UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 1, 1994
Commission file Number 0-17795
CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter.)
CALIFORNIA 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Warren Avenue, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(510) 623-8300
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 [ ]
The number of shares of the registrant's common stock, no par value, was
63,140,364 as of September 30, 1995.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
* 10-22 Participation Agreement dated as of September 1, 1994
among Cirrus Logic, Inc., International Business
Machines Corporation, Cirel Inc. and MiCRUS Holdings
Inc.
* 10-23 Partnership Agreement dated as of September 30, 1994
between Cirel Inc. and MiCRUS Holdings Inc.
11 Statement re: Computation of Earnings per share
- -----------------------
* Portions have been filed separately with the Commission in
reliance on Rule 24b-2 and the Registrant's request
for confidential treatment.
b. Reports on Form 8-K
A report on Form 8-K concerning the merger with PicoPower
Technology, Inc. was filed with the Securities and Exchange
Commission on August 25, 1994.
A report on Form 8-K concerning the formation of a joint venture
"MiCRUS" was filed with the Securities and Exchange Commission
on October 12, 1994.
<PAGE>
CIRRUS LOGIC, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange
Act of 1934, the registrant has duly cause this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CIRRUS LOGIC, INC.
(Registrant)
December 27, 1995 /s/ Sam S. Srinivasan
Date Sam S. Srinivasan
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
December 27, 1995 /s/ Michael L. Hackworth
Date Michael L. Hackworth
President, Chief Executive Officer
and Director (Principal Executive Officer)
[ARTICLE] 5
[MULTIPLIER] 1
CONFIDENTIAL TREATMENT REQUESTED
[*] Denotes information for which confidential
treatment has been requested. Confidential portions
omitted have been filed separately with the Commission.
PARTICIPATION AGREEMENT dated as of September l,
1994, among CIRRUS LOGIC, INC., a California
corporation ("CIRRUS"), INTERNATIONAL BUSINESS MACHINES
CORPORATION, a New York corporation ("IBM"), CIREL,
INC., a California corporation (the "CIRRUS Partner"),
and MICRUS HOLDINGS INC., a Delaware corporation (the
"IBM Partner").
The parties desire to enter into this Agreement in connection with the
formation of a general partnership by the CIRRUS Partner and the IBM Partner
pursuant to the Partnership Agreement to operate within the scope of activity
set forth in the Partnership Agreement.
Accordingly, the parties agree as follows:
ARTICLE I
DEFINITIONS, RULES OF CONSTRUCTION
AND DOCUMENTARY CONVENTIONS
SECTION 1.01. Certain Definitions.
(a) Capitalized terms used but not defined in this Agreement shall have the
respective meanings assigned to them in Appendix A.
(b) As used herein, the term "Agreement" means this Participation Agreement
together with any Exhibits, Schedules, Appendices and Attachments hereto.
SECTION 1.02. Additional Definition.
The following capitalized terms shall have the meanings assigned in this
Agreement:
Term Defined In
"322 Fabrication Employees" Section 7.01(a)
"Affected Contract Commitment" Section 5.10(b)
"Agreement" Section 1.01(b)
"CIRRUS Functional Area Report" Section 5.10(o)
"Customer-IBM Patent License" Section 6.10(c)(i)
"Disabled Capacity Allocation" Section 5.10(a)
"Existing Customer" Section 6.02(b)
"Functional Area" Section 5.10(o)
"Indemnified Parent" Section 9.02(a)
"Key Customers" Section 5.10(d)
"Loadable Capacity" Section 5.10(c)
"ramp-up tooling" Section 5.12
"Reimbursing Parent" Section 9.02(a)
"Turn Customer" Section 5.10(b)
SECTION 1.03. Rules of Construction and Documentary Conventions.
The rules of construction and documentary conventions set forth in
Appendix A hereto shall apply to this Agreement.
ARTICLE II
CLOSING; INITIAL FUNDING
SECTION 2.01. Closing.
At the Closing, in reliance upon the representations and warranties set
forth in this Agreement and subject to the fulfillment to the satisfaction of,
or waiver by, the applicable party of the conditions set forth in this
Agreement, the following events shall occur:
(a) each party shall execute and deliver each Operative Document not
previously executed and delivered by it, to the extent it is specified to be a
party thereto;
(b) the Partnership shall be formed (if it has not previously been formed);
and
(c) each Partner shall cause the Partnership to execute and deliver each
Operative Document not previously executed by the Partnership, to the extent
the Partnership is specified to be a party thereto.
The parties agree that the Partnership may be formed at any time prior to
the Closing.
SECTION 2.02. Time and Place of Closing.
The Closing shall take place at the Facility at 10:00 a.m. on the Closing
Date, or at such other place or time or on such other date as may be agreed
upon by the Parents.
SECTION 2.03 Initial Funding.
Subject only to the Closing having previously occurred, on the Initial
Funding Date:
(a) the CIRRUS Partner shall transfer or cause the transfer of the
CIRRUS Assets to the Partnership;
(b) the IBM Partner shall transfer or cause the transfer of the IBM
Assets to the Partnership; and
(c) the Partnership shall make a special cash distribution to the IBM
Partner pursuant to Section 6.02(b) of the Partnership Agreement.
The transfers referred to in Sections 2.03(a) and (b) shall be
accomplished, in the case of cash, by wire transfer in immediately available
funds to an account of the Partnership and, in the case of all other Assets to
be transferred to the Partnership on the Initial Funding Date, pursuant to
instruments of transfer duly executed and delivered on the Initial Funding
Date by each appropriate party, and in form and substance reasonably
satisfactory to each Parent. The transfer referred to in Section 2.03(c) shall
be accomplished by wire transfer in immediately available funds to an account
of IBM.
ARTICLE III
CONDITIONS TO CLOSING
The obligation of each Parent and such Parent's Affiliated Partner to
complete the transactions set forth in Section 2.01 shall be subject to the
fulfillment, as of the Closing Date, to the satisfaction of, or waiver by,
such Parent of the conditions set forth below in this Article III (except that
the obligations of such Parent and its Affiliated Partner shall not be subject
to either's own compliance with Sections 3.01, 3.02, 3.03, 3.06, 3.07, 3.08,
3.09, 3.10 and 3.11):
SECTION 3.01. Performance.
Each party and the Partnership shall have performed and complied in all
material respects with each agreement, covenant and condition in each
Operative Document to which it is or is specified to be a party, which
agreement, covenant or condition is required to be performed or complied with
by such Person at or before the Closing.
SECTION 3.02. Authorization, Execution and Delivery of Operative Documents.
Each party and the Partnership shall have duly authorized, executed and
delivered each Operative Document to which it is or is specified to be a party
and an executed counterpart thereof shall have been delivered to each other
party thereto and to each Parent.
SECTION 3.03. No Default.
Each Operative Document shall be in full force and effect at the Closing
without any event having occurred or condition existing that constitutes, or
with the giving of notice or passage of time (or both) would constitute, a
default under or breach of such Operative Document or would give any party to
such Operative Document the right to terminate or not to perform any
obligation under such Operative Document.
SECTION 3.04. Consents, Approvals, etc.; Burdensome Conditions.
(a) All Governmental Actions (other than immaterial Governmental Actions
such as routine qualifications to do business intended to be obtained as
needed) required to be taken, given or obtained in connection with the
transactions contemplated by the Operative Documents shall (i) have been
taken, given or obtained, (ii) be in full force and effect at the Closing and
(iii) not be subject to any pending proceedings or appeals, administrative,
judicial or otherwise (other than such immaterial Governmental Actions), and
the time for appeal shall have expired or, if an appeal shall have been taken,
it shall have been dismissed.
(b) All consents and approvals of any other Person necessary or advisable
in order to consummate in all material respects the transactions contemplated
by the Operative Documents, excluding written consents to the assignment of
third party contracts, shall have been obtained and shall be in full force and
effect at the Closing.
(c) No Burdensome Condition shall exist with respect to either Parent or
any of its Affiliates or the Partnership in connection with the transactions
contemplated by the Operative Documents.
SECTION 3.05. Governmental Rules.
(a) No Governmental Rule shall have been instituted, threatened, issued or
proposed to set aside, restrain, enjoin or prevent the consummation of the
transactions contemplated by the Operative Documents.
(b) No change shall have occurred since the date of this Agreement in any
Governmental Rule that, in either Parent's opinion, would make it illegal for
such Parent, its Affiliated Partner or the Partnership to consummate any of
the transactions contemplated by the Operative Documents or subject any such
Person to an unreasonably burdensome penalty or other unreasonably burdensome
liability or other obligation under or pursuant to any Governmental Rule in
connection with the transactions contemplated by the Operative Documents.
SECTION 3.06. Standard Closing Documents.
Each Parent and its Affiliated Partner shall have received, with respect
to the other Parent and the other Parent's Affiliated Partner:
(a) a certificate dated the Closing Date of the secretary, assistant
secretary or another appropriate authorized signatory of such party
certifying:
(i) that a true and correct copy of the charter and by-laws of such
party is attached to such certificate;
(ii) that a true and correct copy of the resolutions, delegations or
other written evidence of corporate action of the appropriate authority within
such party and the stockholders of such party, duly authorizing or ratifying
its execution, delivery and performance of the Operative Documents to which it
is or is designated to be party and the consummation of the transactions
contemplated thereby, are attached to such certificate, and as to the absence
of other resolutions, delegations or other corporate action relating thereto;
and
(iii) as to the absence of proceedings for the merger, consolidation,
sale of all or substantially all the assets, dissolution or liquidation with
respect to such party;
(b) an incumbency certificate signed by an appropriate officer or other
authorized signatory of such party dated the Closing Date as to the signatures
and titles of the officers or authorized signatories of such party executing
any Operative Document on behalf of such party (whether as a party thereto or
on behalf of the Partnership as a general partner thereof), and any other
documents delivered in connection with the Operative Documents; and
(c) a certificate signed by an appropriate officer or other authorized
signatory of such party dated the Closing Date certifying that the conditions
set forth in Sections 3.01 through 3.05, 3.07 and 3.18 (with respect to such
party) have been satisfied by such party.
SECTION 3.07. Representations and Warranties.
The representations and warranties of each party in Article IV and in any
other of the Operative Documents shall be true and correct in all material
respects as of the date of this Agreement and at the Closing with the same
effect as if made at and as of the Closing, except to the extent such
representations or warranties expressly relate to an earlier time.
SECTION 3.08. No Material Adverse Change.
Each Parent shall be reasonably satisfied that, since the date of this
Agreement, there shall not have occurred any material adverse change in the
other Parent or its Affiliated Partner or in the prospects for the
Partnership.
SECTION 3.09. Proceedings.
All corporate or partnership and legal proceedings taken by each party and
the Partnership in connection with the transactions contemplated by the
Operative Documents and all documents relating to the transactions
contemplated thereby shall be reasonably satisfactory in form and substance to
each Parent and its counsel, and certified or other copies of all relevant
documents as either Parent shall have reasonably requested shall have been
provided to such Parent or its counsel.
SECTION 3.10. Opinion of Counsel to CIRRUS.
IBM and the IBM Partner shall have received an opinion addressed to them,
dated the Closing Date, of B. J. Olson, Corporate Counsel of CIRRUS and the
CIRRUS Partner, in form, substance and scope reasonably satisfactory to IBM.
SECTION 3.11. Opinion of Counsel to IBM.
CIRRUS and the CIRRUS Partner shall have received an opinion addressed to
them, dated the Closing Date, of Gregory C. Bomberger, Esq., counsel to IBM
and the IBM Partner, in form, substance and scope reasonably satisfactory to
CIRRUS.
SECTION 3.12. Due Diligence.
Prior to the Closing, each Parent shall have completed its due diligence
and business review with respect to the transactions contemplated by the
Operative Documents and the results of such review shall be satisfactory to
such Parent in its sole discretion.
SECTION 3.13. Insurance.
Arrangements reasonably satisfactory to each Partner shall have been made
to provide the Partnership with insurance coverage complying with the
requirements of the Partnership Agreement.
SECTION 3.14. Support Arrangements, etc.
Each Parent shall be reasonably satisfied that other than as provided in
the Operative Documents, (i) no support agreements covering resources,
services, facilities or utilities required for the business of the Partnership
as then proposed to be conducted immediately after the Closing need to be and
have not been obtained and (ii) arrangements for obtaining bank accounts,
Federal tax identification numbers and similar items for the Partnership have
been made.
SECTION 3.15. Employment and Certain Other Arrangements.
(a) Each Partner shall be reasonably satisfied (i) that the staffing of the
Partnership shall be adequate for the conduct of the business of the
Partnership contemplated to be conducted after the Closing and (ii) as to the
terms and circumstances of any Person's acceptance of employment or service
and transfer. The key employees of the Partnership as agreed by the Partners
shall have accepted conditional offers of employment.
(b) The composition of the initial management team, and the compensation
plans, benefits and incentive programs for the Partnership's management, shall
comply with the description thereof set forth in the Initial Business Plan.
SECTION 3.16. Partnership Finances.
Each Parent shall be reasonably satisfied that, after giving effect to the
Closing and the capitals contributions required pursuant to Section 6.01 of
the Partnership Agreement, the Partnership will have sufficient cash and
financial resources to conduct its business as proposed to be conducted in the
Initial Business Plan through June 30, 1995.
SECTION 3.17. Form of Operative and Other Documents.
Each of the Operative Documents (other than this Agreement), including
schedules and attachments, and the Initial Business Plan shall, in each case,
either be (a) in substantially the form agreed upon by the parties in writing
on the date hereof with blanks appropriately completed and dates adjusted to
reflect the Closing Date as appropriate or (b) if not in such agreed form or
if no agreement has been reached with respect to any particular such document,
in form, substance and scope satisfactory to each party to such agreement in
its sole discretion.
SECTION 3.18. Business Plan.
The Parents and the Partners shall have each approved in writing and
delivered the Initial Business Plan of the Partnership including the portion
agreed to by IBM and CIRRUS as of the execution of this Agreement.
SECTION 3.19. Sale and Lease of Third Party Assets.
The Third Party Lessor shall have purchased the Third Party Assets from
IBM for proceeds of not less than $150,000,000 and shall have executed and
delivered the Third Party Lease leasing such assets to the Partnership.
SECTION 3.20. Additional Equipment Acquisitions; IBM Initial Equipment Lease.
(a) Accountants and tax counsel for IBM and CIRRUS shall have determined
whether it will be feasible to provide the Partnership with the ramp-up
tooling in a manner that would result in the Partnership's being deemed to be
the owner of such ramp-up tooling for tax purposes but not for accounting
purposes in accordance with GAAP. Only if it can be established prior to the
Closing that the acquisition of such ramp-up tooling may be structured in a
manner that would achieve the above tax and accounting results without
additional unreimbursed cost to IBM or the IBM Partner, then, as a condition
to the obligations of CIRRUS to complete the transactions to be effected at
the Closing, IBM shall agree to use its reasonable best efforts to cooperate
with CIRRUS in obtaining the ramp-up tooling in such manner.
(b) Accountants and tax counsel for IBM and CIRRUS shall have determined
whether it will be feasible to structure the IBM Initial Equipment Lease as an
operating lease rather than a capital lease for accounting purposes in
accordance with GAAP. Only if it can be established prior to the Closing that
the IBM Initial Equipment Lease may be structured in a manner that would
achieve this accounting result without additional unreimbursed cost to IBM or
the IBM Partner, then, as a condition to the obligations of CIRRUS to complete
the transactions to be effected at the Closing, the IBM Initial Equipment
Lease to be entered into at the Closing will be so structured.
SECTION 3.21. IBM Restrictions.
Prior to the Closing, IBM shall provide to CIRRUS a list of types of
Products that the Partnership will not manufacture in order to assure
compliance with restrictions contained in IBM's existing agreements with third
parties (in addition to those specified in Section 5.16). Upon receipt of said
list, CIRRUS may elect not to proceed with the Closing if said listing is not
acceptable to it. Alternatively, if CIRRUS elects to proceed with the Closing,
CIRRUS shall be deemed to have agreed that the Partnership shall refrain from
manufacturing Products as described on said list, which list shall be annexed
hereto as Schedule 3.21.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each Parent and its Affiliated Partner represents and warrants to the
other Parent and its Affiliated Partner as of the date of this Agreement and
as of the Closing Date, with respect to itself (and in the case of each
Parent, with respect to its Affiliated Partner), as follows:
SECTION 4.01. Organization, Ownership Interest, etc.
(a) It is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization or incorporation and has the power
and authority to carry on its business as then conducted, to own or hold under
lease its properties and to enter into and perform its obligations under each
Operative Document to which it is or is specified to be a party.
(b) It is, or in the case of each Partner will be in a timely fashion, duly
qualified to own or lease its properties and generally to conduct its business
as currently, or proposed to be, conducted in each jurisdiction necessary for
purposes of the transactions contemplated by the Operative Documents, except
where failure to so qualify would not have a material adverse effect on such
Person or the Partnership.
(c) In the case of each Parent, as of the Closing Date all the ownership
interest in such Parent's Affiliated Partner will be directly or indirectly
owned and held by such Parent, free and clear from all Liens (other than
Permitted Liens). In the case of CIRRUS, all the ownership interest in CIRRUS
Barbados is and will be directly or indirectly owned and held by CIRRUS, free
and clear of all Liens (other than Permitted Liens).
SECTION 4.02. Authorization; No Conflict.
It has duly authorized, or will prior to the Closing duly authorize and
ratify, by all necessary action, the execution, delivery and performance of
each Operative Document to which it is or is specified to be a party (and, in
the case of each Partner, each Operative Document to which the Partnership is
or is specified to be a party), and its execution and delivery thereof, its
consummation of the transactions contemplated thereby and its compliance
therewith does not and will not (a) require any approval of its stockholders
or partners or any approval or consent of any trustee or holder of any of its
Indebtedness or obligations, (b) contravene any Governmental Rule applicable
to or binding on it or any of its properties if such contravention would have
a material adverse effect on it or any of the Assets to be transferred by it
or on its ability to perform any of its obligations under any Operative
Document, (c) contravene or result in any breach of or constitute any default
under its charter or by-laws, or contravene or result in any breach of or
constitute any default under, or result in the creation of any Lien (other
than Permitted Liens) upon any of its property or the property of the
Partnership under, any material indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, loan or credit agreement or other material
agreement or document to which it is a party or by which it or any of its
properties is bound or affected or by which the property of the Partnership is
bound or affected, (d) require any negotiation with or notice to any labor
union or violate, or require any procedure to be followed under, any
collective bargaining or other agreement with employees or (e) require any
Governmental Action, in each case (a) through (e), except such as have been
duly obtained, made or taken and which are in full force and effect.
SECTION 4.03. Enforceability.
(a) It has duly executed and delivered this Agreement and, upon the
execution and delivery of this Agreement by each other party hereto, this
Agreement will constitute its legal, valid and binding obligation, enforceable
against it in accordance with its terms.
(b) As of the Closing Date, it will have duly executed and delivered each
other Operative Document to which it is or is specified to be a party and,
upon the execution and delivery of each such other Operative Document by each
other party thereto, each such other Operative Document will constitute its
legal, valid and binding obligation, enforceable against it in accordance with
its terms except as enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting the enforcement of creditors'
rights generally or the availability of equitable remedies. After giving
effect to the Closing, it will not be in default under or in respect of any
Operative Document.
SECTION 4.04. Proceedings.
There are no actions or proceedings pending, or to its knowledge
threatened, by or before any Governmental Authority that, if adversely
determined, would have a material adverse effect on it, on any of the Assets
to be transferred by it, on the conduct of the business of the Partnership
following the Closing as contemplated in the initial Business Plan or on its
ability to perform any of its material obligations under any Operative
Document.
SECTION 4.05. Special Purpose Representation as to Partners.
In the case of each Partner, as of the Closing Date, such Partner will not
have conducted any business, have any outstanding Indebtedness or other
obligations or own or hold any assets other than, in each case, as permitted
under Section 10.03 of the Partnership Agreement.
SECTION 4.06. No Broker's or Finder's Fees.
In the case of each Parent, neither it nor any of its Subsidiaries has
incurred any liability for any broker's or finder's fees or commissions or
similar payments in connection with any of the transactions contemplated by
any Operative Document which will, directly or indirectly, become the
responsibility of, or be borne by, the Partnership or the other Parent (or any
of their respective Affiliates); provided that fees and expenses payable to
[*] and [*] in connection with the Third Party Lease will be payable by the
Partnership either directly or as part of the [*] of the equipment covered by
the Third Party Lease.
SECTION 4.07. List of Assets; Title to Assets.
(a) In the case of CIRRUS and the CIRRUS Partner, Schedule 4.07(a), to be
appended to this Agreement at the Closing, will set forth the cash
contribution to be made by the CIRRUS Partner to the Partnership on the
Initial Funding Date.
(b) In the case of IBM and the IBM Partner, Schedule 4.07(b), to be
appended to this Agreement at the Closing, will contain a true and complete
list of the IBM Assets. The equipment subject to the IBM Equipment Leases
(other than the IBM Supplemental Equipment Lease) and the Third Party Lease
will, at the Closing, be in good operating condition, subject to reasonable
wear and tear, and, to the knowledge of IBM, will not then be in need of
repairs (other than customary periodic servicing) that could reasonably be
expected to cost [*] or more individually or [*] or more in the aggregate.
(c) On the Initial Funding Date, each Parent will have transferred, or
caused to be transferred, to the Partnership unencumbered, good and marketable
title to the Assets to be transferred by it, free and clear of the claims of
others and of all Liens (other than Permitted Liens referred to in clauses (a)
and (c) of the definition thereof).
(d) In the case of each Parent, other than pursuant to the Operative
Documents, there are no outstanding rights, options, agreements or other
commitments giving any Person any present or future right to require it or any
of its Affiliates (or, following the Closing, the Partnership or any of its
Affiliates) to Transfer to any Person any ownership or possessory interests
in, or grant any Lien on, any of the Assets to be transferred by it to the
Partnership.
SECTION 4.08. Scope and Value of Assets.
In the case of IBM and the IBM Partner, Schedule 4.08, to be appended to
this Agreement at the Closing, will correctly set forth (a) the aggregate
value of the IBM Assets, valued at the lesser of cost and fair market value,
(b) the aggregate book value of the IBM Assets for financial reporting
purposes, (c) the aggregate tax basis in the IBM Assets and (d) the respective
fair market values, book values for financial reporting purposes and tax bases
for each non-cash item of the IBM Assets.
SECTION 4.09. Litigation; Decrees.
(a) There are no lawsuits, claims, arbitrations or other proceedings or
investigations pending, or to its knowledge threatened, by or against or
affecting it or any of its Subsidiaries or any of their respective properties
that (i) relate to, or could materially adversely affect the rights of the
Partnership in respect of, any of the Assets to be transferred by it or the
conduct of the business of the Partnership following the Closing as
contemplated by the Initial Business Plan or (ii) relate to any of the
transactions contemplated by the Operative Documents.
(b) Other than, in the case of IBM and the IBM Partner, the Consent Decree,
there is no outstanding judgment, order or decree of any Governmental
Authority applicable to it or any of its Subsidiaries that relates to or could
materially adversely affect the Assets to be transferred by it or the conduct
of the business of the Partnership following the Closing as contemplated by
the Initial Business Plan.
SECTION 4.10. Compliance with Other Instruments.
It is not in default in any material respect in the performance of any
material obligation, agreement, instrument or undertaking to which it is a
party or by which it or any of its properties is bound which default could,
and there is no such obligation, agreement, instrument or undertaking (other
than, in the case of IBM and the IBM Partner, the Consent Decree) which could,
materially adversely affect the conduct of the business of the Partnership
following the Closing as contemplated by the Initial Business Plan.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of Parents.
Each Parent agrees with the other Parent that:
(a) Performance of Obligations. It shall fully and faithfully carry out
all its obligations under each Operative Document to which it is a party.
(b) Conduct of Businesses. Until the Closing, it shall not, and shall
not permit any of its Subsidiaries to, take any action that would, or could be
reasonably foreseen to, result in any of its or its Affiliated Partner's
representations and warranties set forth herein becoming untrue or in any of
the conditions set forth herein to be satisfied by it or its Affiliated
Partner prior to or at the Closing not being so satisfied.
(c) Products and Services. IBM will be the supplier of information
processing hardware, software and services to the Partnership under IBM's then
standard customer agreements at those prices and upon those other terms and
conditions that IBM offers to its most favored unaffiliated customers
purchasing comparable quantities, except as may be otherwise provided in the
Operative Documents.
(d) Ownership Interest. Subject to Section 10.01 of the Partnership
Agreement, and except pursuant to a written agreement among the Parents and
their Affiliated Partners, such Parent will not Transfer or cause its
Affiliated Partner to Transfer, directly or indirectly, any interest in the
Partnership to a third party, other than a Subsidiary of such Parent domiciled
in the United States. All the ownership interest in such Parent's Affiliated
Partner shall at all times be directly or indirectly owned and held by such
Parent or a Subsidiary of such Parent domiciled in the United States free and
clear from all Liens (other than Permitted Liens).
(e) Change of Control and Dissolution. It will furnish the information
and enter into the agreements referred to in Sections 10.08, 10.10, 10.11 and
11.02(d) of the Partnership Agreement to be furnished or entered into by such
Parent on a timely basis.
SECTION 5.02. Parent Undertaking as to Affiliated Partner Obligations.
Each Parent agrees with the other Parent that it shall cause all
covenants, conditions, representations, warranties and agreements to be
performed or observed by such Parent's Affiliated Partner expressly set forth
in Sections 6.01, 10.01, 10.02, 10.03, 10.04, 10.05, 10.06, 10.07, 10.08,
10.10, 10.11 and 11.02 of the Partnership Agreement to be fully and faithfully
observed, and shall not cause or permit to exist (i) an Event of Default under
paragraph (a) or (b) of the definition of such term in Appendix A with respect
to such Affiliated Partner or (ii) except as otherwise permitted pursuant to
the Partnership Agreement, any event of dissolution of the Partnership caused
by such Affiliated Partner (other than, in each case (i) and (ii), a
Bankruptcy Event of such Affiliated Partner resulting from its status as a
general partner of the Partnership or acts or omissions in its capacity as
such). Nothing in Section 5.01 or in this Section 5.02 shall be construed to
create any right in any Person other than a Parent.
SECTION 5.03. Liabilities.
Each Parent represents, warrants and agrees that the Partnership has not
and shall not assume any Indebtedness, liabilities, obligations or commitments
of such Parent or any of its Affiliates as a result of or arising out of the
transfer by such Parent of the Assets to be transferred by it to the
Partnership, which Indebtedness, liabilities, obligations or commitments
relate to any period before the Initial Funding Date. This Section 5.03 shall
be enforceable against such Parent by the Partnership.
SECTION 5.04. Further Assurances.
Following the execution and delivery of this Agreement and prior to the
Closing, each party shall and shall cause its Subsidiaries to (and, in the
case of each Partner, at the Closing shall cause the Partnership to), take all
reasonable actions necessary or appropriate to ensure that the conditions to
Closing set forth herein to be satisfied by such party (or the Partnership)
are satisfied reasonably promptly following such execution and delivery, and
to obtain (and cooperate with the others in obtaining) any Governmental Action
required to be obtained or made by it in connection with any of the
transactions contemplated by this Agreement; provided that no Burdensome
Condition shall exist with respect to such Person or any of its Affiliates in
connection therewith.
SECTION 5.05. Public Announcements.
(a) Prior to the Closing, the Parents, the Partners and the Partnership
shall not (and shall not permit any of their respective Subsidiaries to),
without the prior written consent of the other parties to this Agreement,
issue any press release or make any public announcement with respect to any
Operative Document or the transactions contemplated thereby or publicly file
all or any part of any Operative Document or any description thereof except as
required by any Governmental Rule or as necessary to secure any Governmental
Action. The initial announcement of the transactions contemplated by the
Operative Documents shall be made by joint press release of the Parents.
(b) At or following the Closing, each Parent shall not (and shall not
permit any of its Subsidiaries to):
(i) issue any public release or announcement concerning the operations
of the Partnership without first allowing the other Parent reasonable time to
comment on such release or announcement in advance of its issuance and using
reasonable efforts to accept the reasonable comments of such other Parent;
(ii) issue any public release or announcement or issue or distribute any
document to be used in connection with the private or public sale of debt or
equity securities without the prior consent of the other Parent if such
release, announcement or document refers to such other Parent (or any of its
Subsidiaries) in connection with the Partnership, except as may be required by
any applicable Governmental Rule, in which case such Parent shall (or shall
cause the Person required to make such disclosure to) allow such other Parent
reasonable time to comment on such release or announcement in advance of its
issuance and use reasonable efforts to accept the reasonable comments of such
other Parent; or
(iii) publicly file all or any part of any Operative Document or any
description thereof, except as may be required by any applicable Governmental
Rule, in which case such Parent shall (or shall cause the Person required to
make such filing to) cooperate with the other Parent, to the extent reasonable
and practicable, in obtaining any confidential treatment for such filing
requested by the other Parent.
SECTION 5.06. Nonsolicitation of Employees.
So long as the business of the Partnership is being continued directly or
indirectly by the Partnership, each Parent shall not, without the prior
written consent of the Partnership, directly or indirectly, solicit, induce,
recruit or encourage any employee or officer of the Partnership to leave his
or her employment with the Partnership [*] In the event of dissolution of the
Partnership, either Parent (or any Affiliate of either Parent) may employ any
employee or former employee of the Partnership, but neither Parent (nor any of
their Affiliates) shall be required to employ any such Person.
SECTION 5.07. Other Activities.
Each Parent and its Affiliated Partner (for itself and, in the case of
each Affiliated Partner, on behalf of the Partnership) acknowledges and agrees
that:
(a) either Parent and any of its Affiliates (other than its Affiliated
Partner) may engage in other business ventures and dealings of every nature,
independently or with others, including within the scope of the activities of
the Partnership and whether or not competitive with the business of the
Partnership (or any of its Affiliates) or of the other Parent (or any of its
Affiliates) and regardless of the effect on the Partnership, and none of the
Partnership (nor any of its Affiliates) nor the other Parent (nor any of its
Affiliates) shall have any rights in such ventures or dealings or to the
income and profits derived therefrom; and
(b) the other Parent and its Affiliates, any of their respective
employees, including any Seconded Employee and Liaison Representative, and any
member of the Governing Board appointed by the other Parent's Affiliated
Partner shall not be obligated to refer to the Partnership any business
opportunity presented to or developed by any of them.
SECTION 5.08. Additional Arrangements.
(a) CIRRUS and the CIRRUS Partner acknowledge and agree that, for so long
as IBM owns directly or indirectly more than 50 percent of the Partnership,
the Partnership will, for various purposes, be required to take actions as a
Subsidiary of IBM, including complying with contracts and obligations that
apply to IBM Subsidiaries generally, and that the obligations of the
Partnership as a Subsidiary of IBM may adversely affect its business,
operations and affairs. Neither the Partnership nor CIRRUS (or any of its
Affiliates) shall have any claim or rights against IBM (or any of its
Affiliates) as a result of such requirements and obligations.
(b) Subject to Section 5.10 of this Agreement, IBM agrees that it shall not
enter into any agreement or undertake any obligation requiring the Partnership
to take action as a Subsidiary of IBM that materially adversely affects the
out-of-pocket costs of the Partnership allocable to the CIRRUS Partner, other
than any agreement or obligation that is entered into or undertaken to comply
with any Governmental Rule, if such agreement or obligation (i) is
intentionally induced against the Partnership by IBM to harm the Partnership
and is not in response to the contractual or other requirements of another
party to such agreement or obligation; (ii) does not bind Subsidiaries of IBM
generally as such agreement or obligation binds the Partnership and does not
bind IBM's Microelectronics Division (or successor division within IBM) as
such agreement or obligation binds the Partnership; and (iii) is not approved
in writing by CIRRUS.
(c) Any agreement or commitment between IBM and a third party that is not
otherwise a Limiting Agreement and that places a volume limitation on or
otherwise restricts in any material respect the production and sale of
specified types of Integrated Circuits by IBM and its Subsidiaries may, at
IBM's election, be treated as a Limiting Agreement pursuant to which the
Partnership's manufacture and sale of such Integrated Circuits would be
prohibited. If IBM elects to treat any such agreement or commitment as a
Limiting Agreement, the terms and conditions of Section 5.10 shall apply in
all respects to said agreement or commitment. If IBM does not so elect, the
terms and conditions of Section 5.10 shall not apply.
SECTION 5.09. Waiver of Conflict of Interest, etc.
(a) Each Parent and its Affiliated Partner (for itself and, in the case of
each Affiliated Partner, on behalf of the Partnership) hereby:
(i) waive any claim or cause of action against each of the other Parent,
such other Parent's Affiliates, any member of the Governing Board appointed by
such other Parent `s Affiliated Partner and any employee of such other Parent
or any of its Affiliates (including any Seconded Employee and Liaison
Representative) that may from time to time arise in respect of a breach of any
duty to the Partnership or any of its Subsidiaries by any such Person as a
result of a conflict of interest between the Partnership or any of its
Subsidiaries and such other Parent or any of its Affiliates other than the
breach of a duty expressly imposed pursuant to an Operative Document or other
agreement to which the Partnership and the other Parent or any of its
Affiliates are parties;
(ii) acknowledge and agree that (A) in the event of any conflict of
interest between the Partnership or any of its Subsidiaries and the other
Parent or any of its Affiliates that may from time to time arise, each of such
other Parent, such other Parent's Affiliates, any member of the Governing
Board appointed by such other Parent's Affiliated Partner and any employee of
such other Parent or any of its Affiliates (including any Seconded Employee
and Liaison Representative) may, in the absence of bad faith, act in the best
interests of such other Parent or any of its Affiliates and (B) each such
Person shall not be obligated (1) to reveal to the Partnership or any of its
Subsidiaries confidential information belonging to or relating to the business
of such other Parent or any of its Affiliates or (2) to recommend or take any
action in its capacity as a general partner of the Partnership, member of the
Governing Board or employee (including as a Seconded Employee or a Liaison
Representative), as the case may be, that prefers the interests of the
Partnership or any of its Subsidiaries over the interests of such other Parent
or any of its Affiliates; and
(iii) acknowledge and agree that, to the fullest extent permitted by
applicable law, the other Parent's Affiliated Partner and any member of the
Governing Board appointed by such other Parent's Affiliated Partner and any
employee of such other Parent or employee of any of its Affiliates shall not,
now or in the future, be liable, responsible or accountable in damages or
otherwise to such Parent or its Affiliated Partner or the Partnership for any
acts reasonably believed by such other Parent's Affiliated Partner, member of
the Governing Board or employee to be within the scope of the authority
conferred on such Person by the Partnership Agreement, or for such Person's
failure or refusal to perform any act except those expressly required by the
terms of the Partnership Agreement, or for such Person's performance of, or
omission to perform, any acts on advice of the Accountants or legal counsel
for the Partnership, or for such Person's performance of any acts required by,
or such Person's omission to perform any acts prohibited by, any Governmental
Rule.
(b) The waivers, acknowledgments and agreements set forth in Section
5.09(a) shall not apply to (i) any act of fraud, gross negligence or willful
misconduct by any member of the Governing Board in the performance of his
duties as a member of the Governing Board or (ii) any alleged claim or cause
of action against a Partner, any of such Partner's Affiliates or any of their
respective employees based upon the breach or non-performance by such Person
of an express contractual undertaking in an Operative Document.
SECTION 5.10. Limiting Arrangements.
(a) Capacity Load--Individual Limiting Agreements. If (i) IBM provides
CIRRUS with less than [*] prior notice of the existence of a Limiting
Agreement which would be the sole cause of CIRRUS' inability to utilize
greater than [*] of the CIRRUS Capacity Allocation in accordance with the
CIRRUS Sales Agreement (herein referred to as the "Disabled Capacity
Allocation") for the production of Semiconductor Wafers containing
Semiconductor Chips that are being produced by the Partnership for CIRRUS at
the time of such notice, (ii) CIRRUS has elected not to exercise its rights,
if any, pursuant to Section 5.10(d) with respect to such Limiting Agreement,
(iii) CIRRUS has taken all reasonable measures to eliminate or mitigate the
effect of such Limiting Agreement on the Disabled Capacity Allocation
including use of its reasonable best efforts to reallocate its orders to or
production from third party suppliers so as to substitute other products into
production in the Partnership and replace utilization of the Disabled Capacity
Allocation or otherwise reasonably attempt to utilize the resulting Disabled
Capacity Allocation and also exercise reasonable efforts to utilize its rights
under Section 7.13 of the CIRRUS Sales Agreement as to any portion of such
Disabled Capacity Allocation and (iv) CIRRUS continues to have Disabled
Capacity Allocation due to such Limiting Agreement representing in excess of
[*] of the CIRRUS Capacity Allocation, then the following shall apply:
(i) if IBM has given CIRRUS less than [*] advance notice of the effect
of the Limiting Agreement on the CIRRUS Capacity Allocation, (A) CIRRUS may
cause IBM either to utilize, or bear all Costs associated with, all the
Disabled Capacity Allocation that remains unutilized by CIRRUS for up to [*]
less the period of advance notice given by IBM, and (B) thereafter, for the
remaining period of up to [*] from the date of notice less the period covered
by clause (A) (including the advance notice period referred to in said clause
(A)), CIRRUS may cause IBM either to utilize, or bear all Costs associated
with, [*] of the Disabled Capacity Allocation that remains unutilized by
CIRRUS; and
(ii) if IBM has given CIRRUS at least [*] advance notice, but less than
[*] advance notice, CIRRUS and IBM agree to equally utilize or equally share
all Costs associated with the Disabled Capacity Allocation that remains
unutilized by CIRRUS for a period of [*] from the date of notice less the
amount of advance notice provided by IBM
(b) Computation of Disabled Capacity Allocation. For the purpose of
measuring the loss of the CIRRUS Capacity Allocation resulting from a Limiting
Agreement, Disabled Capacity Allocation shall be computed with respect to all
CIRRUS Customers that, at the time IBM gives CIRRUS notice as to the existence
of a Limiting Agreement, are party to a contract or have then-effective
binding future purchase orders for the purchase of Semiconductor Chips
affected by such Limiting Agreement ("Affected Contract Commitment") and, in
the case of a determination of Disabled Capacity Allocation for purposes of
Section 5.10(a), with respect to Turn Customers, as:
(i) the sum of (A) that number of Semiconductor Wafers that will be
required to manufacture such Semiconductor Chips that CIRRUS is contractually
obligated to deliver to such Customers during the [*] following the date of
notice plus (B) the number of Semiconductor Wafers that were required to
produce such Semiconductor Chips that were sold to such Customers during the
[*] preceding the date of notice plus (C) for the purpose of determining
Disabled Capacity Allocation in connection with Section 5.l0(a) only (but not
Section 5.10(d)), that number of Semiconductor Wafers that were required to
produce such Semiconductor Chips that were sold to Turn Customers during the
[nine months] preceding the date of notice
divided by
(ii) the total number of Semiconductor Wafers that could be produced for
CIRRUS during the same [*] period including the [*] following the date of
notice and the [*] preceding the date of notice utilizing all of the CIRRUS
Capacity Allocation.
"Turn Customer" shall mean each of up to a maximum of [*] customers of
CIRRUS identified by CIRRUS in writing to IBM in response to IBM's notice to
CIRRUS as to a Limiting Agreement that in the regular course of their business
dealings with CIRRUS do not enter into binding purchase contracts for the
purchase of Semiconductor Chips but which customarily purchase such
Semiconductor Chips from CIRRUS on a month-to-month basis and which have,
within the month preceding notice from IBM as to the applicable Limiting
Agreement, taken delivery of Semiconductor Chips manufactured pursuant to the
CIRRUS Sales Agreement, the manufacture of which would be so restricted by
such Limiting Agreement. CIRRUS shall be entitled to designate different Turn
Customers in response to notices as to each different Limiting Agreement.
(c) Capacity Load--Aggregate Impact. If at any time:
(i) CIRRUS would be unable, solely as a result of Limiting Agreements
entered into after the Closing and in effect at such time as to which IBM has
notified CIRRUS, to use the CIRRUS Capacity Allocation in accordance with the
CIRRUS Sales Agreement to produce Semiconductor Wafers containing those types
of specified Integrated Circuits so restricted that, for the [*] immediately
preceding the then [*], had accounted for the greater of (1) [*] of total
CIRRUS revenues and (2) CIRRUS revenues of [*]
(ii) Loadable Capacity as of the end of the most recently ended fiscal
quarter is less than [*] total Semiconductor Wafer output for the Facility
utilizing the CIRRUS Capacity Allocation for the [*] ending with the most
recent [*] and
(iii) CIRRUS is not at such time entitled to invoke the Limiting
Agreement Procedure set forth in Section 10.11 of the Partnership Agreement on
the basis of Section 5.l0(d), then
CIRRUS shall be entitled to invoke the Limiting Agreement Procedure set forth
in Section 10.11 of the Partnership Agreement .
As used herein, "Loadable Capacity" shall mean the sum of (i) the
aggregate number of Semiconductor Wafers corresponding to the CIRRUS Capacity
Allocation that the Partnership made available to CIRRUS and its Subsidiaries
pursuant to the CIRRUS Sales Agreement during the [*] period ending as of the
close of the most recently ended calendar quarter and (ii) the aggregate
number of Semiconductor Wafers manufactured for CIRRUS and its Subsidiaries
which CIRRUS plans to acquire from sources other than the Partnership in the
next [*] that: (A) are design rule and parametrically compatible with a
process installed or planned to be installed within the next [*] at the
Facility; (B) could be manufactured and sold by the Partnership in accordance
with and subject to terms and conditions of the licenses granted pursuant to
the IBM License Agreements and without restriction by reason of the provisions
of Section 5.10, 5.16 or 6.02 of this Agreement; and (C) when manufactured by
the Partnership, results in a net die cost per wafer as calculated on a per
usable die per wafer basis (including taking into account relative yield loss)
that is not materially in excess of the net die cost per wafer to CIRRUS or
its Subsidiaries from the alternative source for such production, when taking
into consideration the planned production quantities of such parts (after
ramp-up, in steady state production). Payments pursuant to Section 8.4 of the
CIRRUS Sales Agreement to the Partnership will be excluded from the above
calculations.
For the purpose of the preceding clause (ii)(A), a Semiconductor Wafer
shall be deemed design rule and parametrically compatible if CIRRUS, using its
customary and usual porting procedures, could transfer production of such
Semiconductor Wafer from the alternative production facility to the Facility
for manufacture using a process installed or planned to be installed within
the next [*] at the Facility. Example: As a further point of reference in
determining what constitutes Loadable Capacity, during the negotiation of this
Agreement CIRRUS described a [*] including judgments on (i) lack of license
restrictions under the IBM Patent License; (ii) impact of the restrictions of
Sections 5.10, 5.16 and 6.02 of this Agreement; and (iii) such compatibility;
which resulted in Loadable Capacity under the [*] These judgments would also
apply to and be similarly made with respect to any future determination of
what constitutes Loadable Capacity.
(d) Effect on CIRRUS Customers. If (i) IBM provides CIRRUS with less than
[*] prior notice of the existence of a Limiting Agreement which would prohibit
the Partnership from manufacturing for and selling to CIRRUS in accordance
with the CIRRUS Sales Agreement Semiconductor Wafers containing Semiconductor
Chips in order to satisfy Affected Contract Commitments, which Semiconductor
Chips are at the time of such notice actually being manufactured for CIRRUS
solely by the Partnership, (ii) CIRRUS has elected not to exercise its rights,
if any, pursuant to Section 5.10(a) and (iii) CIRRUS has taken all reasonable
measures to eliminate or mitigate the effect of such Limiting Agreement on the
Affected Contract Commitments, including the reallocation of its production
sources and attempting to facilitate its Customers' movement of the supply of
the affected orders to alternative sources of supply, then the following shall
apply:
(i) If such Limiting Agreement would result in a Disabled Capacity
Allocation exceeding [*] of the CIRRUS Capacity Allocation on an annual basis,
as determined pursuant to Section 5.10(b), such that CIRRUS would be in
material breach of its contractual obligations to the affected customers,
then, at IBM's option, IBM may (w) agree with CIRRUS upon mutually
satisfactory terms and conditions pursuant to which IBM would manufacture
elsewhere such Semiconductor Wafers containing such Integrated Circuits for
CIRRUS required for the satisfaction of the Affected Contract Commitments; (x)
remove or resolve such impact of such Limiting Agreement upon the Disabled
Capacity Allocation; (y) agree to indemnify and hold CIRRUS harmless from and
against amounts of CIRRUS' actual out of pocket expenses paid to Customers to
satisfy CIRRUS' liability for damages under existing contract commitments or
otherwise to release and cancel such existing contract commitments (i.e., cost
of cover) prohibited by such Limiting Agreement, including reasonable attorney
fees incurred by CIRRUS in connection with the release from or cancellation of
such contract commitments; or (z) notify CIRRUS that IBM has chosen not to
undertake any of the foregoing options, and that CIRRUS may therefore invoke
the procedures in Section 10.11 of the Partnership Agreement within 30 days of
receipt of such notice from IBM; provided, however, that if CIRRUS' inability
to utilize the Disabled Capacity Allocation causes more than a de minimis
impact on its ability to continue to supply any Key Customer as of the time of
notice from IBM as to the existence of a Limiting Agreement, then CIRRUS may
invoke the procedure in Section 10.11 of the Partnership Agreement despite
IBM's offer to indemnify CIRRUS pursuant to clause (y). If CIRRUS invokes
such procedures, the parties agree to amend the Operative Documents as
contemplated by Section 10.11(d) of the Partnership Agreement. If CIRRUS does
not invoke such procedures within 30 days of receipt of the notice from IBM
referred to in clause (z), the Partnership shall continue to operate without
any further adjustments resulting from said Limiting Agreement other than the
effect the existence of said Limiting Agreement, may have upon a determination
as to the availability of any remedies pursuant to Section 5.10(c).
(ii) If such Limiting Agreement would result in a Disabled Capacity
Allocation of not greater than [*] of the CIRRUS Capacity Allocation on an
annual basis, as determined pursuant to Section 5.10(b), then for each such
Limiting Agreement, (y) IBM shall indemnify CIRRUS and hold CIRRUS harmless
from CIRRUS' actual out of pocket expenses paid to Customers to satisfy CIRRUS
liability for damages under existing contract commitments or otherwise to
release and cancel such existing contract commitments (i.e., cost of cover)
prohibited by such Limiting Agreement, including reasonable attorney fees
incurred by CIRRUS in connection with the release from or cancellation of such
contract commitments up to a maximum amount of [*] per Limiting Agreement; and
(z) CIRRUS and IBM shall equally share and indemnify each other for one-half
of such costs, expenses and amounts that exceed [*].
"Key Customers" means (x) those largest revenue-producing customers of
CIRRUS which accounted for [*] of total consolidated revenues for CIRRUS and
its Subsidiaries for the [*] immediately preceding the current fiscal quarter
at the time of determination plus (y) up to [*] additional customers of CIRRUS
identified to IBM in writing prior to the date of notice of such Limiting
Agreement. Not more frequently than quarterly, CIRRUS shall have the right to
replace previously designated additional Key Customers by written notice to
IBM.
(e) Any notice and response referred to in this Section 5.10 shall include
a references to this specific Section of this Agreement and formally indicate
that such notice or response is in fact the notice or response intended by the
party under this Section.
(f) For the purpose of this Section 5.10, calculations based on the CIRRUS
Capacity Allocation will be determined without reference to any changes due to
the operation of this Section 5.10.
(g) If IBM, directly or through its Subsidiaries, is prohibited through
arrangements with third parties from making or selling any Integrated
Circuits, including CIRRUS Chips, CIRRUS RMM Chips and Subassembly Chips, or
if contracts or obligations that may be entered into as described in Section
5.08 prohibit IBM or its Subsidiaries from making or selling any such
Integrated Circuits, then the Partnership shall not make or sell any
Semiconductor Wafer containing such Integrated Circuits unless IBM or CIRRUS
obtains the rights required to remove the prohibition so that the Partnership
will be permitted to make and sell such Integrated Circuits. IBM shall be
under no obligation to obtain any such rights.
(h) IBM shall have the prior right to audit CIRRUS information, and CIRRUS
agrees to provide IBM with access to such CIRRUS information, sufficient to
enable IBM to determine the applicability of CIRRUS' rights pursuant to this
Section 5.10.
(i) CIRRUS agrees to reasonably cooperate with IBM to remove or resolve the
impact of any Limiting Agreements entered into by IBM upon utilization by
CIRRUS of the CIRRUS Capacity Allocation to the extent IBM attempts, at lt.
option, to do so.
(j) For the purpose of this Section 5.10 all revenue calculations will be
based on the consolidated revenue of CIRRUS and all CIRRUS Subsidiaries.
(k) "Limiting Agreements" shall mean any consensual third party commitments
or obligations of IBM that prohibit the Partnership from making or selling any
Integrated Circuits in Semiconductor Wafers to CIRRUS to the extent such
commitments or obligations apply to CIRRUS implementations of Integrated
Circuits in Semiconductor Wafers actually being produced by the Partnership as
of the time of notice of such Limiting Agreement or capable of being produced
by CIRRUS in the Partnership, as applicable, pursuant to the terms of this
Section and any other commitments or obligations that are deemed Limiting
Agreements by IBM pursuant to Section 508(c); provided however, that Limiting
Agreements shall not include (i) any agreements containing prohibitions,
limitations or restrictions resulting from licensing needs under the
intellectual property of third parties, or the expiration, renewal, extension
or modification of such rights or licenses and (ii) those agreements to which
IBM is a party that relate to the manufacture of Products subject to Section
5.16 or Schedule 3.21.
(l) IBM and CIRRUS shall mutually consult to determine as to whether the
Partnership will be prohibited pursuant to the terms and conditions of a
notified Limiting Agreement from producing and selling CIRRUS Chips, CIRRUS
RMM Chips and Subassembly Chips to CIRRUS; provided, however, that IBM will
not reveal the names of the parties involved in a Limiting Agreement or any
confidential information of any third parties. Any determination as to the
scope of prohibitions in any Limiting Agreement shall be made by IBM, which
determination shall be conclusive on the parties.
(m) Information provided between CIRRUS and IBM pursuant to this Section
5.10 shall (x) be treated as Business Confidential Information for the purpose
of the CIRRUS/IBM Confidentiality and Invention Rights Agreement; and (y) be
disclosed within IBM and CIRRUS on a ''need to know" basis only for the
purposes of complying with this Section 5.10.
(n) When IBM gives CIRRUS notice as to the applicability of a Limiting
Agreement, IBM shall have the opportunity, but not the obligation, to explore
solutions to reduce or eliminate the impact such Limiting Agreement would have
with regard to CIRRUS' Disabled Capacity Allocation or Affected Contract
Commitments. Such solutions may include (i) making a new arrangement for an
exception with the other party to the Limiting Agreement or (ii) arranging to
manufacture such impacted Semiconductor Wafers for CIRRUS elsewhere. CIRRUS
agrees reasonably to cooperate in such efforts where such actions involve
CIRRUS or CIRRUS Customers.
(o) During the term of the Partnership, CIRRUS shall provide IBM a [*]
report ("CIRRUS Functional Area Report") setting forth Functional Areas and
the relevant percentage of the CIRRUS Capacity Allocation for which CIRRUS
intends to use the CIRRUS Capacity Allocation pursuant to the CIRRUS Sales
Agreement for the [four fiscal quarters] immediately following the fiscal
quarter in which such CIRRUS Functional Area Report is provided to IBM. Such
Functional Area Report shall serve as the basis for IBM's reasonable efforts
to notify CIRRUS of any Limiting Agreements pursuant to this Section 5.10
which affect such Functional Areas identified in such CIRRUS Functional Area
Report; provided, however, that CIRRUS shall have further provided IBM with
such additional information as IBM shall reasonably request in connection with
ascertaining the application of the Limiting Agreements to such CIRRUS
Functional Areas identified in such CIRRUS Functional Area Report. For
purposes of this Section 5.10, "Functional Area" shall mean types of
Semiconductor Chips or Semiconductor Wafers segmented among significant chip
design areas for the projected period.
SECTION 5.11. Expenses.
Whether or not the transactions contemplated by the Operative Documents
shall be consummated (a) each party shall bear its own expenses in connection
therewith and (b) any transfer Taxes and similar Taxes with respect to any
Asset transferred to the Partnership shall be for the account of the
transferee.
SECTION 5.12. Future Requirements.
The Parents agree to share equally in the expenditures required during the
period of approximately 15 months after the Initial Funding Date, in
accordance with the schedule annexed as an Exhibit to the Business Plan. All
tooling that the Partnership may require ("ramp-up tooling") will be leased,
loaned or otherwise provided to the Partnership by the Parents or their
respective Affiliated Partners (or by a third party subject to guarantee by
the respective Parent) in equal shares and under substantially identical
rates, terms and condition. The Parents shall provide or cause to be provided
to the Partnership either valid leasehold interests in or the unencumbered
right to use (upon terms and conditions to be mutually agreed upon by the
Partners) the assets comprising the ramp-up tooling or, if ownership of such
assets is to be transferred to the Partnership, unencumbered, good and
marketable title to such assets. The Parents and the Partners shall cooperate
in identifying the ramp-up assets that may be required and the manner in which
they will be provided to the Partnership. Any such equipment provided directly
by a Parent or its Affiliates shall be in good repair and fit for its intended
use.
SECTION 5.13. New York State Assistance.
CIRRUS agrees that the financing and other economic incentives it proposes
to acquire from the New York State Urban Development Corporation and the New
York Job Development Authority shall not require the support, assistance or
other action of IBM, the IBM Partner or the Partnership except, in the case of
the Partnership, for an acknowledgment of a security interest in favor of the
lender or lenders with respect to certain ramp-up tooling which may be leased
by CIRRUS to the Partnership. CIRRUS will not take any action in pursuing such
financing or other economic incentives that would otherwise commit the
properties, assets, businesses or operations of the Partnership or that would
purport to commit the properties, assets, businesses or operations of IBM or
the IBM Partner, and CIRRUS shall be solely responsible for all liabilities
and undertakings to the State of New York, or any agency thereof, in
connection with any such financing or other economic incentives.
SECTION 5.14. Sales by CIRRUS.
CIRRUS agrees that it will not sell any RMM Chips other than CIRRUS RMM
Chips and that it will only sell CIRRUS RMM Chips and Subassembly Chips to
customers that meet the requirements set forth in Sections 6.01(b) and (d),
respectively, and only if and to the extent then so licensed pursuant to
Section 3.8 of the IBM Patent License in the case of CIRRUS RMM Chips or only
if approved in writing by the IBM Director of Licensing (or designee) in
accordance with Section 6.01(e) (which approval has not expired) in the case
of Subassembly Chips. CIRRUS further agrees that it shall use its best efforts
both to assure that the agreements made by its customers referred to in
Sections 6.01(b)(ii)(C) and 6.01(d)(iii) are accurate and to enforce any such
agreements that its customers may breach.
SECTION 5.15. Proration of Payments.
CIRRUS and IBM each agree promptly to pay any amounts that may be required
to be paid by such party as Proration of Payments in accordance with the
definition thereof as may be required pursuant to the Partnership Agreement.
SECTION 5.16. Existing IBM Restrictions.
(a) Notwithstanding Section 5.08 or 5.10 or any other provisions of this
Agreement or of any other Operative Document, unless IBM and CIRRUS expressly
agree in a writing specifically referencing this Section, the Partnership
shall not manufacture the following Products (within the meaning of the CIRRUS
Sales Agreement):
(i) any Product which is an Intel compatible microprocessor ("Intel
compatible microprocessor" includes any microprocessor capable of processing
the Intel X86 instruction set or an instruction set compatible therewith or
part of either instruction set (including Products compatible therewith
sometimes known as clones), provided the term "Intel compatible
microprocessor'' shall not include the IBM MC196 16-Bit Microcontroller);
(ii) prior to December 31, 1998, any Product which is manufactured for
the United States Department of Defense or any equivalent foreign agency but
not including any commercial off-the-shelf Product or commercially available
standard Product;
(iii) any Product implementing the Power PC architecture or any part
thereof including any part of the Power PC instruction set (including Products
compatible therewith sometimes known as clones) unless such Product is an
embedded controller manufactured under contract with and for IBM or
manufactured under a non-patent intellectual property license from IBM,
provided nothing contained in this Section 5.16(a)(iii) shall prevent the
manufacture of any Product which attaches to a Product implementing the Power
PC architecture or instruction set as described above and complements its
function provided such Product does not itself execute a substantial portion
of the Power PC instruction set;
(iv) any Product which is a NAND (not and) flash (memory) chip;
(v) any Product that is Sound Blaster compatible when running in the DOS
environment or in the DOS mode of any other operating system, including
windows or OS/2 ("Sound Blaster compatible" shall mean that the Product is
capable of running one or more Sound Blaster Programs and "Sound Blaster
Program" is any program that is capable of running on a Creative Sound Blaster
audio board or card); and
(vi) any Product incorporating an aluminum nitride substrate.
(b) This Section 5.16 shall not restrict CIRRUS from independently
obtaining any right that negates the applicability of the relevant IBM
obligations to third parties with respect to the output manufactured by the
Partnership and sold to CIRRUS under the CIRRUS Sales Agreement.
(c) CIRRUS may from time to time, but not more often than semiannually,
inquire of IBM as to the status of the Partnership's inability to manufacture
any of the Products referred to in Section 5.16(a). To the extent that any of
the Limiting Agreements shall be terminated, amended by the parties or
interpreted by a court of competent jurisdiction in a final, non-appealable
order to be less restrictive on the Partnership than the restrictions
described above or otherwise pursuant to Section 3.21 or 5.10 of this
Agreement, IBM agrees that the restrictions imposed by such Limiting Agreement
on the Partnership (and CIRRUS through the Partnership) shall be deemed
modified to a scope that reflects such termination, amendment or
interpretation.
ARTICLE VI
SALE OF PRODUCT
SECTION 6.01. Additional Procedures for Semiconductor Wafer Purchases by
CIRRUS from the Partnership.
(a) Each order by CIRRUS to the Partnership pursuant to the CIRRUS Sales
Agreement for Semiconductor Wafers containing CIRRUS Chips, Subassembly Chips
or other Semiconductor Chips that the Partnership is authorized to manufacture
for CIRRUS pursuant to the IBM License Agreements and the CIRRUS Sales
Agreement shall identify the products as set forth in the CIRRUS Sales
Agreement. If CIRRUS elects to exercise its rights under this Section 6.01
(corresponding to the rights granted to the Partnership by IBM under Section
3.8 of the IBM Patent License), CIRRUS will provide IBM with the appropriate
information reasonably necessary for IBM to make the determinations referred
to in this Section 6.01.
(b) CIRRUS at its option may request of the Partnership in writing to
request of IBM that IBM license the Partnership to make for sale to CIRRUS
Semiconductor Wafers containing specified CIRRUS RMM Chips which are to be
sold by CIRRUS, subject to the Partnership receiving a license from IBM
pursuant to Section 3.8 of the IBM Patent License, if one of the following two
conditions is met:
(i) CIRRUS establishes to IBM's reasonable satisfaction that such CIRRUS
RMM Chips are not covered by any claim of any patent of IBM (provided,
however, that the condition set forth in this Section 6.01(b)(i) shall not be
met with regard to any orders placed after IBM gives to the Partnership
written notice of IBM's determination that one or more claims of one or more
patents of IBM cover such CIRRUS RMM Chips); or
(ii) each of the following is satisfied:
(A) prior to requesting a license for any such CIRRUS RMM Chips from
the Partnership, CIRRUS contacts the IBM Director of Licensing or his
designee and provides the following information in a signed writing or by a
signed facsimile (with original signed confirmation with a copy to the
Partnership by mail):
(l) the identity of the specified CIRRUS Customer for such CIRRUS
RMM Chips, and
(2) the duration of the commitment to deliver such CIRRUS RMM
Chips to such CIRRUS Customer (if such period is less than [*], a request
that the CIRRUS Customer be approved pursuant to this Section 6.01 for
the following [*] period);
(B) except where CIRRUS establishes to IBM's reasonable satisfaction
that the specified CIRRUS Customer will always use or combine the specified
CIRRUS RMM Chips in the specified CIRRUS Customer's non-RMM Products, the
IBM Director of Licensing or his designee has provided approval in writing
(that shall be renewed by CIRRUS for the specified CIRRUS Customer with
respect to the specified CIRRUS RMM Chips after the earlier of (x) [*], or
(y) the termination of the license granted by IBM to such specified CIRRUS
Customer with respect to the specified CIRRUS RMM Chips) that the specified
CIRRUS Customer has a license under those patents of IBM covering such
CIRRUS RMM Chips and their combination and use in the specified CIRRUS
Customer's RMM Products as set forth in Section 6.01(c) and for the
duration of the commitment specified in Section 6.01(b)(ii)(A)(2), which
shall not exceed [*];
(C) the specified CIRRUS Customer is bound by a written agreement or
in purchase documentation with CIRRUS that such CIRRUS Customer will not
resell such CIRRUS RMM Chips before incorporating them into its own
products; and
(D) CIRRUS agrees to include with each order for the specified
CIRRUS RMM Chips to be sold by CIRRUS to a specified CIRRUS Customer a
written certification to the Partnership by an officer of CIRRUS that the
requirements of this Section 6.01(b) have been satisfied.
(c) IBM will grant to the Partnership the license pursuant to Section 3.8
of the IBM Patent License required as a condition for the Partnership to make
for and sell to CIRRUS the Semiconductor Wafers containing the specified
CIRRUS RMM Chips and for CIRRUS to sell such CIRRUS RMM Chips if either the
condition set forth in Section 6.01(b)(i) is met, or CIRRUS and the specified
CIRRUS Customer meet the criteria of Section 6.01(b)(ii), including (unless
the exception in Section 6.01(b)(ii)(B) is satisfied) the conditions that:
(i) such CIRRUS Customer is a party to a patent license agreement with
IBM ("Customer/IBM Patent License"), the terms of which allow such CIRRUS
Customer to make, use, sell or otherwise transfer RMM Products and Patented
Combinations and to use RMM Chips in such RMM Products and Patented
Combinations;
(ii) the Customer/IBM Patent License covers all patents of IBM covering
such CIRRUS RMM Chips issued on or before the date of the sale of such CIRRUS
RMM Chips by CIRRUS to such CIRRUS Customer;
(iii) no license under any claims of any patent of IBM covering RMM
Products licensed to such CIRRUS Customer under the Customer/IBM Patent
License has terminated for any reason; and
(iv) such CIRRUS Customer is not in default under the Customer/IBM Patent
License, including any payment or royalty provisions.
(d) CIRRUS may order Semiconductor Wafers containing a specific type of
Subassembly Chips from the Partnership and sell such Subassembly Chips to
specific CIRRUS Customers only under the following conditions:
(i) prior to ordering any Subassembly Chips from the Partnership, CIRRUS
shall contact the IBM Director of Licensing or his designee and provide the
following information in a writing signed by CIRRUS or by a signed facsimile
(with original signed confirmation with a copy to the Partnership by mail):
(A) identity of the CIRRUS customer,
(B) the specific type of Subassembly into which the Subassembly
Chips will be incorporated, and
(C) the duration of the commitment to deliver Subassembly Chips to
such CIRRUS customer; and
(ii) the IBM Director of Licensing or his designee shall have provided
permission in writing or by a signed facsimile (with original signed
confirmation with a copy to the Partnership by mail) for CIRRUS to order such
Subassembly Chips and sell such Subassembly Chips to such customer for the
duration of the commitment specified in Section 6.01(d)(i)(C);
(iii) such customer in the contract or purchase documentation between
CIRRUS and such Customer agrees not to resell such Subassembly Chips, but to
incorporate them into its own Subassemblies which are licensed under the
Customer/IBM Patent License and CIRRUS has no reason to believe that such
contract provision will be violated; and
(iv) CIRRUS includes with each order for Subassembly Chips a written
certification to the Partnership by an officer of CIRRUS to the effect that:
(A) the conditions set forth in Sections 6.01(d)(i)-(iii) for the
specified Subassembly Chips have been satisfied and the approval of the
CIRRUS customer that will purchase such Subassembly Chips from CIRRUS has
not expired, and
(B) CIRRUS has no reason to believe that its customers that have
purchased Subassembly Chips have breached their agreement described in
Section 6.01(d)(iii).
(e) IBM will not unreasonably withhold the permission required as a
condition for CIRRUS to sell Subassembly Chips to a particular CIRRUS customer
referred to in Section 6.01(d) so long as:
(i) such customer is a party to a Customer/IBM Patent License, the terms
of which allow such customer to make, use, sell or otherwise transfer
Subassembly Chips, Subassemblies and Patented Combinations;
(ii) the Customer/IBM Patent License covers all patents of IBM filed up
to the date of the sale of such chips from CIRRUS to such customer;
(iii) no license under any IBM Licensed Chip Claim licensed to such
customer under the Customer/IBM Patent License has terminated for any reason;
and
(iv) such customer is not in default under the Customer/IBM Patent
License, including any payment or royalty provisions.
(f) The rights of CIRRUS pursuant to Sections 6.01(d) and 6.01(e) may be
exercised by CIRRUS Barbados in accordance with Section 7.15 of the CIRRUS
Sales Agreement, provided, however, (i) all the terms, conditions and
restrictions of this Article VI applicable to CIRRUS and its customers shall
apply to the same extent to CIRRUS Barbados and its customers and (ii) CIRRUS
shall be responsible in all respects for the performance of CIRRUS Barbados
hereunder.
SECTION 6.02. Termination Due to Litigation.
If, at any time, a customer of CIRRUS is a party to patent litigation with
IBM or any of its Subsidiaries, the following shall apply:
(a) IBM shall be entitled to direct the Partnership to cease or not
commence the production and sale of any Semiconductor Wafers containing CIRRUS
Chips, RMM Chips or Subassembly Chips to CIRRUS for sale to any such customer
if IBM's litigation counsel states in a written opinion that such CIRRUS
Chips, RMM Chips or Subassembly Chips are "related" to such patent litigation.
CIRRUS Chips, RMM Chips or Subassembly Chips shall be deemed "related" to such
patent litigation if the origin of such Chips becomes part of any defense
raised in such patent Litigation. Such defenses may include the defenses of
patent exhaustion and the existence of any implied licenses. Any termination
of the production and sale of any Semiconductor Wafers pursuant to this
Section 6.02(a) shall (i) continue only for so long as the customer of CIRRUS
is involved in patent litigation with IBM; (ii) apply only to those
Semiconductor Wafers to be sold to that customer of CIRRUS that is "related"
to such patent litigation; and (iii) be invoked no more than [*]. In the
event that the Partnership does not cease such production and sale within [*]
after being so directed, then IBM may terminate the licenses to the
Partnership under the IBM Patents and Patents of third parties licensed by IBM
to the Partnership covering CIRRUS Chips, CIRRUS RMM Chips or Subassembly
Chips made by the Partnership for CIRRUS for sale to such customer; and
(b) In the event that sales of CIRRUS Chips, CIRRUS RMM Chips or
Subassembly Chips to an "Existing Customer" that has purchased such chips from
CIRRUS prior to the commencement of such patent litigation are interrupted as
a result of IBM exercising its rights under Section 3.6.1 of the IBM Patent
License, then IBM will make available to CIRRUS a limited license to have such
chips made under the IBM Licensed Chip Claims at a single foundry for sale
only to such Existing Customer, such limited license to last for a maximum
duration of [*] from the date written notice of such litigation is given to
CIRRUS under said Section 3.6.1 if such chips are being manufactured for
CIRRUS at the time of such notice of litigation at another foundry. If such
chips are not being manufactured for CIRRUS at another foundry at the time of
such notice of litigation, then (i) such limited license shall be extended in
duration for an additional period of the lesser of [*] or the period required
for such single foundry to commence shipping such chips to CIRRUS; and (ii)
the Partnership may continue to manufacture such chips for CIRRUS only during
such extended period, provided such extended period may not be further
extended pursuant to Section 3.10 of the IBM Patent License. "Existing
Customer" is defined herein as a customer of CIRRUS and its Subsidiaries for
at least [*] that has purchased at least [*] of product shipments from CIRRUS
and its Subsidiaries during the preceding [*] period. Such limited license to
have chips made at such single foundry shall be limited only to have made the
identical type of chips that would have been made by the Partnership but for
the cessation of production in accordance with Section 3.6.1 of the IBM Patent
License and the rate of production and sales shall be limited to the number of
such chips per month that CIRRUS is actually producing at the Partnership at
the time of such notice of litigation or is obligated by contract to sell to
such Existing Customer at the commencement of such patent litigation,
whichever is greater. CIRRUS shall not disclose to such single foundry any of
the IBM Know-How or any other know-how used by the Partnership, and such
single foundry shall have no rights to use any IBM Know-How or any such
know-how.
SECTION 6.03. Compliance with Procedures.
(a) IBM shall have the right to have an independent auditor audit and
verify compliance with the conditions of Sections 6.01 and 6.02, and if IBM
has reasonable grounds to believe that any of the conditions of Section 6.01
or 6.02 have been violated, IBM shall give notice of such violation to the
Partnership and CIRRUS. If such violation is not cured within [*] following
such notice, IBM may direct the Partnership not to make for or sell any wafers
containing RMM Chips or Subassembly Chips to CIRRUS if the RMM Chips or
Subassembly Chips therefrom are produced in violation of Section 6.01 or 6.02,
or are produced for a Customer that is not in compliance with Section 6.01 or
6.02.
(b) In those situations where a customer of CIRRUS claims not to need a
license from IBM for the use or sale of certain chips because such customer
claims to have acquired such chips from CIRRUS and also claims that such chips
were made by the Partnership, IBM shall have the right to request and CIRRUS
shall confirm whether or not such customer of CIRRUS has purchased certain
CIRRUS Chips, RMM Chips or Subassembly Chips from CIRRUS and whether the
wafers containing such Chips were sold to CIRRUS by the Partnership. CIRRUS
shall answer any such request from IBM within [*] following the date of such
request.
SECTION 6.04. Excess Capacity.
CIRRUS shall use its best efforts to coordinate its orders from its
various third-party suppliers so as to permit the full utilization by CIRRUS
of the CIRRUS Capacity Allocation. In the event that after exercising such
best efforts [*], CIRRUS remains unable to fully utilize the CIRRUS Capacity
Allocation, the following provisions apply:
(a) CIRRUS shall first offer to IBM any Unutilized Capacity.
(b) If IBM decides not to use the Unutilized Capacity, CIRRUS shall be
permitted to manufacture for resale to a CIRRUS Customer Semiconductor Wafers
to be manufactured using such Unutilized Capacity that include Semiconductor
Chips (other than RMM Chips), Subassembly Chips or CIRRUS Chips only if the
following conditions are satisfied:
(i) CIRRUS is under contract to sell such other wafers to such Customer
for delivery within the [*];
(ii) CIRRUS may not use more than [*] of the total CIRRUS Capacity
Allocation for the manufacture of such other wafers; and
(iii) the price to be paid to the Seller by CIRRUS for such other wafers
shall be not less than the equivalent price that CIRRUS offers to IBM pursuant
to Section 6.04(a) plus applicable per wafer charges pursuant to Section 8.4
of the CIRRUS Sales Agreement.
(c) CIRRUS shall be entitled to exercise the foregoing right to engage in
alternative production [*].
(d) If CIRRUS does not, within [*] following IBM's rejection of the offer
to use the Unutilized Capacity, enter into an agreement with a customer
referred to in Section 6.04(b)(i), CIRRUS must again offer the Unutilized
Capacity to IBM.
(e) CIRRUS shall continue to be obligated under the CIRRUS Sales Agreement
in all respects other than in its obligation to cause the Partnership to
manufacture only CIRRUS Chips, RMM Chips and Subassembly Chips.
SECTION 6.05. Remedies.
(a) In the event that CIRRUS sells any RMM Chips or Subassembly Chips made
by the Partnership in violation of Section 6.01 or breaches its covenant
contained in Section 5.14, then, in addition to any other remedies available
to IBM or the IBM Partner under the Operative Documents, IBM shall have the
following remedies unless CIRRUS cures all such violations within [*]
following notice of such violations from IBM:
(i) IBM shall be entitled to direct the Partnership to cease the
production and sale of such RMM Chips or Subassembly Chips to CIRRUS;
(ii) IBM shall be entitled to injunctive relief against CIRRUS for the
ordering, selling, marketing or any other activities relating to such RMM
Chips or Subassembly Chips; and
(iii) CIRRUS shall be liable to IBM for liquidated damages in the case
of a sale of RMM Chips, in the amount of [*] of the retail selling price of
the RMM Product, including any rotating cylinder or disk and all other
elements used for recording and/or reproducing information, into which RMM
Chips are ultimately incorporated for retail sale.
(b) In the event that IBM sells any IBM Subassembly Chips made by the
Partnership in violation of Section 2.2.2. of the CIRRUS Patent License, then,
in addition to any other remedies available to CIRRUS or the CIRRUS Partner
under the Operative Documents, CIRRUS shall have the following remedies unless
IBM cures all such violations within [*] following notice of such violations
from CIRRUS:
(i) CIRRUS shall be entitled to direct the Partnership to cease the
production and sale of such IBM Subassembly Chips to IBM; and
(ii) CIRRUS shall be entitled to injunctive relief against IBM for the
ordering, selling, marketing or any other activities relating to such IBM
Subassembly Chips.
SECTION 6.06. No Licenses between IBM and CIRRUS.
(a) No licenses, immunities or other rights of any kind are granted
hereunder by either CIRRUS to IBM or by IBM to CIRRUS, directly or by
implication, estoppel or otherwise, with respect to any existing or future
intellectual property and no release is granted by either IBM or CIRRUS to
each other for any claims of any kind, whether or not asserted, including any
claims of patent infringement which may exist against the other or their
respective customers, whether or not known; and no such licenses, immunities
or other rights shall arise from the consummation of this Agreement, or any
other Operative Document, or from any acts, statements or dealings leading to
such consummation.
(b) No licenses or other rights are granted hereunder by either IBM to
CIRRUS or CIRRUS to IBM, directly or by implication, estoppel or otherwise,
with respect to any trade secrets or know-how, and no such licenses or other
rights shall arise from the consummation of this Agreement or any other
Operative Document or from any acts, statements or dealings leading to such
consummation. Neither party is required hereunder to furnish or disclose to
the other any technical or other information under this Agreement.
(c) [*]
SECTION 6.07. Verification of IBM Information.
IBM agrees to provide to an independent auditor of CIRRUS that is
reasonably acceptable to IBM the information required to be furnished pursuant
to Section 2.2.3 of the CIRRUS Patent License.
ARTICLE VII
EMPLOYEES
SECTION 7.01. Selection of Partnership Employees.
(a) IBM employees presently working at the facility to be leased to the
Partnership pursuant to the IBM Real Estate Lease ("322 Fabrication
Employees") shall be given the first opportunity to interview to become
employees of the Partnership. However, all employees shall be hired through an
arms-length interview process based upon specific needs and qualifications.
The candidates shall complete an application process to be agreed upon by the
Partners.
(b) All then-current full-time 322 Fabrication Employees who wish to be
hired by the Partnership will be interviewed, and the Partnership will offer
to employ, conditional upon Closing and such offer not being withdrawn, as the
Partnership employees, on January 1, 1995, those full-time 322 Fabrication
Employees agreed to by the Partners as well as any additional employees
required to run the Partnership's manufacturing facility, on the terms and
conditions as to salary and benefits to be agreed upon by the Partners prior
to Closing. The Partners will mutually approve a minimum of [*] Partnership
employment offers to potential employees starting immediately after the date
of execution of this Agreement. If the Partners have not agreed upon a total
of [*] such offers by [*] from the date of execution of this Agreement, then
the Partners will approve immediately Partnership employment offers to
sufficient current full-time 322 Fabrication Employees such that all
employment offers will total a minimum of [*]. Key skills by job category
required for the Partnership shall be agreed upon by the Partners prior to
Closing.
SECTION 7.02. Employee Benefits.
(a) The benefits plan outline for all Partnership employees shall be agreed
upon by the Partners prior to the Closing.
(b) The salary and bonus plan for all regular employees of the Partnership
shall be agreed upon by the Partners prior to Closing. The Partners shall also
mutually agree upon a self-funding bonus plan through cost-savings for certain
employees of the Partnership which will be included as an appendix to said
salary and bonus plan and which may thereafter be amended or modified only
upon the written agreement of the Partners or through the approval of a
subsequent annual Business Plan that includes such amendment or modification.
The Partners estimate that [*] of the cost savings over the Initial Business
Plan will be utilized for this purpose over the life of the Partnership.
(c) IBM shall transfer to an account designated by the Partners funds to
provide for such retirement benefits as have accrued through December 31,
1994, for those IBM employees who are offered and accept offers of employment
pursuant to Section 7.01, and report to work as regular employees of the
Partnership. CIRRUS may engage the service of a qualified actuary to review
the amount to be transferred and will have complete access to the actuarial
assumptions used in arriving at the proposed amount and the estimated cost for
the Initial Business Plan.
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination.
This Agreement may be terminated at any time before Closing:
(a) by either Parent if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other
Parent or its Affiliated Partner set forth in this Agreement and, if it is
susceptible of cure, it has not been cured within [*] after notice thereof to
such other Parent;
(b) by either Parent if a Burdensome Condition with respect to the
transactions contemplated by this Agreement shall have, in such Parent's
reasonable judgment, been imposed on such Parent or any of its Affiliates;
provided that prior to such termination, it will have exercised reasonable
efforts to negotiate an arrangement reasonably acceptable to it with the
appropriate Governmental Authority to eliminate such Burdensome Condition; or
(c) by either Parent, in its sole discretion, if the Closing has not
occurred before October 15, 1994.
Upon such termination, the parties shall promptly cause the Partnership to
be dissolved (if it has previously been formed) and its affairs wound up.
This Agreement (except for Sections 5.05, 5.11 and 5.13 which shall survive
any such termination) shall thereupon become void and (except as aforesaid)
there shall be no liability or obligation on the part of either Parent or its
Affiliated Partner, except to the extent that such termination results from
the breach by a Parent or its Affiliated Partner of any of their respective
representations, warranties, covenants or agreements set forth herein.
ARTICLE IX
CONTRIBUTION; JOINT AND SEVERAL LEASE GUARANTEES
SECTION 9.01. Reimbursement.
(a) Each Parent hereby agrees to reimburse the other Parent and its
Affiliated Partner for any loss, damage, liability, cost or expense of the
Partnership arising during the period that both Partners are general partners
of the Partnership and incurred by the other Parent or its Affiliated Partner
after the Closing solely as a result of such other Parent's Affiliated
Partner's status as a general partner of the Partnership (including acts or
omissions in its capacity as such) to the extent necessary so that such other
Parent and its Affiliated Partner shall not bear any portion of a loss,
damage, liability, cost or expense of the Partnership in an amount in excess
of such other Parent's Affiliated Partner's Percentage in the Partnership at
the time such loss, damage liability, cost or expense arose (except to the
extent that such excess is attributable to the willful misconduct or gross
negligence of such other Parent or its Affiliated Partner or to such other
Parent's Affiliated Partner exceeding its authority under the Partnership
Agreement or defaulting in the performance or observance of its agreements and
covenants under Section 10.03 of the Partnership Agreement).
(b) So long as both Partners are general partners of the Partnership,
reimbursement pursuant to Section 9.01(a) shall not be available to either
Parent or Partner until demand shall have been made by such Parent and Partner
to collect or recover the relevant amount from the Partnership and such demand
shall not have been satisfied.
(c) The provisions of this Section 9.01 shall survive the termination of
this Agreement or any other Operative Document, the dissolution of the
Partnership and the withdrawal of either Partner from the Partnership.
SECTION 9.02. Joint and Several Lease Guarantees.
(a) Each Parent (the "Reimbursing Parent") agrees to pay to the other
Parent (the "Indemnified Parent") on written demand an amount equal to 50% of
the excess, if any, of (i) the aggregate amount paid by the Indemnified Parent
as guarantor under the Joint and Several Lease Guarantees over (ii) the
aggregate amount paid by the Reimbursing Parent as guarantor under the Joint
and Several Lease Guarantees, together with interest on such amount at a rate
equal to 15% per annum from the date of demand until such amount is paid.
(b) Each Reimbursing Parent also agrees to pay, promptly upon receipt of a
written statement specifying the applicable items, all costs, expenses and
attorney's fees incurred by the Indemnified Parent in connection with the
Joint and Several Lease Guarantees and in enforcing against the Reimbursing
Parent the reimbursement agreement contained in this Section 9.02. Subject to
the foregoing, each Reimbursing Parent hereby waives promptness, diligence and
notice with respect to any of its obligations under this Section 9.02 and any
requirement that any beneficiary of the Joint and Several Lease Guarantees
exhaust any right to take any action against the Partnership or any other
Person.
(c) The obligations of the Reimbursing Parent under this Section 9.02 to
reimburse the Indemnified Parent shall be absolute, unconditional and
irrevocable under any and all circumstances and irrespective of:
(i) any lack of validity or enforceability of the Joint and Several
Lease Guarantees or the underlying leases;
(ii) any amendment or waiver of or any consent to departure from all or
any of the terms and conditions of the underlying leases;
(iii) the existence of any claim, set-off, defense or other right that
the Partnership or any other Person may at any time have against the
applicable lessor or any other Person, whether in connection with this
Agreement, the Joint and Several Lease Guarantees or the underlying leases or
in connection with any unrelated transaction;
(iv) the availability of any procedural defenses to enforcement,
including absence of jurisdiction, venue or service of process; and
(v) the availability of any substantive defenses to enforcement,
including lack of notice, extension of time periods, failure to enforce rights
against the Partnership or any other Person, laches or change in position or
any other circumstance which might vary the risk of or otherwise constitute a
defense available to or discharge of either Parent.
(d) The mutual obligations of the Parents hereunder are subject to
modification or termination in accordance with Sections 10.08, 10.10, 10.11,
11.02 and 11.03 of the Partnership Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. [*]
SECTION 10.02. Survival.
Except as may otherwise be specifically provided in this Agreement, all
covenants, agreements, representations and warranties of the parties made in
or pursuant to this Agreement shall survive the execution and delivery of the
Operative Documents and the closing of the transactions contemplated thereby
and the expiration or other termination of any other Operative Document,
notwithstanding any investigation by or on behalf of any party.
SECTION 10.03. Legal Disputes; Attorneys' Fees.
In any legal dispute arising under this Agreement which is determined by
the final and unappealable judgment or order of a court in favor of one party
hereto, the party against whom such judgment or order is rendered (or its
Parent) shall pay to the other party (or its Parent), promptly upon request
therefor and receipt of reasonably complete itemization and documentation
thereof, the reasonable attorneys' fees and expenses of such other party
relating to such dispute.
SECTION 10.04. Not a Partnership.
Nothing contained in this Agreement shall be deemed or construed to make
IBM and CIRRUS Partners or joint venturers with each other. The only
partnership will be formed between the IBM Partner and the CIRRUS Partner
pursuant to the Partnership Agreement upon the consummation of the
transactions contemplated by this Agreement and the Partnership Agreement .
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the date first above written.
CIRRUS LOGIC, INC.,
by /s/ MICHAEL L. HACKWORTH
Name: Michael L. Hackworth
Title: President, CEO
INTERNATIONAL BUSINESS MACHINES CORPORATION,
by /s/ MICHAEL J. ATTARDO
Name: Michael J. Attardo
Title: General Manager
Microelectronics Division
CIREL, INC.,
by /s/ MICHAEL L. HACKWORTH
Name: Michael L. Hackworth
Title: President, CEO
MICRUS HOLDINGS INC.,
by /s/ ERIC G. JOHNSON
Name: Eric G. Johnson
Title: President
PARTICIPATION AGREEMENT
Dated as of September 1, 1994
among
CIRRUS LOGIC, INC.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CIREL, INC.
and
MICRUS HOLDINGS INC.
TABLE OF CONTENTS
ARTICLE I
Definitions, Rules of Construction and
Documentary Conventions
SECTION 1.01. Certain Definitions
SECTION 1.02. Additional Definitions
SECTION 1.03. Rules of Construction and
Documentary Convention
ARTICLE II
Closing; Initial Funding
SECTION 2.01. Closing
SECTION 2.02. Time and Place of Closing
SECTION 2.03. Initial Funding
ARTICLE III
Conditions to Closing
SECTION 3.01. Performance
SECTION 3.02. Authorization, Execution and
Delivery of Operative Documents
SECTION 3.03. No Default
SECTION 3.04. Consents, Approvals, etc.;
Burdensome Conditions
SECTION 3.05. Governmental Rules
SECTION 3.06. Standard Closing Documents
SECTION 3.07. Representations and Warranties
SECTION 3.08. No Material Adverse Change
SECTION 3.09. Proceedings
SECTION 3.10. Opinion of Counsel to CIRRUS
SECTION 3.11. Opinion of Counsel to IBM
SECTION 3.12. Due Diligence
SECTION 3.13. Insurance
SECTION 3.14. Support Arrangements, etc.
SECTION 3.15. Employment and Certain Other Arrangements
SECTION 3.16. Partnership Finances
SECTION 3.17. Form of Operative and Other Documents
SECTION 3.18. Business Plan
SECTION 3.19. Sale and Lease of Third Party Assets
SECTION 3.20. Additional Equipment Acquisitions;
IBM Initial Equipment Lease
SECTION 3.21. IBM Restrictions
ARTICLE IV
Representation, and Warranties of the Parties
SECTION 4.01. Organization, Ownership Interest, etc.
SECTION 4.02. Authorization; No Conflict
SECTION 4.03. Enforceability
SECTION 4.04. Proceedings
SECTION 4.05. Special Purpose Representation as to Partners
SECTION 4.06. No Broker's or Finder's Fees
SECTION 4.07. List of Assets; Title to Assets
SECTION 4.08. Scope and Value of Assets
SECTION 4.09. Litigation; Decrees
SECTION 4.10. Compliance with Other Instruments
ARTICLE V
Covenants
SECTION 5.01. Covenants of Parents
SECTION 5.02. Parent Undertaking as to Affiliated
Partner Obligations
SECTION 5.03. Liabilities
SECTION 5.04. Further Assurances
SECTION 5.05. Public Announcements
SECTION 5.06. Nonsolicitation of Employees
SECTION 5.07. Other Activities
SECTION 5.08. Additional Arrangements
SECTION 5.09. Waiver of Conflict of Interest, etc.
SECTION 5.10. Limiting Arrangements
SECTION 5.11. Expenses
SECTION 5.12. Future Requirements
SECTION 5.13. New York State Assistance
SECTION 5.14. Sales by Cirrus
SECTION 5.15. Proration of Payments
SECTION 5.16. Existing IBM Restrictions
ARTICLE VI
Sale of Product
SECTION 6.01. Additional Procedures for Semiconductor Wafer
Purchases by CIRRUS from the Partnership
SECTION 6.02. Termination Due to Litigation
SECTION 6.03. Compliance with Procedures
SECTION 6.04. Excess Capacity
SECTION 6.05. Remedies
SECTION 6.06. No Licenses between IBM and CIRRUS
SECTION 6.07 Verification of IBM Information
ARTICLE VII
Employees
SECTION 7.01. Selection of Partnership Employees
SECTION 7.02. Employee Benefits
ARTICLE VIII
Termination
SECTION 8.01. Termination
ARTICLE IX
Contribution; Joint and Several Lease Guarantees
SECTION 9.01. Reimbursement
SECTION 9.02. Joint and Several Lease Guarantees
ARTICLE X
Miscellaneous
SECTION 10.01. [*]
SECTION 10.02. Survival
SECTION 10.03. Legal Disputes; Attorneys' Fees
SECTION 10.04. Not a Partnership
APPENDIX A
DEFINITIONS, RULES OF CONSTRUCTION AND
DOCUMENTARY CONVENTIONS
In any agreement or instrument that incorporates the definitions set
forth in this Appendix and states that the rules of construction and
documentary conventions set forth herein shall apply to such agreement or
instrument, then, unless such agreement or instrument otherwise requires:
ARTICLE I
Definitions
The following terms shall have the specified meanings:
"Accountants" means such firm of nationally recognized independent
certified public accountants for the Partnership as is appointed pursuant to
the Partnership Agreement from time to time. Initially, the Accountants shall
be Price Waterhouse.
"Affiliate" of any Person means any other Person which directly or
indirectly controls, is controlled by or is under common control with, such
Person; provided, however, that the term Affiliate, (a) when used in relation
to the Partnership, shall not include either Parent or any of its Affiliates
and (b) when used in relation to a Parent or any of its Affiliates, shall not
include the Partnership or any of its Subsidiaries. The term "control"
(including its correlative meanings "controlled by" and "under common control
with") means possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"Affiliated Partner" means, when used in relation to CIRRUS, the CIRRUS
Partner, and when used in relation to IBM, the IBM Partner.
"Agreed Fair Market Value" means those agreed prices for wafers sold by
the Partnership to CIRRUS and IBM as set forth in an Exhibit to the Initial
Business Plan.
"Assets" means, with respect to CIRRUS or the CIRRUS Partner, the CIRRUS
Assets, and with respect to IBM or the IBM Partner, the IBM Assets.
"Bankruptcy Event" means, with respect to any Person, the occurrence or
existence of any of the following events or conditions: such Person (1) is
dissolved; (2) becomes insolvent or fails or is unable or admits in writing
its inability generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any bankruptcy
or insolvency law or other similar law affecting creditors' rights, or a
petition is presented for its winding up or liquidation and, in the case of
any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or bankruptcy
or the entry of an order for relief or the making of an order for its winding
up or liquidation or (B) is not dismissed, discharged, stayed or restrained in
each case within 60 days of the institution or presentation thereof; (5) has a
resolution passed for its winding-up or liquidation; (6) seeks or becomes
subject to the appointment of an administrator, receiver, trustee, custodian
or other similar official for it or for all or substantially all its assets
(regardless of how brief such appointment May be, or whether any obligations
are promptly assumed by another entity or whether any other event described in
this clause (6) has occurred and is continuing); (7) any event occurs with
respect to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (1) through (6)
above; or (8) takes any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the foregoing acts.
"Burdensome Condition" means, with respect to any proposed transaction,
any action taken, or credibly threatened, by any Governmental Authority or
other Person to challenge the legality of such proposed transaction, including
(i) the pendency of a governmental investigation (formal or informal), (ii)
the institution of a suit or the threat thereof (A) seeking to restrain,
enjoin or prohibit the consummation of such transaction or part thereof, to
place any condition or limitation upon such consummation or to invalidate,
suspend or require modification of any provision of any Operative Document,
(B) challenging the acquisition by either Partner of its interest in the
Partnership or (C) seeking to impose limitations on the ability of either
Partner effectively to exercise full rights as a general partner in the
Partnership, including the right to act on all matters properly presented to
the Partners pursuant to the Partnership Agreement, (iii) an order by a court
of competent jurisdiction having any of the consequences described in (ii)(A),
(ii)(B) or (ii)(C) above, or placing any conditions or limitations upon such
consummation that are unreasonably burdensome in the reasonable judgment of
the applicable Person or (iv) the issuance of any subpoena, civil
investigative demand or other request for documents and information that is
unreasonably burdensome in the reasonable judgment of the applicable Person.
"Business Day" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of New York or California) on which banks
are open for business in New York, New York and San Francisco, California.
"Business Plan" means each 12-month business plan, including budgets and
projections for the Partnership for each relevant period, adopted in
accordance with Section 3.04(a) of the Partnership Agreement and complying
with Section 3.04(b) of the Partnership Agreement.
"Capital Transaction" means a disposition by the Partnership of property
which is or has been property of a character subject to the allowance for
depreciation provided in Section 167 of the Code if such disposition results
in the recognition of gain or loss by the Partnership.
"Change of Control of CIRRUS" means the acquisition by a Subject Acquirer
of more than 35% of the outstanding common shares of CIRRUS representing the
right to vote for CIRRUS's Board of Directors, or any consolidation, merger or
other reorganization of CIRRUS in which CIRRUS is not the continuing or
surviving corporation or pursuant to which shares of such common stock would
be converted into cash, securities or other property.
"CIRRUS" means CIRRUS Logic, Inc., a California corporation.
"CIRRUS Assets" means the cash contributions to the Partnership to be
made by the CIRRUS Partner on the Initial Funding Date.
"CIRRUS Barbados" means CIRRUS International, Ltd., a corporation formed
under the laws of Bermuda.
"CIRRUS Capacity Allocation" shall have the meaning set forth in the
CIRRUS Sales Agreement.
"CIRRUS Chips" means Semiconductor Chips whose designs, specifications
and working drawings are furnished by CIRRUS and have [*] of the functional
chip area and functional circuit content designed and developed:
(i) by employees of CIRRUS for CIRRUS or any of its Subsidiaries;
(ii) by a third party as a work for hire under copyright law for CIRRUS
or any of its Subsidiaries;
(iii) by a third party from which CIRRUS or any of its Subsidiaries has
acquired ownership of designs, specifications and working drawings, only when
the following conditions are met:
(a) no more than [*] of the sales of such chips are sold back to
such third party, and
(b) if payment by CIRRUS for ownership of such designs,
specifications and working drawings is by other than a lump sum payment, no
more than [*] of the sales price of such chips by CIRRUS shall be paid to such
third party as consideration for the sale of such designs, specifications and
working drawings to CIRRUS or any of its Subsidiaries, which [*] amount shall
be calculated based on the [*] or
(iv) by a third party from which CIRRUS has licensed designs,
specifications and working drawings, only when the following conditions are
met:
(a) no more than [*] of the sales of such chips are sold back to
such third party, as calculated on a CIRRUS fiscal year basis, and
(b) if payment by CIRRUS for such license is by other than a lump
sum payment, then no more than an average of a [*] royalty over a five year
period shall be paid to such third party, which [*] amount shall be calculated
based on the [*] and
(c) CIRRUS does not purchase such third party's customer base;
provided that such functional chip area and functional circuit content
perform integral functions of such Semiconductor Chips and can be identified
by CIRRUS to the Partnership in a verifiable and documented manner; and
provided, further, that RMM Chips and Subassembly Chips shall not be
considered to be CIRRUS Chips.
"CIRRUS Equipment Lease" means the equipment lease to be entered into
between the Partnership and CIRRUS with respect to future tooling and
equipment requirements pursuant to Section 5.12 of the Participation
Agreement.
"CIRRUS/IBM Confidentiality and Invention Rights Agreement" means the
Confidentiality and Invention Rights Agreement to be entered into between
CIRRUS and IBM at the Closing.
"CIRRUS License Agreements" means the CIRRUS Patent License and the
CIRRUS/IBM Confidentiality and Invention Rights Agreement.
"CIRRUS/Manufacturing Confidentiality Agreement" means the
Confidentiality Agreement to be entered into between the Partnership and
CIRRUS at the Closing.
"CIRRUS Patent License" means the license agreement to be entered into
between CIRRUS and the Partnership at the Closing providing for the royalty-
free license to the Partnership of certain CIRRUS patents.
"CIRRUS Patents" shall have the meaning set forth in the CIRRUS Patent
License.
"CIRRUS Partner" means Cirel, Inc., a California corporation.
"CIRRUS Sales Agreement" means the agreement to be entered into between
CIRRUS and the Partnership at the Closing for the sale of Semiconductor Wafers
by the Partnership to CIRRUS.
"CIRRUS RMM Chips" shall have the meaning set forth in the IBM Patent
License.
"Closing" means the closing of the transactions described in Section 2.01
of the Participation Agreement.
"Closing Date" means September 30, 1994, or if all the conditions set
forth in Article III of the Participation Agreement have not been satisfied or
waived by that date, as promptly as practicable after the satisfaction or
waiver of the remaining conditions; provided, however, that in no event will
the Closing Date be later than October 15, 1994, without the written agreement
of both Partners.
"CMOS" means complementary metal oxide semiconductor.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute. Any reference to a particular provision of the
Code or a Treasury Regulation means, where appropriate, the corresponding
provision of any successor statute or regulation.
"Confidentiality and Inventions Agreements" means the CIRRUS/IBM
Confidentiality and Invention Rights Agreement, the CIRRUS/Manufacturing
Company Confidentiality Agreement and the IBM/Manufacturing Company
Confidentiality Agreement.
"Consent Decree" means the Final Judgment, entered January 25, 1956, as
amended, in the matter entitled United States of America v. International
Business Machines Corporation, C.A. No. 72-344 (S.D.N.Y.).
"Cost" shall have the meaning set forth in the CIRRUS Sales Agreement or
the IBM Sales Agreement, as the case May be.
"Customers" shall have the meaning set forth in the CIRRUS Sales
Agreement.
"Deadlock" means a failure or inability to resolve a dispute between the
CIRRUS Partner and the IBM Partner on any matter requiring their mutual
approval after having exhausted the dispute resolution process set forth in
Section 2.15 of this Appendix A.
"Designated Individuals" has the meaning set forth in Section 2.15(a) of
this Appendix A.
"Engineering Change" means a mechanical or electrical change to the
Product which affects form, fit, function, maintainability or
manufacturability.
"Event of Default" means, with respect to a Partner, the occurrence or
existence of any of the following events or conditions:
(a) a Bankruptcy Event of such Partner, such Partner's Parent or any
Subsidiary of such Parent that has a direct or indirect ownership interest in
such Partner;
(b) the failure of such Partner to make any required capital contribution
when due under the Partnership Agreement;
(c) the material breach by such Partner or its Parent of any of the
specified material obligations identified in the respective Operative
Documents as 'Events of Default' under the Partnership Agreement, which breach
is not cured (together with the payment of interest on any unpaid amount from
the due date therefor computed at a rate of 15% per annum based on the actual
number of days elapsed in a 360-day year) within 30 days following written
notice thereof to such Partner and its Parent by the Partnership or the other
Partner;
(d) the failure by such Partner or Parent to make any payment when due as
specified in an Operative Document in an aggregate unpaid amount in excess of
$7 million, which breach is not cured (together with the payment of interest
on any unpaid amount from the due date therefor computed at a rate of 15% per
annum based on the actual number of days elapsed in a 360-day year) within 30
days following written notice thereof to such Partner and its Parent by the
Partnership or the other Partner; or
(e) a breach by either Parent of its covenant contained in
Section 5.01(d) of the Participation Agreement .
"Facility" means IBM's building located in East Fishkill, New York,
designated "Building 322" prior to the signing of the Partnership Agreement
(including ancillary non-production support areas) and leased to the
Partnership at the Closing.
"Fiscal Quarter" means, unless changed by the Governing Board, a calendar
quarter.
"Fiscal Year" means, unless changed by the Governing Board, a calendar
year or, in the case of the Partnership's first Fiscal Year, such portion of a
calendar year beginning on the Closing Date or, in the case of the
Partnership's final Fiscal Year, such portion of a calendar year ending on the
date that the Partnership is liquidated in accordance with Article XI of the
Partnership Agreement or ending on the date on which a termination of the
Partnership shall have occurred within the meaning of Code
Section 708(b)(1)(B).
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time, consistently applied.
"GAAS" means generally accepted auditing standards in the United States
as in effect from time to time.
"Governing Board" has the meaning set forth in Section 5.01 of the
Partnership Agreement.
"Governmental Action" means any authorization, consent, approval, order,
waiver, exception, variance, franchise, permission, permit or license of, or
any registration, filing or declaration with, by or in respect of, any
Governmental Authority.
"Governmental Authority" means any Federal, state, local or foreign
governmental Person, authority, agency, court, regulatory commission or other
governmental body, including the Internal Revenue Service and the Secretary of
State of any State, or any stock exchange having competence in the matter.
"Governmental Rule" means any statute, law, treaty, rule, code,
ordinance, regulation, license, permit, certificate or order of any
Governmental Authority or any judgment, decree, injunction, writ, order or
like action of any court or other judicial or quasijudicial tribunal.
"Harmful Code" means any computer code, programming instruction or a set
of instructions that is intentionally constructed with the ability to damage,
interfere with or otherwise adversely affect computer programs, data files or
hardware without the consent or intent of the computer user. This definition
includes self-replicating and self-propagating programming instructions
commonly called viruses or worms.
"IBM" means International Business Machines Corporation, a New York
corporation.
"IBM Assets" means the cash contributions, assets and properties
initially to be transferred to the Partnership on the Initial Funding Date by
the IBM Partner, as set forth in Schedule 4.07 to the Participation Agreement.
"IBM Capacity Allocation" shall have the meaning set forth in the IBM
Sales Agreement.
"IBM Chips" shall have the meaning set forth in the CIRRUS Patent
License.
"IBM Director of Licensing" means that person appointed from time to time
to said position within IBM, to whom notice May be given in accordance with
Section 9.1.2 of the IBM Patent License.
"IBM Equipment Leases" means each of the following:
(a) the "IBM Initial Equipment Lease" to be entered into between the
Partnership and IBM at the Closing providing for the leasing to the
Partnership of existing machinery and equipment listed on a Schedule thereto;
and
(b) the "IBM Supplemental Equipment Lease" to be entered into between the
Partnership and IBM with respect to future tooling and equipment requirements
pursuant to Section 5.12 of the Participation Agreement.
"IBM Know-How" shall have the meaning set forth in the IBM Know-How
License.
"IBM Know-How License" means the license agreement to be entered into
between IBM and the Partnership at the Closing providing for the license to
the Partnership of certain IBM Know-How.
"IBM License Agreements" means the IBM Patent License and the IBM Know-
How License.
"IBM Licensed Chip Claims" means the claims of the IBM Patents except for
the IBM RMM Chip Claims.
"IBM/Manufacturing Company Confidentiality Agreement" means the
Confidentiality Agreement to be entered into between the Partnership and IBM
at the Closing.
"IBM Partner" means MiCrus Holdings Inc., a Delaware corporation.
"IBM Patent License" means the license agreement to be entered into
between IBM and the Partnership at the Closing providing for the license to
the Partnership of certain patents.
"IBM Patents" shall have the meaning set forth in the IBM Patent License.
"IBM Real Estate Lease" means the lease to be entered into between the
Partnership and IBM at the Closing providing for the leasing to the
Partnership of the real property component of the manufacturing facility to be
used in the conduct of the Partnership's business commonly known as Building
322 located in Fishkill, New York.
"IBM RMM Chip Claims" means the (i) claims of the IBM Patents in which
the claimed invention is contained on a single RMM Chip and (ii) claims
covering processes for making such chips.
"IBM Sales Agreement" means the agreement to be entered into between IBM
and the Partnership at the Closing for the sale of Semiconductor Wafers by the
Partnership to IBM.
"IBM Services Agreement" means the agreement to be entered into between
the Partnership and IBM at the Closing relating to the provision of certain
site and administrative services by IBM to the Partnership.
"Indebtedness" of any Person means, without duplication, (a) all
obligations (whether present or future, contingent or otherwise, as principal
or surety or otherwise) of such Person in respect of borrowed money or in
respect of deposits or advances of any kind, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charge. are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by such Person,
(e) all obligations of such Person issued or assumed as the deferred purchase
price of property or services, (f) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (g)
all guarantees by such Person of Indebtedness of others, (h) all obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property (or a
combination thereof), which obligations would be required to be classified and
accounted for as capital leases on a balance sheet of such Person prepared in
accordance with GAAP, (i) all obligations of such Person (whether absolute or
contingent) in respect of interest rate swap or protection agreements, foreign
currency exchange agreements or other interest or exchange rate hedging
arrangements and (j) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances. The Indebtedness of any
Person shall include the Indebtedness of any partnership (other than the
Partnership) in which such Person is a general partner.
"Initial Business Plan" means the initial business plan of the
Partnership as agreed to by the Partners and the Parents pursuant to the
Operative Documents.
"Initial Funding Date" means December 30, 1994.
"Integrated Circuit" means an integral unit including a plurality of
active and/or passive circuit elements formed at least in part of
Semiconductor Material and associated on, or in, a single substrate, such unit
forming, or contributing to the formation of, an electrical circuit.
"Intellectual Property" means any rights under applicable law with
respect to intellectual property, including patents, patent applications,
patent rights, trademarks, trademark registrations, trademark applications,
licenses, service marks, business marks, brand names, trade names, all other
names and slogans embodying business or product goodwill (or both), copyright
registrations, mask works, copyrights (including copyrights in computer
programs, software, including all source code and object code, development
documentation, programming tools, drawings, specifications and data), rights
in designs, trade secrets, technology, inventions, discoveries and
improvements, know-how, proprietary rights, formulae, processes, technical
information, confidential and proprietary information, and all other
intellectual property rights, whether or not subject to statutory registration
or protection.
"Inventions" shall have the meaning set forth in the IBM Patent License.
"Joint and Several Lease Guarantees" means those Joint and Several Lease
Guarantees of certain lease payments to be provided by CIRRUS and IBM in
support of lease obligations incurred by the Partnership under the Third Party
Lease, the IBM Equipment Leases (excluding the IBM Supplemental Equipment
Lease) and the IBM Real Estate Lease.
The term "knowledge", when used in relation to a Person, includes the
knowledge of such Person's Subsidiaries and general partners.
"Liaison Representative" means the representative of its respective
Parent that each Partner is entitled to select in order to receive information
concerning the Partnership pursuant to Section 8.04 of the Partnership
Agreement.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, encumbrance, charge or security interest in or on such asset,
(b) the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement relating to such asset and (c) in
the case of securities, any purchase option, call or similar right with
respect to such securities.
"Limiting Agreement" shall have the meaning set forth in Section 5.10(k)
of the Participation Agreement.
"Magneto-Optical Disk Drive" shall have the meaning set forth in the IBM
Patent License.
Any reference to any event, change or effect being "material" with
respect to any Person means an event, change or effect which is or, insofar as
reasonably can be foreseen, will be material to the condition (financial or
otherwise), properties, assets, liabilities, capitalization, licenses,
businesses, operations or prospects of such Person and, in the case of the
Partnership, the capital accounts of the Partners.
"Net Profits" and "Net Losses" means, subject to Section 7.03 of the
Partnership Agreement, the taxable income and tax loss of the Partnership for
Federal income tax purposes for a given Fiscal Year, increased by the amount
of any tax-exempt income of the Partnership during such Fiscal Year and
decreased by the amount of any Code Section 705(a)(2)(B) expenditures (within
the meaning of Treasury Regulation Section 1.704-l(b)(2)(iv)(i)) of the
Partnership during such Fiscal Year; provided, however, that, in the case of
Section 704(c) Property, depreciation for each Fiscal Year shall be an amount
equal to (x) the depreciation for Federal income tax purposes with respect to
such Section 704(c) Property for such Fiscal Year multiplied by (y) a fraction
(i) the numerator of which is the fair market value of such Section 704(c)
Property on the date of contribution or revaluation and (ii) the denominator
of which is the basis of such Section 704(c) Property on the date of
contribution or revaluation for Federal income tax purposes; and provided
further, however, that if the basis of such Section 704(c) Property for
Federal income tax purposes is zero, depreciation for each Fiscal Year shall
be computed under any reasonable method in accordance with Treasury Regulation
Section 1.704-l(b)(2)(iv)(g)(3) that is approved by both Partners.
"Operative Documents" means the Participation Agreement, the Partnership
Agreement, the Third Party Lease, the IBM Equipment Leases, the CIRRUS
Equipment Lease, the IBM Real Estate Lease, the Joint and Several Lease
Guarantees, the IBM Patent License, the IBM Know-How License, the CIRRUS
Patent License, the IBM Sales Agreement, the CIRRUS Sales Agreement, the IBM
Services Agreement and the Confidentiality and Inventions Agreements.
"Patented Combinations" means any combination of a CIRRUS Chip, RMM Chip
or Subassembly Chip or portions of any thereof with each other or with any
other product, device or apparatus, which combination is covered by at least
one claim of any patent of IBM.
"Parent" means, with respect to the IBM Partner, IBM and, with respect to
the CIRRUS Partner, CIRRUS.
"Participation Agreement" means the Participation Agreement dated as of
September 1, 1994, among CIRRUS, IBM, the CIRRUS Partner and the IBM Partner,
an the same May be amended from time to time in accordance with the provisions
thereof.
"Partner" means each of the CIRRUS Partner and the IBM Partner, each a
general partner of the Partnership, and any other Person who becomes a partner
in the Partnership in accordance with the terms of the Partnership Agreement.
"Partnership" means MiCrus, a New York general partnership, formed by the
CIRRUS Partner and the IBM Partner pursuant to the Partnership Agreement.
"Partnership Agreement" means the Partnership Agreement dated as of the
Closing Date between the CIRRUS Partner and the IBM Partner, as the same
May be amended from time to time in accordance with the provisions thereof.
"Percentage" means, with respect to the CIRRUS Partner, 48%, and, with
respect to the IBM Partner, 52%; provided, however, that if either Partner
transfers a portion of its ownership interest in the Partnership to any third
party, its Percentage shall decrease accordingly and such third party
transferee shall receive the appropriate Percentage interest.
"Permitted Liens" means (a) the rights and interests of the Partnership,
either Partner, either Parent or any Affiliate of any such Person as provided
in the Operative Documents; (b) Liens for Taxes which are not due and payable
or which May after contest be paid without penalty or which are being
contested in good faith and by appropriate proceedings (provided that an
adequate reserve for the payment of such Taxes has been established by the
appropriate Person) and so long as such proceedings shall not involve any
substantial risk of the sale, forfeiture or loss of any part of any relevant
asset or title thereto or any interest therein; and (c) other imperfections of
title or other encumbrances, if any, which imperfections of title or other
encumbrances are nonconsensual and do not, individually or in the aggregate,
materially impair the use or value of the relevant asset.
"Person" means any individual, firm, company, corporation, unincorporated
association, partnership, trust, joint venture, Governmental Authority or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"Product(s)", unless otherwise specified, means the product(s)
manufactured by the Partnership in Semiconductor Wafer form, unless otherwise
specified in Attachment B to the CIRRUS Sales Agreement or the IBM Sales
Agreement, as applicable, and any supplements thereto.
"Product Family" means a group of Products which are produced generally
using the same materials, technical processes and steps.
"Proration of Payments" means payments to be made from either CIRRUS to
IBM, or L0M to CIRRUS, upon the termination of the Partnership prior to
December 31, 2002, under the circumstances referred to in the Partnership
Agreement as permitting or requiring Proration of Payments.
Such payments shall be based on the difference between (a) the cumulative
actual fixed and per wafer payments made by CIRRUS to the Partnership pursuant
to Section 8.4 of the CIRRUS Sales Agreement [*] and (b) the cumulative
average per wafer assessment multiplied by the planned wafer shipments
allocated to CIRRUS over the period from January 1, 1995, to December 31, 2002
as reflected in the Initial Business Plan to the date the last wafer shipment
is made available F.O.B. (including the period of any applicable transition
period).
The average per wafer assessment shall be calculated as follows: (c) the
total payments to be made by CIRRUS to the Partnership including the fixed
payments pursuant to Section 8.4.4 - 8.4.1 of the CIRRUS Sales Agreement [*]
plus the actual per wafer payments made for wafers actually made available
F.O.B. to CIRRUS by the Partnership to the date the last wafer shipment is
made available F.O.B. (including the period of any applicable transition
period), and the planned "to go" per wafer payments for the planned "to go"
wafers allocated to CIRRUS over eight years as reflected in the Initial
Business Plan divided by (d) the total actual and projected "to go" wafer
shipments from the Partnership to CIRRUS for the wafers allocated to CIRRUS
[*] as reflected in the Initial Business Plan.
If the cumulative actual fixed and per wafer payments made by CIRRUS to
the Partnership pursuant to Section 8.4 of the CIRRUS Sales Agreement [*]
exceed the average per wafer assessment multiplied by the wafers actually made
available to CIRRUS by the Partnership to the date the last wafer shipment is
made available F.O.B. (including the period of any applicable transition
period), then IBM shall pay CIRRUS the difference if Proration of Payments is
required under the Partnership Agreement. If the cumulative actual fixed and
per wafer payments made by CIRRUS to the Partnership pursuant to Section 8.4
of the CIRRUS Sales Agreement [*] are less than the average per wafer
assessment multiplied by the wafers actually made available to CIRRUS by the
Partnership to the date the last wafer shipment is made available F.O.B.
(including the period of any applicable transition period), then CIRRUS shall
pay IBM the difference if Proration of Payments is required under the
Partnership Agreement. If Proration of Payments is invoked as a result of an
Event of Default, then such Proration of Payments shall also include the
Start-up Adjustment Payment. An example of the application of Proration of
Payments is attached to the Initial Business Plan.
"Rotating Magnetic Memory Chips" or "RMM Chips" means Semiconductor Chips
primarily designed and developed for incorporation into a RMM Product. RMM
Chips shall include CIRRUS RMM Chips.
"Rotating Magnetic Memory Product" or "RMM Product" means any product
primarily designed to record information on end/or reproduce information from
a rotating cylinder or disk having a magnetizable surface, during rotation of
said cylinder or disk. RMM Products shall not include Magneto-Optical Disk
Drives.
"Seconded Employee" means an employee of a Parent or any of its
Affiliates that is made available to the Partnership or any of its
Subsidiaries while remaining an employee of such Parent or any such Affiliate.
"Section 704(c) Property" means any property contributed to the
Partnership that has a tax basis for Federal income tax purposes on the date
of its contribution that differs from its fair market value on such date and
any Partnership property that is revalued pursuant to Section 7.01(b) of the
Partnership Agreement. For purposes of calculating Net Profits or Net Losses
arising from any Capital Transaction involving Section 704(c) Property, the
basis of such Section 704(c) Property shall be deemed to be its fair market
value on the date of contribution or revaluation less the accumulated
depreciation (calculated in accordance with the provisos to the definition of
Net Profits and Net Losses) arising after that date with respect to such
Section 704(c) Property.
"Semiconductor Chip" means any Integrated Circuit which has been
manufactured using any part or all of the IBM Know-How, as defined in the IBM
Know-How License.
"Semiconductor Material" means any material whose electrical conductivity
is intermediate to that of metals and insulators at room temperature and whose
electrical conductivity, over some temperature range, increases with increases
in temperature. Such materials shall include but not be limited to refined
products, reaction products and reduced products.
"Semiconductor Wafer" means a circular, disk-shaped unit of Semiconductor
Material from which May be created, by applying various lithographic and other
technological processes, Semiconductor Chips.
"Senior Executives" has the meaning set forth in Section 2.15(b) of this
Appendix A.
"Start-up Adjustment Payment" means an adjustment payment from CIRRUS to
IBM, or IBM to CIRRUS, calculated as follows: (a) subtract the planned wafer
shipments allocated to both CIRRUS and IBM over the period from January 1,
1995, to December 31, 2002, as indicated in an Exhibit to the Initial Business
Plan to the date the last wafer shipment is made available by the Partnership
F.O.B. (including the period of any applicable transition period) from (b) the
total planned wafer shipments from the Partnership to both CIRRUS and IBM over
such period as indicated in an Exhibit to the Initial Business Plan; and
divide the result by (c) the total planned wafer shipments from the
Partnership to both CIRRUS and IBM [*] as indicated in an Exhibit to the
Initial Business Plan; and multiply the result by [*].
"Subassembly" means a group of Semiconductor Chips that are physically,
electrically and functionally interconnected on a single substrate wherein the
minimum percentage of CIRRUS Chips and/or CIRRUS RMM Chips in such group of
Semiconductor Chips is at least: (I) [*] for a group of [*] or more of such
Semiconductor Chips; (ii) [*] for a group of [*] or more of such Semiconductor
Chips; and (iii) [*] for a group of [*] such Semiconductor Chips; provided,
however, that any Integrated Circuits acquired by the Customer from a source
other than CIRRUS and added to such substrate shall not be counted in
determining the above percentage requirements.
"Subassembly Chips" means Semiconductor Chips that are to be physically,
electrically and functionally interconnected with CIRRUS Chips or CIRRUS RMM
Chips in a Subassembly.
"Subject Acquirer" means any Person, or any of its Affiliates, who (i) is
an RMM Product disk drive manufacturer; (ii) is a Semiconductor Chip or
Semiconductor Wafer manufacturer; or (iii) has, for the most recent fiscal
year of such Person, together with its Affiliates, ,
(a) gross revenues in excess of [*] from the development, manufacture,
sale, leasing and servicing of information processing hardware; or
(b) gross revenues in excess of [*] from the development, reproduction,
licensing, leasing and sale of information processing software and information
processing related services.
"Subsidiary" of any Person means any other Person
(i) more than 50% of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are, or
(ii) which does not have outstanding shares or securities (as May be the
case in a partnership, joint venture or unincorporated association), but more
than 50% of whose ownership interest representing the right to make decisions
for such other Person is,
now or hereafter owned or controlled, directly or indirectly, by such Person,
but such other Person shall be deemed to be a Subsidiary only so long as such
ownership or control exists; provided, however, that the term Subsidiary as
used in any Operative Document, when used in relation to a Parent or any of
its Affiliates, shall not include the Partnership or any of its Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local and foreign taxes,
assessments and other governmental charges, including (a) taxes based upon or
measured by gross receipts, income, profits, sales, use or occupation and (b)
value added, ad valorem, transfer, franchise, withholding, payroll,
employment, excise or property taxes, together with (c) all interest,
penalties and additions imposed with respect to such amounts and (d) any
obligations under any agreements or arrangements with any other Person with
respect to such amounts.
"Technical Coordinator" means each person effecting or supervising the
transfer of information among the parties. The identity of the initial
Technical Coordinator for each party is set forth in Section 2.16 of this
Appendix A or in a document delivered pursuant thereto.
"Third Party Assets" means the machinery and equipment listed on a
Schedule to the Third Party Lease, to be sold to the Third Party Lessor by IBM
for $150,000,000 at or prior to the Closing and to be leased to the
Partnership pursuant to the Third Party Lease.
"Third Party Lease" means the equipment lease agreement or lease
agreements to be entered into between the Third Party Lessor and the
Partnership at the Closing providing for the leasing of the Third Party
Assets.
"Third Party Lessor" means the lessor or lessors under the Third Party
Lease.
"Transfer" means any transfer, sale, assignment, conveyance, issuance,
license, sublicense or other disposal or delivery, including by merger,
consolidation, dividend or distribution, whether made directly or indirectly,
voluntarily or involuntarily, absolutely or conditionally, or by operation of
law or otherwise.
"Unutilized Capacity" shall have the meaning set forth in Section 7.13 of
the CIRRUS Sales Agreement.
ARTICLE II
Rules of Construction and Documentary Conventions
SECTION 2.01. Assignment. Except as May otherwise be specifically
provided in any agreement or instrument incorporating these Rules of
Construction and Documentary Conventions, a party thereto shall not Transfer,
or grant or permit to exist any Lien (except Permitted Liens) on, such
agreement or instrument or any of its rights thereunder (except for any
Transfer by operation of law in connection with a merger, consolidation or
sale of all or substantially all the assets of such party) without the prior
written consent of each other party thereto (which consent May be withheld in
such other party's sole discretion), and any such purported Transfer or Lien
without such consent shall be void.
SECTION 2.02. Severability. If any provision of any agreement or
instrument incorporating these Rules of Construction and Documentary
Conventions or the application of any such provision is invalid, illegal or
unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision of such agreement or
instrument or invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law that renders any provision of such agreement or instrument
invalid, illegal or unenforceable in any respect. The parties shall, to the
extent lawful and practicable, use their reasonable efforts to enter into
arrangements to reinstate the intended benefits, net of the intended burdens,
of any such provision held invalid, illegal or unenforceable. If the intent of
the parties cannot be preserved, the agreement or instrument incorporating
these Rules of Construction and Documentary Conventions shall either be
renegotiated or terminated.
SECTION 2.03. Survival. Except as May otherwise be specifically provided
in any agreement or instrument incorporating these Rules of Construction and
Documentary Conventions, all covenants, agreements, representations and
warranties of the parties made in or pursuant to such agreement or instrument
shall survive the execution and delivery of such agreement or instrument and
of the other Operative Documents and the closing of the transactions
contemplated thereby and the expiration or other termination of such agreement
or instrument or of any other Operative Document, notwithstanding any
investigation by or on behalf of any party.
SECTION 2.04. Amendment and Waiver. No amendment to any agreement or
instrument incorporating these Rules of Construction and Documentary
Conventions shall be effective unless it shall be in writing, identify with
specificity the provisions of the applicable agreement or instrument that are
thereby amended or waived and be signed by each party thereto. Any failure of
a party to comply with any obligation, covenant, agreement or condition
contained in such agreement or instrument May be waived by the party entitled
to the benefits thereof only by a written instrument duly executed and
delivered by the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, soy
subsequent or other failure of compliance.
SECTION 2.05. Remedies. (a) In no event will any party to any agreement
or instrument incorporating these Rules of Construction and Documentary
Conventions be liable to another party thereto for special, indirect, punitive
or incidental damages, lost profits, lost savings or any other consequential
damages, even if such party has been advised of the possibility of such
damages, resulting from the breach by it of any of its obligations thereunder
or breach by it or any of its Affiliates of any of their respective
obligations under any other Operative Document or from the use of any
confidential or other information.
(b) Except as May otherwise be specifically provided in any agreement or
instrument incorporating these Rules of Construction and Documentary
Conventions, the rights and remedies of the parties under such agreement or
instrument are cumulative and are not exclusive of any rights or remedies
which the parties would otherwise have. Equitable relief, including the
remedies of specific performance and injunction, shall be available with
respect to any actual or attempted breach of such agreement or instrument.
SECTION 2.06. Table of Contents, Headings. The Table of Contents and
Article and Section headings of any agreement or instrument incorporating
these Rules of Construction and Documentary Conventions are for convenience of
reference only and shall not affect the construction of or be taken into
consideration in interpreting such agreement or instrument.
SECTION 2.07. Parties in Interest; Limitation on Rights of Others. Any
agreement or instrument incorporating these Rules of Construction and
Documentary Conventions shall be binding upon and inure to the benefit of the
parties thereto and their permitted successors and assigns. Nothing in such
agreement or instrument whether express or implied shall give or be construed
to give any Person (other than the parties thereto and their permitted
successors and assigns) any legal or equitable right, remedy or claim under or
in respect of such agreement or instrument unless such Person is expressly
stated in such agreement or instrument to be entitled to any such right remedy
or claim.
SECTION 2.08. Counterparts; Effectiveness.
(a) Any agreement or instrument incorporating these Rules of Construction
and Documentary Conventions May be executed by the parties thereto in separate
counterparts each of which when so executed and delivered shall be an original
but all such counterparts shall together constitute but one and the same
contract.
(b) Any agreement or instrument incorporating these Rules of Construction
and Documentary Conventions shall not become effective until one or more
counterparts have been executed by each party thereto and delivered to the
other parties thereto.
SECTION 2.09. Entire Agreement. Any agreement or instrument
incorporating these Rules of Construction and Documentary Conventions,
together with the other Operative Documents and the Exhibits Schedules
Appendices and Attachments thereto any agreement entered into simultaneously
therewith and the Initial Business Plan constitute the entire agreement of the
parties to the Operative Documents with respect to the subject matter thereof
and supersede all prior written and oral agreements and understandings with
respect to such subject matter.
SECTION 2.10. Construction. References in any agreement or instrument
incorporating these Rules of Construction and Documentary Conventions to any
gender include references to all genders and references in such agreement or
instrument to the singular include references to the plural and vice versa.
Unless the context otherwise requires, the term "party" when used in any such
agreement or instrument means a party to such agreement or instrument.
References in any such agreement or instrument to a party or other Person
include their respective successors and assigns. The words "include",
"includes" and "including" when used in any such agreement or instrument shall
be deemed to be followed by the phrase "without limitation". Unless the
context otherwise requires, references in any such agreement or instrument to
Articles, Sections, Exhibits, Schedules, Appendices and Attachments shall be
deemed references to Articles and Sections of, and Exhibits, Schedules,
Appendices and Attachments to, such agreement or instrument. Unless the
context otherwise requires, the words "hereof", "hereby" and "herein" and
words of similar meaning when used in any such agreement or instrument refer
to such agreement or instrument in its entirety and not to any particular
Article, Section or provision of such agreement or instrument.
SECTION 2.11. Governing Law. Any agreement or instrument incorporating
these Rules of Construction and Documentary Conventions shall in all respects
be governed by and construed in accordance with the internal laws of the State
of New York applicable to agreements made and to be performed entirely within
such State, without regard to the conflict of laws principles of such State.
SECTION 2.12. Waiver of Jury Trial and Certain Damages. Each party to any
agreement or instrument incorporating these Rules of Construction and
Documentary Conventions waives, to the fullest extent permitted by applicable
law, (i) any right it May have to a trial by jury in respect of any action,
suit or proceeding arising out of or relating to any Operative Document and
(ii) any right it May have to receive damages or indemnification from any
other party to any Operative Document in respect of any act, omission or event
relating to such Operative Document or the transactions contemplated by the
Operative Documents based on any theory of liability for any special,
indirect, consequential or punitive damages. Each party to any such agreement
or instrument (x) certifies that no representative, agent or attorney of
another party to any Operative Document has represented, expressly or
otherwise, that such other party would not, in the event of litigation, seek
to enforce the foregoing waiver and (y) acknowledges that it has been induced
to enter into such agreement or instrument by, among other things, the mutual
waivers and certifications set forth above in this Section 2.12.
SECTION 2.13. Jurisdiction, Consent to Service of Process.
(a) Each party to any agreement or instrument incorporating these Rules
of Construction and Documentary Conventions hereby irrevocably and
unconditionally submits, for itself and its property, to the jurisdiction of
any Federal court of the United States of America sitting in the Southern
District of New York, and any appellate court from any such court, in any
suit, action or proceeding arising out of or relating to the Operative
Documents, or for recognition or enforcement of any judgment resulting from
any such suit, action or proceeding, and each party hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action or
proceeding May be heard and determined in such Federal court.
(b) It shall be a condition precedent to each party's right to bring any
such suit, action or proceeding (unless such suit, action or proceeding is
brought solely to obtain discovery or to enforce a judgment) that such suit,
action or proceeding, in the first instance, be brought in such Federal court,
and if such Federal court refuses to accept jurisdiction with respect thereto,
such suit, action or proceeding May be brought in any other court with
jurisdiction; provided that the foregoing condition precedent shall not apply
to any suit, action or proceeding by a party seeking indemnification or
contribution pursuant to any Operative Document or otherwise in respect of a
suit, action or proceeding against such party if such suit, action or
proceeding by such party seeking indemnification or contribution is brought in
the same court as the suit, action or proceeding against such party.
(c) No party to any agreement or instrument incorporating these Rules of
Construction and Documentary Conventions May move to (i) transfer any such
suit, action or proceeding from such Federal court to another jurisdiction,
(ii) consolidate any such suit, action or proceeding brought in such Federal
court with a suit, action or proceeding in another jurisdiction or (iii)
dismiss any such suit, action or proceeding brought in such Federal court for
the purpose of bringing the same in another jurisdiction.
(d) Each party to any agreement or instrument incorporating these Rules
of Construction and Documentary Conventions hereby irrevocably and
unconditionally waives, to the fullest extent it May legally and effectively
do so, (i) any objection which it May now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to the
Operative Documents in any Federal court sitting in the Southern District of
New York, (ii) the defense of an inconvenient forum to the maintenance of such
suit, action or proceeding in any such court and (iii) the right to object,
with respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party.
(e) Each party to any agreement or instrument incorporating these Rules
of Construction and Documentary Conventions irrevocably consents to service of
process in the manner provided for the giving of notices pursuant to such
agreement or instrument. Nothing in this Appendix shall affect the right of
any party to such agreement or instrument to serve process in any other manner
permitted by law.
SECTION 2.14. Notices. All notices and other communications to be given
to any party under any agreement or instrument incorporating these Rules of
Construction and Documentary Conventions shall be in writing and any notice
shall be deemed given when delivered by hand, courier or overnight delivery
service or three days after being mailed by certified or registered mail,
return receipt requested, with appropriate postage prepaid, or when received
in the form of a telegram or facsimile, and shall be directed to the address
or facsimile number of such party specified below (or at such other address or
facsimile number as such party shall designate by like notice):
(a) If to IBM:
International Business Machines Corporation
Old Orchard Road
Armonk, New York 10504
Telephone: (914) 765-7800
Telecopy: (914) 765-7803
Attention of Lee A. Dayton
General Manager
Real Estate and Business Development
With a copy to:
Gregory C. Bomberger, Esq.
International Business Machines Corporation
Old Orchard Road
Armonk, New York 10504
Telephone: (914) 765-7392
Telecopy: (914) 765-6006
And a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention of Martin L. Senzel, Esq.
(b) If to the IBM Partner:
MiCrus Holdings Inc.
In care of International Business Machines Corporation
Route 52, East Fishkill
Hopewell Junction, New York 12533
Telephone: 914-892-5150
Telecopy: 914-892-5153
Attention of Eric G. Johnson
With a copy to:
Lee A. Dayton
International Business Machines Corporation
Old Orchard Road
Armonk, New York 10504
Telephone: (914) 765-7800
Telecopy: (914) 765-7803
And a copy to:
Gregory C. Bomberger, Esq.
International Business Machines Corporation
Old Orchard Road
Armonk, New York 10504
Telephone: (914) 765-7392
Telecopy: (914) 765-6006
And a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention of Martin L. Senzel, Esq.
(c) If to CIRRUS:
CIRRUS Logic, Inc.
3100 West Warren Avenue
Fremont, California 94538
Telephone: (510) 623-8300
Telecopy: (510) 226-2033
Attention of George Alexy
With a copy to:
Morrison & Foerster
345 California Street
San Francisco, California 94104
Telephone: (415) 677-7000
Telecopy: (415) 677-7522
Attention of David E. Nelson, Esq.
(d) If to the CIRRUS Partner:
Cirel, Inc.
In care of
CIRRUS Logic, Inc.
3100 West Warren Avenue
Fremont, California 94538
Telephone: (510) 623-8300
Telecopy: (510) 226-2033
Attention of George Alexy
With a copy to:
Morrison & Foerster
345 California Street
San Francisco, California 94104
Telephone: (415) 677-7000
Telecopy: (415) 677-7522
Attention of David E. Nelson, Esq.
(e) If to the Partnership:
MiCrus
1580 Route 52
Hopewell Junction, New York 12533
Attention of Chief Executive Officer
SECTION 2.15. Escalation. Upon the occurrence of any event which,
pursuant to the express provisions of any agreement or instrument
incorporating these Rules of Construction and Documentary Conventions,
entitles a party to invoke the escalation provisions set out in this
Section 2.15, the following procedure shall apply:
(a) The Partners will attempt to resolve the subject of the escalation
promptly by negotiations between the persons designated to receive notices
pursuant to Section 2.14 from time to time of each Partner (the "Designated
Individuals"). The Designated Individuals shall meet at least once in person
to attempt to resolve the matter. Either Designated Individual May request the
other to meet at a time and location to be mutually agreed. If the matter has
not been resolved within [*] of the initiation of the escalation procedure,
either Designated Individual May refer the matter as provided in
Section 2.15(b).
(b) The subject matter of the escalation shall be referred to, in the
case of the IBM Partner, a Vice President of IBM with responsibility for the
IBM Microelectronics Division and, in the case of the CIRRUS Partner, the
Chief Executive Officer of CIRRUS (collectively, the "Senior Executives"), and
the applicable persons shall deliver to the Senior Executives memoranda
stating the subject of the escalation and their positions. The Senior
Executives will meet in person or by telephone within 14 days after (i) the
expiration of the [*] specified in Section 2.15(a) or (ii) in the case of a
direct referral to the Senior Executives in accordance with the Partnership
Agreement, such direct referral, and attempt in good faith to resolve the
subject matter of the escalation.
(c) Efforts to comply with the provisions of Section 2.15(a) (if
applicable) for a period of [*] and with Section 2.15(b) for a period of [*]
from the commencement of such procedure (which time period May be extended by
written agreement of the Senior Executives) shall be a condition precedent to
any further action or proceeding with respect to such matter. Subject to the
foregoing, use of the procedures specified in this Section 2.1S shall be
without prejudice to the exercise of any other remedies permitted by the
Operative Documents.
SECTION 2.16. Technical Coordinators. CIRRUS, IBM and the Partnership
shall each maintain a Technical Coordinator to represent such party in
connection with the routine implementation of procedures described in the
Operative Documents requiring the involvement of such party's Technical
Coordinator. Each Technical Coordinator May be replaced at any time by the
party represented by such Technical Coordinator upon written notice given to
the other parties in accordance with Section 2.14, with copies of such notice
to be given to the other Technical Coordinators. The initial Technical
Coordinators shall be:
(a) For IBM:
That person designated in a document furnished pursuant hereto.
(b) For CIRRUS:
That person designated in a document furnished pursuant hereto.
(c) For the Partnership:
That person designated pursuant to Section 5.02(a)(i) of the Partnership
Agreement.
SECTION 2.17. Definitions. The definitions set forth in Article I of
this Appendix A shall apply to this Article II.
[ARTICLE] 5
[MULTIPLIER] 1
CONFIDENTIAL TREATMENT REQUESTED
[*] Denotes information for which confidential
treatment has been requested. Confidential portions
omitted have been filed separately with the Commission.
PARTNERSHIP AGREEMENT of MiCrus dated as of
September 30, 1994, between Cirel Inc., a California
corporation (the "CIRRUS Partner"), and MiCrus
Holdings Inc., a Delaware corporation (the "IBM
Partner").
The CIRRUS Partner and the IBM Partner desire to act as general
partners in a general partnership formed for the purposes specified in
Section 2.05. To that end, the Partners desire to enter into this Agreement to
set forth more fully the rights and obligations of the Partners in the
Partnership.
Accordingly, the CIRRUS Partner and the IBM Partner agree as
follows:
ARTICLE I
Definitions, Rules of Construction and
Documentary Conventions
SECTION 1.01. Certain Definitions. (a) Capitalized terms used but
not defined in this Agreement shall have the respective meanings assigned to
then in Appendix A.
(b) As used herein, the term "Agreement" means this Partnership
Agreement together with any Exhibits, Schedules, Appendices and Attachments
hereto.
SECTION 1.02. Additional Definitions. The following capitalized
terms used generally in this Agreement shall have the respective meanings
assigned in this Agreement:
Term Defined in
"Breaching Partner" Section 11.01
"Capital Account" Section 7.01(a)
"Change of Control Procedure" Section 10.08(a)
"CIRRUS Nominee" Section 5.02(a)(iii)
"Claim" Section 12.04(a)
"Code" Section 6.01(a)
"Deadlock" Section 10.07
"Defaulting Parent" Section 10.10
"Defaulting Partner" Section 10.10
"Defaulting Party" Section 10.10
"Designated Members" Section 5.01(b)
"Governing Board" Section 5.01(a)
"Indemnified Party" Section 12.04(a)
"Indemnifying Party" Section 12.04(a)
"IRS" Section 6.02(e)
"Limiting Agreement Procedure" Section 10.l1
"Losses" Section 12.01(a)
"Nondefaulting Partner" Section 10.10
"Remaining Partner" Section 11.01
"Residual Shortfall" Section 6.01(f)
"704(b) Regulations" Section 7.02(b)(i)
"Standard Commercial Terms and Conditions" Section 3.01
"Tax Matters Partner" Section 8.05(b)
SECTION 1.03. Rules of Construction and Documentary Conventions.
The rules of construction and documentary conventions set forth in Appendix A
hereto shall apply to this Agreement.
ARTICLE II
The Partnership
SECTION 2.01. Formation. MiCrus is formed pursuant to this
Agreement as a New York general partnership. Each of the CIRRUS Partner and
the IBM Partner are admitted as, and shall be, general partners of the
Partnership.
SECTION 2.02. Name; Qualification. (a) The name of the Partnership
is "MiCrus". The Partnership may also do business under other names agreed to
by the Partners.
(b) The Partnership shall, to the extent required by any applicable
Governmental Rule, (i) file partnership certificates assumed name
certificates, fictitious business name certificates or similar certificates
with the appropriate Governmental Authorities and (ii) qualify to do business
in all appropriate jurisdictions, in each case as expeditiously as possible.
(c) Each Partner shall, to the extent required by any applicable
Governmental Rule, (i) qualify to do business and maintain itself in good
standing in each jurisdiction where the Partnership conducts or proposes to
conduct business and (ii) file assumed name certificates, fictitious business
name certificates or similar certificates with the appropriate Governmental
Authorities in all appropriate jurisdictions, in each case as expeditiously as
possible.
SECTION 2.03. Principal Office. The principal office of the
Partnership shall be located at 1580 Route 52, Hopewell Junction, New York
12533, or such other place as may be designated by the Governing Board.
SECTION 2.04. Term; Extension. (a) The term of the Partnership
shall end on December 31, 2002, unless extended by mutual agreement of the
Partners or earlier terminated in accordance with Article XI. Prior to
December 31, 2000, the IBM Partner and the CIRRUS Partner will meet to
initiate discussions regarding a potential extension of the term of the
Partnership beyond December 31, 2002. Any such extension shall be effective
only upon the written agreement of each of the IBM Partner and the CIRRUS
Partner and shall be on such terms and for such period as set forth in such
agreement. Production by the Partnership will cease upon termination of the
Partnership for any reason.
(b) Prior to January 1, 1995, without the consent of each Partner,
the Partnership shall not conduct any activities or enter into any obligations
except as are specifically contemplated by the Operative Documents or as are
incidental to its formation and qualification, unless responsibility for any
monetary obligations arising with respect to the period prior to January 1,
1995, are adequately supported by a Partner or its Affiliates.
SECTION 2.05. Scope of Activity. The scope of activity of the
Partnership shall be to manufacture Semiconductor Wafers for each of the
Parents consistent with the Operative Documents.
SECTION 2.06. Powers. The Partnership shall have all the powers
now or hereafter conferred by applicable law on general partnerships formed
under the laws of the State of New York and may do any and all acts and things
necessary, incidental or convenient to the purpose specified in Section 2.05.
Notwithstanding anything to the contrary contained in this Agreement, the
Partnership shall not take any action whatsoever or incur any liability or
obligation whatsoever prior to the Closing without the express prior written
consent of both of the Partners.
SECTION 2.07. Property Ownership. Except as may otherwise be
provided in this Agreement or in any Operative Document to which the
Partnership is or becomes a party, (a) all assets, property and rights,
whether real, personal or mixed, tangible or intangible, owned, hold or
possessed by the Partnership shall be owned, held or possessed in the name of
the Partnership and not any Partner, (b) all such assets, property and rights
shall be deemed to be owned, held or possessed by the Partnership as an entity
and (c) the Partners individually shall not have any separate ownership in
such assets, property or rights. Each Partner's partnership interest in the
Partnership shall be personal property for all purposes.
SECTION 2.08. Waiver of Rights of Partition and Dissolution. Each
Partner waives all rights it may have at any time to maintain any action for
partition or sale of any Partnership assets as now or hereafter permitted
under applicable law. Each Partner waives its right to seek a court decree of
dissolution (other than a dissolution in accordance with Article XI) or to
seek the appointment of a court receiver for the Partnership as now or
hereafter permitted under applicable law. Each Partner acknowledges and
agrees that Article XI provides the exclusive means for the dissolution and
winding up of the Partnership by the Partners.
ARTICLE III
Business Operations
SECTION 3.01. Business Dealings with the Partnership. The
Partnership may enter into contracts or agreements with, and otherwise enter
into transactions or dealings with, either Parent (or any of its Affiliates),
and derive and retain profits therefrom. The validity of any such contract,
agreement, transaction or dealing or any payment or profit related thereto or
derived therefrom shall not be affected by any relationship between the
Partnership and either Partner or any of their respective Affiliates
(including such Parent's Affiliated Partner). The Partners acknowledge and
agree that IBM will be the supplier of information processing hardware,
software and services to the Partnership under IBM's then standard customer
agreements at those prices and upon those other terms and conditions that IBM
offers to its most favored unaffiliated customers purchasing comparable
quantities, except as may be otherwise provided in the Operative Documents.
The Partnership may, however, contract with third party suppliers if the
Governing Board determines that any products or services are necessary or
appropriate for the business of the Partnership and are not reasonably
available from IBM. Unless otherwise approved by the Partners or otherwise
expressly provided in the Operative Documents, all business dealings of the
Partnership with a Parent and its Subsidiaries shall be on Standard Commercial
Terms and Conditions which shall mean those commercial terms and conditions
that are not more favorable in any material respect to either party to the
commercial transaction to which such terms and conditions apply than would
customarily apply between two unaffiliated parties in a commercial transaction
involving comparable types and quantities of goods or services.
SECTION 3.02. Other Activities. Each Partner (for itself and on
behalf of the Partnership) acknowledges and agrees that:
(a) the other Partner's Parent and any of its Affiliates (other
than the other Partner) may engage in other business ventures and
dealings of every nature, independently or with others, including within
the scope of the activities of the Partnership and whether or not
competitive with the business of the Partnership (or any of its
Affiliates) or of such Partner's Parent (or any of its Affiliates) and
regardless of the effect on the Partnership, and none of the Partnership
(nor any of its Affiliates) nor such Partner's Parent (nor any of its
Affiliates) shall have any rights in such ventures or dealings or to the
income and profits derived therefrom;
(b) the other Partner's Parent and its Affiliates, any of their
respective employees, including any Seconded Employee or Liaison
Representative, and any member of the Governing Board appointed by the
other Partner shall not be obligated to refer to the Partnership any
business opportunity presented to or developed by any of them; and
(c) it will not conduct any business or other activity other than
being a general partner of the Partnership and performing its obligations
under the Operative Documents to which it is or becomes a party.
SECTION 3.03. Waiver of Conflict of Interest, etc. (a) Subject to
the terms of Section 3.03(b), each Partner (for itself and on behalf of the
Partnership) hereby:
(i) waives any claim or cause of action against each of the
other Partner, such other Partner's Affiliates, any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or any of its Affiliates (including any Seconded Employee
or Liaison Representative) that may from time to time arise in respect of
a breach of any duty to the Partnership or any of its Subsidiaries by any
such Person as a result of a conflict of interest between the Partnership
or any of its Subsidiaries and such other Partner or any of its
Affiliates other than the breach of a duty expressly imposed pursuant to
an Operative Document or other agreement to which the Partnership and the
other Partner's Parent or any of its Affiliates are parties;
(ii) acknowledges and agrees that, except as expressly required
by the Operative Documents, (i) in the event of any conflict of interest
between the Partnership or any of its Subsidiaries and the other Partner
or any of its Affiliates that may from time to time arise, each of such
other Partner, such other Partner's Affiliates, any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or any of its Affiliates (including any Seconded Employee
or Liaison Representative) may act in the best interests of such other
Partner or any of its Affiliates and (ii) each such Person shall not be
obligated (A) to reveal to the Partnership or any of its Subsidiaries
confidential information belonging to or relating to the business of such
other Partner or any of its Affiliates or (B) to recommend or take any
action in its capacity as such Partner, member of the Governing Board or
employee (including as a Seconded Employee or Liaison Representative), as
the case may be, that prefers the interests of the Partnership or any of
its Subsidiaries over the interests of such other Partner or any of its
Affiliates; provided, however, that all business dealings of the
Partnership with a Parent and its Subsidiaries shall be on Standard
Commercial Terms and Conditions, except as otherwise expressly provided
in an Operative Document; and
(iii) acknowledges and agrees that, to the fullest extent
permitted by applicable law, the other Partner and any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or employee of any of its Affiliates shall not, now or in
the future, be liable, responsible or accountable in damages or otherwise
to such Partner or the Partnership for any acts reasonably believed by
such other Partner, member of the Governing Board or employee to be
within the scope of the authority conferred on such Person by this
Agreement, or for such Person's failure or refusal to perform any act
except those expressly required by the terms of this Agreement, or for
such Person's performance of, or omission to perform, any acts on advice
of the Accountants or legal counsel for the Partnership, or for such
Person's performance of any acts required by or such Person's omission to
perform any acts prohibited by, any Governmental Rule.
(b) Each Partner agrees that the waivers, acknowledgments and
agreements set forth in Section 3.03(a) shall not apply to (i) any act of
fraud, gross negligence or willful misconduct by any member of the Governing
Board in the performance of his duties as a member of the Governing Board or
(ii) any alleged claim or cause of action against a Partner, any of such
Partner's Affiliates or any of their respective employees based upon the
breach or nonperformance by such Person of an express contractual undertaking
in an Operative Document.
SECTION 3.04. Business Plans and Related Matters. (a) Initial and
Subsequent Business Plans. (i) The Initial Business Plan of the Partnership
for the five year period commencing on January 1, 1995, shall be mutually
agreed upon by the Partners in writing and delivered by them at the Closing.
(ii) The Partners acknowledge that the Initial Business Plan
and each successive updated Business Plan will represent their then
current estimate of the proposed operations of the Partnership, and that
the failure to meet any of the projections, goals or milestones in such
Plan shall not, in and of itself, constitute a default by the Partnership
or either Partner.
(iii) An updated Business Plan covering the immediately
succeeding 12-month period complying with Section 3.04(b) shall be
prepared prior to the commencement of each fiscal quarter of the
Partnership under the direction of the Chief Executive Officer and
submitted to the Governing Board and the Partners for review and approval
not later than [*] prior to the commencement of each fiscal quarter or
[*] before the commencement of each fiscal year.
(iv) When the proposed Business Plan for a 12-month period is
approved by the Governing Board and the Partners, it shall constitute the
Business Plan and the Partnership and its officers and employees shall
implement such Business Plan, which shall be the basis of the
Partnership's operations for such 12-month period, except to the extent
such Business Plan is superseded by a subsequently adopted 12-month
Business Plan.
(v) The Partnership shall not adopt or be governed by any
overall business plan or budget other than a Business Plan approved by
the Governing Board and the Partners and meeting the requirements of
Section 3.04(b).
(b) Form and Scope. Each Business Plan (other than the Initial
Business Plan) shall contain (i) an annual operating budget for the
Partnership for the relevant 12-month period, containing projections of
consolidated income and loss, cash flow and ending balance sheets for such
12-month period, (ii) a business plan (including a narrative description) for
the Partnership relating to the relevant 12-month period setting forth in
reasonable detail the financial plan, executive compensation and benefits, if
any, capital expenditures, expense budgets and manufacturing objectives, and
(iii) projections for the same items described in clauses (i) and (ii) for the
immediately succeeding 12-month period. Each Business Plan also shall contain
a statement of long-range (5-year) strategy and medium-range (2-year) tactics
detailing quantitative and qualitative goals for the Partnership and relating
attainment of those goals to the Partnership's manufacturing objectives. No
Business Plan shall be deemed to be an amendment of this Agreement.
(c) Approval. Each Partner shall and shall request the members of
the Governing Board appointed by it to cooperate in good faith to finalize and
approve any Business Plan proposed pursuant to Section 3.04(a) by the
fifteenth day before the beginning of the 12-month period to which such
proposed Business Plan relates. Pending approval by the Governing Board and
the Partners of any proposed Business Plan, the current Business Plan shall
continue in effect.
SECTION 3.05. Intellectual Property. (a) The Partners shall cause
the Partnership to take all reasonable steps necessary to avoid designing or
developing any item that infringes or otherwise makes unauthorized use of any
of the Intellectual Property rights of any Person (other than the Partnership
and its Subsidiaries).
(b) All Intellectual Property developed by or for the Partnership
shall be the property of IBM, subject to certain ownership and license rights
in favor of CIRRUS set forth in the Confidentiality and Inventions Agreements.
Each Partner shall have the right to secure all statutory protection for such
Intellectual Property (if any), that such Partner shall own in accordance with
the Confidentiality and Inventions Agreements, including appropriate
copyright, patent and trademark registrations.
(c) Except as may be expressly provided in the Operative Documents,
nothing in this Agreement shall be construed as conferring on the Partnership
or either Partner the right to use in advertising, publicity or other
promotional activities any name, trade name, trademark or other designation of
either Parent (or any of such Parent's Affiliates), including any contraction,
abbreviation or simulation of any of the foregoing.
ARTICLE IV
Actions by the Partners
SECTION 4.01. Matters Requiring the Consent of the Partners. (a)
Subject to Section 4.01(d), no action may be taken by or on behalf of the
Partnership in connection with any of the following matters without the prior
written consent of each Partner:
(1) any amendment to or renewal of this Agreement or any
Operative Document between the Partnership and a Parent or other
Affiliate of either Partner;
(2) with respect to the Partnership or any of its
Subsidiaries, (A) the voluntary commencement of any proceeding or the
voluntary filing of any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any other
Federal, state or foreign bankruptcy, insolvency, receivership or similar
law, (B) the consent to the institution of, or causing it to fail to
contest in a timely and appropriate manner, any involuntary proceeding or
any involuntary filing of any petition of the type described in
clause (A) above, (C) the application for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for it, or for a substantial part of its property or assets,
(D) the filing of an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) the consent to any
order for relief issued with respect to any such proceeding, (F) the
making of a general assignment for the benefit of creditors,
(G) admitting in writing its inability or causing it to fail generally to
pay its debts as they become due or (H) taking any action for the purpose
of effecting any of the foregoing;
(3) the merger or consolidation of the Partnership or any of
its Subsidiaries with any Person;
(4) the winding up, dissolution or liquidation of the
Partnership or any of its Subsidiaries (other than the dissolution of the
Partnership pursuant to and as contemplated by Article XI);
(5) the admission of another Partner (except for a transfer of
an interest in the Partnership to a Subsidiary of either Parent);
(6) with respect to the Partnership or any of its
Subsidiaries, (i) the acquisition of or investment in any corporation,
partnership or joint venture with any Person, (ii) the creation of any
direct or indirect Subsidiary of the Partnership or (iii) the acquisition
or sale of assets in any single transaction or in a series of related
transactions (other than as set forth in the Initial Business Plan or a
subsequently approved Business Plan) in an amount in excess of [*].
(7) the approval of any transaction between the Partnership
and either Parent or its Affiliates (other than transactions described in
an Operative Document, the Initial Business Plan or a subsequently
approved Business Plan) if such transaction in either not (i) on Standard
Commercial Terms and Conditions (except as expressly provided in an
Operative Document) or (ii) in the ordinary course of the Partnership's
business and such transaction and all related transactions with such
Parent or its Affiliates have an aggregate value exceeding [*].
(8) the approval of or any amendment to the then current
Business Plan of the Partnership (including any revisions or updates
thereto pursuant to Section 3.04); and
(9) any reduction in force of the employees of the Partnership
by [*] or more in a single lay-off or employee termination or a series of
related lay-offs or employee terminations; provided, however, the
Governing Board may take any such action without the consent of each
Partner when such action is necessitated by the financial condition of
the Partnership.
(b) Each Partner shall designate one individual who shall be
authorized to act on behalf of such Partner in connection with consents or
approvals necessary or appropriate under Section 4.01(a), provided that all
such acts on behalf of a Partner shall be in writing. Initially such
designated individuals shall be the persons designated to receive notices for
each Partner pursuant to Section 2.14 of Appendix A, and any such person may
be replaced by the designating Partner on notice to the other Partner in
accordance with said Section 2.14. Each Partner agrees to give any consent or
approval required under this Section 4.01, or to indicate that such consent or
approval will not be given, within [*] days of written request by the other
Partner or the Partnership.
(c) Notwithstanding the requirements of Section 4.01(a) relating to
agreements between the Partnership and either Parent or its Affiliates, any
question regarding a material default or alleged material default (including
any question regarding a breach of representation or alleged breach of
representation) under any Operative Document or other agreement between the
Partnership and either Partner or its Affiliates shall be subject to the
dispute resolution process in Section 2.15 of Appendix A. If such question is
not thereby resolved and the material default or alleged material default (or
misrepresentation or alleged misrepresentation) remains uncured, the other
Partner shall have the right to enforce the subject agreement or breach of
representation for the benefit of the Partnership.
(d) If there has occurred and is continuing an Event of Default
with respect to a Partner or its Parent, any action specified in
Section 4.01(a), other than an amendment to this Agreement or any other
Operative Document to which the Defaulting Partner or Parent may be a party
(not including the Initial Business Plan or any subsequent Business Plan or
any schedules or exhibits to any of the Operative Documents (other than any
such exhibit that may require the agreement of such Defaulting Partner or
Parent by its terms)), may be taken by or on behalf of the Partnership by the
Nondefaulting Partner without the consent of the Defaulting Partner if the
Nondefaulting Partner has exercised its right to reduce the number of members
of the Governing Board appointed by the Defaulting Partner pursuant to
Section 5.01(b)(xii).
SECTION 4.02. Matters Requiring the Consent of a Partner. (a) No
action may be taken by or on behalf of the Partnership in connection with the
following matters without the prior written consent of the relevant Partner:
(1) the issuance of any public release, announcement or
document by the Partnership or any of its Subsidiaries that refers to
CIRRUS or IBM or any of their respective Subsidiaries (other than a
general reference to CIRRUS's or IBM's affiliation with the Partnership),
except as may be required by any Governmental Rule, in which case the
Partnership shall allow such Partner reasonable time to comment on such
release, announcement or document in advance of such issuance, and shall
use reasonable efforts in good faith to accept the reasonable and good
faith comments of such Partner; and
(2) the incurrence of Indebtedness by the Partnership or any
of its Subsidiaries which in not expressly without recourse to the
Partners, whether by law or contract (unless such Indebtedness is
recourse only to the Partner that has consented in writing to the
incurrence of such Indebtedness).
(b) Each Partner shall designate one individual who shall be
authorized to approve the issuance of any public release, announcement or
document referred to in Section 4.02(a)(1). Initially such designated
individuals shall be the persons designated to receive notices for each
Partner pursuant to Section 2.14 of Appendix A, and any such person may be
replaced by the designating Partner on notice to the other Partner in
accordance with said Section 2.14. Each Partner agrees to give any approval
required under this Section 4.02, or to indicate that such approval will not
be given, within 30 days of written request by the other Partner or the
Partnership.
SECTION 4.03. Restrictions on Partners. Neither Partner may,
without the prior written consent of the other Partner:
(a) confess a Judgment against the Partnership;
(b) except as contemplated by Section 8.05(b) or (c), make any
agreement on behalf of or otherwise purport to bind the other Partner or
the Partnership;
(c) do any act in contravention of this Agreement;
(d) except as contemplated by Article XI, dispose of the good will
or the business of the Partnership;
(e) assign the property of the Partnership in trust for creditors
or on the assignee's promise to pay any Indebtedness of the Partnership;
(f) submit a Partnership claim or liability to arbitration or
reference; or
(g) release the other Partner from its obligations under this
Agreement.
ARTICLE V
Management and Operations of Partnership
SECTION 5.01. The Governing Board. (a) General. (i) Except as
otherwise provided herein, complete and exclusive power to direct and control
the Partnership is delegated to a governing committee of six individuals
appointed an provided in this Article V (the "Governing Board"). The
Partnership shall be operated on a day-to-day basis by its officers and
employees, governed by the Governing Board.
(ii) Subject to Article IV, the Governing Board is authorized
and directed, as soon as practicable, to delegate to the Chief Executive
Officer responsibility for the day-to-day operation of the Partnership's
business. Schedule 5.01 sets forth those responsibilities that shall
initially be delegated to the Chief Executive Officer (subject to
revision from time to time by the Governing Board in response to the
Partnership's operating requirements). Any power not delegated pursuant
to a policy of delegation adopted by the Governing Board shall remain
with the Governing Board. Approval by or action taken by the Governing
Board in accordance with this Agreement shall constitute approval or
action by the Partnership.
(b) Members of the Governing Board; Voting; etc. (i) Subject
to Section 5.01(b)(xii) and Section 10.11(d), the IBM Partner shall
appoint three members, and the CIRRUS Partner shall appoint two members,
of the Governing Board. All such members appointed by either Partner are
referred to herein an the "Designated Members".
(ii) Each Partner shall be entitled to name an alternate member
(who shall be reasonably satisfactory to the other Partner) to serve in
the place of any Designated Member appointed by such Partner should any
such Designated Member not be able to attend a meeting or meetings.
(iii) Each Designated Member or alternate member shall
serve at the pleasure of the designating Partner and may be removed as
such, with or without cause, and his successor designated, by the
designating Partner.
(iv) Each Partner shall bear any cost incurred by any
Designated Member designated by it to serve on the Governing Board, and
no member of the Governing Board shall be entitled to compensation from
the Partnership for serving in such capacity.
(v) Each Partner shall notify the other Partner and the
Partnership of the name, business address and business telephone and
facsimile numbers of each Designated Member and each alternate member
that such Partner has appointed to the Governing Board. Each Partner
shall promptly notify the other Partner and the Partnership of any
change-in such Partner's appointments or of any change in any such
address or number.
(vi) The sixth member of the Governing Board will be, ex
officio, the Chief Executive Officer of the Partnership from time to
time, who will not be entitled to vote at meetings of the Governing
Board. Upon ceasing to be Chief Executive Officer for any reason, such
person shall automatically cease to be a member of the Governing Board.
The Partnership shall bear any cost incurred by the Chief Executive
Officer to serve on the Governing Board. The Chief Executive Officer
shall not be entitled to any additional compensation from the Partnership
for serving as a member of the Governing Board.
(vii) For purposes of any approval or action taken by the
Governing Board, each member of the Governing Board (with the exception
of the Chief Executive Officer) shall have one vote. Subject to
Section 5.01(c)(v), a majority of the votes eligible to be cast at any
meeting shall be required for purposes of approving any action to be
taken by the Governing Board at such meeting.
(viii) At any meeting of the Governing Board, a Designated
Member, in the absence of another Designated Member appointed by the same
Partner or an alternate member, may cast the vote such absent Designated
Member would otherwise be entitled to cast.
(ix) The quorum necessary for any meeting of the Governing
Board shall be those members entitled to cast a majority of the votes
hold by the members of the Governing Board. A quorum shall be deemed not
to be present at any meeting for which notice was not properly given
under Section 5.01(c), unless the member or members as to whom such
notice was not properly given attend such meeting without protesting the
lack of notice or duly execute and deliver a written waiver of notice or
a written consent to the holding of such meeting.
(x) Any action taken by a Designated Member of the Governing
Board in such Designated Member's capacity as such shall, so far as the
Partners are concerned, be deemed to have been duly authorized by the
Partner that appointed such Designated Member; provided, however, that
any such action shall not be deemed to be an approval, consent or
agreement of such Partner for any purposes of this Agreement (including
under Section 4.01), which approval, consent or agreement must be
separately obtained in writing.
(xi) Each appointment by a Partner to the Governing Board shall
remain in effect until the Partner making such appointment notifies the
other Partner of a change in such appointment. The resignation or
removal of a member of the Governing Board shall not invalidate any act
of such member taken before the giving of such written notice of the
removal or resignation of such member.
(xii) If there has occurred and is continuing an Event of
Default with respect to a Partner or its Parent, the number of members to
be appointed to the Governing Board by such Partner (and the aggregate
number of votes they are entitled to cast) may be reduced at the election
of the Nondefaulting Partner by two if such Partner is the IBM Partner
and by one if such Partner is the CIRRUS Partner, and the total number of
members of the Governing Board will be correspondingly reduced so long as
such Event of Default is continuing. Such Partner shall immediately
designate which of its appointees shall be removed, failing which the
other Partner may make such designation.
(c) Meetings, Notice, etc. (i) Meetings of the Governing
Board shall be held at the principal offices of the Partnership or at
such other place as may be determined by the Governing Board.
(ii) Regular meetings of the Governing Board shall be held at
least quarterly on such dates and at such times as shall be determined by
the Governing Board.
(iii) Notice of any regular meeting or special meeting
pursuant to Section 5.01(c)(iv) shall be given to each member and
alternate member of the Governing Board by the Partnership or any Partner
at least ten Business Days prior to such meeting in the case of a meeting
in person or at least five days prior to such meeting in the case of a
meeting by conference telephone or similar communications equipment
pursuant to Section 5.01(c)(vi).
(iv) Special meetings of the Governing Board may be called by
any Designated Member by notice given in accordance with the notice
requirements set forth in Section 5.01(c)(iii), which notice shall state
the purpose or purposes for which such meeting is being called. No
action may be taken and no business may be transacted at such special
meeting which is not identified in such notice unless (a) such action or
business is incidental to the action or business for which the special
meeting is called or (b) such action or business does not materially
adversely affect either Partner or the Partnership.
(v) The actions taken by the Governing Board at any meeting,
however called and noticed, shall be as valid as though taken at a
meeting duly held after regular call and notice if (but not until),
either before, at or after the meeting, any member as to whom it was
improperly hold duly executes and delivers a written waiver of notice or
a written consent to the holding of such meeting; provided, however, any
member that is present at a meeting shall be deemed to have received
adequate notice thereof. A vote of the Governing Board may be taken
either in a meeting of the members thereof or by written consent of the
Designated Members eligible to cast a majority of the votes on the
Governing Board without a meeting, which majority for a written consent
shall be required to include, at a minimum, one member of the Governing
Board appointed by each Partner.
(vi) A meeting of the Governing Board may be held by conference
telephone or similar communications equipment by means of which all
members participating in the meeting can be heard by all other
participants. Any member of the Governing Board may elect to participate
in a meeting by conference telephone or similar communications equipment
upon sufficient advance notice to permit arrangements therefor to be
made.
(vii) The Governing Board shall, from time to time, elect
one of its members to preside at its meetings. The Governing Board may
establish reasonable rules and regulations to (A) require officers to
call meetings and perform other administrative duties, (B) limit the
number and participation of observers, if any, and require them to
observe confidentiality obligations and (C) otherwise provide for the
keeping and distribution of minutes and other internal Governing Board
governance matters not inconsistent with the terms of this Agreement.
(d) Partners May Act. Nothing in this Section 5.01 shall derogate
from the power of the Partners, which is absolute, to agree in writing to
cause the Partnership to act or refrain from acting as to any specific item or
matter.
SECTION 5.02. Officers; Employees. (a) General. (i) The
officers of the Partnership shall be the Chief Executive Officer and such
other officers as may be determined by the Governing Board from time to
time to be necessary or advisable in the conduct of the business and
affairs of the Partnership. The Partnership shall at all times have a
Technical Coordinator to be selected in accordance with Section 5.02(b).
Any individual may hold more than one office. The initial officers of
the Partnership are listed in Schedule 5.02.
(ii) The Chief Executive Officer shall be appointed and shall
be subject to removal with or without cause by the Governing Board and
shall be reasonably acceptable to the IBM Partner and the CIRRUS Partner.
The Chief Executive Officer will also be subject to removal as provided
in Section 5.02(c).
(iii) The CIRRUS Partner shall have the right to nominate
for appointment by the Governing Board one of the senior members of the
staff reporting to the Chief Executive Officer (the "CIRRUS Nominee"),
which person shall be reasonably acceptable to the IBM Partner. The
CIRRUS Partner shall have the right to appoint the CIRRUS Nominee to the
position of chief technical officer or chief operating officer, as
determined by the CIRRUS Partner upon the nomination of the initial
Cirrus Nominee, and if such CIRRUS Nominee resigns or is removed from
office, the CIRRUS Partner shall have the right to nominate a replacement
CIRRUS Nominee to the same position, it being understood that, at all
times, the CIRRUS Partner shall be entitled to have one CIRRUS Nominee
serving on the senior staff reporting to the Chief Executive Officer but
shall not have the right to have more than one CIRRUS Nominee serving on
such senior staff without the agreement of the IBM Partner. Annually, if
such senior member of the staff nominated by the CIRRUS Partner is no
longer acceptable to the CIRRUS Partner, the CIRRUS Partner shall have
the right to nominate a replacement, who shall also be reasonably
acceptable to the IBM Partner.
(iv) Partnership officers and employees will be solely employed
by the Partnership. An officer or an employee of the Partnership or any
of its Subsidiaries may not serve as an officer, employee or agent of, or
be on the payroll of, or receive any other compensation from, a Partner,
Parent or any of its Subsidiaries other than previously granted
compensation which may vest with the passage of time or otherwise.
(v) Employees of the Parents (or any of their Subsidiaries)
may provide services to the Partnership as Seconded Employees. Any such
Seconded Employees will be solely employed by the relevant Parent (or
Subsidiary), which will retain all liabilities relating to such Seconded
Employees. Any Seconded Employee shall be subject to removal from all
activities related to the Partnership with or without cause by the
Partner that employs or whose Subsidiaries employ such Seconded Employee.
(vi) All officers of the Partnership shall (A) report to the
Chief Executive Officer or other officer designated by the Chief
Executive Officer (except that the Chief Executive Officer shall report
to the Governing Board), (B) have the powers, duties and responsibilities
set forth in this Section 5.02 or as otherwise prescribed by the
Governing Board, (C) serve for the term designated by the Governing
Board, subject to removal with or without cause by the Governing Board
and as provided in Section 5.02(a)(v) and Section 5.02(c), and (D) attend
meetings of the Governing Board as requested.
(vii) The Partnership will have agreements and policies
with each of its officers, employees and consultants with respect to
(A) protection of confidential information, (B) patent and copyright
assignment and (C) invention disclosure.
(b) Chief Executive Officer. The Chief Executive Officer shall
(i) be the chief executive officer of the Partnership who shall have the usual
powers, duties and responsibilities incident thereto, subject to additions,
modifications and deletions thereof from time to time by the Governing Board
and those powers, duties and responsibilities specifically reserved hereunder
to the Partners and the Governing Board, (ii) subject to Section 5.02(a)(iii),
be responsible for the hiring and firing of all other officers of the
Partnership or any of its Subsidiaries, (iii) oversee the conduct of the
business and affairs of the Partnership and manage the day-to-day operations
of the Partnership, subject to the control of the Partners and the Governing
Board, and (iv) see that all orders and resolutions of the Partners and the
Governing Board are carried into effect.
(c) Performance Goals. The Chief Executive Officer will be subject
to a performance plan tied to attaining the production cost set forth in the
Partnership's then current Business Plan. [*]
SECTION 5.03. Insurance. The Partnership shall maintain insurance
against such liabilities and other risks associated with the conduct by the
Partnership of its business and in such amounts and against such risks as
agreed by the Partners, and in any event as is generally maintained by
companies engaged in a business similar to that of the Partnership.
ARTICLE VI
Capital Contributions and Distributions
SECTION 6.01. Capital Contributions. (a) Pursuant to the
Participation Agreement, on the Initial Funding Date, each Partner shall cause
the Assets (including cash) to be transferred by it to the Partnership on the
Initial Funding Date so to be transferred, and each Partner shall be assigned
its Percentage interest in the Partnership. The Partners agree that the
aggregate fair market value of the Assets, at the time of their contribution
to the Partnership (net of all liabilities secured by such Assets that the
Partnership is considered to assume or take subject to under Section 752 of
the Internal Revenue Code of 1986, as amended (including the regulations
promulgated thereunder, the "Code")), is and will be $21,424,000 (after giving
effect to any distribution to be made pursuant to Section 6.02(b)) in the case
of the IBM Partner (or 52% of total capitalization) and $19,776,000 in the
case of the CIRRUS Partner (or 48% of total capitalization).
(b) The Partners shall each make equal additional capital
contributions in cash in respect of estimated requirements of the Partnership
following the Initial Funding Date as set forth in the Initial Business Plan.
Such additional contributions shall be made on the dates and in the respective
amounts reflected an Schedule 6.01(b).
(c) Upon receipt of at least five Business Days written notice from
the Governing Board, the IBM Partner shall make additional contributions from
time to time during the period ending on December 31, 1995, up to an aggregate
amount equal to the lesser of (i) the excess, if any, of (A) the Partnership's
Cost incurred in connection with the manufacture of Semiconductor Wafers to be
purchased by IBM and by CIRRUS pursuant to the IBM Sales Agreement and the
CIRRUS Sales Agreement during the period ending on December 31, 1995, over
(B) the sum of the amounts payable by CIRRUS pursuant to Section 8.2 of the
CIRRUS Sales Agreement (without any reduction or modification pursuant to
Section 8.9 of the CIRRUS Sales Agreement) and by IBM pursuant to Section 8.2
of the IBM Sales Agreement and (ii) [*].
(d) In the event that, in accordance with Section 8.9 of the CIRRUS
Sales Agreement, CIRRUS becomes entitled to purchase Semiconductor Wafers for
[*] plus amounts payable pursuant to Sections 5.1, 8.4 and l3 of the CIRRUS
Sales Agreement, the IBM Partner, upon receipt of at least five Business Days
written notice from the Governing Board, shall make additional capital
contributions as required in an aggregate amount equal to the difference
between the aggregate amount payable by CIRRUS for such Semiconductor Wafers
purchased pursuant to Section 8.9 of the CIRRUS Sales Agreement and the
aggregate amount that would have been payable by CIRRUS for such Semiconductor
Wafers if said Section 8.9 had not been applicable.
(e) In the event that, in accordance with Section 8.07 of this
Agreement, any costs incurred by the Partnership with respect to Indebtedness
specifically attributable to the IBM Partner's partnership interest (or any
costs incurred or revenues or gains recognized by the Partnership with respect
to assets acquired with such Indebtedness) are treated as attributable solely
to product to be purchased by IBM pursuant to Section 8.3 of the IBM Sales
Agreement, the IBM Partner, upon receipt of at least five Business Days
written notice from the Governing Board, shall make additional capital
contributions as required in an aggregate amount equal to the difference
between the price received by the Partnership for such product under the IBM
Sales Agreement and the total cost of such product, including the total costs
(net of total revenues or gains) allocated under Section 8.07 of this
Agreement to the cost of such product.
(f) Upon receipt of at least 10 Business Days written notice from
the Governing Board given at any time after the Initial Funding Date, each
Partner shall make additional capital contributions in cash from time to time
in an amount equal to 50 percent of the Residual Shortfall of the Partnership;
provided, however, in the event that the Cirrus Sales Agreement has been
terminated for any of the reasons specified in Section 12 thereof arising from
a default or breach by CIRRUS or the CIRRUS Partner and the Partnership has
not been dissolved, the CIRRUS Partner shall be responsible for that portion
of the Residual Shortfall equal to the sum of (i) the amount CIRRUS would have
been required to pay pursuant to Section 7.14 of the CIRRUS Sales Agreement
and (ii) 50 percent of any remaining Residual Shortfall; and provided,
further, however, in the event that the IBM Sales Agreement has been
terminated for any of the reasons specified in Section 12 thereof arising from
a default or breach by IBM or the IBM Partner and the Partnership has not been
dissolved, the IBM Partner shall be responsible for that portion of the
Residual Shortfall equal to the sum of (i) the amount IBM would have been
required to pay pursuant to Section 7.5 of the IBM Sales Agreement and
(ii) 50% of any remaining Residual Shortfall. As used herein, the term
"Residual Shortfall" means the excess, if any, of (i) the total expenses of
the Partnership incurred in connection with its operations as contemplated by
the Operative Documents including the Initial Business Plan and subsequent
Business Plans over (ii) the sum of (A) the amounts payable therefor by CIRRUS
and IBM pursuant to the CIRRUS Sales Agreement and the IBM Sales Agreement
(after taking into account all adjustments and credits to payments provided
for in the CIRRUS Sales Agreement and the IBM Sales Agreement) plus
(B) amounts required to be contributed by the Partners pursuant to
Sections 6.01(c), (d) and (e); provided, however, "Residual Shortfall" shall
exclude obligations for extraordinary third-party liabilities arising from
matters such an torts or environmental claims in an amount per occurrence in
excess of [*] and provided, further, however, that the foregoing exclusion
from "Residual Shortfall" shall not apply to claims against the Partnership by
IBM for indemnification pursuant to Section 30 of the IBM Real Estate Lease.
Residual Shortfall shall include the amount (if any) by which the balance
referred to in Section 6.01(c)(i) exceeds [*].
(g) No further capital contributions shall be required, unless
otherwise agreed upon by the Partners in writing, in which case such
additional contributions shall be made in equal amounts.
SECTION 6.02. Distributions. (a) General. Subject to
Sections 6.02(b), 6.02(c), 6.02(d), 6.02(e) and 11.04, all distributions of
Partnership cash or other property to the Partners shall be made at the times
and in the amounts determined by the Governing Board. Except as provided in
this Section 6.02 and Section 11.04, each distribution to the Partners shall
be made pro rata in accordance with their respective Percentages.
(b) Special Distribution on Initial Funding Date. On the Initial
Funding Date, the Partnership shall make a distribution in cash to the IBM
Partner in an amount equal to the excess, if any, of the aggregate fair market
value of the Assets to be contributed by the IBM Partner over [*]. The
Partnership shall comply with Treasury Regulation Sections 1.707-3
through 1.707-8 with respect to such compensatory distribution.
(c) Special Distributions to Adjust Certain Post-Closing Capital
Contributions. In the event that either Partner makes any capital
contribution in an amount set forth in a written notice issued by the
Governing Board pursuant to Section 6.01(c), (d), (e) or (f) and the amount
set forth in such written notice is subsequently determined to have been
greater than the amount required as correctly calculated under
Section 6.01(c), (d), (e) or (f), a distribution shall be made to such Partner
in the amount of such excess capital contribution.
(d) Mandatory Distributions for Taxes. To the extent of available
cash and cash equivalents, the Partnership shall make distributions in respect
of each Fiscal Year to the Partners pro rata in accordance with the allocation
of Net Profits and Net Losses as set out in Section 7.02(a) to the extent
necessary to most the Partners' aggregate Federal, state and local income tax
liabilities with respect to such Fiscal Year (including estimated payments),
calculated as if the highest marginal statutory Federal and New York State and
local corporate rates were applicable to each Partner for all periods, in
respect of Net Profits for such Fiscal Year. Any distributions required
pursuant to this Section 6.02(d) shall be made within a reasonable time prior
to the due date of any such tax payment.
(e) Reallocation of Gross Income. To the extent of a reallocation
of gross income from a Partner (or an Affiliate of a Partner) to the
Partnership which is specially allocated under Section 7.02(c) of this
Agreement, the Partnership shall seek approval from the Internal Revenue
Service ("IRS") to establish an appropriate account receivable from the
Partner (or an Affiliate of the Partner) under the principles of Rev.
Proc. 65-17. Furthermore, any payment of an account receivable established
under the principles of Rev. Proc. 65-17 shall, when received by the
Partnership, be distributed to the Partner to which the income was specially
allocated under Section 7.02(c) of this Agreement. In the event that no such
account receivable is established, the Partnership shall be deemed to have
distributed an amount to such Partner equal to the income which was specially
allocated to that Partner under Section 7.02(c) of this Agreement.
SECTION 6.03. No Interest. No interest shall be payable to the
Partners on their capital contributions or otherwise in respect of the capital
of the Partnership.
SECTION 6.04. Withdrawal of Capital. No Partner shall be entitled
to withdraw capital or receive distributions except as specifically provided
herein.
ARTICLE VII
Capital Accounts and Allocations of
Profit and Loss
SECTION 7.01. Capital Accounts. (a) The Partnership shall
establish and maintain for each Partner on the books of the Partnership a
capital account ("Capital Account") in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(b). A Partner's initial Capital Account shall be
increased (without duplication) by (i) the amount of any cash contributions
made by or on behalf of such Partner to the Partnership, (ii) the fair market
value of any property contributed by or on behalf of such Partner to the
Partnership (net of any liabilities secured by such property that the
Partnership in considered to assume or take subject to under Code
Section 752), and (iii) the amount of all Net Profits (or items thereof)
allocated to such Partner pursuant to Sections 7.02 and 7.04; and a Partner's
Capital Account shall be decreased by (x) the amount of any Net Losses (or
items thereof) allocated to such Partner pursuant to Section 7.02 and (y) all
amounts distributed by the Partnership to such Partner (including the fair
market value of any property distributed in kind, net of all liabilities
secured by such property that such Partner is considered to assume or take
subject to under Code Section 752). Immediately following the Initial Funding
Date and after giving effect to the special distribution to the IBM Partner
pursuant to Section 6.02(b), the Capital Account of the IBM Partner shall have
a credit balance of [*], or 52% of the total capitalization of the
Partnership, and the Capital Account of the CIRRUS Partner shall have a credit
balance of [*], or 48% of the total capitalization of the Partnership.
(b) Upon the occurrence of any event specified in Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), the Capital Accounts of the Partners
may (subject to both Partners' consent, which consent shall not be
unreasonably delayed or withheld) be adjusted to reflect the fair market value
of the Partnership's property at such time and in such manner as provided in
such Regulation.
(c) In the event that any interest in the Partnership in accordance
with the provisions hereof is transferred, the transferee of such interest
shall succeed to the portion of the transferor's Capital Account attributable
to such interest.
SECTION 7.02. Allocation of Net Profits and Net Losses. (a)
General. Subject to Sections 7.02(b) and 7.02(c), the Net Profits and Net
Losses of the Partnership for each Fiscal Year shall be allocated to the
Partners pro rata in accordance with their respective Percentages.
(b) Special Allocations. Special allocations of specific items of
income, gain, loss or deduction may be required for any Fiscal Year as
follows:
(i) items of income and gain shall be allocated between the
Partners at such time and in such amounts as necessary to satisfy the
"minimum gain chargeback" requirements of the Treasury Regulations
promulgated under Code Section 704(b) (the "704(b) Regulations");
(ii) nonrecourse deductions attributable to a "partner
nonrecourse liability" of the Partnership (as defined in the 704(b)
Regulations) shall be allocated among the Partners that bear the economic
risk of loss for such partner nonrecourse liability in accordance with
the ratios in which such Partners share such economic risk of loss and in
a manner consistent with the requirements of the 704(b) Regulations;
(iii) items of income, gain, loss and deduction shall be
allocated to the extent required to satisfy the "qualified income offset"
provisions of the 704(b) Regulations;
(iv) in the event that the IBM Partner is required to make
capital contributions to the Partnership pursuant to Section 6.01(c), (d)
or (e), an aggregate amount of losses equal to the aggregate amount of
said contributions shall be allocated solely to the IBM Partner;
(v) in the event that the Partners are required to make
capital contributions to the Partnership in respect of Residual
Shortfalls pursuant to Section 6.01(f), an aggregate amount of losses
equal to the aggregate amount of said contributions shall be allocated in
the same proportion to the IBM Partner and the Cirrus Partner; and
(vi) in the event that the Partnership is required to make
distributions to either Partner pursuant to Section 6.02(c), an aggregate
amount of income equal to the aggregate amount of said distributions
shall be allocated solely to such Partner.
(c) Reallocations Between the Partnership and a Partner. Any
redistribution reapportionment or reallocation of gross income, deductions,
credits or allowances between the Partnership and a Partner (or Affiliate of
such Partner) effected pursuant to Code Section 482 (along with any penalties,
charges, interest or additions relating thereto) with respect to any
transaction between the Partnership and such Partner (or Affiliate of such
Partner) shall be allocated in full to such Partner. The Partner to which
reallocations under this Section 7.02(c) are made (as well as such Partner's
Parent and Affiliates) shall indemnify and hold harmless the other Partner (as
well as such Partner's Parent and Affiliates) and the Partnership for the
effects of such reallocations (including any taxes, interest, penalties,
charges or other additions), as well as any effects (including any taxes,
interest, penalties, charges or other additions) arising from any adjustments,
cancellations or revocations by the IRS of reallocations made under this
Section 7.02(c). If, as a result of any indemnification made pursuant to this
Section 7.02(c) (including the indemnification described in this sentence),
the capital accounts of the Partners no longer reflect the Percentages of the
Partners (i) such capital accounts will be adjusted to reflect such respective
Percentages, (ii) any such capital account adjustment shall be treated as a
guaranteed payment under Code Section 707(c) and the item of expense arising
from such guaranteed payment shall be the means by which the capital account
of the Partner with the disproportionately large capital account is reduced
and (iii) the Partner to which reallocations under this Section 7.02(c) are
made (as well as such Partner's Parent and Affiliates) shall indemnify and
hold harmless the other Partner (as well as such Partner's Parent and
Affiliates) and the Partnership for the effects of such capital account
adjustments (including any taxes, interest, penalties, charges or other
additions) arising from any adjustments, cancellations or revocations by the
IRS of capital account adjustments made under this Section 702(c).
(d) Authority to Modify Allocations. In the event that the Tax
Matters Partner determines that the allocations otherwise required pursuant to
this Section 7.02 do not properly reflect the economic arrangement of the
Partners or do not comply with the requirements of Code Section 704(b), the
Tax Matters Partner shall be authorized to modify such allocations as
appropriate to more properly reflect the economic arrangement of the Partners
or to comply with Code Section 704(b).
SECTION 7.03. Distribution in Kind. If any asset of the
Partnership is to be distributed in kind, including pursuant to
Section 11.04(a), such asset shall be valued to determine the amount of Net
Profits or Net Losses that would result if such asset were to be sold at its
fair market value, and such Net Profits or Net Losses shall be allocated to
the Capital Accounts of the Partners in accordance with Section 7.02.
SECTION 7.04. Depreciation Recapture. Any Net Profits arising from
a Capital Transaction that is characterized as ordinary income pursuant to
Code Section 1245 or 1250 or any other applicable Code provision shall, to the
extent possible, be allocated to the Partner who was allocated the
depreciation deductions giving rise to such ordinary income; provided,
however, that if the ordinary income that would otherwise be allocated to a
Partner pursuant to this sentence would exceed the Net Profits otherwise
allocable to such Partner pursuant to Section 7.02, such excess shall instead
be allocated to the other Partner.
SECTION 7.05. Allocation Between Assignor and Assignee Partners.
If any interest in the Partnership is assigned or transferred during any
Fiscal Year, then the assignor and assignee shall each be entitled to receive
distributions pursuant to Article VI and allocations of Net Profit and Net
Loss pursuant to this Article VII, as follows:
(a) unless the assignor or assignee shall agree otherwise and so
provide in the instruments of assignment, distributions shall be made to
the Person owning such interest on the date of the distribution; and
(b) subject to applicable Treasury Regulations, Net Profit and Net
Loss shall be allocated based upon the number of days each Person holds
such interest during such Fiscal Year.
SECTION 7.06. Federal Income Tax Allocations. Sections 7.02
through 7.05 provide for the allocation of items of income, gain, losses and
deductions for Capital Account maintenance purposes. The Partnership's
ordinary income and losses and capital gains and losses as determined for
Federal income tax purposes (and each item of income, gain, loss or deduction
entering into the computation thereof) shall be allocated to the Partners in
the same proportions as the corresponding "capital account" items are
allocated pursuant to this Article VII. Notwithstanding the foregoing
sentence, Federal income tax items relating to Section 704(c) Property shall
be allocated to the Partners in accordance with Code Section 704(c) to take
into account the difference between the fair market value and the tax basis of
such Section 704(c) Property as of the date of its contribution to the
Partnership or revaluation pursuant to Section 7.01(b).
SECTION 7.07. Fiscal Year. Unless the Governing Board otherwise
determines or unless otherwise required by the Code or applicable Treasury
Regulations, the Fiscal Year of the Partnership shall end on the last day of
December of each year.
SECTION 7.08. Elections. In the event of a transfer of all or part
of a Partner's interest in the Partnership, the Tax Matters Partner shall at
the request of the transferee cause the Partnership to elect (if such election
is not already in effect) pursuant to Code Section 754 to adjust the basis of
the Partnership's property in the manner provided in Code Section 743,
provided that any such basis adjustment shall be allocated solely to such
transferee.
ARTICLE VIII
Accounting and Taxation
SECTION 8.01. Accrual Basis; Financial Accounting Conventions. (a)
The books and records of the Partnership shall be kept on an accrual basis.
(b) For financial accounting purposes, income and loss of the
Partnership calculated in accordance with GAAP shall be allocated to the
Partners in accordance with Section 7.02.
SECTION 8.02. Maintenance of Books of Account. (a) General. The
Partnership shall keep or cause to be kept at its principal office or where
the Governing Board shall designate full and complete books of account. The
books of account shall be maintained in a manner that provides sufficient
assurance that transactions of the Partnership are recorded so as to comply
with all applicable laws and to permit (a) the preparation of the
Partnership's consolidated financial statements in accordance with GAAP
consistently applied and (b) the Partners to account for their interest in the
Partnership in accordance with GAAP.
(b) Certain Pricing Documentation. In the case of any transaction
between the Partnership and a non-U.S. Affiliate of a Partner, the Partner of
such Affiliate shall, in accordance with Code Sections 482 and 6662 and the
Treasury regulations thereunder, (i) determine the appropriate pricing method
for such transfer and (ii) create and maintain for the Partnership any
contemporaneous documentation required to support such pricing method;
provided, however, that the Partner making such determination shall have no
obligation to reveal to the Partnership or the other Partner any data or other
information used in supporting such method which it regards as confidential.
If the Partnership or either Partner is compelled by the IRS or other
Governmental Authority to provide such data or other information, the Partner
in possession of such data or information shall provide it to the IRS or such
other Governmental Authority.
SECTION 8.03. Financial Statements. (a) Annual Statements. As
soon as practicable following the end of each Fiscal Year (and in any event
not later than 60 days after the end of such Fiscal Year), the Partnership
shall prepare and deliver to each Partner and the Governing Board consolidated
and consolidating balance sheets of the Partnership as of the end of such
Fiscal Year and the related consolidated and consolidating statements of
operations, Partners' capital accounts and cash flows of the Partnership for
such Fiscal Year (or similar statements if such statements change as the
result of changes in GAAP), together with appropriate notes to such
consolidated financial statements, and in each case setting forth in
comparative form the corresponding figures for the preceding Fiscal Year and
for the budget for the Fiscal Year just completed. Such consolidated
financial statements shall be accompanied by the report of the Accountants to
the effect that such consolidated financial statements (except for the
comparison to the budget) have been prepared in conformity with GAAP applied
on a basis consistent with prior years (except as otherwise specified in such
report) and that the audit of such consolidated financial statements has been
performed in accordance with GAAS. The Partnership shall conduct its business
so that such report of the Accountants shall not contain any qualifications as
to the scope of the audit or with respect to the Partnership's compliance with
GAAP consistently applied, except for changes in methods of accounting in
which such Accountants concur and except that the foregoing shall not be
deemed to obligate either Partner to contribute any capital to the Partnership
other than as provided in Section 6.01. At the same time, the Partnership
shall deliver at the Partnership's sole expense to each Partner a report
indicating such Partner's share of all items of income, gain, loss, deduction
and credit of the Partnership for such Fiscal Year on a GAAP basis for
financial reporting purposes and for Federal income tax purposes and any other
financial information related to the Partnership which is reasonably requested
by a Partner for Federal, state, local or foreign income or franchise or other
tax purposes.
(b) Quarterly Statements. As soon as practicable following the end
of each Fiscal Quarter (and in any event not later than 30 days after the end
of such Fiscal Quarter), the Partnership shall prepare and deliver to each
Partner and the Governing Board consolidated and consolidating balance sheets
of the Partnership as of the end of such Fiscal Quarter and the related
consolidated and consolidating statements of operations, Partner's capital
accounts and cash flows of the Partnership for such Fiscal Quarter and for the
Fiscal Year to date (or similar statements if such statements change as the
result of changes in GAAP), in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Quarter, for the Fiscal Quarter
of the prior Fiscal Year corresponding to the Fiscal Quarter just completed
and for the budget for such Fiscal Quarter and for the Fiscal Year to date.
At such time, the Partnership shall deliver at the Partnership's sole expense
to each Partner an estimate of such Partner's share of all items of income,
gain, loss, deduction and credit of the Partnership for such Fiscal Quarter
and for the Fiscal Year to date for Federal income tax purposes. Such
consolidated financial statements shall be accompanied by a certificate of the
principal accounting or financial officer of the Partnership to the effect
that such consolidated financial statements have been prepared under such
officer's supervision and that, although such financial statements do not
contain the footnotes and other disclosures required to be presented in
interim financial statements by GAAP, such financial statements, in such
officer's judgment, fairly present the financial condition and results of
operations of the Partnership as of the date and for the periods indicated,
subject to normal recurring year-end audit adjustments.
SECTION 8.04. Other Reports and Inspection. The Partnership shall
furnish promptly to the Liaison Representative of each Partner such other
documents, reports, financial data and information relating to the Partnership
as such Partner may reasonably request. The Partnership shall, upon
reasonable prior notice and during normal business hours, make available to
the Liaison Representative of each Partner all properties, assets, books of
account, corporate records and contracts of the Partnership, and any other
material requested by such Partner, for inspection and, in the case of books
of account, corporate records and contracts, copying, and shall use reasonable
efforts to make available to the Liaison Representative of such Partner the
Accountants, the Chief Executive Officer and the key employees of the
Partnership for interviews to verify any information furnished or to enable
such Partner otherwise to review the Partnership and its operations. The
Partnership may condition such availability upon the entry into reasonable and
appropriate confidentiality agreements. Each Partner, at its own expense,
shall also be entitled to audit the Partnership's books and records on an
annual basis during normal working hours. The Liaison Representatives may
make recommendations in written form to the Chief Executive Officer and the
Partners concerning the operation of the Partnership, including with respect
to the proposed annual Business Plan.
SECTION 8.05. Taxation. (a) Characterization. The Partners intend
that the Partnership shall be treated as a partnership for Federal, state,
local and foreign income and franchise tax purposes and shall take all
reasonable action, including the amendment of this Agreement and the execution
of other documents, as may be reasonably required to qualify for and receive
treatment as a partnership for Federal income tax purposes.
(b) Tax Matters Partner. The IBM Partner shall be the Tax Matters
Partner of the Partnership within the meaning of Code Section 6231(a)(7) and
shall act in any similar capacity under applicable state, local or foreign law
(in such capacity, the "Tax Matters Partner"). All reasonable expenses
incurred by the IBM Partner while acting in such capacity shall be paid or
reimbursed by the Partnership upon approval of the chief financial officer of
the Partnership; provided, however, that with respect to any matter described
in Section 7.02(c), the Partner to which is reallocated any item described in
Section 7.02(c) (whether or not such reallocation is adjusted, cancelled or
revoked by the IRS) shall (i) pay or reimburse all expenses incurred by the
IBM Partner while acting in its capacity as the Tax Matters Partner in
connection with such matter and (ii) pay or reimburse all out of pocket costs
incurred by the Partnership in connection with such matter.
(c) Tax Returns.
(1) The Tax Matters Partner shall prepare or cause the
Accountants to prepare and file on a timely basis the Federal tax returns of
the Partnership. The Tax Matters Partner shall cause state, local and any
other tax returns required to be filed by the Partnership to be prepared and
filed on a timely basis. The Tax Matters Partner shall consult with the
CIRRUS Partner regarding all nonministerial decisions described below in
Section 8.05(c)(2)(iii). Any disagreement with respect to such consultation
will be resolved in the manner described in Section 8.05(c)(3). No Partner
shall file any tax return that is inconsistent with the tax returns filed by
the Partnership except an provided in Section 8.05(c)(3).
(2) The Tax Matters Partner shall take such action as may be
reasonably necessary to constitute the CIRRUS Partner as a "notice partner"
within the meaning of Code Section 6231(a)(8). The Tax Matters Partner shall
furnish to each Partner within five days (or within such shorter period as may
be required by the appropriate statutory or regulatory provisions) (i) copies
of all notices or other written communications received by the Tax Matters
Partner from the IRS, (ii) written notice of all material communications the
IRS has had with the Tax Matters Partner and (iii) written notice of all non-
ministerial decisions to be made regarding tax elections, tax returns, tax
audits, tax litigation, tax settlements and other tax matters that may come to
the attention of the Tax Matters Partner in its capacity as Tax Matters
Partner.
(3) The Tax Matters Partner shall deliver to each other
Partner a copy of all written materials (including tax returns) proposed to be
filed with or submitted to the IRS or any other taxing authority at least
30 days prior to the date such filing or submission is required to be made.
If the CIRRUS Partner does not notify the Tax Matters Partner of its objection
to such filing or submission in writing before the fifteenth day before the
date for such filing or submission, the CIRRUS Partner will be considered to
have approved such filing or submission. If the CIRRUS Partner provides such
timely notice of objection, the CIRRUS Partner and the Tax Matters Partner
will negotiate in good faith to reach agreement with respect to such filing or
submission. If the CIRRUS Partner and the Tax Matters Partner are unable to
reach such an agreement within 30 days, the CIRRUS Partner and the Tax Matters
Partner shall appoint a "Big Six" accounting firm (except any "Big Six"
accounting firm that is one of the Accountants) to determine the position that
should be taken by the Partnership. Each Partner shall retain the right to
take a position inconsistent with such determination to the extent allowed
under Section 6222 of the Code or comparable provisions of state or local law.
SECTION 8.06. Deposit Of Funds. All funds of the Partnership and
its Subsidiaries not otherwise employed shall be deposited from time to time
to its credit in such banks or trust companies or other depositories or
invested in such other short-term investments held as cash equivalents as the
Governing Board shall authorize. The funds of the Partnership and its
Subsidiaries shall not be commingled with the funds of either Partner or any
Affiliate of either Partner.
SECTION 8.07. Partnership Borrowings. The incurrence by the
Partnership or any of its Subsidiaries of any Indebtedness for money borrowed
in a transaction approved by a majority of the members of the Governing Board
appointed by the IBM Partner but not approved by any member of the Governing
Board appointed by the CIRRUS Partner (other than an set forth in the Initial
Business Plan or a subsequently approved Business Plan) will be treated as
indebtedness specifically attributable to the IBM Partner's partnership
interest. Unless such Indebtedness has been approved by both Partners,
(i) any costs (including interest and repayment of principal) incurred by the
Partnership with respect to such Indebtedness will be treated as a cost
attributable solely to product to be purchased by IBM pursuant to Sections 8.3
and 8.5 of the IBM Sales Agreement, (ii) any costs (including depreciation)
incurred by the Partnership with respect to assets purchased with such
Indebtedness will be treated as a cost attributable solely to product to be
purchased by IBM pursuant to Sections 8.3 and 8.5 of the IBM Sales Agreement
and (iii) any revenues or gains recognized by the Partnership with respect to
assets purchased with such Indebtedness will be treated as a reduction in cost
attributable solely to product to be purchased by IBM pursuant to Sections 8.3
and 8.5 of the IBM Sales Agreement.
ARTICLE IX
Initial Actions
SECTION 9.01. Partnership Actions. The Partners hereby authorize
the Partnership to, and ratify (including for purposes of Section 4.01) all
action having been taken to, execute and deliver the Operative Documents to
which it is or is specified to be a party, including all certificates,
agreements and other documents required in connection therewith on the Closing
Date.
SECTION 9.02. Initial Members of the Governing Board. (a) The
initial representatives of the IBM Partner on the Governing Board shall be
those individuals specified by the IBM Partner in writing at the Closing.
(b) The initial representatives of the CIRRUS Partner on the
Governing Board shall be those individuals specified by the CIRRUS Partner in
writing at the Closing.
ARTICLE X
Certain Agreements of the Partners
SECTION 10.01. Transfer of or Liens on Partners' Interests. Each
Partner agrees that it shall not Transfer, or grant or permit to exist any
Lien (except Permitted Liens) on, all or any part of its right, title or
interest in, to or under the Partnership or this Agreement without the prior
written consent of the other Partner (which may be withheld in its sole
discretion), and any such purported Transfer or Lien made without such consent
shall be void; provided, however, that a Partner may assign any part or all of
its interest in the Partnership to a United States Subsidiary of such
Partner's Parent if (i) the assignee agrees in writing to become a party
hereto and assumes all the obligations of the assigning Partner hereunder and
under each other Operative Document to which the assigning Partner is a party
and (ii) immediately after giving effect to such assignment, an Event of
Default or an event or condition that with the giving of notice or lapse of
time or both would constitute an Event of Default shall not exist. Following
the effectiveness of any such assignment, the assigning Partner shall no
longer have the assigned right, title or interest in the Partnership or under
this Agreement and the assignee shall be substituted as a Partner for all
purposes of this Agreement to the extent of the assigned interest. The
assigning Partner shall not, however, be released or discharged from any
existing liability or obligation to any Person. Except as provided above in
this Section 10.01 or as otherwise agreed by the Partners, no Person shall be
admitted as an additional or substituted general partner of the Partnership.
Except to the extent required by law, the Partnership shall have no obligation
to recognize or to furnish information or make distributions to any assignee
of a Partner who does not become a substituted Partner in accordance with this
Section 10.01. This Section 10.01 shall not apply to any assignment or
transfer pursuant to Section 10.08, Section 10.10 or Section 10.11.
SECTION 10.02. Code Section 708 Limitation. Notwithstanding any
provision of this Agreement to the contrary, no Partner may Transfer all or
any part of its interest in the Partnership, other than pursuant to
Section 10.08, Section 10.10, Section 10.11 or Article XI, without the prior
written consent of the other Partner (which consent may be withheld in its
sole discretion), if such Transfer would cause a termination of the
Partnership within the meaning of Code Section 708(b)(1)(B).
SECTION 10.03. Special Purpose Covenant. Neither Partner shall
(a) conduct any business other than being a general partner of the Partnership
and performing its obligations under the Operative Documents to which it is or
becomes a party, (b) issue or become liable in respect of any Indebtedness or
other obligations or become a party to or bound by any contract or other
document other than (i) any necessary or appropriate incidents of corporate
existence and qualification, (ii) pursuant to the Operative Documents to which
it is or becomes a party or other documents delivered at the Closing, (iii) as
a result of its status as a general partner of the Partnership or (iv) as a
result of its status as a consolidated subsidiary of its Parent for income tax
purposes, (c) offer, sell or issue any of its securities, except to its Parent
or any of such Parent's Subsidiaries, or (d) own or hold any assets other than
(x) $10,000 or less in capital and surplus, (y) its right, title and interest
in and to the Partnership and under this Agreement and (z) distributions
received from the Partnership, which, when received, immediately shall be
(1) distributed or dividended to the owners of its equity securities,
(2) applied to reduce or discharge an obligation or liability, (3) contributed
to the Partnership or (4) otherwise disposed of so that such Partner will then
be in compliance with this Section 10.03(d).
SECTION 10.04. Maintenance of Existence; Consolidation, Merger or
Sale. Each Partner shall maintain its existence and shall not dissolve or
merge with or into or consolidate with any Person.
SECTION 10.05. Taxes and Charges; Governmental Rules. Each Partner
shall (a) promptly pay all applicable Taxes and other governmental charges
except to the extent any such Taxes or other charges are being contested in
good faith by appropriate proceedings and (b) comply with all applicable
Governmental Rules, except to the extent that such noncompliance will not have
a material adverse effect on the Partnership.
SECTION 10.06. Further Assurances. Following the Closing, each
Partner shall, at its own cost, do, execute and perform all such other acts,
deeds and documents as the other Partner or the Partnership may from time to
time reasonably require in order to carry out fully the intents and purposes
of this Agreement or to comply with any applicable Governmental Rule, provided
that no Burdensome Condition shall exist with respect to such Partner or any
of its Affiliates in connection therewith.
SECTION 10.07. Escalation; Deadlock. If the Partners are unable to
agree on any matter requiring the approval of the Partners pursuant to
Section 4.01 or Section 4.02, then either Partner may, by written notice to
the other Partner, elect to invoke the escalation procedure set out in
Section 2.15(b) of Appendix A. The Partners shall attempt to resolve the
issue or proposed action in question, to the extent practicable, in a manner
that is consistent with the Partnership's then effective Business Plan. If
within 30 days after the initiation of such escalation procedure (or such
longer period as may be agreed in writing by the Senior Executives), the
Partners do not agree with respect to the subject matter of such disagreement,
then within 10 Business Days thereafter either Partner may elect by written
notice to the other Partner to declare a deadlock ("Deadlock"). So long as a
Deadlock continues to exist with regard to any action proposed to be taken by
the Partnership, the Partnership shall not undertake such action; provided,
however, in the event of a Deadlock subsequent to December 31, 1999, involving
an action described in Section 4.01(a)(6), but with a threshold amount
exceeding [*] in case of Section 4.01(a)(6)(iii), either Partner may elect by
written notice to the other Partner given within 30 days following the
declaration of the Deadlock to cause the dissolution of the Partnership
pursuant to Article XI.
SECTION 10.08. Change of Control of CIRRUS. Upon the notification
to the IBM Partner by the CIRRUS Partner of a Change of Control or a
proposed Change of Control pursuant to Section 10.08(d), subject to the
consummation of such Change of Control (or in the absence of such
notification, 30 days following the occurrence of such Change of Control), the
IBM Partner shall have the option to invoke the termination process set forth
in this Section 10.08 (referred to as the "Change of Control Procedure").
(a) If the IBM Partner elects to invoke the Change of Control
Procedure, the IBM Partner (or any of its Affiliates) may, but shall not be
required to, acquire the entire interest of the CIRRUS Partner in the
Partnership subject to the following:
(i) the CIRRUS Partner shall be paid cash in an amount equal
to the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
CIRRUS and holding CIRRUS harmless for liabilities under the Joint and
Several Lease Guarantees for lease payment obligations arising for
periods after the date the CIRRUS Partner's interest is so acquired.
Following the purchase of the CIRRUS Partner's interest in the Partnership,
the CIRRUS Equipment Lease with respect to equipment then installed and leased
by the Partnership from CIRRUS shall continue in accordance with the terms
then in effect. During the 24-month period following the purchase of the
CIRRUS Partner's interest in the Partnership, the CIRRUS License Agreements
with the Partnership shall continue in accordance with their terms and then
terminate upon expiration of said 24-month period. In the event that the IBM
Partner (or any of its Affiliates) purchases the CIRRUS Partner's interest in
the Partnership pursuant to this Section 10.08, CIRRUS shall be entitled to
Proration of Payments and CIRRUS shall thereafter purchase the Semiconductor
Wafers from the Partnership (or its successor) during the 24-month wind-down
period at Partnership Cost as estimated in the then-current approved Business
Plan plus the per wafer payment specified in Sections 8.4.1 through 8.4.3 of
the CIRRUS Sales Agreement.
(b) If the IBM Partner elects to invoke the Change of Control
Procedure but does not elect to acquire the CIRRUS Partner's interest in the
Partnership pursuant to Section 10.08(a), then the CIRRUS Partner (or any of
its Affiliates) may, but shall not be required to, acquire the entire interest
of the IBM Partner in the Partnership subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Site Services Agreement and the IBM Equipment
Leases with respect to equipment then installed and leased by the Partnership
from IBM shall continue in accordance with the terms then in effect. During
the 24-month period following the purchase of the IBM Partner's interest in
the Partnership, the per-wafer payments payable to IBM pursuant to
Section 4.1.2 of the IBM Patent License shall be reduced to [*] per wafer
(which change shall apply only to those wafers not produced for IBM) and the
IBM Patent License and the IBM Know-How License shall continue for such
24-month period on the same terms, conditions and limitations that were in
effect immediately prior to the Change of Control of CIRRUS but only with
respect to Intellectual Property owned by IBM. The parties acknowledge and
agree that, subsequent to the purchase of the IBM Partner's interest, the
Partnership will not have the opportunity to qualify an a subsidiary of IBM
within the meaning of various third-party cross-licenses to which IBM is a
party and, accordingly, will not be entitled to patent licenses available
under such cross-licenses to such IBM subsidiaries. In the event that the
CIRRUS Partner (or any of its Affiliates) purchases the IBM Partner's interest
in the Partnership pursuant to this Section 10.08(b), IBM shall be entitled to
Proration of Payments and shall purchase the Semiconductor Wafers from the
Partnership (or its successor) during the 24-month wind-down period at the
Partnership Cost, as estimated in the then current approved Business Plan.
(c) In the event that the IBM Partner invokes the Change of Control
Procedure and neither the IBM Partner nor the CIRRUS Partner (or any of their
respective Affiliates) elects to purchase the Partnership interest of the
unaffiliated Partner pursuant to Section 10.08(a) or 10.08(b), then the
Partnership shall be dissolved in accordance with Section 11.02.
(d) The CIRRUS Partner shall notify the IBM Partner in writing not
later than 30 days following the occurrence of a Change of Control of CIRRUS
and, in such event, the CIRRUS Partner shall cause CIRRUS to provide IBM with
a binding offer of a volume wind-down plan for a 24-month transition period
for purchases of wafers from the Partnership by CIRRUS. Any such notice and
the information contained therein shall be deemed "Confidential Information"
for all purposes of the Confidentiality and Inventions Agreements. Within
60 days of IBM's receipt of such notice and wind-down plan (or within 120 days
following the last date on which such notice was due if not delivered), the
IBM Partner shall notify the CIRRUS Partner in writing as to whether it has
decided to continue the Partnership or invoke the Change of Control Procedure
and, if electing to invoke the Change of Control Procedure, whether or not it
(or any of its Affiliates) elects to acquire the Partnership interest of the
CIRRUS Partner. If the IBM Partner elects to invoke the Change of Control
Procedure but does not wish to acquire the Partnership interest of the CIRRUS
Partner, the IBM Partner shall also include in such written notification to
the CIRRUS Partner IBM's binding offer of a volume wind-down plan, for a
24-month transition period for IBM's purchase of wafers from the Partnership
in the event the CIRRUS Partner (or any of its Affiliates) should elect to
acquire the Partnership interest of the IBM Partner. In the latter case, the
CIRRUS Partner shall have a 60-day period following receipt of IBM's
notification and volume wind-down plan to notify the IBM Partner in writing as
to whether or not it (or any of its Affiliates) is electing to purchase the
Partnership interest of the IBM Partner pursuant to Section 10.08(b).
SECTION 10.09. Additional Arrangements. The CIRRUS Partner
acknowledges and agrees that for so long as IBM directly or indirectly owns
more than 50 percent the Partnership, the Partnership will, for various
purposes, be required to take actions as a Subsidiary of IBM, including
complying with contracts and obligations that apply to IBM Subsidiaries
generally, and that the obligations of the Partnership as a Subsidiary of IBM
may adversely affect its business, operations and affairs. Neither the
Partnership nor the CIRRUS Partner shall have any claim or rights against the
IBM Partner or IBM (or any of its Affiliates) as a result of such requirements
and obligations.
SECTION 10.10. Remedies upon Event of Default; Termination on
Breach. If there has occurred and is continuing an Event of Default with
respect to a Partner or its Parent (upon such occurrence with respect to
either a Partner or its Parent, each is referred to herein as the "Defaulting
Partner" and the "Defaulting Parent," respectively, and collectively as the
"Defaulting Party"), in addition to all other remedies available to the
Partnership or the other Partner (the "Nondefaulting Partner") or its Parent,
whether under any of the Operative Documents or other agreements or by law,
the Nondefaulting Partner (and, in the case of Section 10.10(e) or (f), its
Parent) shall have the option to take one or more of the following actions:
(a) acquire the Defaulting Partner's ownership interest in the
Partnership by payment in cash of an amount equal to 100% of the Defaulting
Partner's Capital Account balance, as adjusted to reflect the actions
specified below, if applicable;
(b) cause the Partnership to immediately cease shipment of
Semiconductor Wafers to the Defaulting Parent;
(c) cause the Partnership to selectively terminate up to half of
all the Partnership's leases (based upon total remaining monetary obligations
assuming that such leases had not been terminated or prepaid) within six
months of the Defaulting Partner's or Parent's agreement (or judicial
determination) that it has failed to timely cure the Event of Default, with
the Partnership and the Nondefaulting Partner and its Parent to be indemnified
by the Defaulting Partner and Parent for all amounts payable upon such
termination (provided that the CIRRUS Partner and CIRRUS, as the Defaulting
Party, will not be liable for the payment of termination fees under the IBM
Real Estate Lease) together with all claims arising from such termination up
to a total dollar amount equal to one-half of the then current total remaining
lease obligations of the Partnership under all such leases (including the
leases to be so terminated and including the IBM Real Estate Lease, all
facilities leases, clean rooms and equipment leases), it being understood
that: (i) the Joint and Several Lease Guarantees shall remain in effect for
the IBM Real Estate Lease and the IBM Equipment Leases (other than the IBM
Supplemental Equipment Lease and other than for payment of the termination fee
referred to above) and the Third Party Lease whether or not terminated and
(ii) the Defaulting Parent shall be entitled to an offset against amounts that
it may otherwise be required to pay as reimbursement under Section 9.02 of the
Participation Agreement equal to 50 percent of the amounts paid by the
Defaulting Partner or Parent in respect of leases of the Partnership
terminated pursuant to this Section 10.10(c);
(d) cause the termination and winding up of the Partnership
pursuant to Section 11.03;
(e) if IBM or the IBM Partner is the Defaulting Party, CIRRUS may
also:
(i) terminate all intellectual property licenses by CIRRUS to
the Partnership;
(ii) invoke Proration of Payments if the CIRRUS Partner
terminates the Partnership; and
(iii) have the right, upon acquiring the IBM Partner's
ownership interest in the Partnership, to continue the IBM License
Agreements for a 24-month period, but only with respect to Intellectual
Property owned by IBM, upon the same terms, conditions and limitations
that were in effect prior to the occurrence of such default except that
the per-wafer payments payable to IBM pursuant to Section 4.l.2 of the
IBM Patent License shall be reduced to [*] per wafer; and
(f) if CIRRUS or the CIRRUS Partner is the Defaulting Party, IBM
may also:
(i) terminate all intellectual property licenses by IBM and
IBM cross licenses from third parties to the Partnership;
(ii) invoke Proration of Payments if the IBM Partner terminates
the Partnership; and
(iii) have the right, upon acquiring the CIRRUS Partner's
ownership interest in the Partnership, to continue the CIRRUS License
Agreements for a 24-month period upon the same terms, conditions and
limitations that were in effect prior to the occurrence of such default.
In the event that the IBM Patent License, the IBM Know-How License
or the IBM Real Estate Lease shall be terminated in accordance with the terms
of such agreement as a result of a default or breach by a party thereto
(whether or not such default or breach constitutes an Event of Default), the
CIRRUS Partner and the IBM Partner agree that the Partnership shall be wound
up and dissolved within six months of the date of such termination.
SECTION 10.11. Limiting Agreements. Under the circumstances
contemplated by Section 5.10(c) or 5.10(d) of the Participation Agreement, the
CIRRUS Partner shall have the option to invoke the process set forth in this
Section 10.11 (the "Limiting Agreement Procedure").
(a) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(c) of the Participation Agreement, the IBM
Partner (or any of its Affiliates) may, but shall not be required to, acquire
the entire interest of the CIRRUS Partner in the Partnership subject to the
following:
(i) the CIRRUS Partner shall be paid cash in an amount equal
to the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
CIRRUS and holding CIRRUS harmless for liabilities under the Joint and
Several Lease Guarantees for lease payment obligations arising for
periods after the date the CIRRUS Partner's interest is so acquired.
Following the purchase of the CIRRUS Partner's interest in the Partnership,
the CIRRUS License Agreements with the Partnership and the CIRRUS Equipment
Lease with-respect to equipment then installed and leased by the Partnership
from CIRRUS shall continue in accordance with the terms then in effect. In
the event that the IBM Partner (or any of its Affiliates) purchases the CIRRUS
Partner's interest in the Partnership pursuant to this Section 10.11(a),
CIRRUS shall be entitled to Proration of Payments and shall, subject to the
terms of the Limiting Agreements, purchase the Semiconductor Wafers from the
Partnership (or its successor) during the 24-month wind-down period at the
Partnership Cost (provided that CIRRUS shall not be required to purchase
Semiconductor Wafers that CIRRUS is unable to purchase from the Partnership an
a result of the Limiting Agreements that caused the Limiting Agreement
Procedure to be invoked), as estimated in the then current approved Business
Plan plus the per wafer payment specified in Sections 8.4.1 through 8.4.3 of
the Cirrus Sales Agreement.
(b) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(c) of the Participation Agreement but the
IBM Partner does not elect to acquire the CIRRUS Partner's interest in the
Partnership pursuant to Section 10.11(a), then the CIRRUS Partner (or any of
its Affiliates) may, but shall not be required to, acquire the entire interest
of the IBM Partner in the Partnership subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Services Agreement and the IBM Equipment Leases
with respect to equipment then installed and leased by the Partnership from
IBM shall continue in accordance with the terms then in effect. The per-wafer
payments payable to IBM pursuant to Section 4.1.2 of the IBM Patent License
shall be reduced to [*] per wafer (which change shall apply only to those
wafers not produced for IBM) and the IBM Patent License and the IBM Know-How
License shall continue for the remainder of the term of the Partnership (i.e.,
December 31, 2002, unless the Partnership is terminated earlier in accordance
with the terms hereof) on the same terms, conditions and limitations that were
in effect immediately prior to the purchase of the IBM Partner's interest in
the Partnership but only with respect to Intellectual Property owned by IBM.
In the event that the CIRRUS Partner (or any of its Affiliates) purchases the
IBM Partner's interest in the Partnership pursuant to this Section 10.11(b),
IBM shall be entitled to Proration of Payments and IBM shall thereafter
purchase the Semiconductor Wafers from the Partnership (or its successor)
during the 24 month wind-down period at Partnership Cost as estimated in the
then-current approved Business Plan. The parties acknowledge and agree that,
subsequent to the purchase of the IBM Partner's interest, the Partnership will
not have the opportunity to qualify an a subsidiary of IBM within the meaning
of various third-party cross-licenses to which IBM is a party and,
accordingly, will not be entitled to patent licenses available under such
cross-licenses to such IBM subsidiaries.
(c) In the event that the CIRRUS Partner invokes the Limiting
Agreement Procedure and neither the IBM Partner nor the CIRRUS Partner (or any
of their respective Affiliates) elects to purchase the Partnership interest of
the unaffiliated Partner pursuant to Section 10.11(a) or 10.11(b), then the
Partnership shall be dissolved in Accordance with Section 11.02.
(d) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(d) of the Participation Agreement, the
CIRRUS Partner (or any of its Affiliates) shall acquire all or a portion of
the interest of the IBM Partner in the Partnership as specified by the IBM
Partner within 10 Business Days of the receipt of notice from CIRRUS invoking
the Limited Agreement Procedure (but in any event not less than [*] of the
total interests in the Partnership) subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account multiplied by the portion of its
interest transferred, and this Agreement will be amended to adjust
Percentages to reflect the portion sold, to adjust future capital
contributions correspondingly and to make other conforming changes to
reflect the revised ownership structure including the appointment by the
CIRRUS Partner of a majority of the Governing Board; and
(ii) in the event of the sale of the entire interest of the IBM
Partner, CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired; and in the event of a
partial sale of the interest of the IBM Partner, Section 5.12 and
Article IX of the Participation Agreement will be appropriately amended
to reflect the revised ownership percentages.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Services Agreement and the IBM Equipment Leases
with respect to equipment then installed and leased by the Partnership from
IBM shall continue in accordance with the terms then in effect. The per-wafer
payments payable to IBM pursuant to Section 4.1.2 of the IBM Patent License
shall be reduced to [*] per wafer (which change shall apply only to those
wafers not produced for IBM) and the IBM Patent License and the IBM Know-How
License shall continue for the remainder of the term of the Partnership (i.e.,
December 31, 2002, unless the Partnership is terminated earlier in accordance
with the terms hereof) on the same terms, conditions and limitations that were
in effect immediately prior to the purchase of the IBM Partner's interest in
the Partnership but only with respect to Intellectual Property owned by IBM.
In the event that the CIRRUS Partner (or any of its Affiliates) purchases all
or a portion of the IBM Partner's interest in the Partnership pursuant to this
Section 10.11(d), IBM shall be entitled to Proration of Payments. In the
event of the sale of the entire interest of the IBM Partner, IBM shall
thereafter purchase the Semiconductor Wafers from the Partnership (or its
successor) during the 24-month wind-down period at Partnership Cost as
estimated in the then-current approved Business Plan. In the event of a
partial sale of the interest of the IBM Partner, the IBM Sales Contract and
the CIRRUS Sales Contract will be amended so as to revise the CIRRUS Capacity
Allocation and the IBM Capacity Allocation to reflect the new ownership
percentages and to make all other changes required to be consistent with the
revised allocations. The parties acknowledge and agree that, subsequent to
the purchase of all or a portion of the IBM Partner's interest, the
Partnership will not have the opportunity to qualify as a subsidiary of IBM
within the meaning of various third-party cross-licenses to which IBM is a
party and, accordingly, will not be entitled to patent licenses available
under such cross-licenses to such IBM subsidiaries.
ARTICLE XI
Dissolution
SECTION 11.01. Dissolution. Unless extended by mutual agreement of
the Partners or earlier dissolved, the term of the Partnership shall end as
provided in Section 2.04, and thereupon the Partnership shall be dissolved and
its affairs wound up. Prior to such dissolution, no Partner shall withdraw
from the Partnership and no Partner shall permit to exist any event of
dissolution under applicable law within its control (other than a technical
dissolution resulting from a permitted transfer of an interest in the
Partnership and the admission of the transferee and a corresponding withdrawal
of the transferor, and in the event of the dissolution of the Partnership
other than a dissolution caused by a permitted transfer or by agreement of the
Partners an provided in Section 11.02 or as a result of an Event of Default an
provided in Section 11.03, the Partners agree to use their good faith efforts
to cause the reformation of the Partnership in the form existing immediately
prior to such event of dissolution forthwith; provided, however, that if the
Partnership is dissolved by operation of applicable law (whether as the result
of a voluntary or involuntary event affecting a Partner or the Partnership
other than a dissolution caused by a permitted transfer or as provided in
Section 11.02 or Section 11.03), and the Partnership cannot be reformed with
the Partners existing prior to such dissolution due to failure or refusal so
to reform the Partnership by a Partner (the "Breaching Partner") within
15 Business Days following written notice from the other Partner (the
"Remaining Partner") (and an additional 30-day period if (i) the Partnership
is capable of being reformed and (ii) the Breaching Partner has been engaging
in good faith efforts to reform the Partnership) then the Remaining Partner
may, after complying with any requirement of law, continue the business of the
Partnership with the property of the Partnership and under the same name and
the Breaching Partner shall be deemed to have withdrawn from the Partnership
effective as of the date of such dissolution of the Partnership; and provided,
further, however, that the Remaining Partner shall pay to the Breaching
Partner an amount equal to the positive value, if any, of the Capital Account
of such Breaching Partner, and such Breaching Partner shall have no further
right, title and interest in, to or under this Agreement or the Partnership.
The Breaching Partner shall not, however, be released or discharged from any
existing liability or obligation to any Person. The Remaining Partner shall
have, in addition, full rights to seek damages from the Breaching Partner for
breach of its obligations hereunder.
SECTION 11.02. Dissolution by Agreement. (a) In the event that
either Partner gives the other Partner notice prior to December 31, 2000, that
it elects to terminate the Partnership for any reason permitting termination
without mutual agreement of the Partners other than an Event of Default, a
24-month transition period shall begin upon the effective date of such notice.
In addition, if the Partners have not agreed by December 31, 2000, to extend
the term of the Partnership beyond December 31, 2002, and unless notice for
termination has already been given, a 24-month transition period shall begin
upon December 31, 2000. During the transition period, the Partners and their
respective Parents may negotiate the terms of a mutually agreeable private
sale among themselves.
(b) At the end of the transition period provided for by
Section 11.02(a), at the expiration of the term of the Partnership under
Section 2.04, if the Partners decide to dissolve and wind up the Partnership
at any earlier time or if the Partnership is to be dissolved and wound up
pursuant to Section 10.07, 10.08 or 10.11 or this Article XI, the Partners
shall proceed as promptly as practicable to (i) terminate the business and
operations of the Partnership and cease all operations as a going concern,
(ii) wind up the affairs of the Partnership in accordance with
Section 11.02(d) and (iii) liquidate the Partnership's tangible personal
property through individual asset sales and not as a going concern. In
connection with any such sale under clause (iii) of the preceding sentence,
either Partner or any Affiliate of either Partner shall have a right of first
offer to acquire the Partnership's tangible personal property in the
liquidation process and may also acquire such property through participation
at auction. Each of the Partners shall be furnished with a statement setting
forth the assets and liabilities of the Partnership as of the date of the
complete liquidation of the Partnership. The Accountants shall review the
final accounting and shall render their opinion with respect thereto.
(c) If agreed by the Partners in writing at the time, upon the
dissolution and winding up of the Partnership, if the assets of the
Partnership are insufficient to pay and discharge all debts, liabilities and
obligations of the Partnership as to which the Partners have joint liability,
the Partners shall pay such liabilities in the proportion of their respective
Percentages. Such payments shall be deemed to be capital contributions to the
Partnership by the payor. A Partner paying more than its proportion shall
have a right of contribution from the other Partner, and payments in respect
of such contribution obligations shall be deemed to be capital contributions
to the Partnership by the payor and distributions by the Partnership to the
payee.
(d) The following principles shall apply to the liquidation and
winding up of the Partnership:
(i) IBM shall be responsible for, and shall indemnify CIRRUS
and its Affiliates against, all claims arising out of the Partnership's
obligations under the IBM Real Estate Lease and the IBM Equipment Losses
other than the IBM Supplemental Equipment Lease;
(ii) CIRRUS shall be responsible for, and shall indemnify IBM
and its Affiliates against, all claims arising out of the Partnership's
obligations under the Third Party Lease;
(iii) each Parent shall be equally responsible for, and
shall reimburse the other Parent and its Affiliates with respect to its
share of, all claims arising out of the Partnership's obligations under
the CIRRUS Equipment Lease and the IBM Supplemental Equipment Lease and
any additional, equally shared capital expenditures;
(iv) IBM shall be responsible for any Indebtedness of the
Partnership to be treated as a liability specifically attributable to the
IBM Partner pursuant to Section 8.07; and
(v) all Intellectual Property licenses to the Partnership
shall terminate.
SECTION 11.03. Dissolution upon Event of Default. During the
occurrence and continuation of an Event of Default with respect to a Partner
or its Parent, the other Partner may elect by written notice to the Defaulting
Partner to dissolve the Partnership, in which event the Partnership shall be
dissolved and the Partners shall forthwith take all actions necessary to wind
up the affairs of the Partnership. This Section 11.03 shall not be construed
to limit the rights of the Nondefaulting Partner under Section 10.10 or to
seek damages from the Defaulting Partner or any other Person for the breach of
its obligations.
SECTION 11.04. Liquidation Proceeds.
(a) In the case of the dissolution and liquidation of the
Partnership, any cash or other property that would otherwise be distributed
pursuant to Section 6.02(a) shall instead be distributed to the Partners pro
rata in accordance with their respective positive Capital Accounts, an
adjusted pursuant to Section 7.01 to reflect all prior Partnership operations
(including any gains or losses arising from the sale of any assets of the
Partnership in connection with such dissolution and liquidation and any
hypothetical gains or losses as provided in Section 7.03 with respect to any
asset distributed in kind). In the event that the value of any cash or other
property to be distributed exceeds the sum of the Partners' aggregate positive
Capital Account balances as so adjusted, such excess shall be distributed to
the Partners pro rata in accordance with their respective allocations of Net
Profits and Net Losses as set out in Section 7.02.
(b) Unless otherwise agreed by the Partners and to the extent
permitted under any agreements with third parties, all assets to be
distributed to the Partners upon the dissolution and liquidation of the
Partnership shall be distributed as follows:
(i) first, cash and cash equivalents shall be distributed to
the Partners separately in the proportions provided pursuant to
Section 11.04(a); and
(ii) second, all remaining assets shall be distributed in kind
to the Partners as they shall agree, provided that absent agreement such
assets shall be distributed in kind to the Partners as provided pursuant
to Section 11.04(a) (with the allocation of specific items being made in
the good faith determination of the Governing Board).
For purposes of this Section 11.04(b), instruments of transfer and other
documents reasonably requested by the distributee shall be executed by the
Partnership or the other Partner, or both.
(c) Any distribution made pursuant to this Section 11.04 shall be
made no later than the later of (i) the end of the calendar year during which
the dissolution occurs and (ii) 90 days after the date of such dissolution.
ARTICLE XII
Indemnification and Insurance
SECTION 12.01. Indemnification. (a) The Partnership (but not any
Partner) shall indemnify each Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of a Partner or the Partnership), by
reason of the fact that he is or was or has agreed to become a member of the
Governing Board or an officer of or Seconded Employee to the Partnership or is
or was serving or has agreed to serve at the request of the Partnership as a
director, officer, employee or agent of another partnership, corporation,
joint venture, trust or other enterprise, by reason of any action alleged to
have been taken in any such capacity, against any and all losses, damages,
liabilities, costs, charges, expenses (including interest, penalties and
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement (collectively, "Losses") actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any
appeal therefrom if such Person acted in good faith and in a manner reasonably
believed by such Person to be in or not opposed to the best interests of the
Partnership, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the indemnified
Person did not meet the standard set forth in Section 12.01(a).
(c) The indemnification provided under this Section 12.01 shall
inure to the benefit of the successors, heirs and personal representatives of
any Person entitled to the benefit of such indemnification. Such
indemnification shall be a contract right and shall include the right to be
paid advances of reasonable expenses incurred by any such Person in connection
with such action, suit or proceeding.
SECTION 12.02. Insurance. The Partnership may, to the fullest
extent permitted by law, purchase and maintain insurance against any liability
that may be asserted against any Person entitled to indemnity pursuant to
Section 12.01.
SECTION 12.03. Indemnification by and of the Partners. (a) Each
Partner agrees to, and does hereby, indemnify and hold harmless the
Partnership and the other Partner from and against any and all Losses arising
out of, or based upon, the gross negligence or wilful misconduct of such
Partner or such Partner exceeding its authority under this Agreement.
(b) The Partnership agrees to, and does hereby, indemnify and hold
harmless each Partner, and, to the extent set forth in Section 12.03(c), each
Affiliate of such Partner, from and against any and all Losses (except items
indemnified under Section 7.02(c)) arising out of (i) its status as a general
partner, (ii) acts or omissions or alleged acts or omissions of either Partner
in its capacity as general partner or on behalf of the Partnership or
(iii) any liability or obligation of the Partnership. Without limiting the
generality of the foregoing, any of such Losses shall be deemed to arise out
of a Partnership liability or obligation if it arises out of or is based upon
the conduct of the business of the Partnership (or any of its Subsidiaries) or
the ownership of the property of the Partnership (or any of its Subsidiaries).
(c) The indemnification set forth in Section 12.03(b) shall be
available to any Affiliate of a Partner with respect to any of such Losses
arising out of a Partnership liability or obligation which is paid or incurred
by such Affiliate as a result of such Affiliate directly or indirectly owning
or controlling a Partner or as a result of the fact that an individual
employed or engaged by the Partnership (or any of its Subsidiaries), or a
Seconded Employee or member of the Governing Board, is also a director,
officer or employee of such Affiliate. The indemnification set forth in
Section 12.03(b) shall not inure to the benefit of either Partner (or any of
its Affiliates) in respect of any of such Losses to the extent that such
Losses (x) arise out of or are based upon the gross negligence or wilful
misconduct of such Partner (or an Affiliate of such Partner) or such Partner
exceeding its authority under this Agreement or defaulting in the performance
or observance of any of its covenants or agreements expressly set forth herein
or (y) constitute a tax, levy or similar governmental charge not imposed upon
the Partnership (or any of its Subsidiaries) or on their respective
properties. It in understood and agreed that, for the purposes of the
preceding sentence, Losses shall be deemed not to arise out of or be based
upon the gross negligence or wilful misconduct of a Partner (or any of its
Affiliates) solely because it arises out of or is based upon the gross
negligence or wilful misconduct of a director, officer or employee of such
Partner (or any of its Affiliates) if at the time of such gross negligence or
willful misconduct such director, officer or employee was also a Seconded
Employee or a member of the Governing Board of the Partnership acting in his
capacity an such.
(d) The provisions of this Section 12.03 shall survive each of the
termination of this Agreement, the dissolution of the Partnership and the
withdrawal of either Partner.
SECTION 12.04. Assertion of Claims. (a) In the event that a Person
(the "Indemnified Party") desires to assert its right to indemnification from
a Person (an "Indemnifying Party") required to indemnify such Indemnified
Party under this Article XII, the Indemnified Party will give the Indemnifying
Party prompt notice of the claim giving rise thereto (a "Claim"), and the
Indemnifying Party will undertake the defense thereof (unless the Claim is
asserted against or related to or results from any action or failure to take
action by such Indemnifying Party). The failure to promptly notify the
Indemnifying Party hereunder shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent that the Indemnifying Party is
actually prejudiced by the failure to so notify promptly.
(b) The Indemnified Party shall not settle or compromise any Claim
without the written consent of the Indemnifying Party unless the Indemnified
Party agrees in writing to forego any and all claims for indemnification from
the Indemnifying Party with respect to such Claim. However, if the
Indemnifying Party, within a reasonable time after notice of any such Claim,
fails to defend such Claim, the Indemnified Party will have the right to
undertake the defense, compromise or settlement of such Claim on behalf of and
for the account and risk of the Indemnifying Party, subject to the right of
the Indemnifying Party to assume the defense of such Claim at any time prior
to settlement, compromise or final determination thereof.
(c) If the Indemnifying Party has undertaken the defense of a
Claim and (i) if there is a reasonable expectation that (x) a Claim may
materially and adversely affect the Indemnified Party other than as a result
of money damages or other money payments or (y) the Indemnified Party or
Parties may have legal defenses available to it or them that are different
from or additional to the defenses available to the Indemnifying Party, or
(ii) if the Indemnifying Party shall not have employed counsel reasonably
satisfactory to the Indemnified Party, the Indemnified Party shall
nevertheless have the right, at the Indemnified Party's cost and expense, to
defend such Claim.
ARTICLE XIII
Withdrawal Prohibited
SECTION 13.01. Withdrawal Prohibited. Except as otherwise
specifically permitted by this Agreement, neither Partner may withdraw from
the Partnership and neither Partner may effect or cause a termination or
dissolution of the Partnership without the prior written consent of the other
Partner (which consent may be withhold in its sole discretion).
ARTICLE XIV
Miscellaneous
SECTION 14.01. Amendments. This Agreement may be amended from time
to time as mutually agreed upon by the Partners. No amendment to this
Agreement shall be effective unless it shall be in writing and signed by each
Partner and state that it constitutes an amendment to the Sections of this
Agreement specified therein.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by each party as of the date first above written.
CIREL INC.,
By:
Name:
Title:
MICRUS HOLDINGS INC.,
By:
Name:
Title:
PARTNERSHIP AGREEMENT
Dated as of September 30, 1994
between
CIREL INC.
and
MICRUS HOLDINGS INC.
TABLE OF CONTENTS
Page
ARTICLE I
Definitions; Rules of Construction
and Documentary Conventions
SECTION 1.01 Certain Definitions 1
SECTION 1.02 Additional Definitions 1
SECTION 1.03 Rules of Construction and Documentary
Conventions 2
ARTICLE II
The Partnership
SECTION 2.01 Formation 2
SECTION 2.02 Name; Qualification 2
SECTION 2.03 Principal Office 2
SECTION 2.04 Term; Extension 3
SECTION 2.05 Scope of Activity 3
SECTION 2.06 Powers 3
SECTION 2.07 Property Ownership 3
SECTION 2.08 Waiver of Rights of Partition and Dissolution
3
ARTICLE III
Business Operations
SECTION 3.01 Business Dealings with the Partnership 4
SECTION 3.02 Other Activities 4
SECTION 3.03 Waiver of Conflict of Interest, etc. 5
SECTION 3.04 Business Plans and Related Matters 6
SECTION 3.05 Intellectual Property 7
ARTICLE IV
Actions by the Partners
SECTION 4.01 Matters Requiring the Consent of the Partners
7
SECTION 4.02 Matters Requiring the Consent of a Partner 9
SECTION 4.03 Restrictions on Partners 10
ARTICLE V
Management and Operations of Partnership
SECTION 5.01 The Governing Board 10
SECTION 5.02 Officers; Employees 14
SECTION 5.03 Insurance 15
ARTICLE VI
Capital Contributions and Distributions
SECTION 6.01 Capital Contributions 15
SECTION 6.02 Distributions 17
SECTION 6.03 No Interest 18
SECTION 6.04 Withdrawal of Capital 18
ARTICLE VII
Capital Accounts and Allocations of Profit and Loss
SECTION 7.01 Capital Accounts 18
SECTION 7.02 Allocation of Net Profits and Net Losses 19
SECTION 7.03 Distribution in Kind 21
SECTION 7.04 Depreciation Recapture 21
SECTION 7.05 Allocation Between Assignor and Assignee
Partners 21
SECTION 7.06 Federal Income Tax Allocations 21
SECTION 7.07 Fiscal Year 22
SECTION 7.08 Elections 22
ARTICLE VIII
Accounting and Taxation
SECTION 8.01 Accrual Basis; Financial Accounting
Conventions 22
SECTION 8.02 Maintenance of Books of Account 22
SECTION 8.03 Financial Statements 22
SECTION 8.04 Other Reports and Inspection 24
SECTION 8.05 Taxation 24
SECTION 8.06 Deposit of Funds 25
SECTION 8.07 Partnership Borrowings 25
ARTICLE IX
Initial Actions
SECTION 9.01 Partnership Actions 26
SECTION 9.02 Initial Members of the Governing Board 26
ARTICLE X
Certain Agreements of the Partners
SECTION 10.01 Transfer of or Liens on Partners' Interests 26
SECTION 10.02 Code Section 708 Limitation 27
SECTION 10.03 Special Purpose Covenant 27
SECTION 10.04 Maintenance of Existence; Consolidation,
Merger or Sale 27
SECTION 10.05 Taxes and Charges; Governmental Rules 27
SECTION 10.06 Further Assurances 27
SECTION 10.07 Escalation; Deadlock 28
SECTION 10.08 Change of Control of CIRRUS 28
SECTION 10.09 Additional Arrangements 30
SECTION 10.10 Remedies Upon Event of Default;
Termination on Breach 30
SECTION 10.11 Limiting Agreements 32
ARTICLE XI
Dissolution
SECTION 11.01 Dissolution 35
SECTION 11.02 Dissolution by Agreement 35
SECTION 11.03 Dissolution Upon Event of Default 37
SECTION 11.04 Liquidation Proceeds 37
ARTICLE XII
Indemnification and Insurance
SECTION 12.01 Indemnification 38
SECTION 12.02 Insurance 38
SECTION 12.03 Indemnification by and of the Partners 38
SECTION 12.04 Assertion of Claims 39
ARTICLE XIII
Withdrawal Prohibited
SECTION 13.01 Withdrawal Prohibited 40
ARTICLE XIV
Miscellaneous
SECTION 14.01 Amendments 40
APPENDIX
Appendix A Definitions, Rules of Construction and
Documentary Conventions
SCHEDULE
Schedule 5.01 Initial Delegation to Chief Executive
Officer
Schedule 5.02 Initial Officers of the Partnership
Schedule 6.01(b) Additional Capital Contributions
