild in returning such defective
Products to National.
11.2 THE FOREGOING WARRANTY CONSTITUTES NATIONAL'S EXCLUSIVE
LIABILITY, AND FAIRCHILD'S EXCLUSIVE REMEDY, FOR ANY BREACH OF WARRANTY.
EXCEPT AS SET FORTH HEREIN, NATIONAL MAKES AND FAIRCHILD RECEIVES NO
WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND NATIONAL SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
12.0 ON-SITE INSPECTION AND INFORMATION
12.1 National shall allow Fairchild and/or Fairchild's
customers to visit and evaluate the Facility during normal business
hours as part of established source inspection programs, it being
understood and agreed between Fairchild and National that Fairchild must
obtain the concurrence of National for the scheduling of all such
visits, which such concurrence shall not be unreasonably withheld. It
is anticipated that such visits will occur no more than once per quarter
on average.
12.2 Upon Fairchild's written request, National will provide
Fairchild with process control information, to include but not be
limited to: process and electrical test yield results, current process
specifications and conformance to specifications; calibration schedules
and logs for equipment; environmental monitor information for air, gases
and DI water; documentation of operator qualification and training;
documentation of traceability through National's operation; and National
verification information. Except for exigent circumstances, such
requests shall not be made more than twice per year for a given category
of information.
13.0 PRODUCT ENGINEERING SUPPORT
13.1 The Parties will cooperate in allowing Fairchild
employees to have reasonable access to the Facility during the term of
this Agreement (the "Fairchild Engineering Team"), in order to assist in
Product developments and improvements. National will provide reasonable
office space to the Fairchild Engineering Team, if required on a
temporary basis, not to exceed sixty (60) days per occurrence, at no
expense to Fairchild. Should the Fairchild Engineering Team require
long term, dedicated office space, Fairchild agrees to pay National the
overhead cost associated with such space. The Fairchild Engineering
Team will comply with all applicable National regulations in force at
the Facility and Fairchild hereby agrees to hold National harmless for
any damages or liability caused by any member of the Fairchild
Engineering Team, which are attributable to: (i) the negligence or
willful malfeasance of such member, and (ii) any failure by such member
to comply with National's regulations in force at the Facility or with
applicable law.
13.2 National shall assist the efforts of the Fairchild
Engineering Team and provide Fairchild with reasonable and timely
support.
13.3 National shall assist Fairchild in any efforts to
identify any reliability problems that may arise in a Product.
Fairchild shall correct Product related problems and National shall
correct all Process related problems.
14.0 TERM AND TERMINATION
14.1 The term of this Agreement shall be thirty-nine (39)
fiscal periods from the Effective Date, provided however that the
Parties shall not less than eight (8) fiscal periods prior to the end of
such thirty-ninth (39th) fiscal period determine in good faith a ramp-
down schedule of production so as to minimize disruption to both
Parties. If the Parties are unable to agree on the terms governing a
ramp- down, Fairchild shall be allowed to reduce its purchase commitment
by not more than twenty percent (20%) per fiscal quarter, starting one
fiscal quarter after the initial thirty- nine (39) fiscal period term of
this Agreement. Fairchild will provide National with not less than
ninety (90) days prior written notice of any such reduction.
14.2 This Agreement may be terminated, in whole or in part, by
one Party sending a written notice to the other Party of its election to
terminate, which notice specifies the reason for the termination, upon
the happening of any one or more of the following events:
(a) the other Party is the subject of a petition filed in a
bankruptcy court of competent jurisdiction, whether voluntary or
involuntary, which petition in the event of an involuntary petition is
not dismissed within sixty (60) days; if a receiver or trustee is
appointed for all or a substantial portion of the assets of the other
Party; or if the other Party makes an assignment for the benefit of its
creditors; or
(b) the other Party fails to perform substantially any
material covenant or obligation, or breaches any material representation
or warranty provided for herein; provided, however, that no right of
termination shall arise hereunder until sixty (60) days after receipt
of written notice by the Party who has failed to perform from the other
Party, specifying the failure of performance, and said failure having
not been remedied or cured during said sixty (60) day period.
14.3 Upon termination of this Agreement, all rights granted
hereunder shall immediately terminate and each Party shall return to the
other Party any property belonging to the other Party which is in its
possession, except that National may continue to retain and use any
rights or property belonging to Fairchild solely for the period
necessary for it to finish manufacturing during any ramp-down period.
Nothing in this Section 14 is intended to relieve either Party of any
liability for any payment or other obligations existing at the time of
termination.
14.4 The provisions of Sections 11, 15, 16 and Paragraphs 18.5
and 18.8 shall survive the termination of this Agreement for any reason.
15.0 EXPORT CONTROL
15.1 The Parties acknowledge that each must comply with all
rules and laws of the United States government relating to
restrictions on export. Each Party agrees to use its Best Efforts to
obtain any export licenses, letters of assurance or other documents
necessary with respect to this Agreement.
15.2 Each Party agrees to comply fully with United States
export laws and regulations, assuring the other Party that, unless prior
authorization is obtained from the competent United States government
agency, the receiving Party does not intend and shall not knowingly
export or re-export, directly or indirectly, any Wafers, Products,
technology or technical information received hereunder, that would be in
contravention of any laws and regulations published by any United States
government agency.
16.0 CONFIDENTIALITY
16.1 For purposes of this Agreement, "Confidential
Information" shall mean all proprietary information, including Fairchild
and/or National trade secrets relating to the subject matter of this
Agreement disclosed by one of the Parties to the other Party in written
and/or graphic form and originally designated in writing by the
disclosing Party as Confidential Information or by words of similar
import, or, if disclosed orally, summarized and confirmed in writing by
the disclosing Party within thirty (30) days after said oral disclosure,
that the orally disclosed information is Confidential Information.
16.2 Except as may otherwise be provided in the Technology
Licensing and Transfer Agreement between the Parties of even date
herewith, each Party agrees that it will not use in any way for its own
account, or for the account of any third party, nor disclose to any
third party except pursuant to this Agreement, any Confidential
Information revealed to it by the other Party. Each Party shall take
every reasonable precaution to protect the confidentiality of said
information. Each Party shall use the same standard of care in
protecting the Confidential Information of the other Party as it
normally uses in protecting its own trade secrets and proprietary
information.
16.3 Notwithstanding any other provision of this Agreement, no
information received by a Party hereunder shall be Confidential
Information if said information is or becomes:
(a) published or otherwise made available to the public other
than by a breach of this Agreement;
(b) furnished to a Party by a third party without restriction
on its dissemination;
(c) approved for release in writing by the Party designating
said information as Confidential Information;
(d) known to, or independently developed by, the Party
receiving Confidential Information hereunder without reference to or
use of said Confidential Information; or
(e) disclosed to a third party by the Party transferring
said information hereunder without restricting its subsequent
disclosure and use by said third party.
16.4 In the event that either Party determines on the advice
of its counsel that it is required to disclose any information pursuant
to applicable law or receives any demand under lawful process to
disclose or provide information of the other Party that is subject to
the confidentiality provisions hereof, such Party shall notify the other
Party prior to disclosing and providing such information and shall
cooperate at the expense of the requesting Party in seeking any
reasonable protective arrangements requested by such other Party.
Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by
such law (as so advised by counsel) or by lawful process.
17.0 REPORTS AND COMMUNICATIONS
17.1 Each Party hereby appoints a Program Manager whose
responsibilities shall include acting as a focal point for the technical
and commercial discussions between them related to the subject matter
of this Agreement, to include monitoring within his or her respective
company the distribution of Confidential Information received from the
other Party and assisting in the prevention of the unauthorized
disclosure of Confidential Information within the company and to third
parties. The Program Managers shall also be responsible for maintaining
pertinent records and arranging such conferences, visits, reports and
other communications as are necessary to fulfill the terms and
conditions of this Agreement. The names, addresses and telephone
numbers of the Program Managers will be communicated between the Parties
from time to time.
18.0 GENERAL
18.1 AMENDMENT: This Agreement may be modified only by a
written document signed by duly authorized representatives of the
Parties.
18.2 FORCE MAJEURE: A Party shall not be liable for a failure
or delay in the performance of any of its obligations under this
Agreement where such failure or delay is the result of fire, flood, or
other natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials or utilities (provided that such
unavailability is not caused by the actions or inactions of the Party
claiming force majeure), or the intervention of any government
authority, providing that the Party failing in or delaying its
performance immediately notifies the other Party of its inability to
perform and states the reason for such inability.
18.3 ASSIGNMENT: This Agreement may not be assigned by any
Party hereto without the written consent of the other Party; provided
that Fairchild may assign its rights but not its obligations hereunder
as collateral security to any bona fide financial institution engaged in
acquisition financing in the ordinary course providing financing to
consummate the transactions contemplated by the Purchase Agreement or
any bona fide financial institution engaged in acquisition financing in
the ordinary course through whom such financing is refunded, replaced,
or refinanced and any of the foregoing financial institutions may assign
such rights in connection with a sale of Fairchild or the Business in
the form then being conducted by Fairchild substantially as an entirety.
Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon, and inure to the benefit of, and shall
be enforceable by, the respective successors and assigns of the Parties
hereto.
18.4 COUNTERPARTS: This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute but one
and the same instrument.
18.5 CHOICE OF LAW: This Agreement, and the rights and
obligations of the Parties hereto, shall be interpreted and governed in
accordance with the laws of the State of California, without giving
effect to its conflicts of law provisions.
18.6 WAIVER: Should either of the Parties fail to exercise or
enforce any provision of this Agreement, such failure shall not be
construed as constituting a waiver or a continuing waiver of its rights
to enforce such provision or right or any other provision or right.
Should either of the Parties waive any provision or right under this
Agreement, such waiver shall not be construed as constituting a waiver
of any other provision or right.
18.7 SEVERABILITY: If any provision of this Agreement or
the application thereof to any situation or circumstance shall be
invalid or unenforceable, the remainder of this Agreement shall not be
affected, and each remaining provision shall be valid and enforceable to
the fullest extent.
18.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER
THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS OR
SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH
OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE
NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR
NOT.
18.9 EFFECT OF HEADINGS: The headings and subheadings
contained herein are for information purposes only and shall have no
effect upon the intended purpose or interpretation of the provisions of
this Agreement.
18.10 INTEGRATION: The agreement of the Parties, which is
composed of this Agreement and the Exhibits hereto and the documents
referred to herein, constitutes the entire agreement and understanding
between the Parties with respect to the subject matter of this Agreement
and integrates all prior discussions and proposals (whether oral or
written) between them related to the subject matter hereof.
18.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the
transactions contemplated under the Purchase Agreement, neither
Fairchild nor National shall, without the approval of the other Party
hereto, make any press release or other public announcement concerning
the terms of the transactions contemplated by this Agreement, except
as and to the extent that any such Party shall be so obligated by law,
in which case the Party shall use its Best Efforts to advise the other
Party thereof and the Parties shall use their Best Efforts to cause a
mutually agreeable release or announcement to be issued; provided that
the foregoing shall not preclude communications or disclosures necessary
to (a) implement the provisions of this Agreement or (b) comply with
accounting, securities laws and Securities and Exchange Commission
disclosure obligations. Fairchild shall provide National with a
reasonable opportunity to review and comment on any references to
National made by Fairchild (and shall not include any such references to
National without the written consent of National, which consent shall
not be unreasonably withheld or delayed) in any written materials that
are intended to be filed with the Securities and Exchange Commission in
connection with obtaining financing required to effect the transactions
contemplated in connection with the Purchase Agreement or intended to be
distributed to prospective purchasers pursuant to an offering made under
Rule 144A promulgated under the Securities Act of 1933 in connection
with obtaining such financing.
18.12 NO PARTNERSHIP OR AGENCY CREATED: Nothing contained
herein or done pursuant to this Agreement shall constitute the Parties
as entering upon a joint venture or partnership, or shall constitute
either Party the agent for the other Party for any purpose or in any
sense whatsoever.
18.13 BINDING EFFECT: This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the Parties hereto and to their respective successors and assigns.
18.14 NOTICES: All notices, requests, demands and other
communications which are required or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by
telecopy, electronic or digital transmission method; the day after it is
sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
M/S 16-135
Santa Clara, CA 95052-8090
Attn: General Counsel
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
M/S 01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
or to such other place as such Party may designate as to itself by
written notice to the other Party.
IN WITNESS WHEREOF, the Parties have had this Agreement
executed by their respective duly authorized officers on the day and
date first written above. The persons signing warrant that they are
duly authorized to sign for and on behalf of the respective Parties.
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
- -------------------------------------
Title: Executive Vice President & CFO
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ JOHN M. CLARK III
- ----------------------------------
Title: Senior Vice President
EXHIBIT 10.8
MIL/AERO WAFER AND SERVICES AGREEMENT
THIS MIL/AERO WAFER AND SERVICES AGREEMENT ("Agreement") is
dated and made effective this 11th day of March, 1997 (the "Effective
Date") by and between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware
corporation, having its principal place of business at 2900
Semiconductor Drive, Santa Clara, California 95052-8090 ("National") and
[FAIRCHILD SEMICONDUCTOR CORPORATION], a Delaware corporation, having
its principal place of business at 333 Western Avenue, South Portland,
Maine 04106 ("Fairchild"). National and/or Fairchild may be referred to
herein as a "Party" or the "Parties" as the case may require.
W I T N E S S E T H:
WHEREAS, the Parties have entered into a certain Asset Purchase
Agreement (hereinafter referred to as the "Purchase Agreement") under
which Fairchild is acquiring certain of the assets of National's Logic,
Memory and Discrete Power and Signal Technologies Business Units as
historically conducted and accounted for (including Flash Memory, but
excluding Public Networks, Programmable Products and Mil/Aero Logic
Products) (the "Business"); and
WHEREAS, pursuant to the transactions contemplated in the
Purchase Agreement, Fairchild is acquiring National's manufacturing
facilities in South Portland, Maine (excluding the eight-inch fab and
related facilities); West Jordan, Utah; Penang, Malaysia; and Cebu, the
Philippines; and
WHEREAS, after the closing of the transactions contemplated
by the Purchase Agreement Fairchild will own and operate the Facilities;
and
WHEREAS, National, using proprietary processes, has been
manufacturing silicon wafers containing certain integrated circuits
intended for use in Mil/Aero products at the Facilities and performing
associated services; and
WHEREAS, National is conveying to Fairchild certain
intellectual property rights pursuant to the Technology Licensing and
Transfer Agreement between National and Fairchild, of even date
herewith; and
WHEREAS, National and Fairchild desire to enter into an
agreement under which Fairchild will continue to provide certain
manufacturing services and Fairchild Products to National following the
closing of the transactions contemplated by the Purchase Agreement; and
WHEREAS, National and Fairchild recognize that the prices
National shall pay to Fairchild for Products manufactured pursuant to
this Agreement are determined based on the collateral transactions and
ongoing relationship between the Parties as expressed in the Purchase
Agreement, Revenue Side Letter of even date herewith (the "Revenue Side
Letter") and other Operating Agreements (as defined in Paragraph 9.1);
and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the closing of the transactions contemplated by
the Purchase Agreement.
NOW, THEREFORE, in furtherance of the foregoing premises and in
consideration of the mutual covenants and obligations hereinafter set
forth, the Parties hereto, intending to be legally bound hereby, do
agree as follows:
1.0 DEFINITIONS
1.1 "Acceptance Criteria" shall mean the electrical parameter
testing, process control monitor ("PCM") and other inspections for each
Product and/or Process as set forth in Exhibit F hereto, all of which
are to be performed by Fairchild prior to shipment of Wafers hereunder.
1.2 "Best Efforts" shall require that the obligated Party make a
diligent, reasonable and good faith effort to accomplish the applicable
objective. Such obligation, however, does not require any material
expenditure of funds or the incurrence of any material liability on the
part of the obligated Party, which expenditure or liability is
unreasonable in light of the related objective, nor does it require that
the obligated Party act in a manner which would otherwise be contrary to
prudent business judgment or normal commercial practices in order to
accomplish the objective. The fact that the objective is not actually
accomplished is no indication that the obligated Party did not in fact
utilize its Best Efforts in attempting to accomplish the objective.
1.3 "Confidential Information" shall have the meaning set forth
in Paragraph 19.1 below.
1.4 "Effective Date" shall mean the date first set forth above.
1.5 "Equivalent Wafers" for Wafers manufactured at the South
Portland, Maine six-inch fab shall mean the actual number of Wafers in a
given Process multiplied by the process complexity factor for that
Process, as set forth in Exhibit A hereto; and for Wafers manufactured
in a four or five-inch fab, Equivalent Wafers shall mean the number of
six inch equivalent Wafers.
1.6 "Facilities" shall mean the existing wafer fabrication
facilities located at South Portland, Maine (excluding the eight inch
fabrication facility of which National is retaining ownership) and West
Jordan, Utah transferred to Fairchild from National pursuant to the
Purchase Agreement.
1.7 "Fairchild" shall mean Fairchild Semiconductor Corporation
and its Subsidiaries.
1.8 "Fairchild Assured Capacity" shall mean the capacity that
Fairchild agrees to supply National pursuant to Section 7 below.
1.9 "Masks" shall mean the masks and reticle sets, including
the mask holders and ASM pods, for the Products and Wafers used to
manufacture Products hereunder.
1.10 "Mil/Aero Business" shall mean the development, manufacture,
marketing and sale of integrated circuits that: (i) conform to
government drawings and qualifications, including but not limited to
JAN, SMD, QML, RHA, 883; or (ii) standard products in military
temperature grade (-55 C to 125 C) designated as 5400 series or ceramic
packaged DM series.
1.11 "National" shall mean National Semiconductor Corporation and
its Subsidiaries.
1.12 "Processes" shall mean those wafer manufacturing processes
and associated unit processes to be used in the fabrication of Wafers
hereunder which are set forth in Exhibit A hereto, as such processes
shall be modified from time to time as agreed in writing by the Parties.
1.13 "Products" shall mean National's Mil/Aero integrated
circuit products which will be manufactured by Fairchild in wafer form
for National hereunder and which are identified by National's part
numbers listed in Exhibit B hereto, which exhibit may be amended from
time to time as the parties may agree.
1.14 "Quality and Reliability Criteria" shall mean National's
manufacturing process quality and reliability specifications, as set
forth in the revision of National Specification CP0008 which is in
effect as of the Effective Date, and which are to be followed by
Fairchild in manufacturing Wafers hereunder.
1.15 "Specifications" shall mean the technical specifications
(such as Mask ID, Process Flow and Sort Test) as listed in Exhibit B for
each of the Products as provided in this Agreement.
1.16 "Subsidiary" shall mean any corporation, partnership, joint
venture or similar entity more than fifty percent (50%) owned or
controlled by a Party hereto, provided that any such entity shall no
longer be deemed a Subsidiary after such ownership or control ceases to
exist.
1.17 "Technology Licensing and Transfer Agreement" shall mean the
agreement of even date herewith between the Parties, under which
National is licensing and transferring certain intellectual property
rights to Fairchild.
1.18 "Wafers" shall mean four-inch (4"), five-inch (5") and/or
six-inch (6") silicon wafers for any of the Products to be manufactured
by Fairchild hereunder.
1.19 "Wafer Module" shall mean the Fairchild four-inch (4"), five-
inch (5"), and six-inch (6") wafer fabrication units in South
Portland, Maine and the six-inch (6") wafer fabrication unit in West
Jordan, Utah.
2.0 INTELLECTUAL PROPERTY; EXCLUSIVITY
2.1 Except as may be set forth in Section 10 hereof, the
provisions of the Technology Licensing and Transfer Agreement will
govern all issues related to the respective intellectual property rights
of the Parties hereunder, to include but not be limited to, use
rights, ownership rights and indemnification obligations.
2.2 All manufacturing of Wafers shall take place at the
Facilities. Fairchild shall not manufacture Wafers or transfer any
National owned intellectual property or other National technical
information outside of the Facility or to any other site, other than as
may be permitted under the Technology Licensing and Transfer Agreement.
2.3 For seven (7) years from the Effective Date or for the term
of this Agreement including any subsequent ramp-down period provided
under Paragraph 17.1 and Last-Time-Buy periods provided under Paragraph
6.1, whichever is longer, Fairchild will not enter the Mil/Aero
Business.
2.4 National will have exclusive rights to value-added die and
wafer sales, as listed in Exhibit B hereto, for one (1) year from the
Effective Date with the exception of (i) wafer sales made to Fairchild
alternate sourcing partners; and (ii) any other die and wafer sales
assigned to Fairchild as of the Effective Date.
2.5 Fairchild will supply National with Wafers for use in
Mil/Aero integrated circuits and Mil/Aero value-added die and wafer
sales, and associated services hereunder, on an exclusive basis for the
term of this Agreement, including any subsequent ramp-down period
provided under Paragraph 17.1 and Last-Time-Buy periods provided under
Paragraph 6.1. Fairchild will not knowingly supply Wafers for use in
Mil/Aero integrated circuits or value- added die or wafer sales (except
as part of a Fairchild alternate sourcing agreement) to any other
external customer for five (5) years from the Effective Date or for the
term of this Agreement including any subsequent ramp-down period
provided under Paragraph 17.1 and Last- Time-Buy periods provided under
Paragraph 6.1, whichever is longer.
2.6 For the term of this Agreement, including any subsequent
ramp-down period provided in Paragraph 17.1 and Last-Time-Buy periods
provided under Paragraph 6.1, whichever is longer, National shall not
knowingly supply Fairchild die or Fairchild Wafers to any customer that
competes with Fairchild by packaging die or Wafers for resale to the
merchant market or to individual customers as direct replacements for
Fairchild standard products.
3.0 PROCESSES
3.1 Exhibit A lists the Processes which Fairchild shall use in
manufacturing Wafers hereunder for National. Exhibit A may be amended
from time to time by mutual agreement in writing of the Parties, as new
processes are developed and older Processes become obsolete.
3.2 After qualification is successfully completed for any Product
to be manufactured under this Agreement, if Fairchild desires to make
material Process changes affecting form, fit or function, Fairchild will
notify National of the intended change in accordance with Fairchild's
process change procedures then in effect. If the proposed changes are
unacceptable to National, National and Fairchild shall work together in
efforts to resolve the problem and qualify the changed Process for
making Wafers. If the Parties are unable to resolve the problem,
Fairchild shall have the right to make such Process changes upon the
provision of twelve (12) fiscal periods prior written notice to
National. Subsequent to Fairchild's notice of Process change, Fairchild
will make provisions with National for Last Time Buys, and commit to
ship all Wafers requested in such last Time Buys as the Parties may
negotiate.
3.3 Should Fairchild elect to discontinue a Process, it must give
National written notice of no less than twelve (12) fiscal periods prior
to the date it intends to discontinue any Process or its future amended
form. Subsequent to Fairchild's notice of Process discontinuance,
Fairchild will make provisions with National for Last Time Buys, and
commit to ship all Wafers requested in such Last Time Buys as the
Parties may negotiate.
4.0 SET UP AND QUALIFICATION OF NEW PRODUCTS
4.1 With Fairchild's written approval, which approval shall not
be unreasonably withheld, National will be allowed to develop, at its
own expense, Mil/Aero versions of Fairchild products, including
derivatives of and improvements to existing products.
4.2 For each new Product that National proposes to have Fairchild
manufacture, National will provide to Fairchild in advance the
Specifications and design layout of the Product for review and comment
by Fairchild. The Parties will also agree on the Acceptance Criteria,
including electrical test parameters, and Quality and Reliability
Criteria for the prototype Wafers to be manufactured for the new Product
during the qualification process.
4.3 An initial data base for Mask generation or pattern
generation, or acceptable production Masks will be provided by National
to Fairchild, per Fairchild specifications, at National's expense, for
each new Product to be fabricated for National, if required. In the
alternative, National may provide Fairchild with prime die design data
and Fairchild will provide the frame and fracture services and procure
the Mask set at National's expense. After receipt of the initial data
base, or pattern generation tape, or master or sub-master Mask set,
additional and/or replacement Mask sets shall be the responsibility and
expense of Fairchild. All such data bases, pattern generation tapes and
Mask sets shall be the property of National, regardless of whether they
were initially supplied by National or replaced by Fairchild, for Mask
works developed by National.
4.4 As soon as practical following agreement on the items in
Paragraph 4.2 above, and following receipt of a written purchase order
from National, Fairchild will begin manufacture of twelve (12) prototype
Wafers for such Product as is specified in the purchase order.
Fairchild will perform the electrical testing specified in the initial
Acceptance Criteria and supply the test data to National with the
prototype Wafers. Fairchild's obligation shall be limited to providing
Wafers that meet the applicable PCM specifications and the associated
test data. National will promptly inspect the prototype Wafers and
notify Fairchild in writing of the results. If the prototype Wafers do
not meet the Acceptance Criteria and Quality and Reliability Criteria,
the Parties will cooperate in good faith to determine the reason for
such failure.
4.5 In connection with the completion of the qualification
process for any new Product, National will deliver to Fairchild final
Specifications for the Product incorporating any changes agreed in
writing by the Parties during the qualification process. The Parties
will also negotiate for each Product the final Acceptance Criteria and
Quality and Reliability Criteria to be used for the commercial
production lots of Wafers.
4.6 Unless otherwise agreed in writing production quantities of
Wafers of a new Product will not be manufactured prior to completion of
the qualification process under this Section 4. In the event that
National desires for Fairchild to manufacture production quantities, the
Parties will agree in writing on the terms before Fairchild accepts the
purchase order.
5.0 MODIFICATION OF EXISTING PRODUCTS
5.1 If either National or Fairchild desires to make any changes
to the Masks, final Specifications, Acceptance Criteria or Quality and
Reliability Criteria for an existing Product (including changes to a
Fairchild product that is the basis for a National Product), that Party
shall notify the other Party in writing and negotiate the changes in
good faith, including any changes in prices required by such
modifications. A modification to any of the foregoing will be binding
only when a writing to which such modification is attached has been
signed by both Parties as provided in this Agreement. The Parties will
separately negotiate the price and terms of any prototype Wafers
required in connection with such change. If any changes proposed by
Fairchild are not acceptable to National, Fairchild will continue to
manufacture the unchanged product for twelve (12) fiscal periods.
During that time Fairchild will make provisions with National for Last
Time Buys, and commit to ship all Wafers requested in such Last Time
Buys as the Parties may negotiate.
6.0 PRODUCT OBSOLESCENCE
6.1 Fairchild may at its discretion declare a Fairchild product
obsolete. If the product forms the basis for a National Product then
Fairchild may declare the device obsolete if it has not been run in
production for eighteen (18) fiscal periods. Fairchild shall provide
National with twelve (12) months prior written notice, make provisions
with National for a Last Time Buy and commit to ship all Wafers
requested in such Last Time Buys as the Parties may negotiate. If a
product has not been run in production for six (6) fiscal periods by
either Fairchild or National then Fairchild will notify National in
writing and the following surcharge will apply to the price of any such
product:
four (4) inch wafers, 25% of the latest negotiated price
five (5) inch wafers, 25% of the latest negotiated price
six (6) inch wafers, 10% of the latest negotiated price
After the Last Time Buy has expired, Fairchild may sell the
Mask set and associated tooling to an established after-market
supplier such as Rochester Electronics. Should Fairchild elect not to
sell the Mask set and tooling to a third party then National will have
the option of purchasing the Mask set etc., in which case National will
retain only the military rights to the product.
7.0 CAPACITY; VOLUME COMMITMENTS; PRODUCTION PLANNING
7.1 Production under this Agreement will use the procedures,
terms, and conditions described in Section 5 of the Fairchild Foundry
Services Agreement between the Parties of even date herewith.
7.2 All production under this Agreement will be included as
part of the total National Capacity Request and Fairchild Assured
Capacity as defined in Section 5 of said Fairchild Foundry Services
Agreement.
8.0 PURCHASE ORDERS
8.1 All purchases and sales between Fairchild and National
shall be initiated by National's issuance of written purchase orders
sent by either first class mail or facsimile. By written agreement of
the Parties, purchase orders may also be sent and acknowledged by
electronic data exchange or other mutually satisfactory system. Such
"blanket" purchase orders shall be issued once per fiscal quarter
for Wafers to be delivered three (3) fiscal periods in the future. They
shall state the Wafer quantities (specifying whether equivalents or
actual) by Wafer Module, and shipping and invoicing instructions.
Fairchild shall accept purchase orders through a written or electronic
acknowledgment. Within a reasonable time after receipt of National's
detailed device level Wafer starts request for the next fiscal period,
Fairchild shall provide National with a Product delivery schedule either
on a weekly basis as the Wafers are started or for the Wafer starts for
the entire fiscal period, as the Parties may agree in writing. The
purchase orders may utilize the first three (3) fiscal periods forecast
in the eight period rolling forecast supplied pursuant to Section 7, as
the embodiment of the purchase order for specifying the Wafer quantity
by Wafer Module and Process, and whether sorted or unsorted.
8.2 In the event of any conflict between the terms and conditions
of this Agreement and either Party's purchase order, acknowledgment, or
similar forms, priority shall be determined as follows:
(a) typewritten or handwritten terms on the face of a
written purchase order, acknowledgment or similar document or in the
main body of an electronic equivalent which have been specifically
accepted in writing by the other Party's Program Manager;
(b) the terms of this Agreement;
(c) preprinted terms incorporated in the purchase order,
acknowledgment or similar document.
8.3 Consistent with standard practices of issuing specific
device level details of part numbers to be fabricated on a weekly or
periodic basis, National may unilaterally change the part number to be
manufactured, provided that Fairchild agrees that the change does not
negatively impact Fairchild's loadings and provided further that there
is no change in the Process flow to be used. A change that will
negatively impact loading or alter the Process flow may only be directed
upon Fairchild's written agreement, which shall utilize its Best Efforts
to comply with such requested change. The specific part number detail
shall be submitted by first class mail or facsimile. By written
agreement of the Parties specific part number detail may also be sent by
electronic data exchange, or other mutually satisfactory system.
8.4 National shall request delivery dates which are consistent
with Fairchild's reasonable lead times for each Product as indicated at
the time National's purchase order is placed. Notwithstanding the
foregoing, Fairchild shall utilize its Best Efforts to accommodate
requests by National for quick turnarounds or "hot lots", which includes
prototype lots. Hot lot cycle times and the premiums to be paid
therefor are listed in Exhibit K. Level S hot lots will be negotiated
on a case- by-case basis.
8.5 Fairchild may manufacture lots of any size which satisfy the
requirements of effective manufacturing. However, National must place
orders for full flow and prototype Products in increments of twelve (12)
or twenty-four (24) Wafers for lots that are run exclusively for
National with National Masks, or, when possible, as agreed by Fairchild,
in three (3) Wafer increments if scheduled as a portion of a Fairchild
product lot started for Fairchild's use. For personalized ASIC Wafers
drawn from mid-flow inventories, the smallest quantity that shall be
ordered by National is three (3) Wafers, except for Wafers manufactured
in the five-inch (5") fab, in which case the smallest quantity that can
be ordered is six (6) Wafers.
9.0 PRICES AND PAYMENT
9.1 The Parties hereby acknowledge that, as part of the
collateral transactions contemplated under the Purchase Agreement and
ongoing relationship between the Parties, they have entered into the
Revenue Side Letter under which National has agreed to provide a minimum
revenue of Three Hundred Thirty Million Dollars ($330,000,000.00) to
Fairchild during the first thirty-nine (39) fiscal periods after the
Effective Date. National shall discharge its obligations under the
Revenue Side Letter by purchasing goods and services under this
Agreement, a corresponding Fairchild Assembly Services Agreement, and a
corresponding Fairchild Foundry Services Agreement of even date
herewith (collectively the "Operating Agreements"). Set forth herein at
Exhibit N is the forecast volume of Wafers, by Wafer Module and Process,
that National will purchase from Fairchild during the aforementioned
thirty-nine fiscal periods under this agreement (the "Forecast
Volumes"). The Forecast Volumes are for pricing purposes under this
Section 9 only and may vary in magnitude and mix in practice, whereupon
the prices applicable to the revised magnitude and mix may also vary.
9.2 Set forth in Exhibit G hereto are the prices which National
shall pay to Fairchild for Level "S" Wafers manufactured hereunder
during the term of this Agreement.
9.3 The prices and pricing methodology to be followed for non-
Level "S" Wafers and for miscellaneous support services will be as set
forth in the aforementioned Fairchild Foundry Services Agreement.
9.4 Prices are quoted and shall be paid in U.S. Dollars. Such
prices are on an FOB ship point basis. Payment terms are net thirty (30)
from date of invoice. Miscellaneous services may be invoiced
separately.
9.5 National shall pay, in addition to the prices quoted or
invoiced, the amount of any freight, insurance, special handling and
duties. National shall also pay all sales, use, excise or other similar
tax applicable to the sale of goods covered by this Agreement, or
National shall supply Fairchild with an appropriate tax exemption
certificate.
10.0 OTHER MANUFACTURING SERVICES
10.1 Fairchild shall continue to provide such services to National
at the same level of support that was in effect as of the Effective
Date. This specifically includes S-level processing including SEM
step coverage, as outlined in SP34061 and Wafer Lot Acceptance as
outlined in SP3402.
10.2 At National's request, Fairchild will perform Wafer sort and
test services based on sort and test programs prepared, owned and
otherwise proprietary to National. Towards that end, National shall
supply Fairchild with National- owned specific probe cards, load boards
and test software in order that Fairchild may provide such services.
Wafer sort shall be priced by hours of active sorting, with specific
prices as set forth in Exhibit G, and specific sort times as set forth
in Exhibit B.
10.3 Fairchild will supply Mil/Aero Wafers in compliance to
commercial critical electrical test parametrics (PCM data) according to
Product Specifications. Existing sort minimum yield assurance
specifications as defined in Section 13 will be guaranteed to National.
In the event that National changes any test program forcing function or
limit specification of a Mil/Aero sort program existing on the Effective
date, Fairchild will only guarantee Wafer acceptance to the PCM data.
10.4 National will continue to have rights to the MCT Program
Writer (PW) software. National will be provided copies of all associated
VAX libraries as well as all support programs (MRL) relating to MCT and
PCMCT testers. Fairchild will provide whatever assistance is necessary
in loading and bringing the source code on-line on National's systems.
This project will be completed by May 31, 1997, after which date
National will no longer have access to the Fairchild PW VAX system.
Services provided by Fairchild after May 31, 1997 will be billed at $100
per hour.
10.5 National will continue to have rights to the WGT hardware
design, software, and associated documentation. National will
assemble a WGT tester and Fairchild will provide whatever assistance is
necessary to bring the system on-line. National will use Best Efforts
to have this project completed by May 31, 1997. If, due to
circumstances beyond National's control, the system cannot be assembled
and brought on-line prior to May 31, 1997, Fairchild will provide
support free of charge for a reasonable period of time. Otherwise
support required beyond May 31, 1997 will be charged at $100 per hour.
10.6 National shall have non-exclusive rights to the VHDL model of
the modified PSC110 as supplied to Hughes Corporation. National shall
continue to own the Quicksim and Quickpath licenses.
10.7 National will be supplied with an SGML database for the
existing Mil/Aero data sheets for Fairchild products only.
10.8 National will transfer the electrical test equipment known
as the IMCS 4600 Latch-up Tester to Fairchild. In consideration
thereof, Fairchild will support the Latch-up data test requirements of
National for the term of this Agreement, and any extension or ramp-down
period, for a fee of $100.00 per hour.
10.9 In support of the Processes, Fairchild will make available
design support information including the following items:
(a) Layout design rules.
(b) Industry standard models for active devices (BSIM3v3 for
CMOS devices and Gummel-Poon with parasitics for bipolar devices)
representing nominal conditions and performance corners.
(c) Industry standard models, as stated in the National
NTPRS document in effect as of the Effective Date, for parasitic
elements, such as interconnect resistances and capacitances, sheet
resistivities of all conducting layers, parasitic capacitances for
diffused areas, and so forth, including additional elements or devices
intended for mixed-signal applica- tions.
(d) Process cross sections, if not already available at
National.
(e) Sufficient sizing and PCM information to assure the
integrity of masks ordered in support of products to be manufactured.
(f) Yield models plus applicable current and forecast
parameters such as Ys and Do for those models.
This information should be in the form of at least one
controlled paper copy or electronic access to a controlled copy.
National, at its discretion, may request a controlled electronic copy of
the required information in lieu of the paper copy. Fairchild will
provide the foregoing services at no charge to National, limited to
those engineering services performed as of the Effective Date.
11.0 DELIVERY; RESCHEDULING AND CANCELLATION
11.1 Fairchild shall make reasonable and diligent efforts to
deliver Wafers on the delivery dates specified in the Product delivery
schedule provided by Fairchild pursuant to Paragraph 8.1. Any shipment
made within fifteen (15) days before or after the shipment date(s)
specified in said Product delivery schedule shall constitute timely
shipment. Partial shipments will be allowed and may be invoiced
separately. A delivery will be considered conforming if it contains a
quantity equal to plus five percent (5%) or minus twenty percent (20%)
of the quantity ordered.
11.2 Except in the case of Level "S" wafers, which are non-
cancellable, if Fairchild has not made shipment of Products within
fifteen (15) days after the shipment date specified in the Product
delivery schedule provided by Fairchild pursuant to Paragraph 8.1,
National shall have the right, subject to Paragraph 20.2, to cancel that
portion of its purchase order pertaining to such Products, but only in
the event that National's customer for those Products has cancelled its
order with National for such Products. Notwithstanding the foregoing,
if Fairchild has not made shipment of Products within thirty (30) days
after the shipment date specified in the Product delivery schedule,
National shall have the right, subject to Paragraph 20.2, in its sole
discretion, to cancel that portion of its purchase order pertaining to
such Products, regardless of whether National's customer has cancelled
its order with National or not. In either event, any obligation of
National under its Capacity Request and/or any commitment to Fairchild
under the Revenue Side Letter associated with such cancelled purchase
order shall be discharged in full and National shall have no liability
whatsoever to Fairchild therefore.
11.3 All Wafers delivered pursuant to the terms of this Agreement
shall be suitably packed for shipment in Fairchild's standard
containers, marked for shipment to National's address set forth in the
applicable purchase order and delivered to a carrier or forwarding
agent chosen by National. Should National fail to designate a
carrier, forwarding agent or type of conveyance, Fairchild shall make
such designation in conformance with its standard shipping practices.
Shipment will be F.O.B. shipping point, at which time risk of loss and
title shall pass to National. Shipments will be subject to incoming
inspection as set forth in Paragraph 12.2 below.
11.4 To facilitate the inspection of Product deliveries to
National, lot integrity shall be maintained on all such deliveries,
unless specifically waived by mutual agreement of the Parties.
11.5 Subject to the provisions of Section 8 hereof, National may
cancel any purchase order upon at least one (1) week's notice prior to
the commencement of manufacturing without charge, provided that National
reimburses Fairchild for the cost of any unique raw materials
purchased for such order.
11.6 National may request that Fairchild stop production of Wafers
in process for National's convenience and Fairchild shall consider
stopping depending on the point of process. In such event, National
shall pay for all Wafers at the agreed price, subject to a negotiated
adjustment based upon the degree of completion of the Wafers and whether
or not Fairchild is able to utilize the unfilled capacity. Fairchild
will, if reasonably practicable, restart production of stopped Wafers
one time within a reasonable time after receipt of a written request
from National, subject to National's payment of any additional expenses
incurred. Sections 12, 13, and 14 of this Agreement shall not apply
to Wafers stopped under this Paragraph 11.6 for more than thirty (30)
days, nor shall Fairchild make any commitments of yield with respect to
such Wafers.
11.7 In the event that National elects to maintain an inventory of
partially finished Wafers, ownership of the partially finished Wafers
will pass to National when they reach the holding point defined by the
relevant Process flow. Fairchild will invoice National for such
Wafers, but they will be stored under clean-room conditions and remain
in the Wafer processing WIP management system. Fair- child will inform
National of the number and types of these Wafers remaining in inventory
at the end of each fiscal period. Further, the electronic records and
physical inventory shall be available for inspection by National at any
time. Fairchild shall credit National with the amount previously
invoiced for any such Wafers at such time as they are restarted in the
Process flow.
11.8 As of 12:01 A.M. on the Effective Date, National will own all
Wafers located at the Facility which Fairchild has commenced processing
but which have not yet been completed in accordance with the pertinent
Process flow. Unless expressly directed in writing by National
otherwise, Fairchild shall continue to process each Wafer to a normal
state of completion in the applicable Wafer Module. National shall
pay Fairchild for the accumulated additional processing costs, plus a
twenty-five percent (25%) mark up, for the additional processing
taking place on and after the Effective Date. The provisions of
Sections 12, 13, and 14 hereof shall specifically apply to all such
Wafers.
12.0 QUALITY CONTROL AND INSPECTION; AND RELIABILITY
12.1 Fairchild will manufacture Wafers in accordance with the
Quality and Reliability Criteria for the applicable Product. Prior to
shipment, Fairchild will perform the electrical parameter testing and
other inspections specified to be performed by it in the applicable
Acceptance Criteria on each Wafer lot manufactured. Fairchild will only
ship those Wafer lots that successfully pass the applicable Acceptance
Criteria. Fairchild will electronically provide National with the
electrical test data specified in the applicable Acceptance Criteria.
Wafers will be laser scribed with lot and wafer number for statistical
monitoring and lot number traceability.
12.2 National shall promptly provide for inspection and testing of
each shipment of Wafers upon receipt in accordance with the Acceptance
Criteria and shall notify Fairchild in writing of acceptance of the
Wafers. If National has not given written notice to Fairchild of
rejection of all or part of a shipment within thirty (30) days of
receipt, National will be deemed to have accepted such Wafers. In the
event any lot or Wafer is found to fail the Acceptance Criteria prior
to final acceptance, National shall promptly return it to Fairchild,
together with all test data and other information reasonably required by
Fairchild. Upon confirmation by Fairchild that such Wafers fail the
Acceptance Criteria, Fairchild shall replace such lot or Wafer on a
timely basis.
12.3 National shall promptly provide for yield probe tests to be
conducted on the Wafers and communicate the results of the tests to
Fairchild within thirty (30) days of receipt of Wafers from Fairchild.
The right to return any Wafers for low yield shall be governed by
Section 11 below.
12.4MPS-3-000 (Material Procurement Specification) - General
Provisions and Quality Requirements for External (Non-National) Wafer
Fab Facilities and MPS-3-001 (Material Procurement Specification) -
Technical Requirements for CMOS Processing are the National policies for
the purchase of integrated circuits from independent suppliers. These
policies as in effect at the Effective Date shall provide criteria
for the initial and continuing qualification of the Facility and
evaluation of Wafers manufactured by Fairchild hereunder. To the extent
that those policies are not inconsistent with the provisions of this
Agreement, National shall not be required to accept delivery of any
Wafers hereunder if Fairchild fails to comply with said policies or such
other similar policies as may be mutually agreed to by the Parties.
12.5 Fairchild hereby warrants that the Facility currently is,
and will remain throughout the term of this Agreement, ISO9000
certified.
13.0 MINIMUM YIELD ASSURANCES
13.1 Fairchild will guarantee a minimum yield assurance ("MYA") on
a per Product basis for those Wafers fabricated and probed by Fairchild.
MYAs shall function as a reliability screen hereunder for maverick
Wafers, via standard sort test results and yield. For Wafers not sorted
by Fairchild, the MYA limits will apply only to Wafers whose substandard
yield is caused by materials or Fairchild workmanship.
13.2 For a new Product, the baseline yield and MYA will be
established after a minimum of twenty (20) Wafer lot runs have been
tested to production released test programs. A new baseline yield and
MYA will be calculated whenever National makes any modifications to said
test programs.
13.3 Each fiscal quarter, each Product's baseline yield will be
calculated using the previous fiscal quarter's results, or the
previous twenty (20) Wafer lot runs if less than twenty (20) Wafer lot
runs were processed in said previous quarter. The mean and standard
deviation (sigma) yield for a Product will be calculated using
individual Wafer data. Zero yielding Wafers will be excluded from such
calculations. The results of such calculations will be used in defining
the MYA for that Product for the quarter in which the calculations are
made, but only if the mean yield changes by more than +/-2%.
13.4 MYA will be determined as follows. Wafers which yield less
than sixty percent (60%) of the baseline yield for the commercial
version of the Product will be considered discrepant and may be returned
for full credit at National's discretion. In no event shall Fairchild
accept returns of Wafers on non-released products. For Level "S" Fact
2.0 Wafers the MYA will be fifty percent (50%) of the baseline yield for
the commercial version of the Product. For Mil/Aero products that yield
significantly less than their respective commercial versions, the MYA
will be negotiated on a case by case basis.
13.5 National shall provide yield analysis information on Wafers
returned to Fairchild under this Section 13, in order to assist
Fairchild in continuous Process improvement.
13.6 In the event of an extended period of substandard yields on a
Product, Fairchild will utilize its Best Efforts to correct any Process
related causes and the Parties will negotiate in good faith to make up
for the yield loss experienced by National and its customers.
14.0 WARRANTY
14.1 Fairchild warrants that the Products delivered hereunder
shall meet the Quality and Reliability Criteria and shall be free from
defects in material and Fairchild's workmanship under normal use for a
period of one (1) year from the date of delivery. If, during the one
year period:
(i) Fairchild is notified in writing promptly upon discovery
with a detailed description of any such defect in any Product (at which
time Fairchild shall issue a return material authorization number to
National), and;
(ii) National returns such Product to the applicable
Facility at National's expense for inspection; and
(iii) Fairchild's examination of such Product reveals that
the Product is indeed defective and does not meet the applicable Quality
and Reliability Criteria or is defective in materials or Fairchild's
workmanship and such problems are not caused by accident, abuse, misuse,
neglect, improper storage, handling, packaging or installation, repair,
alteration or improper testing or use by someone other than Fairchild
then, within a reasonable time, Fairchild, at its sole
option, shall either replace or credit National for such defective
Product. Fairchild shall return any Products replaced under this
warranty to National transportation prepaid, and shall reimburse
National for the transportation charges paid by National in returning
such defective Products to Fairchild.
14.2 THE FOREGOING WARRANTY CONSTITUTES FAIRCHILD'S EXCLUSIVE
LIABILITY, AND NATIONAL'S EXCLUSIVE REMEDY, FOR ANY BREACH OF WARRANTY.
EXCEPT AS SET FORTH HEREIN, FAIRCHILD MAKES AND NATIONAL RECEIVES NO
WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND FAIRCHILD SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15.0 ON-SITE INSPECTION AND INFORMATION
15.1 Fairchild shall allow National and/or National's customers to
visit and evaluate the Facility during normal business hours as part of
established source inspection programs, it being understood and agreed
between National and Fairchild that National must obtain the concurrence
of Fairchild for the scheduling of all such visits, which such
concurrence shall not be unreasonably withheld. It is anticipated that
such visits will occur no more than once per quarter on average.
15.2 National shall have access to fab audits conducted by
Fairchild and fab baselines. Fairchild may charge a fee commensurate
with the effort required to provide these baselines and audits.
15.3 Upon National's written request, Fairchild will provide
National with process control information, to include but not be limited
to: process and electrical test yield results, current process
specifications and conformance to specifications; calibration schedules
and logs for equipment; environmental monitor information for air, gases
and DI water; documentation of operator qualification and training;
documentation of traceability through Fairchild's operation; and
Fairchild verification information. Except for exigent circumstances,
such requests shall not be made more than twice per year for a given
category of information.
16.0 PRODUCT ENGINEERING SUPPORT
16.1 The Parties will cooperate in allowing National employees to
have reasonable access to the Facility during the term of this Agreement
(the "National Engineering Team"), in order to assist in Product
developments and improvements. Fairchild will provide reasonable
office space to the National Engineering Team, if required on a
temporary basis, not to exceed 60 days per occurrence, at no expense to
National. Should the National Engineering Team require long term,
dedicated office space, National agrees to pay Fairchild the overhead
cost associated with such space. The National Engineering Team will
comply with all applicable Fairchild regulations in force at the
Facility and National hereby agrees to hold Fairchild harmless for any
damages or liability caused by any member of the National Engineering
Team, which are attributable to: (i) the negligence or willful
malfeasance of such member, and (ii) any failure by such member to
comply with Fairchild's regulations in force at the Facility or with
applicable law.
16.2 Fairchild shall assist the efforts of the National
Engineering Team and provide National with reasonable and timely
support.
16.3 Fairchild shall assist National in any efforts to identify
any reliability problems that may arise in a Product. National shall
correct National Product related problems and Fairchild shall correct
all Fairchild product and Process related problems.
17.0 TERM AND TERMINATION
17.1 The term of this Agreement shall be thirty-nine (39) fiscal
periods from the Effective Date; provided, however, that the Parties
shall not less than eight (8) fiscal periods prior to the end of such
thirty-ninth (39th) fiscal period determine in good faith a ramp-down
schedule of production so as to minimize disruption to both Parties. If
the Parties are unable to agree on the terms governing a ramp-down,
National shall be allowed to reduce its purchase commitment by not more
than twenty percent (20%) per fiscal quarter, starting one fiscal
quarter after the initial thirty-nine (39) fiscal period term of this
Agreement. National will provide Fairchild with not less than ninety
(90) days prior written notice of such reduction.
17.2 This Agreement may be terminated, in whole or in part, by one
Party sending a written notice to the other Party of the termination of
this Agreement, which notice specifies the reason for the termination,
upon the happening of any one or more of the following events:
(a) the other Party is the subject of a petition filed in a
bankruptcy court of competent jurisdiction, whether voluntary or
involuntary, which petition in the event of an involuntary petition is
not dismissed within sixty (60) days; if a receiver or trustee is
appointed for all or a substantial portion of the assets of the other
Party; or if the other Party makes an assignment for the benefit of its
creditors; or
(b) the other Party fails to perform substantially any
material covenant or obligation, or breaches any material representation
or warranty provided for herein; provided, however, that no right of
termination shall arise hereunder until sixty (60) days after receipt of
written notice by the Party who has failed to perform from the other
Party, specifying the failure of performance, and said failure having
not been remedied or cured during said sixty (60) day period.
17.3 Upon termination of this Agreement, all rights granted
hereunder shall immediately terminate and each Party shall return to the
other Party any property belonging to the other Party which is in its
possession, except that Fairchild may continue to retain and use any
rights or property belonging to National solely for the period necessary
for it to finish manufacturing the currently forecasted Fairchild
Assured Capacity. Nothing in this Section 17 is intended to relieve
either Party of any liability for any payment or other obligations
existing at the time of termination.
17.4 The provisions of Sections 2, 6, 14, 18, 19 and Paragraphs
21.5 and 21.8 shall survive the termination of this Agreement for any
reason.
18.0 EXPORT CONTROL
18.1 The Parties acknowledge that each must comply with all rules
and laws of the United States government relating to restrictions on
export. Each Party agrees to use its Best Efforts to obtain any export
licenses, letters of assurance or other documents necessary with respect
to this Agreement.
18.2 Each Party agrees to comply fully with United States export
laws and regulations, assuring the other Party that, unless prior
authorization is obtained from the competent United States government
agency, the receiving Party does not intend and shall not knowingly
export or re-export, directly or indirectly, any Wafers, Products,
technology or technical information received hereunder, that would be
in contravention of any laws and regulations published by any United
States government agency.
19.0 CONFIDENTIALITY
19.1 For purposes of this Agreement, "Confidential Information"
shall mean all proprietary information, including National and/or
Fairchild trade secrets relating to the subject matter of this Agreement
disclosed by one of the Parties to the other Party in written and/or
graphic form and originally designated in writing by the disclosing
Party as Confidential Information or by words of similar import, or,
if disclosed orally, summarized and confirmed in writing by the
disclosing Party within thirty (30) days after said oral disclosure,
that the orally disclosed information is Confidential Information.
19.2 Except as may otherwise be provided in the Technology
Licensing and Transfer Agreement, each Party agrees that it will not use
in any way for its own account, or for the account of any third party,
nor disclose to any third party except pursuant to this Agreement, any
Confidential Information revealed to it by the other Party. Each Party
shall take every reasonable precaution to protect the confidentiality of
said information. Each Party shall use the same standard of care in
protecting the Confidential Information of the other Party as it
normally uses in protecting its own trade secrets and proprietary
information.
19.3 Notwithstanding any other provision of this Agreement, no
information received by a Party hereunder shall be Confidential
Information if said information is or becomes:
(a) published or otherwise made available to the public
other than by a breach of this Agreement;
(b) furnished to a Party by a third party without
restriction on its dissemination;
(c) approved for release in writing by the Party designating
said information as Confidential Information;
(d) known to, or independently developed by, the Party
receiving Confidential Information hereunder without reference to or use
of said Confidential Information; or
(e) disclosed to a third party by the Party transferring
said information hereunder without restricting its subsequent disclosure
and use by said third party.
19.4 In the event that either Party either determines on the
advice of its counsel that it is required - to disclose any information
pursuant to applicable law or receives any demand under lawful process
to disclose or provide information of the other Party that is subject to
the confidentiality provisions hereof, such Party shall notify the other
Party prior to disclosing and providing such information and shall
cooperate at the expenses of the requesting Party in seeking any
reasonable protective arrangements requested by such other Party.
Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by
such law (as so advised by counsel) or by lawful process.
20.0 REPORTS AND COMMUNICATIONS
20.1 Each Party hereby appoints a Program Manager whose
responsibilities shall include acting as a focal point for the technical
and commercial discussions between them related to the subject matter of
this Agreement, to include monitoring within his or her respective
company the distribution of Confidential Information received from the
other Party and assisting in the prevention of the unauthorized
disclosure of Confidential Information within the company and to third
parties. The Program Managers shall also be responsible for maintaining
pertinent records and arranging such conferences, visits, reports and
other communications as are necessary to fulfill the terms and
conditions of this Agreement. The names, addresses and telephone
numbers of the Program Managers will be communicated between the Parties
from time to time.
21.0 GENERAL
21.1 AMENDMENT: This Agreement may be modified only by a written
document signed by duly authorized representatives of the Parties.
21.2 FORCE MAJEURE: A Party shall not be liable for a failure or
delay in the performance of any of its obligations under this Agreement
where such failure or delay is the result of fire, flood, or other
natural disaster, act of God, war, embargo, riot, labor dispute,
unavailability of raw materials or utilities (provided that such
unavailability is not caused by the actions or inactions of the Party
claiming force majeure), or the intervention of any government
authority, providing that the Party failing in or delaying its
performance immediately notifies the other Party of its inability to
perform and states the reason for such inability.
21.3 ASSIGNMENT: This Agreement may not be assigned by any Party
hereto without the written consent of the other Party; provided that
Fairchild may assign its rights but not its obligations hereunder as
collateral security to any bona fide financial institution engaged in
acquisition financing in the ordinary course providing financing to
consummate the transactions contemplated by the Purchase Agreement or
any bona fide financial institution engaged in acquisition financing in
the ordinary course through whom such financing is refunded, replaced,
or refinanced and any of the foregoing financial institutions may assign
such rights in connection with a sale of Fairchild or the Business in
the form then being conducted by Fairchild substantially as an entirety.
Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon, and inure to the benefit of, and shall
be enforceable by, the respective successors and assigns of the Parties
hereto.
21.4 COUNTERPARTS: This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed
an original and all of which together shall constitute but one and the
same instrument.
21.5 CHOICE OF LAW: This Agreement, and the rights and
obligations of the Parties hereto, shall be interpreted and governed
in accordance with the laws of the State of California, without giving
effect to its conflicts of law provisions.
21.6 WAIVER: Should either of the Parties fail to exercise or
enforce any provision of this Agreement, such failure or waiver shall
not be construed as constituting a waiver or a continuing waiver of its
rights to enforce such provision or right or any other provision or
right. Should either of the Parties waive any provision or right under
this Agreement, such waiver shall not be construed as constituting a
waiver of any other provision or right.
21.7 SEVERABILITY: If any provision of this Agreement or the
application thereof to any situation or circumstance shall be invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each remaining provision shall be valid and enforceable to the
fullest extent.
21.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER
THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS OR
SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH
OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE NON-
PERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR NOT.
21.9 EFFECT OF HEADINGS: The headings and sub-headings contained
herein are for information purposes only and shall have no effect upon
the intended purpose or interpretation of the provisions of this
Agreement.
21.10 INTEGRATION: The agreement of the Parties, which is composed
of this Agreement and the Exhibits hereto and the documents referred to
herein, constitutes the entire agreement and understanding between the
Parties with respect to the subject matter of this Agreement and
integrates all prior discussions and proposals (whether oral or written)
between them related to the subject matter hereof.
21.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the
transactions contemplated under the Purchase Agreement, neither
Fairchild nor National shall, without the approval of the other Party
hereto, make any press release or other public announcement concerning
the terms of the transactions contemplated by this Agreement, except as
and to the extent that any such Party shall be so obligated by law, in
which case the Party shall use its Best Efforts to advise the other
Party thereof and the Parties shall use their Best Efforts to cause a
mutually agreeable release or announcement to be issued; provided that
the foregoing shall not preclude communications or disclosures
necessary to (a) implement the provisions of this Agreement or (b)
comply with accounting and Securities and Exchange Commission disclosure
obligations. Fairchild shall provide National with a reasonable
opportunity to review and comment on any references to National made by
Fairchild (and shall not include any such references to National without
the written consent of National, which consent shall not be unreasonably
withheld or delayed) in any written materials that are intended to be
filed with the Securities and Exchange Commission in connection with
obtaining financing required to effect the transactions contemplated
in connection with the Purchase Agreement or intended to be distributed
to prospective purchasers pursuant to an offering made under Rule 144A
promulgated under the Securities Act of 1933 in connection with
obtaining such financing.
21.12 NO PARTNERSHIP OR AGENCY CREATED: Nothing contained herein
or done pursuant to this Agreement shall constitute the Parties as
entering upon a joint venture or partnership, or shall constitute either
Party the agent for the other Party for any purpose or in any sense
whatsoever.
21.13 BINDING EFFECT: This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the Parties hereto and to their respective successors and assigns.
21.14 NOTICES: All notices, requests, demands and other
communications which are required or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by
telecopy, electronic or digital transmission method; the day after it is
sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
National: National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
M/S 16-135
Santa Clara, CA 95052-8090
Attn: General Counsel
FAX: (408) 733-0293
Fairchild: Fairchild Semiconductor Corporation
M/S 01-00 (General Counsel)
333 Western Avenue
South Portland, ME 04106
FAX: (207) 761-6020
or to such other place as such Party may designate as to
itself by written notice to the other Party.
IN WITNESS WHEREOF, the Parties have had this Agreement executed by
their respective duly authorized officers on the day and date first
written above. The persons signing warrant that they are duly
authorized to sign for and on behalf of the respective Parties.
NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ JOHN M. CLARK III
Title: Senior Vice President
FAIRCHILD SEMICONDUCTOR CORPORATION
By: /s/ JOSEPH R. MARTIN
Title: Executive Vice President
EXHIBIT 10.9
AMENDMENT NO. 1
TO
RETENTION AGREEMENT
This Amendment No. 1 to that certain Retention Agreement (the
"Retention Agreement") dated as of July 2, 1996, by and between Kirk P.
Pond ("Employee") and National Semiconductor Corporation ("Company") is
hereby entered into as of this 6th day of September, 1996.
WHEREAS, the Retention Agreement provided that the parties were
to negotiate in good faith the terms of Exhibits A and B to the
Retention Agreement; and
WHEREAS, the parties have now reached agreement on such terms
and wish to memorialize their agreement in this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein and in the Retention Agreement, Employee and
Company agree as follows:
1. The Retention Agreement is hereby amended by replacing the
original Exhibits A and B with the Exhibits A and B attached hereto,
which shall henceforth be deemed incorporated by this reference into the
Retention Agreement.
2. All other terms of the Retention Agreement, including
Exhibit C thereto, shall remain in full force and effect.
3. This Amendment No. 1 may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
//s// KIRK P. POND 9/10/96 By: //s// BRIAN L. HALLA
Title: Chairman, President & CEO
EXHIBIT A
The FY97 Bonus Goals for Employee are based solely on the cash flow
generated by the combined Memory and Logic Business Units.
The elements of cash flow for these purposes are capital spending,
depreciation, inventory change and profit before tax. The measurement
criteria are set forth on the attached pages. The bonus payment at
"100%" shall be equal to seventy percent (70%) of Employee's base salary
and the maximum payment at "200%" or higher shall be equal to one
hundred forty percent (140%) of base.
EXHIBIT B
1. Employee shall receive an incentive payment upon the close of a
sale of all or any part of the businesses on the basis of the following
Deal Participation Matrix:
Net Proceeds to Company Participation Payment
< $150M $1.5M
>=$150M - $200M $1.8M
>=$200M - $270M $2.5M
>=$270M $3.0M
If the Logic and Memory businesses are sold separately, the Matrix
(both Net Proceeds and Participation Payment) will be adjusted by
allocating 75% of the target values to Logic and 25% to Memory. "Net
Proceeds" for purposes of this Exhibit B shall mean the total amount of:
(1) cash and the fair market value (to be determined as of closing) of
all other property (including, but not limited to, any securities
received or third party balance sheet liabilities assumed) received by
the Company in connection with a sale transaction; less (2) the
Company's transaction costs (including, but not limited to, fees for
attorneys and investment advisors). If, in connection with a sale
transaction, the Company or any of its subsidiaries retains a minority
equity interest in any of the businesses, "Net Proceeds" will also
include the fair market value of the retained equity (determined as of
closing).
2. If a sale of the businesses has not closed by June 1, 1997, the
Participation Payment shall be $1.0 million (subject to the 75%/25%
adjustment noted above if one of the businesses has been sold). The
parties have agreed on three possible alternatives in the event no sale
has closed by June 1, 1997:
(a) Alternative 1 -- If the Company is actively engaged in
attempting to sell the businesses, Employee, at his option, may choose
to (i) extend current Retention Agreement to a mutually acceptable date
intended to run through close of a sale transaction; or (ii) terminate
employment, trigger the Effective Date of the Severance Agreement and
accept payment of the "No Sale" Participation Payment.
(b) Alternative 2 -- The Company may make a decision to not sell
one or both businesses and decide to continue operation of the
businesses for the benefit of the Company, either as a division or
subsidiary. In this case, the Company agrees to offer Employee
continued employment as the executive in charge of the business on terms
to be agreed but not less favorable than Employee's current terms of
employment, including salary, bonus, benefits, stock options
commensurate with Employee's level (although if the Company creates a
subsidiary, it will consider equity in the subsidiary in lieu of Company
stock options), continued membership on the Executive Staff and direct
reporting to the Company's CEO. Employee, at his option, may choose to
(i) accept offer and receive "No Sale" Participation Payment, in which
case Employee would receive the benefits of the Severance Agreement if
terminated by the Company without cause but would no longer have the
right to unilaterally "trigger" the Severance Agreement as provided in
Section 4(iii) and 4(iv) of the Retention Agreement, or (ii) reject the
Company's offer, terminate employment, trigger the Effective Date of the
Severance Agreement and accept payment of the "No Sale" Participation
Payment.
(c) Alternative 3 -- The Company may also decide to close down the
businesses over a defined time frame. In this case, the Company will
offer Employee continued employment on an assignment basis on terms to
be agreed but not less favorable than Employee's current terms of
employment. The Company would also offer Employee an appropriate "stay-
on" bonus payable at the end of the assignment as well as severance as
provided in the Severance Agreement. Employee, at his option, may
choose to (i) accept the Company's offer; or (ii) reject the offer,
terminate employment and trigger the Effective Date of the Severance
Agreement. In either (i) or (ii), Employee shall be paid the "No Sale"
Participation Payment.
3. In the event that:
(a) (i) Employee accepts continued employment with the Company
under Alternative 1 above but (ii) is subsequently terminated without
cause and (iii) a sale of either of the businesses is later consummated
by the Company within six months after Employee receives notice of
termination, OR
(b) (i) The Company elects to take the businesses (or either of
them) off the market under Alternatives 2 or 3, and (ii) the businesses
(or either of them) are subsequently sold to a buyer with whom Employee
had conducted substantial negotiations, and (iii) such sale closes prior
to January 1, 1998, THEN
Employee shall be entitled to the full Paragraph 1 Participation
Payment (less any Participation Payment amounts already received).
MEMORANDUM
DATE: September 23, 1996
TO: Kirk Pond cc: Don Macleod
FROM: John M. Clark III, Senior Vice President
General Counsel & Secretary
National Semiconductor Corporation
RE: Retention Agreement Dated as of July 2, 1996,
as amended September 6, 1996
=================================================================
In order to clarify the term "Net Proceeds" as used in Exhibit B to
the above-referenced Retention Agreement, it is agreed that "Net
Proceeds" shall reflect only the following deductions from the sale
proceeds received by the Company:
(1) Fees and expenses paid to Deutsche Morgan Grenfell;
(2) Fees and expenses paid to outside attorneys; and
(3) Fees and expenses paid to other third party consultants
engaged specifically on the sales project (e.g. environmental
consultants).
It is estimated that these fees in total will not exceed $8 million.
Better estimates should be available as the deals progress.
It is further understood that there will be no deduction for
internal expenses, including incentives payable to you and the Fairchild
team.
Agreed:
//s// KIRK P. POND Date: 9/23/96
- -------------------
Kirk P. Pond
March 11, 1997
Mr. Kirk P. Pond
Fairchild Semiconductor Corporation
333 Western Avenue
South Portland, Maine
Re: Severance Agreement and Release Dated March 11, 1997, by
and between Kirk P. Pond ( Employee ) and National Semiconductor
Corporation ( Company )
Dear Kirk:
This letter will confirm our agreement to amend the above-
referenced agreement (the Agreement ) as follows:
1. The Effective Date of the Agreement is March 11, 1997, which,
subject to the terms thereof, will be Employee s last day on Company s
payroll.
2. Company will pay to Employee in a lump sum an amount equal to:
(i) twelve month s base salary; (ii) an additional four (4) weeks salary
in lieu of accrued vacation and (iii) a bonus of seventy percent (70%)
of the annual base salary. This amount, less any required tax
withholdings, will be paid to Employee within ten (10) days of the
Effective Date (and not the periods described in Paragraphs 2 and 3 of
the Agreement).
3. The Company s internal records will reflect that Employee was
placed on a personal leave of absence from March 11, 1997 through March
10, 1998, and that employment terminated as a result of voluntary
resignation on March 10, 1998.
4. Notwithstanding anything else contained in Company s Stock
Option Plan, Employee shall be permitted to exercise any vested Company
stock option during the period beginning with the Effective Date and
ending ninety (90) days after March 10, 1998.
5. In all other respects, the Agreement will remain in full force
and effect.
Please confirm your agreement to the foregoing by signing the
enclosed copy of this letter.
Very truly yours,
NATIONAL SEMICONDUCTOR CORPORATION
//s// DONALD MACLEOD
--------------------
Donald Macleod
Executive Vice President and
Chief Financial Officer
DM:ag
Enclosure
Agreed:
//s// KIRK P. POND
- ------------------
Kirk P. Pond
NATIONAL SEMICONDUCTOR CORPORATION Exhibit 11.0
ADDITIONAL FULLY DILUTED CALCULATION OF EARNINGS PER SHARE (1)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ --------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- -------- -------- --------
Net income(loss) used in fully
diluted earnings per share
(reflecting adjustment for
interest on convertible
notes) $ 44.3 $ 24.7 $ (129.4) $ 180.1
======== ======== ======== ========
Number of shares:
Weighted average common
shares outstanding 140.1 135.1 139.0 127.1
Weighted average common
equivalent shares 3.7 2.7 2.6 4.0
-------- -------- -------- --------
Weighted average common and
common equivalent shares 143.8 137.8 141.6 131.1
Additional weighted average
common equivalent shares
assuming full dilution .2 .1 .4 -
Shares issuable from
assumed conversion of
Preferred shares - - - 8.1
Convertible notes 6.0 6.0 6.0 3.4
-------- -------- -------- --------
Additional weighted average
common equivalent shares
assuming full dilution 150.0 143.9 148.0 142.6
======== ======== ======== ========
Income(loss) per share
assuming full dilution $ .30 $ .17 $ (.87) $ 1.26
======== ======== ======== ========
(1) For the three months ended February 23, 1997, this calculation is
submitted in accordance with Regulation S-K Item 601(b)(11)
although it is contrary to paragraph 40 of the APB Opinion No. 15
because it produces an antidilutive result.
(2) For purposes of this computation, all outstanding options and
warrants on common stock are assumed to have been exercised, even
though for the nine months ended February 23, 1997, the related
effects are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1000000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAY-25-1997 MAY-25-1997
<PERIOD-END> FEB-23-1997 FEB-23-1997
<CASH> 384 384
<SECURITIES> 47 47
<RECEIVABLES> 329 329
<ALLOWANCES> 0 0
<INVENTORY> 242 242
<CURRENT-ASSETS> 1329 1329
<PP&E> 2055 2055
<DEPRECIATION> 790 790
<TOTAL-ASSETS> 2685 2685
<CURRENT-LIABILITIES> 776 776
<BONDS> 374 374
0 0
0 0
<COMMON> 70 70
<OTHER-SE> 1414 1414
<TOTAL-LIABILITY-AND-EQUITY> 2685 2685
<SALES> 681 1908
<TOTAL-REVENUES> 681 1908
<CGS> 425 1250
<TOTAL-COSTS> 425 1250
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2) (5)
<INCOME-PRETAX> 57 (180)
<INCOME-TAX> 13 (45)
<INCOME-CONTINUING> 43 (135)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 43 (135)
<EPS-PRIMARY> .30 (.97)
<EPS-DILUTED> .30 (.97)
</TABLE>
